How do I sell my products overseas

How you can test whether your products have potential in the Chinese market

Nowadays the internet is available worldwide, so no company is limited to just its geographic region. Information about your business can be accessed by any consumer with a single click of the mouse. Therefore, internationalization is highly relevant for almost every business. And the Chinese market in particular opens up various potentials for many companies.

1. China is the world's largest e-commerce country

According to the latest statistics from Statista on the global e-commerce market, China ranks first among the e-commerce countries and accounts for nearly 45 percent of global e-commerce sales.

With its discerning buyers, enormous transaction volume, rapid rate of innovation and the integration of social media, multimedia and other channels, China's online environment offers a glimpse into the future. Jack Ma, Founder of Alibaba, says:

In other countries, e-commerce is a way of shopping; in China, it is a way of life.

E-commerce is firmly anchored in the lives of the Chinese people. Alibaba Tmall alone has over 800 million active users.

2. What is Cross Border E-Commerce?

One of the fastest growing subsectors of the Chinese e-commerce market is cross-border e-commerce. This cross-border e-commerce is a new business model regulated by the Chinese government that allows international companies to sell products online directly to Chinese consumers. Via authorized platforms, foreign companies can offer their products in China at preferential tariffs and without having a business license in China.

No Chinese legal entity, no product registration and no Chinese labeling are required. The Chinese government has been promoting cross-border e-commerce since 2012. Brands from overseas benefit from advantageous measures such as faster customs clearance, low tax rates and clustering in e-commerce logistics services.

Some new guidelines were issued: In August 2018, the 13th National People's Congress passed three important laws on cross-border e-commerce, which have been in force since 01.01.2019: The state promotes the development of e-commerce, establishes and improves the administrative systems for Customs, taxes, import and export inspection and quarantine, payment and accounting. On January 17, 2020, the Chinese government announced that 50 more cities would be made accessible for cross-border e-commerce.

3. How do you sell to China using cross-border e-commerce?

Cross-border e-commerce sounds like a great opportunity to break into the Chinese market, doesn't it? Indeed it is. So how can overseas brands and retailers sell to China through cross-border e-commerce?

First of all, of course, you have to make your products accessible to Chinese consumers. There are several e-commerce marketplaces that have already been recognized as authorized platforms with hundreds of millions of users. So the first step is to get listed on these cross-border e-commerce platforms.

Products can be imported on an order basis and shipped direct to Chinese consumers from overseas. If the products are already stored in the connected bonded warehouse, the delivery of the products becomes even easier and customers can have the products delivered within just one day. For foreign brands and retailers, payment is made to the bank account in the home country and in the respective local currency.

4. Why do Chinese consumers buy from cross-border e-commerce?

The need for high quality, reliable products is the main reason. 84 percent of those surveyed in a study bought products via cross-border e-commerce platforms in the past twelve months.

5. The main differences between traditional import-export and cross-border e-commerce

Cross-border e-commerce is an attractive channel for foreign companies to sell their products in China, as it gives them access to the largest e-commerce market in the world without the costs and obligations of a formal presence there. This means that overseas brands and retailers can access millions of Chinese consumers at a relatively low cost.

With traditional import-export, brands and retailers have to register their products in China beforehand. Depending on the category, this registration process takes between six and 36 months. In addition, the cost can be substantial and can be as high as RMB 250,000 (> $ 35,000) for a product. This is one of the main reasons why small and medium-sized enterprises (SMB) are reluctant to sell their products to China. When SMEs are unsure whether a product is popular and whether the investment can be amortized in a reasonable time, they naturally have concerns about investing time and money in product registration.

With cross-border e-commerce, selling to China has become much cheaper and more convenient. Products from overseas no longer have to go through the complex and long registration process, they only have to be registered with Chinese customs, which takes about a week and does not entail any costs. The products don't even have to be translated into Chinese or labeled. In addition, taxes are also much lower than with traditional import-export.

Cross-border e-commerce thus enables international brands and retailers to test the Chinese market and generate significant profits at the same time.

6. The leading cross-border e-commerce channels in China

As mentioned earlier, overseas products are sold through authorized e-commerce platforms. There are several major cross-border e-commerce platforms in China. Tmall Global and Kaola are the largest domestic cross-border e-commerce platforms, accounting for over 52.6 percent of the market share at the end of 2018, followed by JD Global and VIP International. As can be seen from the following pie chart, Amazon Overseas is less successful in China than in the western world due to the great local competition.

Of course, companies do not have to limit themselves to one platform. Rather, most companies pursue a multi-channel strategy. In this case, companies should consider how each platform, along with their go-to-market strategy, can be integrated into their overall ecommerce roadmap.

7. Challenges for SMEs entering the Chinese market

In addition to the obvious language and culture barriers, there are other challenges that brands and retailers in China face. The SMEs floating in the vast ocean in vast amounts of unfiltered information about the Chinese market often feel very lost.

Unlike Amazon, where individual products can be uploaded to the marketplace for sale, brands and retailers on ecommerce marketplaces either need to open a flagship store to list their own products, or they need to sell through other distributor stores. The preparation phase for opening a flagship store usually takes six to twelve months. The cost of this is not as low as you might think, as you will usually have to hire a partner to run the business (known as TP). In addition to a sales commission (five percent to ten percent), these often also charge a fixed fee (approx. 100,000-150,000 US dollars per year).

The same problem of costs also applies to distributors, who often charge less than 30 percent of the sales price as purchase price. A significant portion of the margin is cut. Some overseas brands and retailers are very successful with their web shops. However, the situation in China is unique. A stand-alone web shop may be attractive to many international companies at first glance, as it seems to be the most convenient and cost-effective option. However, these web shops often suffer from low data traffic and can hardly achieve a high level of awareness and popularity without enormous investments in marketing.

In addition, as a new brand in China with a low level of awareness and no exposure of the product, it is difficult to enter into an equal partnership with the distributors and marketplaces. If the company has a limited range, it may be difficult to fill a flagship store, making the investment even less cost-effective.

Nevertheless, there are many SMEs that are industry experts who specialize in certain areas and manufacture excellent products. Even if they only offer a small range of products, the individual products can be very attractive to Chinese consumers and generate excellent sales in the market. There are numerous such success cases. The Brita water filter brand is gaining almost as much popularity in China as it is in the home market of Germany. Even the largest German drugstore chain DM has achieved enormous success with its own brand Balea. Of course, SMEs are asking the legitimate question here: How do I find out whether my products have potential on the Chinese market?

8. How do you determine whether your products have potential in the Chinese market?

In the age of big data, dealing with consumers and taking care of them in advance means receiving direct feedback from consumers. Brands and retailers need to test their products in the Chinese market and get feedback from the market to find out if the products really have good sales potential. With real-world sales data, marketing data and consumer feedback, brands can accurately assess their future sales potential, adjust their product range and associated placement, and make a safer decision about the next major step in market expansion.

9. The first important step is identifying your potential top sellers

Top sellers play a very important role, especially in Chinese e-commerce. Consumers will remember your brand through your top sellers. Typically, these only make up five to ten percent of your total portfolio, but add 60 to 80 percent of your total store sales. In the early stages of entering the Chinese market, it is crucial to identify your potential top sellers and focus your resources on testing, promoting and building them. Once the potential top sellers have been identified, you can first test them out on the market.

10. How can the product potential on the Chinese market be tested at reasonable prices?

A market test with real market and consumer feedback sounds great. Nevertheless, as explained above, SMEs often complain about the high costs of entering the market, the long “go to market” time and the lack of know-how regarding the course of the entire process.

A very good solution is to offer your products in an existing retail store on these authorized e-commerce platforms. There are many retail stores that have opened on platforms such as Tmall Global that are allowed to sell different brands and products. Find one of these retailers who want to promote and sell your products.

11. How do you promote product sales?

Marketing and sales work closely together. Without effective marketing measures, the products are difficult to find by the consumer. Strategic content placement is a popular and effective marketing method worldwide, especially in China. It is becoming an indispensable part of a company's to-do list for getting branded content on China's largest word of mouth platform, Little Red Book (known as Xiaohongshu in Chinese). Consumers love to search Little Red Book for relevant information about brands and products, share their experiences with users, and look out for recommendations.

TikTok (known as Douyin in Chinese) is growing in popularity around the world. It can help brands or products go viral in a short amount of time. If you are able to create interesting and engaging content for your products, TikTok is a good marketing tool.

Taobao Live Streaming is positioned as the e-commerce live streaming shopping platform that picks up on the product recommendations of the Key Opinion Leader (KOL). Similar to teleshopping, consumers can watch the moderator's presentation and purchase products at the same time.

In the past few years, Taobao Live Streaming has become one of the most effective sales-oriented tools. In 2018, Taobao Live Streaming had sales of over RMB 100 billion. The conversion rate of shop visits is extremely high: over 65 percent of consumers visited the respective shops after watching the live streaming. During the COVID-19 outbreak in China, traffic on Alibaba's Taobao live streaming platform more than doubled compared to last year (2019).

The measures mentioned are the most effective “must-have” measures for marketing brands in China, but the list is long. In addition, not only does branding need to be done, sometimes performance marketing is even more effective in terms of sales conversion. A successful marketing strategy should therefore cover both.

In addition, it is extremely important for foreign companies and retailers to keep track of the data consistently and to use this valuable data sensibly. In order to actively grow in China and establish a successful business, you need a variety of statistics and figures to closely monitor and control your business, understand your competitors and target groups, adjust your strategies accordingly and make appropriate decisions for the next bigger ones Steps to take.

Moonie Zhu is the managing director of eTOC GmbH, which specializes in China e-commerce and digital marketing. To better support the international brands in selling and growing in China, eTOC also offers free educational content about them.