How to Sell Online – Entering the Chinese e-Merging Market

How to Sell Online

Operating a successful e-commerce portal will be a challenge for most foreign companies. A considerable amount of time and substantial investment will be required at the beginning. You might have to consider creating a website from scratch. Some other practical issues to take into account include website operating costs, handling of orders, and enquiries by e-mail, phone, or instant messenger, conducting inventory management, arranging shipments and package deliveries, and dealing with complaints and returns.

An ICP license is required for any foreign-invested company who wants to operate a standalone e-commerce website with a server based in China. However, the process of applying for an ICP license can be particularly time-consuming. This explains why it is mainly large multinational companies—equipped with vast resources and a strong brand image—that are the privileged owners of standalone e-commerce websites in China.

The good news is that platform websites are about to become increasingly specialized and now offer tailor-made services to attract online customers, thus saving companies the hassle of creating and operating a costly e-commerce website. In 2017, standalone websites accounted for 8 percent of the total online retail value. The number of standalone websites is expected to decrease in China in the coming years, along with their market share, as online shopping will be concentrated in popular platform websites such as Taobao.com or Tmall. There are four main ways foreign companies can sell online in China, all of which have their own advantages and disadvantages.

Selling Through a Standalone Website Outside China

When companies choose to sell their products or services to Chinese consumers through an existing website outside of China, they will need to upgrade their language settings and include Chinese in the offered language menu options. The website will need to be upgraded in order to accept payments from Chinese credit cards. In this scenario, it is assumed that the company’s operations are based outside of China, in which case, deliveries of products are treated as imports into China. Apart from the cost of customizing the website so that Chinese consumers can access it and use it easily, companies should also consider that their customers will have to bear higher shipping fees (which might also include custom fees) and long delivery times. Another drawback is that it will be hard for the company to manage after-sales service from a distance. Given that websites outside of China cannot obtain an ICP license, they may be susceptible to being blocked by local authorities.

Selling Through a Standalone Website Based in China

The costs of creating and operating a standalone website with a server based in China are basically the same as in the case of a standalone website outside of China. Assuming that the company has its operations based in China, delivery and after-sales service are no longer a problem. Still, as already mentioned, it is necessary to have an ICP license if a company plans to set up a China-based website. According to Chinese digital laws, only legal entities are permitted to apply for the required ICP license. In this case, foreign companies have two main options: either set up a legal entity in China or find a local partner, either a distributor or an agent who can assist them with the website registration in China.

Selling Through a Third-party Platform Outside China

The cheapest option for a company is to sell through an international third-party platform such as Amazon. Even so, this option is not likely to be very successful, as these platforms are not popular among Chinese consumers, and the traffic is rather limited. Long delivery times and debit or credit card requirements will be additional limitations.

Selling Through a Third-party Platform Based in China

China-based third-party platforms such as Taobao.com or JD.com offer several advantages as foreign companies can benefit from existing traffic without having to invest time and money in China SEO (search engine optimization). Another advantage is that Chinese customers are already familiar with these platforms’ functionality and interface.

Foreign companies will still have to become familiar with the administration of these websites, especially their review and ranking systems. An annual membership fee is required to set up an online storefront on platforms like Tmall. Annual fees have risen dramatically over the last couple of years.

With respect to technology, there are four basic points to keep in mind:

A China-hosted website will provide optimum Internet speed and accessibility.

Websites should be optimized for mobile platforms.

It is recommended that you invest in website optimization through local sites to increase user traffic.

You might need to consider setting up an in-built payment system software specific to China to make payments in RMB easier and faster.

E-Commerce Models: Pros and Cons

Strategy

Advantages

Disadvantages

Selling through a standalone website outside China

Chinese consumers:

•    Can access goods not available in China

Foreign sellers:

•    Do not need to go through Chinese bureaucracy to obtain an ICP license

•    Do not need to create a standalone website, especially for Chinese consumers

Chinese consumers:

•    Trust not guaranteed

•    Slow delivery

•    High shipping fees and risk

•    No after service

•    May not have credit card

Foreign sellers:

•    Higher IT maintenance cost

•    No targeted marketing

•    Need for an import agent

•    May be blocked by Chinese authorities without notice

Selling through a China-based standalone website

Chinese consumers:

•    Faster Delivery

Foreign sellers:

•    Can provide a targeted offering to Chinese consumers

Chinese consumers: Foreign sellers:

•    Trust less than third-party platforms

•    Need to customize the website to Chinese consumers standards

•    Need efforts to generate traffic and reach Chinese consumers

•    The website must be registered to a company established in China

•    IT maintenance costs

Selling through a third-party platform outside China

Chinese consumers:

•    Access goods not available in China

Foreign sellers:

•    Low cost

•    Understand how the platform works

Chinese consumers:

•    Language

•    Might not have credit card

•    Slow delivery

•    Higher shipping fees and parcel risk

•    Custom fees

•    No after service

Foreign sellers:

•    Difficult to target consumers

Selling through a third-party platform based in China

Chinese consumers:

•    More likely to trust

•    Easier and faster online payments

•    Faster delivery

•    After service

Foreign sellers:

•    Low cost

•    Benefit from the existing traffic provided by the platform

Foreign sellers:

•    Language

•    Marketing

•    Company registration in China

•    Certification requirements