China: The New E-commerce Eldorado?

More and more companies and multinationals are looking to take the plunge and enter the Chinese market, and for good reason: e-commerce in China ranks first in the world! Given that the world’s most populous country (18.5% of the world’s population in 2019) also has the largest number of Internet users, and that by 2040, Asia is expected to generate more than 50% of global GDP and account for nearly 40% of global consumption, it is understandable that China is seen as the new Eldorado of e-commerce. It could enable many organizations to increase their international market share and reach new buyers. But how can you successfully export your products to the Chinese market, considering that even Amazon closed its online store there a few months ago?

Here are 4 things you should keep in mind:

1. Competition is fierce: Chinese e-commerce businesses show no mercy

You are probably thinking that it is the same everywhere, but think again: e-commerce businesses in China are extremely numerous and relentless when it comes to pricing and advertising. To give you an idea, some companies have no hesitation in posting negative reviews about their competitors’ products. This practice can cause considerable damage to an online store. Keep in mind that branding is not one of the traditional strengths of Chinese businesses, so this can be a good way to stand out from competing brands and establish your place in the market. As online reputation is becoming increasingly important, both in China and around the world, taking care of it is essential.

2. Immerse yourself in Chinese business culture and adopt its customs

To open an e-commerce website in China, you will need good local contacts. One simple example worth knowing: to issue your company invoices, you will need to use “fapiao”, special standardized invoices issued by the tax authorities.

This is why, to develop your business in the country, it is important to choose a local partner with solid entrepreneurial experience who understands all the procedures that need to be followed.

Fitting in also means adopting Chinese customs and building a network that can help you successfully carry out your activities. For example, in both e-commerce and business in general, the Chinese follow a number of principles inspired by Confucianism:

• “Guanxi” (the network of personal contacts): Chinese professionals build extensive networks of personal contacts, which are essential for gaining access to leadership positions.
• “Zhongjian Ren” (the intermediary): during negotiations, you will absolutely need an intermediary, not only if your contacts do not speak English, but also to establish a relationship of trust.
• “Shehui Dengji” (hierarchy): your intermediary must respect the different levels of hierarchy. The more influential a person is, the more tactfully they should be addressed.
• “Renji Hexie” (interpersonal harmony): to reach an agreement, you will need to be very patient and invest time in building a genuine relationship of trust.
• “Zhengti Guannian” (holistic thinking): for them to accept your project, they need to accept it as a whole rather than step by step.
• “Jiejian” (saving): keep in mind that they are prepared to go to great lengths to save money and may use highly aggressive negotiation tactics.
• “Mianzi” (reputation): respect the person you are negotiating with and, above all, do not interrupt them, as this could be taken very badly.
• “Chiku Nailao” (endurance and hard work): to launch your e-commerce website in China, you will need to be very patient and prepare yourself for long hours of negotiation.
• “Lunlixue” (ethics): be aware that renegotiating a contract whose terms have already been signed is considered perfectly normal in China.

3. Chinese e-commerce giants do not easily accept small businesses

When talking about e-commerce in China, we have to mention the giants Tmall and JD.com: two organizations that allow brands to sell their products online directly to consumers.

Competition is so intense that even these platforms apply their own entry criteria. Some of them may, for example, reject brands whose annual revenue is below €1 million and that do not have a physical store.

This is why, before starting to sell products online, it is preferable to develop your brand in the traditional Chinese market, open physical stores, and build your reputation.

4. Prepare yourself for a real price war

Be ready for a fight: Chinese Internet users are known to be particularly fond of discounts! To stand out from other e-commerce businesses, you will need to offer a unique catalog of products or services, as well as exclusive offers. An online store that does not offer any discounts will most likely find it more difficult to sell its products. Even if promotions are not fully aligned with your company’s image, make sure to constantly monitor your competitors so that you can adjust your pricing strategy.

As you can see, when it comes to e-commerce, China has enormous potential and offers many opportunities for Western brands. However, it is essential to conduct a thorough market analysis before committing fully to such a project. To benefit from expert advice, feel free to contact us: Labelium Group has an office in Shanghai managed by Tony Cheung. Our professionals will share their extensive experience in the sector and help you launch your online store in the Chinese market.