written by
Viola Schmidt
Viola Schmidt
Global Trends
2019-04-24

Going East: Opportunities and challenges of expanding your ecommerce business to China

Going East: Opportunities and challenges of expanding your ecommerce business to China

When thinking about the next step for your brand, a move into the Chinese market surely features high on every ecommerce company’s to-do list. One big single market, with a large digital population and huge potential for growth means China is a logical step in the process of internationalisation. This article looks at the opportunities and challenges of moving into the Chinese ecommerce market and at one German brand that got it right.

China – an attractive market

That China is an attractive market for commerce brands is no secret. China boasts 702 million digital customers, compared with 264 million in USA, but a 676 million strong offline population also means there is potential for this number to grow. Chinese ecommerce accounts for 40 percent of all worldwide e-commerce today, compared to a mere 20 percent just three years ago. Alibaba's Singles’ Day (similar to our sales days Black Friday or Cyber Monday) saw sales of around €4 billion and delivery of 1.3 billion packages, figures which would take Amazon 3 months to reach. Of the top-20 internet leaders worldwide, 9 are Chinese (while the rest come from the US).

china, startup, ecommerce
Source: Success at Alibaba’ Singles’Day, techcrunch.com

There is also huge growth potential in Chinese rural areas. While rural internet users make up a meagre 27 percent of all internet users in China and there is a lack of technological infrastructure in rural areas, the Chinese government is encouraging growth in the countryside with initiatives such as subsidising rural manufacturing as well as supporting rural network and drone development.

Why do Chinese customers buy cross-border products?

Key for the success of foreign ecommerce in China is the fact that Chinese consumers favour foreign goods and are heavy buyers of these. The main reason for this is because they believe that foreign products are of a higher quality, have a more attractive quality-price ratio and most importantly, because foreign products embody a greater authenticity and are less likely to be counterfeit.

More than 40% of Chinese consumers made purchases from international brands in 2017, with 65% of users purchasing cross-border at least once a month and around 12% do so more than once a week. Germany is – next to Japan, the US, Korea and Australia – among the top 5 countries selling to China. Top product categories include beauty and personal care, mother and child and food and beverages.

The Great Wall: barriers to market entry in China

Alongside the many opportunities, China's sheer size and scale (1.3 billion people and a land mass larger than the United States) means there are also huge challenges for foreign brands.  The practical issues of fulfilment and shipping are huge barriers: sending your product to China is becoming quicker all the time but properly understanding how to fill your supply chain will be the critical element in running your business effectively. Understanding the marketing landscape is a key challenge, and becoming au fait with the influencer industry is vital (China's influencer industry, generating an annual €15.8 billion, is estimated to be thirty times bigger than in DACH. Finally, the Chinese ecommerce eco-system is completely different to that the West, with players such as Alibaba (58.2% sales share) and JD.com dominant (16.3% sales share). Driving the right approach when navigating these players and their immense ecosystems is critical.

Case Study: HiPP

An estimated 75% of Chinese mothers feed their babies with milk powder, but there have been scandals involving ingredients in local milk brands in the past. As safety, reliability and authenticity of products are the main drivers of growth in the baby milk market in China, trusted German baby food brand HiPP was in a good position to launch in China.

How did HiPP ensure a successful market entry?

HiPP purposefully emphasized German authenticity to distinguish themselves from distrusted local variants. They didn't localise the product and their marketing featured a German mother and baby, further emphasising where the product originates from. Alibaba organised a livestream at the HiPP farm to show green fields with cows and nature and involved a founding family member to highlight the organic and trusted origin of the milk powder. They successfully amplified these messages through a local social campaign on Chinese channel Weibo and collaboration with the Alibaba social media agency. This strategy has led to over 500 million sold HiPP products since HiPP’s launch in China and in 2018 the manufacturer won the category “Best Newcomer” at the Alibaba awards.

china, startup, ecommerce
Source: Web2Asia

What can be learned from the HiPP example?

When launching in China, commerce brands need both a detailed and accurate understanding of the Chinese consumer, but also of the country's vast array of online marketplaces and individual marketing landscapes.

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