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Ecommerce in China: The pros and cons

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According to recent surveys by YouGov and the International Trade Monitor, more than half of SMEs in the UK expect to be exporting overseas by 2016 and 25 per cent of those identify China as their primary target for growth.

Here’s why.

The pros

China’s ecommerce market is the largest in the world and internet use is already widely prevalent, continuing to expand with big investment from the government.

The biggest ecommerce company in China, Alibaba, handled more transactions than Amazon and eBay combined in 2013, totalling more than $240bn. Chinese consumers see online marketplaces as a trustworthy source of products.

These online marketplaces are responsible for 90 per cent of ecommerce sales, and the TMall and Taobao sites account for 80 per cent of all transactions. They’re a great place for SMEs to start selling products.

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Mobile internet is extremely popular there too, with over 500m smartphone internet users, over 55 per cent of whom have paid a mobile payment; only 12 per cent have done this in the USA. With mobile usage expanding into rural areas as well, there’s a huge active market ready and waiting.

The emerging middle class is indicative of this market. They spend a lot of time online and are happy to make their purchases there. With a desire for high quality, luxury foreign items and a strong preference for authentic products compared with local counterfeit goods, they provide the perfect opportunity for targeting by UK businesses.

The cons

Of course, there are lots of barriers and hurdles which need to be overcome before you can even begin to try and turn a profit in China.

Despite the Chinese middle class preference for higher end luxury goods, those in smaller cities and rural areas will still hunt online for the best deals and the lowest prices. Local producers drive a hard bargain which even behemoths like Walmart can’t undercut, so you’ll need to ensure quality beats price.

The language barrier is a big one and shouldn’t be underestimated. There are many regional dialects and local variations which need to be accounted for, so writing translated content for a website can turn into a costly venture.

The buying culture differs in China too. Assisted sales account for over 70% of online transactions, so it’s not simply a case of developing a website and then just letting it sell. You’ll likely need to have local sales associates online and be able to offer help and advice to prospective buyers.

And you need to make sure you meet all the legal requirements. To establish a physical market presence, you’ll need to have a FICE (foreign-invested commercial enterprise) or WFOE (wholly foreign-owned enterprise) to get a business license. And to have a Chinese website, you’ll need an Internet Content Provider (ICP) license; registration is a lengthy process.

Whilst there is a lot of potential for SMEs here, given the ever-changing political and economic environments in the country, stability can sometimes be an issue; a return on investment is by no means guaranteed.

What to do

The best route for SMEs into the Chinese economy is through marketplaces. As previously mentioned, they dominate the ecommerce industry in China, and Alibaba’s TMall Global is designed specifically to help foreign retailers sell products in the country.

Although there are commission costs and annual fees to bear in mind, selling through a marketplace like this makes reaching Chinese consumers a lot easier, and reduces the risks of breaking into a new country.

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You’ll still need to get those descriptions translated into perfect Simplified Chinese, ensure you can complete tracked delivery within 72 hours, and provide a mainland China return address, but there are a number of third party companies which can help with this.

The benefits mean you can ship directly from the UK in bulk to forwarding warehouses, get expert local knowledge and experience of the marketplace, and focus on selling a few of your key products, to see how you might fair in the Chinese export business.

That way, you’ll keep costs low, and potentially see lots of profit!

Nick Pinson is director at iWeb Solutions.

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