What is Cross-border e-commerce?
Cross border e-commerce really took off in 2014. It allows sellers outside China to directly sell to Chinese consumers without going through ‘middlemen’. This is not the only benefit. By doing so, many foreign companies are able to legally bypass a number of Chinese laws and regulations applying to the sale of goods. This was particularly beneficial for the cosmetics industry which reaches the widest audience in B2C rather than B2B.
Packages from abroad were entering the country through either a free trade zone, such as Shanghai or Hong Kong, to finally be sent to customers with limited customs interference.
Tmall Global and JD Worldwide are the two biggest platforms for cross border commerce, Alibaba (Tmall) being the leader with 39% of the market.
New Regulations, the End of the Cross-border e-commerce?
But on the 8th of April came very threatening news for the e-commerce world. The Chinese authorities declared their intention to change the rules that currently apply to digital cross-border sales. From now, foreign products will have to be registered and labeled according to Chinese law and regulations. Moreover, an additional tax is to be applied when the product is bought, this is applied via domestic platforms.
This change is not surprising. The Internet is always ahead of regulations when it comes to novel concepts but as time goes on regulations adapt to current situations. It is the normal process of things. Governments always come to target unregulated sectors of activity, especially when money is involved.
But here is where things get complicated: the registration process can last as long as 2 years for some products. Also for cosmetics, it is mandatory that some products have been tested on animals, which can be against business ethics and create issues in their home markets.
Initially planned to take effect of 1st may 2016, the policy has been postponed to 11 may 2017. As you can guess, companies reacted poorly to the news but it is in their DNA to evolve. I’m a big believer in the human capacity to get through difficulties and challenges. This change in regulation will be no exception, but let’s see what companies need to do to make a success of this current situation.
Key Factors leading to Success for Companies expanding into China
Cross border is, in our opinion, becoming more and more a way to test the water, to see if what you have to offer is in demand. If you see there is an audience for your product, you should move forward toward establishing a presence in China.
This is actually a more lucrative approach, you need to become fully committed to the Chinese market by increasing your visibility and developing your e-reputation online.
E-commerce platforms in China now will host your products or services, you utilize Tmall and JD.com’s existing infrastructures and customer base in order to leverage your products.
It is important to take a 360 degree approach to the Chinese market. Your visibility on e-commerce platforms is important but also your online reputation, content, customer service and adapted product will be the key to success.
The keys to success are good a e-reputation and visibility combined.
Benji is a digital marketing specialist based in Shanghai, China. For more information see his blog and website here.