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How To Do Small Businesses (SMB) In China?

  • Aug 10, 2018
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business meeting discussion colleagues

During the “Double-11” (November 11th, a date to celebrate being single), Alibaba signified a new consumption era with world-breaking record of 1207 billion RMB revenue in 2016.

 

In the next year, Double-11 have once again broken the record with 1682 billion RMB, surpassing the annual GDP (Gross domestic product) of Iceland and Cameroon within 13 hours in 2017.

 

double-11 chinese promotion

 

According to statistics, there were over 3.4 billion consumers participating in the Double-11, with over 8.12 billion shipment orders. The total amount of transactions approved on Alipay have reached 14.8 billion transactions, increased by 41% from previous year, averaging one transaction per person in China.

logistics in china

Over the course of nine years of development, promotional events on e-commerce since the start of 2009 have become one of the most influential sources worldwide.

growth of cross-border ecommerce in china

The CEO of Alibaba, Zhang Yong, have stated that Double-11 is no longer a date for consumers, but all businesses, globally, referring it as the “Olympics of commerce”

 

Funds And Expected Value

Businesses wanting to quickly submerge into the Chinese market outside of China, should consider how much they understand and know about the market and the culture first.

 

Beyond the Chinese population, products from China or products made in China may be perceived as low-grade and counterfeits by others.

 

But with the higher demands for brand awareness and quality, Chinese products are actively attempting to override the impression of poor-quality products and counterfeits with better quality.

 

Particularly within the high-end product range, Made in China is steadily overtaking the field.

 

U.S. military uniforms, body armors, national flags, training drones, and even the U.S. army African command communications satellite is made in China.

 

The high-speed rail transit is one of the technologies envied by many of the western countries. And Chinese mobile brands have …. Chinese E-commerce have innovated a global platform, and mobile payment is even more astonishing.

 

With the China economy booming, success is even more difficult to obtained in comparison to decades ago. Thus, when evaluating the China economy, select what your business excels in and what is familiar to make it easier for yourself.

 

Furthermore, evaluate the investment and possible risks. Any oversea investors must consider the circumstance when businesses are incapable of attending to the consumer culture in China. Businesses should consider the risks prior to investing.

 

Prior to investing and entering the Chinese market, it is important to expect high return on investment. Carefully choose the industry and the competitions within the industry.

 

Working with Sales agents

According to iiMedia, the amount of “Haitao” (refers to the act of purchasing goods across the borders) users in China have increased from 0.15 billion in 2014 to 0.41 billion in 2016, increased by 78.3%

 

The rapid development of the Chinese e-commerce marketing also requires the unique business habits and services of China.

 

Previously in the cross-border e-commerce industry was a competition among ecommerce business. However, the industry involves competition between multiple different businesses, such as SMEs from worldwide, operation agents, marketing services, logistics, other niche brands and service providers.

 

To smaller businesses that is not ready to commit a large sum of investment and efforts, sales agent is one of the best solutions.

meeting notes discussion

Advantages:

Time conserving

Utilizing the resources of the trading agent, such as their experiences, sales channels to allow products to quickly submerge into the market. It is also possible to obtain circumstances, changes and information about the Chinese market through the agent, without the need to travel.

 

Increased efficiency

Trading agents are suitable to businesses in the early stages of international expansions, unfamiliar the marketing aspect and marketing experiences, as the effort and investment needed to build their own team is high.

 

The online sales platform in China is different in comparison to other parts of the world, there are regulations and unspoken rules that westerners may not understand. And sales agents in this business accumulated years of experience have their own expertise, which can be greatly utilized by businesses.

mobile apps in china

Regardless of the business model used, a cooperative team with sales strategies and cross-cultural communication skills is a necessity if you want to submerge in the e-commerce industry and understand the social media, as well as the service industry.

 

Investment Conserving

As your products is distributed into the international market through a second-party, your business retains the portion of expenses towards staffing for distribution and exportation.

 

Regulated Benefits

As agents that are more successful is eligible for tax refunds, businesses that are low-profit and have tight cash flow need to receive tax refunds on time to keep the business operating smoothly.

 

Authority

In the early stages of entering the Chinese market, businesses, brands and company depend on agent to familiarize with the business culture and market. After the products have accumulated its reputations and avoiding the risks of e-commerce, the reliance of agents will decrease. Later, having the capability of operating the business in the Chinese market completely without the assistance of agents.

 

Disadvantages:

Suitable Partner

As the development of cross border e-commerce is increasing the demands for quality agents, there are more opportunities for poor-quality and inexperienced agencies.

 

How do we select a suitable and trustworthy agent/agency?

hand agreement partner

There are three factors the business must consider before selecting an partner. First, do they have statistics to support their successful cases? Second, have they worked with large brands, such as Alibaba? Lastly, can they clearly outline the needs of your business and an effective plan to help your business?

 

You also must put in time and effort to carefully evaluate the opposing party’s operating team, position or directly join the team in the early stages of development.

 

Loss Of Control In Management

There is little to no control for you in the early stages of management, making agents suitable for smaller businesses looking forward to moving to international stages as a accumulated experience.

 

Loss Of Feedback

As the company or individual is not directly participating in the marketing and management in China, it is difficult to attain first-hand information and knowledge about the Chinese market to build experiences.

 

Weak IP Protection

As some of the agents may be poorly educated on the aspects of intellectual property protection and creativity awareness, the lack of mechanism for their services and incompetent of their brands may lead to the utilization of other patents and trademark, causing legal right issues.

 

Other Risks

As the middle-man between the business and the market, there is a risk of loss of clients to competition, as the client information is withheld by the agent.

agreement handshake business

Aspects To Consider Aside From Marketing

Logistics and Payment

In 2012, there were a total of 56.9 billion shipments in China, increasing to 312.8 billion in 2016. Under the advancement of technology to statistics and data records, the logistics in China have grown 4.5 times the size in four years.

logistics in china

During the Double-11 promotion on Tmall, the logistics in China have dispatched one billion shipments in two days in 2013, using 24 hours in 2014, using 16 hours in 2016, and only 12 hours in 2016.

 

China owns the fastest and most efficient logistic system worldwide…

 

In the two current cross border e-commerce model: Bonded warehouse model and Direct B2C model.

 

In the Bonded warehouse model, all products are first shipped to a warehouse in specified country to conserve time, then directly shipped from the country to consumer to lower expenses. However, this model requires fast dispatch and funds from e-commerce platforms. Whereas the direct b2c model is directly dispatched individually from the sources then shipped out to the consumer or business, but the disadvantage is that it is much more time consuming.

 

Businesses should consider the aspects of merchandises and products, such as sizes, safety, and custom regulations to select the best logistics model. For instance, furniture pieces are typically large, which is much more suitable to be stored in warehouse and shipped from warehouse using the bonded warehouse model.

 

In the previous years, there are approximately 200 countries and regions that accept Alipay, supporting 18 types of currencies for payment. During that year of Double-11, the amount of Alipay transactions increased by 60% with consumers from 224 countries using Alipay.

Alipay payment method

With the current payment habits in China, an understanding of Alipay will be beneficial.

 

Policy Information

Within the Chinese market, the government is the core of design, planning and a distributor of important resources, as well as a regulation authority.

If International merchants and investors is able to follow the current plans and prospects of the government, there is a lower risk in terms of the politic fields.

 

Using 7-11 franchises as an example, 7-11 convenience store first entered the Chinese market in 1992, and into mainland in 2004. In 2016, 7-11 announced the approval for franchises, developing with affiliates and corporate branches.

seven eleven 7-11 convenient chain

And 7-11 have quickly spread across the Chinese market, but partially owing to the promotion of convenience consumption. One of the focus in the annual plan released by the Ministry of Commerce of the People’s Republic of China in 2012 is to increase the convenience consumption. The investment on food, shopping, leisure, and entertainment industry will be the focus for the convenience consumption prospect.

 

As the leading 24-hour convenience store, the expansion of 7-11 in China have accelerated throughout all regions and cities of China. As of June 2017, there are 2377 store locations in China, including Hong Kong.

 

One of the main contributing reason to the success of 7-11 in China is the implementation plan to import international brands and encourage domestic businesses with the brands for partnership and learn from these brands while increasing the competitiveness of the retail industry in China. And, 7-11 in this case have entered the Chinese market at a good timing as the government is encouraging the growth of imported businesses.

 

In September 2017, People’s bank of China has forwarded a stop on ICO, causing the downfall of all ICO currency. The unexpected decision of the officials have sent out an signal to the according market.

ICO cryptocurrencies china

An understanding of the central government of China, legal regulations of the market, and close attention to any policy changes to SASAC (State-owned assets and supervision and administration commission) will greatly benefit the success of international retailers entering the Chinese market.

 

For instance, the government of China have announced the requirement for cross border e-commerce to attain and provide a product formula registration certificate for all baby formula, on January 1st of 2018.

 

Also, imported cosmetic products must attain the cosmetic license approval issued by the drug and administration of the state. Imported cosmetic products from cross border e-commerce also need to attain the required documents approved in accordance to the relevant regulations, including the record voucher.

china flag agreeent handshake

Visit China Once

Before drafting the expansion plan to China, it is highly recommended to reside and work in China for a long period of time to better understand all the aspects of Chinese consumers.

 

Because China is vast, different fields require and have different characteristics.

 

Guangdong, Jiangsu, Zhejiang, Shanghai, Fujian are the five main cities with the highest sources for cross border e-commerce. As these regions are much closer to the developed costal areas, the geographic advantages are apparent.

 

Within the list, Guangdong have the highest concentrated volume of manufactory and have the most experienced traders, becoming the central location for exporting cross-border e-commerce goods. Guangdong also have an experienced and extensive supply chains, one of the chains located in Yangtze River Delta Economic Zone with advanced light manufacturing line, the high performing line led by clothing, accessories and miscellaneous with an industrial cluster within the zone.

 

It is recommended to visit China once a year or more, if long-term residency is not possible, to deeply understand the directions and changes to the government and market.

agreement partnership china

Conclusion

The accelerating development of China is one of a kind compared to the entire planet with many unforeseen opportunities. Despite the increased operating expenses in the country, China is still an irresistible opportunity for entrepreneurs and corporation

 

About the Author

Betty Yang

Betty Yang

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