Thinking about exporting to China? In the past 12 months I have attended a few seminars about accessing this market, so I have decided to share what I have learned. If you want to get your brand into China, brace yourself.
Beyond anything else, entering the Chinese market raises many challenges before there’s even a possibility of a sale, but the rewards are vast.
It is no secret that brand Australia has become something of a positive story in the past 5 years. Chinese consumers see Australian products as superior in quality and the demand grows for premium imported products in food, beverage, healthy and wellness sectors. Fortunately, to get your brand into China, is aided by the ongoing concerns about food safety in China and brand authenticity – meaning the market is flooded with fakes.
The ability to purchase our products has been leap frogged by the massive shift to online consumerism – 82% of transactions in China occur on mobile not on a desktop. The China-Australia Free Trade Agreements have created opportunities for exporting. The class shift has also provided a massive increase in consumers. Today roughly 52% of the Chinese population are middle class, that is 730 million. In 2002 this demographic was only 4% of the whole population. The unprecedented expansion of the middle class can be divided into lower and upper. The bulk of China’s middle-class growth has occurred in the lower-middle income band which is 75% of the total middle class. According to The Australian Business Review, May 2017 “A McKinsey study anticipates that 76% of the urban population will be middle class by 2022.” Having said that the definition of middle class and who can afford our products is another discussion, $12,000 USD per annum is the accepted current medium income. In addition to the middle class, “There are now 4 million Chinese living in households with annual income of more than $167,000, growing to about 30 million in 10 years.” These are not the middle class but these are the consumers with the greatest purchasing power. So how do Australian producers reach them?
Basically there are 4 avenues to get your brand into China:
1. B2B: Selling via an online store on your own Chinese website
2. B2C: Selling via a third party website like Alibaba’s Tmall Global
3. B2C: Selling via a third party online store like Australia Post, Chemist Warehouse or Tmall
4. B2B: Selling to third party websites
Option 1 is the avenue to manage your own digital strategy. Which includes establishing a Chinese website, managing your own social media promotions and e-marketplace management (sales transaction, distributors). To be eligible for a ‘.cn’ domain you will need to register your business in China and to do that the business must be 51% Chinese owned or have a physical presence in China. Or you can operate as an entity from Hong Kong or Singapore. If you pursue this direction the cheapest and most scalable host is Alicloud.
All advice I have received about option 1 is that it is a minefield of problems and does not yield high sales. Likewise option 4 which involves high risk and is always discouraged. So I will breakdown options 2 and 3.
Option 2 has been presented as the ‘Alibaba general option’ on 3 occasions, maybe because all 3 events were sponsored by Alibaba but also because it seems to be changing the face of retail globally. Alibaba.com became a Chinese e-commerce giant but has grown into the largest business-to-business online trading platform in the world, where over 45 million businesses from over 190 different countries connect via import and export goods. Albibaba has the infrastructure for fast delivery, Chinese expectation is for same or next day delivery, so this is really crucial. Australia is the fifth-most popular country for purchases from Alibaba’s Tmall Global, Tmall and Taobao platforms.
Tmall Global (a spin off of Tаоbао Mall), is a platform to build and run a storefront that is oriented towards China’s growing upper middle and high class. Tmall Global is seen as a trusted platform to purchase genuine international established brands that are not available in traditional retail outlets (think Zara, Apple even Mercedes). Importantly Tmall Global gives non-Chinese businesses access to China’s huge e‑commerce market. To open a Tmall Global store you will need to dig deep: Security bond $30,000 USD + $5-10,000 USD p/a. + 0.5-5% transaction fees + the 1% Alipay Service Fee. To find out more about pricing just email me and I will send you Tmall Global’s pricing card.
Option 3 is basically selling via a third party online store. The Taobao model is a consumer-to-consumer website enabling small businesses and individuals to open online stores. Tmall is a business-to-consumer website. Simply put Taobao is like going to the markets (chaotic and unregulated individual small vendors) and Tmall is like entering a Westfield shopping centre (structured and regulated). Together they account for about 80% of China’s e-commerce market. The other business models mean trading under an umbrella brand like Australia Post, Chemist Warehouse or a Chinese company like Careplus. All models in Option 3 require Australian businesses to be a legal entity in China – yes that may be problematic. A business registration in China varies but is between $20 000 – $160 000 USD.
There is a way around this… third party providers! You pay a registration fee (approx $500 USD). In addition, they will navigate the issue of logistics, bypass the language barrier and provide listing training, setup, operation and promotion of products on Alibaba platforms internationally (not just China). They will also take care of social media exposure (on sites like Weibo, Weitao and WeChat) and getting ranked as a ‘Gold Status’ supplier which enables you to get a good product score (out of 5). A good score is vital as there are no reviews on Alibaba and without a high score you will not get sales – competition is cut throat. This avenue utilises a partner to be your representative. They will create a mini website that links into the third party store and promises targeted optimisation. Plus, as well as the activities mentioned above they also look after filtering enquires and negotiating the sales.
One such company is iSynergi, Melbourne based company, who has secured a partnership with Alibaba. In terms of the costs, they are two fold. Firstly, there is an annual fee payable directly to Alibaba, they offer 3 options: Basic ($1899), Standard ($3499) or Premium ($6499). Secondly, iSynergi have 3 packages to choose from, each incur a monthly fee with a 12 month contract: Basic ($890), Standard ($1600) or Premium ($2500), prices exclude GST. Regardless of which Alibaba package you go with, you can choose any package from iSynergi. Obviously the package options relate to the services rendered and time involved.
In my opinion, iSynergi or like company will make your journey to China and internationally less problematic and more profitable.
Fortunately China is moving towards bonded warehouse free trade zones which means they hold your product in warehouses just outside the border. This is the way to smooth and timely distribution.
For those interested in the fresh food route Alibaba have acquired 30-40 offline (traditional) premium style supermarkets especially for imported fresh goods.
Maintaining the integrity of your brand in the Chinese market is crucial. Consider trademarking the Mandarin and Cantonese versions of your brand as well as English. Factoring in the time and costs for trademarking is highly advised. If you are interested in a contact to pursue further I can recommend King & Wood Mallesons.
Remember the key consumer in the Chinese household is the female buying for her partner, children, parents and extended family. She is your target market and a genuine brand story that connects to her heart is the key to your success.
All in all entering the Chinese e-commerce market is a costly, long term investment and shouldn’t be done without serious resources. The competition is fierce and success is not guaranteed but if you hit the big time your business will be transformed.
If you like this article you may be interested in my interview with Josh Gadischke, Director at Proteco Oils as he has direct experience breaking into the China market.
*Disclaimer: This is not legal or financial advice. Whilst all efforts have been made to ensure the accuracy of information, this article is not intended to replace professional advice.
