E-Commerce in China: Q&A with Nathan Handwerker of The China Guys
We reached out to Nathan Handwerker, co-founder of The China Guys, to answer some common questions about e-commerce in China.
1. Why do you recommend more e-commerce businesses consider expansion into the Chinese market?
Due to the impressive rise of China’s middle class, the nation’s e-commerce market is prospering. E-commerce sales volume in China is the highest in the world, and it is estimated that over 50% of all retail sales in 2021 will come from e-commerce. As such, foreign e-commerce merchants should consider expansion into the Chinese market due to its sheer size.
Future growth is also promising. Alongside the successes of China’s anti-poverty campaigns, lower-tier city consumers have begun to join the e-commerce wave. Considering that most of China’s population lives in lower-tier cities, expansion of e-commerce into these regions could secure significant growth for years to come.
Long story short, for any merchant, China’s e-commerce market is too influential to gloss over.
2. Product selection: What types of foreign products are in high demand in China?
While Chinese consumers have different tastes from their Western counterparts, many items that Western merchants sell are popular in the Chinese market. Some segments are growing more quickly than others due to lifestyle and societal trends. Take fitness products for example. In general, clothing, makeup, household items, furniture, electronics, among other consumer product segments are typically the major categories on e-commerce home pages.
In fact, as we have written in this article, Chinese consumers often prefer and will pay heavy premiums for foreign products, such as vitamins and health supplements.
Unless your product particularly caters to a Western audience’s unique habits and culture (such as baseball bats), there is more than likely a market for your product in China.
3. Do I need to be a large, established brand to be successful in China?
No. However, you do need to be prepared to spend significant resources on building your presence in China. China is by no means a “automate and leave it be” type of market. Chinese consumers require live, responsive customer service and highly localized marketing. Not to mention many of your competitors will be going above and beyond, creating their own WeChat mini-programs, working with livestream influencers, or even launching large advertising campaigns. This is an extremely competitive market, and the expansion is only worthwhile for those willing to compete.
4. Assuming I want to invest heavily in China, what are some of the top marketplaces to sell on?
Taobao, the Alibaba-owned platform, has historically been recognized as China’s go-to e-commerce platform. However, outside of the Alibaba ecosystem, major marketplaces include JD.com, Pinduoduo, Xiaohongshu (Little Red Book), and more.
Live streaming and short video platforms like Douyin and Kuaishou are also now integrating e-commerce functions into their platforms. For example, a KOL may be promoting a product to their audience, who can then click on a CTO on the screen that directs them to a purchase window. In Western terms, it would be like adding Amazon’s “buy with 1 click” button to an Instagram video.
In the past, China’s e-commerce giants have attempted to strong-arm merchants into only selling on one platform. However, China’s regulators are currently pushing back and, for example, recently dropped a multi-billion dollar fine on Alibaba for these anticompetitive practices. So going forward, merchants would be wise to consider multiple platforms that fit their product.
5. What are some examples of these e-commerce ecosystems? How are they different?
Omnichannel retail is becoming increasingly important in China’s e-commerce landscape. Not only are there different platforms, but there are also sub-platforms that fit into the larger ecosystem. Taobao, for example, has numerous sub-platforms, and while Tmall typically comes to mind as the major medium, merchants should consider sub-platforms hosted here based on the nature of their product.
While platforms and sub-platforms have significant overlap, there are many differentiations. For starters, there are different forms of selling: Taobao excels at B2C and C2C sales while Pinduoduo pioneered C2M (consumer to manufacturer) sales and group buying. It is important to begin your China expansion by evaluating which platforms work for your sales model.
Beyond that, sub-platforms are dedicated to other important factors. Take the following examples from the Taobao ecosystem:
- Tmall Global: a sub-platform dedicated to cross-border e-commerce
- Ali Auctions: an auction platform focused on high ticket items
- Taoqianggou: a platform that showcases daily deals
Each component of the ecosystem could play a pivotal factor in an expansion strategy, so merchants should evaluate how their product fits within the ecosystem. Sub-platforms, while offering lower traffic than main pages, are also less saturated by competition and may offer your brand more opportunities to reach your niche’s audience.
6. I am not physically located in China. How do I provide customer service to Chinese consumers?
Though having on-the-ground staff is not necessarily a prerequisite to join China’s e-commerce market, it is extremely helpful.
Chinese consumers expect quick and easily accessible customer service, and poor customer service could make or break your success, particularly given that word-of-mouth in China is so important.
Creating easily accessible channels for customer service, such as Chinese social media accounts, Q&A platforms, or even a WeChat mini-program will be valuable to creating a positive brand image for your customers. Having Chinese staff oversee these endeavors is oftentimes more seamless than attempting to go on your own.
Alternatively, if you do not want the hassle of onboarding your own local staff, you can work with agencies that can help fill this role for you. There are a lot of shops though, and the success or failure of your brand will depend on your ability to screen for top quality agencies.
8. What kind of partner(s) will I need to be successful in China?
Marketplaces, logistics providers, and a trusted consultancy. In order to kick off your venture in China, you will need to work with marketplaces in order to get your storefront listed on their platform, and then work with the necessary distributors and logistics providers to get your products from point A to point B. Also, as I discuss in the next section, you will need to set up a business entity; and if you want this done right, you should seek out a trustworthy business consultancy.
Beyond that, all other partners, while recommended in many cases, are not required. Many merchants choose to partner with local third-party e-commerce solutions providers that can handle customer service. Some will partner with marketing agencies to rollout a comprehensive marketing plan. And some will work with influencers in the social media space to bring awareness and hype to their brand.
Before beginning your China journey, assess your goals, resources, and level of commitment. It’s even better to work with a local partner to evaluate your brand and provide you with a tailor-made plan of attack for your company.
9. What kind of legal hurdles can I expect to encounter when entering the Chinese e-commerce market for the first time?
While not applicable to all ventures, there are three common legal hurdles to know of when starting an e-commerce business in China:
- Establishing a registered business entity: e-commerce retailers are required to obtain a business license through a Wholly-Owned Foreign Enterprise (WFOE)
- Register your trademarks: China’s trademark system runs “first come, first serve”. So, make sure to register your trademarks before launching publicly.
- Internet Content Provider (ICP) license: this license is necessary to establish China-based websites for any purpose.
Once merchants have set up an entity and acquired applicable licenses, monitoring operations to ensure compliance with regulations and rules is important.
Nathan Handwerker is co-founder of The China Guys, which partners with companies and organizations across the globe to ensure their vision is carried out in China with precision, responsibly.