china cross-border e-commerce

Consulate-Generalof the Kingdomof the Netherlandsin Shanghai

ChinaCross-BorderE-Commerce

Guidebook

January 2017

This CBEC guidebook was written by:

Thymen Ballering, trainee Economic and Commercial Affairs Department of the Consulate General ofthe Kingdom of the Netherlands Shanghai

This Guidebook has been co-written thanks to the inputs of experienced entrepreneurs in China’scross-border e-commerce sector. The Dutch Consulate General in Shanghai would like to formallythank all the companies that contributed. Special recognitions go out to the members of the DigiDutchplatform.

This guidebook is a jointed effort of the Netherlands Economic Network in China, consisting of theEmbassy of the Netherlands in Beijing, the Consulate General in Shanghai, Guangzhou, Chongqingand Hongkong.

The collaborative writing project was coordinated by:

Chris Chen, Commercial Officer at the Consulate General of the Kingdom of the Netherlands Shanghai

Apart from the Embassy and four Consulate Generals, there are six Netherlands Business SupportOffices (NBSO’s) in Chengdu, Dalian, Jinan, Nanjing, Qingdao and Wuhan. The economic network inChina is there to help you when you are thinking about entering the Chinese market. Our goal is tostimulate Dutch activities and investments in China. The economic network offers services like marketscans, organizing trade missions and matchmaking between Chinese and Dutch parties. You can alsoprofit from their extensive network in and expertise on their regions. For more information, you cancheck the website: http://china.nlambassade.org/Zakendoen_in

The Netherlands Consulate-General in Shanghai assumes no responsibility for any company, productor service mentioned in this guidebook, for any materials provided neither in relation to such products,nor for any act or omission of any business connected with such products and services.

Unauthorised use, disclosure or copying without permission of the publisher is strictly prohibited.

Embassy of the Kingdom of the Netherlands

4 LiangmaheNanluChaoyang District, Beijing 100600Tel: + 86 10 8532 0200E-mail: [email protected]

Consulate General Shanghai

10/F Tower B, Dawning Center, 500 Hongbaoshi RoadChangning District, Shanghai 201103Tel: + 86 21 2208 7288E-mail: [email protected]

Consulate General Guangzhou

Teem Tower, 34/F, 208 Tianhe RoadGuangzhou 510620Tel: + 86 20 3813 2200E-mail: [email protected]

Consulate General Chongqing

54/F,Yingli International Finance Centre, 28 Minzhong RoadYuzhong District, Chongqing 400012Tel: +86 23 6399 7000E-mail: [email protected]

Consulate General Hong Kong

Room 2402B, 24/F, Great Eagle Centre, 23 Harbour RoadWanchai, Hong Kong SARTel: + 852 2599 9200E-mail: [email protected]

NBSO Chengdu

6/F, West Building, La De Fang Si,1480 Tianfu Avenue, Chengdu, 610041T. +86 (0)28 8511 4047E-mail: [email protected]

NBSO Dalian

4910 World Trade Center, 25 TongXing RoadZhongshan District, Dalian 116001Tel: + 86 411 3986 9998E-mail: [email protected]

NBSO Jinan

Room B1, 3/F, Building 2, ShuntaiPlaza 2000 Shunhua RoadJinan, 250101Tel: + 86 531 8606 5138E-mail: [email protected]

NBSO Nanjing

Suite 2316, Building B, 23/F, Phoenix Plaza1 Hunan Road, Nanjing 210009Tel: + 86 25 8470 3707 / 8470 3708E-mail: [email protected]

NBSO Qingdao

A-2505, Top Yihe International, 10 Hong Kong Middle RoadShinan District, Qingdao 266071Tel: + 86 532 6677 7515 / 17E-mail: [email protected]

NBSO Wuhan

Tower I, Room 1306, 568 Jianshe AvenueWuhan 430022Tel: + 86 27 8576 6511E-mail: [email protected]

Table of Contents

PREFACE................................................................................................................. 6

1. INTRODUCTION TO CROSS-BORDER E-COMMERCE ......................................... 7

2. GROWTH OF CROSS-BORDER E-COMMERCE IN CHINA.................................... 9

3. OVERVIEW CROSS-BORDER E-COMMERCE OPPORTUNITIES......................... 11

ADVANTAGES OF CROSS-BORDER E-COMMERCE ..................................................................11BRIEF OVERVIEW OF THE DIFFERENCES BETWEEN GENERAL TRADE AND CBEC ................................12BUSTING INITIAL ASSUMPTIONS .....................................................................................12PREPARATIONS .........................................................................................................13

4. CHECKLIST ................................................................................................... 14

4.1 RULES AND REGULATIONS ........................................................................... 16

INCONSISTENCY AND CLARITY OF REGULATIONS ...................................................................16(NEWEST) REGULATIONS TAX RATES AND PAYMENT RULES FOR CBEC .........................................16TAXATION RULES .......................................................................................................17POSITIVE LIST ..........................................................................................................17IMPORT MODELS .......................................................................................................17BONDED IMPORTS: ....................................................................................................17DIRECT PURCHASE IMPORTS (B2C).................................................................................18IMPACT OF THE NEW REGULATIONS ..................................................................................22DEADLINES OF THE TRANSITION POLICY ............................................................................23FUTURE DEVELOPMENTS ...............................................................................................23

4.2 ONLINE SALES CHANNELS FOR CORSS-BORDER E-COMMERCE ..................... 24

BACKGROUND ON ONLINE-SALES CHANNELS IN CHINA ...........................................................24CROSS-BORDER E-COMMERCE MODELS............................................................................25CROSS-BORDER E-COMMERCE ONLINE MALLS ....................................................................30FEES OF CHINA’S LARGEST CBEC MARKETPLACES ................................................................31ASSESSMENT OF CHINA’S BIGGEST CBEC MARKETPLACES .......................................................32MEDIUM-SIZE VERTICAL CBEC PLATFORMS ........................................................................35WECHAT ................................................................................................................36

4.3 ENTRY STRATEGIES AND BUSINESS DEVELOPMENT.................................... 39

CHOOSING THE BEST FIT: MULTI-CHANNEL E-COMMERCE STRATEGY............................................39TWO POSSIBLE MULTI-CHANNEL CROSS-BORDER E-COMMERCE STRATEGIES...................................40

4.4 PAYMENT SOLUTIONS ................................................................................. 42

CHINA’S MAIN PAYMENT SOLUTIONS.................................................................................44

4.5(A) LOGISTIC SOLUTIONS............................................................................... 46

CROSS-BORDER E-COMMERCE COMPREHENSIVE PILOT ZONES ................................................46LOGISTIC SOLUTIONS FOR DIFFERENT IMPORT MODELS ...........................................................48ADVANTAGES AND DISADVANTAGES .................................................................................53RULES AND REGULATIONS.............................................................................................55‘CHILLED’ VERSUS ‘FROZEN’ ..........................................................................................55LAST-MILE DELIVERY ..................................................................................................56REVERSE LOGISTICS ...................................................................................................56

4.6 MARKETING AND LOCALISATION ............................................................... 57

BRAND EQUITY .........................................................................................................57PRICING .................................................................................................................57CONSUMER PSYCHOLOGY..............................................................................................59PERSONALISED COMMUNICATION ....................................................................................59CUSTOMER SERVICE ...................................................................................................60DESIGN..................................................................................................................61

4.7 INTELLECTUAL PROPERTY RIGHTS IN CROSS-BORDER E-COMMERCE......... 62

RISKS....................................................................................................................62TRADEMARK REGISTRATION ..........................................................................................62PREVENTING IPR VIOLATIONS THROUGH CBEC-PLATFORMS ....................................................63

4.8 THIRD PARTY SERVICE PROVIDERS ........................................................... 65

INTRODUCTION TO TPS ...............................................................................................65POSSIBLE RISKS WHEN EMPLOYING TPS............................................................................66CHOOSING A TRUSTWORTHY TP .....................................................................................67

5. ASSISTANCE FROM DUTCH DIPLOMATIC MISSIONS................................... 68

6. FEATURED THIRD PARTY SERVICE PROVIDERS .......................................... 69

7. DIGIDUTCH COMTRIBUTORS ...................................................................... 70

8. OTHER E-COMMERCE SERVICE PROVIDERS CHINA ..................................... 73

APPENDICES ........................................................................................................ 76

APPENDIX: POSITIVE LISTS ........................................................................................76

TERMINOLOGY ..................................................................................................... 77

Netherlands Consulate-General Shanghai | Guidebook China Cross-Border E-Commerce

PREFACE

International online shopping is vastlyexpanding around the globe, but nowherecan one observe international e-commercedevelopments like in China.

Although traditionally China provides theworld with its manufactured goods, inrecent years e-commerce developmentsallowed Chinese e-customers to purchaseand import goods from other countriesdirectly. As a result, sales of overseas’products to Chinese consumers havethrived and continue to flourish.

The China Cross-Border E-commerceOpportunity Report written in 2015 byRuben de Bie, Economic Policy Officer atthe Consulate General of the Kingdom ofthe Netherlands in Guangzhou, China,which explored the opportunities ofChinese online retail for Dutch companies.In essence, it provided a comprehensiveoverview of Chinese e-Commerce and theprospects for Dutch businesses in it.

As more Dutch companies embrace theopportunities and advantages offered byChina cross border e-commerce, however,its complexity is often underestimated bythose willing to venture into the maze ofe-marketplaces, tax regulations, logisticand payment solutions, as well asoperations and third party serviceproviders.

This step-by-step guidebook serves as apractical follow-up on the China Cross-Border E-Commerce Opportunity Report,which is intended as an initial reference inorder to guide companies especially thoseDutch SMEs which do not have a businessentity in China, but seek to pursuebusiness opportunities in the boomingChinese e-market.

Therefore, this guidebook will cover thetopic of Cross-Border E-Commerce,which differs significantly from ‘regular’ e-commerce in, among other things, scope,regulations and strategies.

The need for a follow-up guidebookoriginated from the new policyregulations, issued on 8 April 2016, which(drastically) impact the Chinese Cross-Border E-Commerce sector.

Accordingly, this guidebook will cover acomprehensive overview of what Cross-Border E-Commerce in China entails.The format is a funnel-shaped practicalguidebook, starting from a generalintroduction on cross-border e-commerce(CBEC), a helpful examination of thelatest rules and regulations, and an up-to-date analysis of the main marketplaceoptions available for Dutch companies.

Moreover, significant topics that ought tobe taken into account for CBEC in Chinawill be covered. These include ChineseCBEC’s inextricability from social media,its payment and logistic solutions andsubjects related to localisation andoperations, such as IPR-protection andmarketing.

Finally, the handbook reaches out to thosecompanies determined to concretise theirbusiness plans by providing acomprehensive list of (Dutch) third-partyservice providers, thereby offering anopportunity for further action to developtheir Cross-Border E-Commerce activitiesin China.


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1. INTRODUCTION TO CROSS-BORDER E-COMMERCE

In emerging markets, especially with ahuge domestic market such as China,consumers may face difficulties whensearching for affordable imported goods intheir local retail stores. A vastly growingmiddle class with increased exposure tothe internet and foreign products, whichare often considered of higher quality andstatus, the Chinese demand for overseasgoods steadily increases every year.

Accordingly, to purchase these foreignproducts that are often unavailable orexcessively expensive in Mainland China,Chinese consumers use overseas’websites or separate domestic e-marketplaces, which are specialised ininternational e-commerce and hostinternational suppliers.

This process of buying overseas productsdirectly from foreign retailers andsuppliers via the internet, without thespecific need for an intermediary businessentity in China, is called: cross-border e-commerce.

Several factors contribute to thewillingness of Chinese e-consumers to buyproducts from abroad. The (upper-)middleclasses seek to pick up the niche andnewest items, not (yet) available in thePeople’s Republic. Nonetheless, the mainpurchasing factors for Chinese consumersto buy via cross-border e-commerceplatforms are ‘product quality’ and‘product price’.

Chinese consumers often feel thatproducts purchased via cross-border e-commerce platforms guarantee a higherlevel of quality and protection againstcounterfeit goods (examples include infantmilk formula, cosmetic products,handbags etc). In recent years there havebeen countless examples and nationwidescandals in which counterfeits passed forreal ones, especially in non-first tier andnon-coastal cities. Due to the fact that

merchants on CBEC-platforms have to beestablished and authorised abroad, theyare considered more trustworthy. In fact,61% of Chinese consumers indicate thatquality guarantee is their reason forshopping abroad. 1

Besides availability (the reason to buyabroad for 52% of Chinese consumers)2,and a more trustworthy image, to Chinesecustomers the price of imported goods viaCBEC is one of its biggest pull-factors.Due to the exemption of import taxesunder certain conditions, the retail price ofCBEC goods can be significantly lowercompared to the same goods imported viatraditional trade. For 59% of Chineseconsumers a low price is the reason theybuy certain products abroad.3

1 iResearch 2016/Ecommerce Foundation:See annex 12 ibid3 ibid


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Annex I. Motivation and most popular product categories CBEC in China (2016)

Source: iResearch 2016 / Ecommerce Foundation

Figure I. Chinese Cross-Border E-Commerce consumer portrait

65% male

75% between 26 – 40 years old)

Highly educated(75% graduate degree)

>¼ has an income higher than10.000 p/m

Southeast coastal resident(¼ live in Guangdong and Shanghai)

56% of the purchases are between100-500 RMB

¾ buy less than once per month

Source: Rkylin and iResearch 2016


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2. GROWTH OF CROSS-BORDER E-COMMERCE IN CHINA

As a consequence of the abovementioned

added value for Chinese consumers,

Cross-Border E-Commerce’s popularity is

growing exponentially in China. In 2015

the annual growth of Chinese customers

that purchased overseas products online

was more than 70% compared to 2014.

The amount of customers is expected to

continue to grow steadily during this

decade (see Chart I).

Chart I. Cross-Border E-Commerce customers in China (2014-2020)

Source: eMarketer and Alizila (Alibaba Group)

In 2016, the value of these online cross-border purchases is estimated to be over85 billion USD. By 2020, 292 millionChinese online consumers will purchasegoods from abroad, with sales expected tosurpass 157 billion USD. (See Chart II).

Well-known underlying societal factors,like ever-increasing standard of living andgreater exposure to foreign products,contribute to the sudden upsurge of CBECsales in China. With an eye ondecelerating economic growth, the centralgovernment has released severalpreferential policies aimed to increasecross-border e-commerce. In 2013,Shanghai was the first city to be selected

for an experiment as a zone for cross-border e-commerce and betterregulation 4 . Soon after other citiesfollowed; among others, preferential taxpolicies and the first Cross-Border E-Commerce Comprehensive Pilot Zoneswere established in Hangzhou in early2015. Then, on 12 January 2016 the StateCouncil officially approved theestablishment of twelve of these zones inother Chinese cities.

4

http://www.sdpc.gov.cn/zcfb/zcfbtz/201205/t20120515_479258.html


Page | 10

In addition, an overall annual increasein e-commerce in China (according toMcKinsey the value of online retail was630 billion USD in 2015) and a moveby consumers and brands alike fromC2C to B2C-platforms - consideredmore professional and trustworthy -adds to the growth of foreign goods’ e-sales.

Lastly, in recent years, novel possibilitiesfor foreign brands to directly sell their

products in China played a large role inthriving CBEC sales. New ‘cross-bordermarketplaces’ opened the door forinternational shopping when the biggestplayers, Alibaba Group and Jingdong,respectively launched Tmall Global in2014 and JD Worldwide in 2015.

These new CBEC resources offertremendous opportunities for a new typeof Dutch entrepreneurs to sell their goodsin China.

Chart II. Cross-Border E-Commerce retail sales in China (2014-2020)

Source: eMarketer


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3. OVERVIEW CROSS-BORDER E-COMMERCEOPPORTUNITIES

Advantages of Cross-Border E-Commerce

As is clear, CBEC is on the rise, and Dutch

companies increasingly seek to hop on the

bandwagon. Among others Philips,

Holland@Home, Flinders, Attent, and

Suitsupply have joined the online retail

sphere through different channels.

Traditionally, only large multinationals or

those smaller companies with extensive

relations and business entities in China

were able to offer their products to the

Chinese e-market due to the nature of

general trade in China.

In essence, importing products via general

trade from abroad required a legal entity

in China. This legal entity could either be

a subsidiary, partner or an own

manufacturer. Accordingly, this legal

entity would clear Customs and import the

products into Mainland China. The legal

entity in China would pay duties and taxes

over these products before they are sold

on Chinese market (be it on e-commerce

platforms or in brick-and-mortar shops).

Similarly, opening a store on regular

domestic B2C e-commerce platforms

requires a company with a Chinese entity.

However, via cross-border e-commerce in

contrast to ‘regular’ e-commerce brands

can avoid the need to establish a legal or

physical business presence in Mainland

China preceding their e-commerce

ventures. Nor do they have to relinquish

the B2C part of selling to a Chinese trade

agent (like via normal trade). As the

process to establish such a legal identity is

time-consuming, strenuous and a

considerable margin is lost engaging a

trade agent, CBEC can be a relatively

convenient option to sell online directly

from abroad.

Besides the fact that CBEC can be a

comparatively accessible entry strategy

for the Chinese market, the primary

advantages of cross-border sales are

twofold: reduced import taxes and product

compliance checks applied to certain

products under China’s Luggage and

Postal Tax Policy.

Whereas traditional (offline) channels of

trade require different levels of

procedures to export goods to China (e.g.

CIQ compliance checks, product

registrations etc.), for certain product

categories the shorter and easier value

chain can make CBEC a convenient option

for Dutch merchants that have not yet

exported to China.

Due to this convenience and certain

reduced import taxes the trial and error

costs of launching (new) products to the

vast Chinese market can be exponentially

lower.

According to estimations by experts, costs

can be 20 to 30 per cent lower and

product clearance and dispatch times at

the border are considerably faster.

In summary, via CBEC overseas

companies get another chance to access

the Chinese online consumer market

directly and quicker, thereby running

smaller financial risks.


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Brief overview of the differences between general trade and CBEC

General trade in China via trade agent

When a foreign company does not have its ownbusiness license in Mainland China, a legal entity inChina imports goods from abroad. This can either bea subsidiary, trade agent or the Chinesemanufacturer of the foreign seller.

Accordingly, the legal entity clears Customs andimports the product into Mainland China. The legalentity in China pays duties and taxes over the CIFprice before the product is sold.

Products can then be sold in brick-and-mortar shopsor on e-commerce platforms.

As Chinese trade agents are usually hesitant to havetheir yet unsold goods in warehouses (the risk of notselling is on the legal entity in China), they chargerelatively high commission fees over the importedproducts.

Moreover, foreign companies have little control overthe final B2C part of selling their products.

Cross-Border E-Commerce Trade

Cross-border sales are defined as the direct import ofgoods from outside the territory of Mainland China,utilising special pilot channels, known as cross-bordere-commerce platforms, and based on the preferentialpolicies of bonded zones.

In this case, an overseas legal entity exports theproduct to a bonded warehouse (B2B2C) or viathe direct mail (B2C) model. Oversea legal entitycan either be a subsidiary, partner or the ownmanufacturer.

Accordingly, the legal entity clears Customs onlywhen there is an online order from an onlinecustomer. The e-consumer pays duties and taxesover the shelf retail price at the moment theproduct is sold.

Different taxes and duties apply to CBEC trade andproducts have to comply with a different set ofregulations than via normal trade.

Products can then only be sold on e-commerceplatforms.

In sum, with CBEC the consumer takes the lead; thevalue chain is shorter and there are fewer risks forthe overseas merchant.

Busting initial assumptions

Companies are often tempted whenpresented with the figures on China’squickly expanding consumer population.Though mesmerising, customer andgrowth numbers stated in popular media,business reports and by consultants onlyreflect a part of the reality of taking one’sbusiness to China.

Therefore, before venturing on theirCross-Border E-Commerce journey andsetting up a business plan, companieswould be well advised to consider thefollowing - often overlooked – initialmisconceptions about selling on theChinese e-commerce market.

A popular image exists that merelymaking one’s brand available to China’senormous consumer base will

automatically translate into sales.However, this perception is often based onthe outdated idea that ‘the Chineseconsumer’ is eagerly waiting to buywhatever products, solely because theyare ‘Western’. Although this might holdtrue for some product categories e.g.baby milk formula, where Holland is themost popular exporting country, in itselfthis presumption has been provenunsound.

The emergence of online shopping and thehuge number of foreign merchants andbrands created hyper-competitiveness andover saturation of the Chinese e-market.Accordingly, it would be naive to thinkthat by just making one’s brand availableto the Chinese e-market, the demand willbe there inevitably.


Page | 13

The same goes for the assumption thatbecause a product is popular with Dutchor Western consumers, has a longheritage in Europe, or enjoys a certainbrand reputation, this will be similar in theChinese market. Although globally well-known brands do attract Chinese e-shoppers’ attention, building brandawareness and demand for niche productssold by foreign SMEs in China requiresefforts that should not be underestimated.Again, a brand’s success in the Chinesemarket is not solely dependent on theavailability of its products.

Moreover, the oft-ascribed homogeneity ofChina’s current 181 million cross-bordere-consumers is flawed. As anywhere else,but particularly in a country the size ofChina, Chinese consumer demands canvary completely from age group to agegroup, income level to income level andfrom region to region. Needless to say‘the’ Chinese consumer does not exist.Though this fact to a certain extent puts alimit to idea of a ‘the sky is the limit’consumer base, at the same time it opensnew doors for niche sectors.

It should be clear that selling via CBEC isan entry-level strategy in order to acquiremarket share, brand equity, and arelevant consumer base in China. Asvolumes of products sold will increase, fortax and registration purposes it willbecome more beneficial for companies toengage in traditional trade methods. Thus,ultimately, foreign merchants may useCBEC as a stepping stone to achieve anomni-channel sales strategy whereby theysell their products via traditional channels(both off- and online).

Although CBEC is a comparatively low-cost entry method, (because of minimumtrial-and-error costs and shorter valuechains) merchants should keep in mindthat selling cross-border still requires highinvestments. Estimated costs of beingpresent on the biggest platforms comes ata cost; experts estimate a minimum of 1million RMB (± €130 000) in expenses(including branding, logistics etc.) per

annum. Moreover, deriving from experts’experience, continuous human and capitalinvestments, as well as sustained effortsand commitment on operational andmanagement level are required tosucceed.

Preparations

For all above mentioned reasons, it is verymuch advised that brands spend adequatetime to research their target consumerbase and the general demand for theirproducts in the Chinese market, beforeinvesting in establishing an e-commercepresence. Generally, operational, logisticand legal queries can be solved (both bythis report and by third parties) quiteeasily.

Conversely, fundamental questions like“why will my product sell in China” areworth thorough consideration.

This initial market research can be as low-key as browsing through China’s (cross-border) e-commerce marketplacewebsites with the help of a Chinesecolleague or acquaintance, searching forsimilar brands or products. Alternatively,paying a visit to offline stores in differentregions of Mainland China will provide acompany with a valuable initial indicationof the market’s product availability5.

Apart from initial market research, it isrecommended to also conduct more in-depth research pertaining to consumerpreferences, brand awareness andcompetitors’ presence in the onlinemarket. 6 Brands can articulate anappropriate CBEC plan thereafter.

For more detailed information on thebusiness opportunities of selling online inChina, please refer to the China Cross-Border E-Commerce Opportunity Report.

5 Chinese and Dutch agents with local staff can bepaid to carry out this stocking research6 The Embassy, Consulate-Generals and NBSOs canrefer Dutch companies to selected consultancy firmsin all regions in China, each with their own expertise.


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4. CHECKLIST

The checklist below will serve as a general guideline when articulating one’s cross-border e-commerce business plan. Each step is described briefly below and explained in more detailin the following chapters.

4.1 Rules and regulations

First of all, overseas merchants shouldconsider what rules and regulations applyto the product categories they aim to sellon the Chinese CBEC market. Newregulations stipulated in the beginning of2016 have far reaching consequences forChinese CBEC at large. The new ‘positivelist’ and updated tax regulations can havea substantial impact on considering CBECas an entry strategy for the Chinesemarket.

4.2 Online sales channels for CBEC

The Chinese (cross-border) e-commercedomain developed in a unique way and isfocused on large online platforms, ratherthan stand-alone websites. Theexplanations on the principle of verticaland horizontal marketplaces, an overviewof the most popular cross-border e-commerce platforms, their entryrequirements, entry process, andestimated costs will aid merchants thatare newcomers to the Chinese CBECchannels to acquire a comprehensiveoverview of the myriad of possibilities.


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4.3 Entry strategy and businessdevelopment strategies

Providing two entry and businessdevelopment models for Chinese CBEC,this chapter will clarify in what wayforeign businesses may use the differentplatforms and marketplaces to theiradvantage, and how they could integrateCBEC in a well-rounded omni-channel e-commerce strategy.

4.4 Payment solutions

For foreign companies without a legalentity or bank account in China, gettingpaid for selling their goods on ChineseCBEC platforms can seem challenging atfirst. This chapter will provide a briefoverview of the payment solutions forcross-border e-commerce.

4.5 Logistic solutions (incl. freshfoods and cold chain logisticsolutions)

Foreign companies that seek to exporttheir products to China and sell them one-commerce platforms have generallythree logistic ways to do so. Choosing themost suitable logistic solution can controlcompanies’ risk, investment and operatingmargin. CBEC rules and regulations andthe type of platform will have an impacton what logistic solutions a foreigncompany can opt for.

4.6 Marketing and localisation

The Chinese CBEC market requires adedicated and tailored marketing andlocalisation approach. The marketinglandscape and online ecosystem demandcompanies to take a holistic approach and

assess the different channels andaudience groups before making the bigstep to China. This chapter will provideuseful factors to consider before sellingcross-border to the Chinese onlinemarket.

4.7 IPR protection

Foreign companies should consider therisks of engaging in Chinese CBEC.Intellectual Property Rights violation isone of the main jeopardies overseasmerchants face. This chapter will give anoverview of violations, prevention andprotection measures related to IPRinfringements in Chinese e-commerce.

4.8 Third party service providers

Local experts that can assist in all abovementioned checkpoints are vital in foreigncompanies’ CBEC strategy. This sectionwill deliver a brief overview of the toolsand benefits that third party serviceproviders (TP’s) can offer foreignmerchants. Furthermore, it will addressthe potential risks of cooperating with alocal service provider and presents foreigncompanies with advice on how to choose atrustworthy and suitable local serviceprovider.

Finally, in order to assist Dutch merchantsto start developing their Cross-Border E-Commerce activities in China, this chapteralso features a list of Dutch third-partyservice providers, each with their ownarea of expertise.


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4.1 RULES AND REGULATIONS

When entering a new market, one of theearliest challenges companies encounter isthe unfamiliarity with local rules andregulations. No less is true for venturinginto Chinese Cross-Border E-Commerce. Itis vital to understand these rules, as itmay very well impact the way companies(can) sell their products to Chineseconsumers.

This section will provide businesses withan overview of the current rules andregulations pertaining to CBEC in China.

Inconsistency and clarity ofregulations

Lack of consistency in regulations is one ofthe biggest challenges for companiesengaging in CBEC. At times, the onlyconsistency in regulation apparently inChina seems to be the fact that rules andregulations are ever-changing. This is dueto the fact that, although already a bigmarket, CBEC is relatively new anddevelops rapidly. Many experts agree thatChinese authorities seek to better regulateand tax these new economic activities andto crack down on the grey area ofindividuals running semi-legal e-commerce networks. Governmentcrackdown on Daigou agents – Chineseagents bringing back products to China inperson by mail or in person withoutpaying customs or import duties – hasbeen relatively low in the past years. Thishas allowed a large grey market tosurface, which the Chinese governmentnow hopes to reduce.

In 2016, two new rules “Tax Policy forCross-Border E-Commerce Retail Imports”and “List of Imported Commodities for

Retail in Cross-Border E-Commerce” werecoupled with stronger implementationfrom the Chinese authorities. Upon protestfrom Chinese e-commerce companiesabout the new rules and out of fear oftanking the Chinese e-commerce market,the Central Government decided upon aone-year transitional phase which ends in2017.

Accordingly, Dutch companies should payparticular attention to continuouslyupdated regulations. Moreover, anybusiness should be prepared to promptlymake their CBEC products compliant tothe new regulatory requirements.

Although in China many sectors areheavily regulated, national rules andregulations are often kept general, flexibleand inexplicit. In turn, this allows for abroad scheme of interpretations by localauthorities as well as regular updates tothe rules (for example through ‘positivelists’). Be aware that even though thegeneral outlines of CBEC regulations andprocedures are similar, pilot zones’detailed protocols might differ quiteextensively from location to location.Dutch companies are furthermore advisedto reach out to different pilot zones orseek professional help to betterunderstand the local procedures, and tofind the CBEC pilot zone that best suitsone’s company. Starting out in the rightCBEC pilot zone and being able tonavigate the local rules and proceduresfrom the beginning can save foreigncompanies major fines and relocationcosts, as well as increase profit throughbenefitting from local legal exemptions.

Source: Rkylin


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(Newest) regulations tax rates and payment rules for CBEC

Taxation rules

On 24th March 2016 Ministry of Finance(MOF www.mof.gov.cn), GeneralAdministration of Customs(www.customs.gov.cn) and StateAdministration of Taxation(www.chinatax.gov.cn) jointly issued the“Tax Policy for Cross-Border E-CommerceRetail Imports” to adjust the tax policy forCBEC retail (B2C) imports effective from8th April 2016.

The new rules will greatly influence Dutchcompanies in different sectors. Thetaxation policy has different effects ondifferent import models.

Moreover, the value of a single transactioncannot exceed 2000 RMB and is limited to20.000 RMB per person per year. Abovethis value, general trade rules apply. Inaddition, the 50 RMB tax exemption policyis abolished and single items exceedingthe 2000 RMB limit are handled accordingto general trade tariffs, without ‘personaluse’ exceptions.

Positive list

On 7th April 2016, 11 ministries andcommissions of China including Ministry ofFinance (MOF www.mof.gov.cn), ChinaFood and Drug Administration (CFDAwww.sfda.gov.cn), General Administrationof Quality Supervision, Inspection andQuarantine (AQSIQ, www.aqsia.gov.cn),Ministry of Agriculture (MOA,www.moa.gov.cn), General Administrationof Customs (GACC, www.customs.gov.cn)co-released the “List of ImportedCommodities for Retail in Cross-Border E-Commerce”. This “Positive List” includes1142 different tariff lines covering foodand beverages, clothing, footwear, hats,home appliances, cosmetics, diapers,children’s toys and other items commonlypurchased by Chinese consumers on e-commerce platforms. On 15th April, the“Positive List-2nd Batch” was announced.

This list includes 151 items covering meat,fruit, grain, cooking oil, health food andmedical devices.

The positive lists, published in twobatches, involve a total of 1293commodity categories, categorised in 8-digits HS codes. The goods included in thepositive list are exempted from submittingan import licence to Customs. However,products under CFDA rules requireregistration prior to import (see page 17).The new regulations stipulate that onlythe listed commodities can be imported toChina through cross-border e-commerce.For companies that want to make use ofthe bonded import or formal direct mailingmodels, it is of utmost importance tocheck whether one’s products are oneither of the lists.

The current positive lists can be accessedin Chinese (I and II) and in English (I andII), or in the appendix.

Import Models

Before explaining the impact of the newrules, it is important to understand themajor import models of cross border e-commerce and how different models work.Currently there are two main models ofcross-border e-commerce: the bondedimports and direct purchase imports.

Bonded imports:

Bonded imports include bondedwarehouse model (B2B2C) and directmailing (B2C) model.

Bonded warehouse model (B2B2C):‘stock first, order later’. Products on twolists of 1,293 HS codes can be imported inbulk into approved CBEC bondedwarehouse zones across China. AfterChinese consumers place orders throughcross- border e-commerce sites, these


Page | 18

products go through customs clearancedirectly in the bonded area and are thendelivered. Consumers will normallyreceive their goods within 2-3 days.

Direct mailing (B2C) model:‘Order first, deliver later’. AFTERcustomers place orders on registeredcross-border e-commerce platform, theplatform needs to submit the records oforder, shipment and payment to customs.At the same time, the products will beshipped from an overseas distributioncentre that is linked to Chinese customs.Only when these three records of a singlepurchase are in accordance, the parcelcan be released.

Bonded imports are subject to both newtaxation rules and positive lists. Forbonded imports, personal postal articlestax will no longer be levied. Instead, foronline imported commodities both underthe bonded warehouse model (B2B2C)and direct mailing model (B2C) importtariff, VAT, and consumption tax will belevied upon customs clearance. In thetransition period (until the 31 December20177), temporary rates are set. The taxrates under the new CBEC Retail Importscan be found in Table I.

7 According to a statement released by the Ministryof Commerce on November 15th 2016, the newestrules and regulations issued in April 2016 arepostponed until 31 December of 2017.

Direct Purchase Imports (B2C)Products which are not on the CBECPositive lists can also be shipped directlyfrom overseas merchants (B2C) andindividuals (C2C) to China via the postaland courier system. We refer to this as:Direct Purchase imports. New rules do notaffect Direct Purchase import, except forthe tax rates. This is to say, Dutchcompanies that opt to ship their productsfrom overseas to Chinese consumersdirectly by using postal and courier servicewill be subject to 8 April 2016 regulationson personal postal tax only. It is importantto note that Direct Purchase imports taxwill only be levied when customs checkthe parcel during regular checks.

Furthermore, Chinese customers areobligated to pay personal postal tax ifthey purchase goods from abroad (B2C)or through individual (C2C) that sendthem to China by post or internationalcourier service. Unlike with the bondedimports, Chinese customs will treat theimported product as a product forpersonal use, thus taxed by personal tax:15%/30%/60% depending on category,which is waved if it amounts to less than50 RMB. Additionally, the low postal tariffsChina benefits from due to internationalagreements8 make this an attractive modeof import for many Chinese consumers.

For personal parcel imports, the newestregulations can be found in Table I.

The latest details on tax policy can beaccessed on the website of the ChineseMinistry of Finance, the GeneralAdministration of Customs and the StateAdministration of Taxation.

8 China is considered a developing country inUniversal Postal Union agreements and thus benefitsfrom discounted tariffs.


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Table I: (Temporary) Import Tax policy for different import model9

Bonded Imports Model (B2B2C)From bonded warehouseDirect Mailing Model (B2C)From overseas distribution centre

Direct Purchase ImportsFrom overseas merchants (B2C) &From individuals (C2C)

Tax andduties

RatePersonalpostalarticles taxcategory

Goods categories Taxrate

Import tariff Temporarily set at 0%

1 Books, magazines, and

educational audio-visualproducts; computers, videorecorders and digital cameras;food, beverages; gold and silver;furniture; toys, games, festiveand other recreational articles

15%

Value-addedtax (VAT)

Levied at 11,9% (normalflat VAT is 17%)4

2 Sports goods, fishing equipment;textiles and textile products; TVcameras and other electricalappliances; bicycles; other goodsnot included in categories 1 and3

30%

Consumptiontax

Levied at an equivalent to70% of the standard rateapplicable to the type ofgoods

3 Tobacco, wine; preciousjewellery and jade, golf clubsand equipment; high-endwatches; cosmetics

60%

Source: HKTDC Research

9This is a temporary rate, at an equivalent to 70% of its standard rate. Statutory VAT levy rate is 17%. Hence, under the

temporary policy: 17% x 70% = 11.9%


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Customs Clearance of EntryCommodities (Clearance Form)

Before the new policy regulations, goodsimported through CBEC were generallysubjected to humbler customs inspectionsand quarantine (CIQ) procedures. However,the new rules more or less resemble generaltrade procedures.

Hence, the new CBEC rules stipulate theissuing of a Customs Clearance of EntryCommodities (Clearance Form) beforebonded goods can be cleared. Theexamination on the goods’ compliance withChinese requirements by the Quarantine andInspection Authority obliges, among otherthings:

- A copy of the Business License;- A copy of the Organization Code

Certificate;- Firm Information Registration Form;- Transaction, payment and logistic

information;- Cross-Border E-Commerce Retail

Import/Export Declaration List

For detailed information regarding theClearance Form please refer to the GACCOfficial Announcement [no.26] in Chinese orEnglish.

Please refer to the digital version for the web links

Detailed regulatory requirements differper product. Therefore, Dutch companiesare encouraged to seek professionalassistance from third party serviceproviders for tailor-made information andadvice on their products.

For the latest (English) reports onregistration and filing requirements,please refer to the website of ChemicalInspection and Regulation Service (CIRS)and for detailed (English) announcements,rules and regulations on Customs pleaserefer to the General Administration ofCustoms of the People’s Republic of China(GACC).

Registration and filing requirements forcertain products

Starting from January 2018, certain goodsstored at bonded warehouses will also haveto obtain certification from the China Foodand Drug Administration (CFDA) before salein Mainland China.

According to the new positive lists certainproduct categories will need to follow thesame registration or filing requirementsrequired for products imported throughgeneral trade channels, or for thoseproducts sold at Chinese (non-cross border)e-commerce platforms.

Depending on the product category CFDAdemands imported goods either go through‘registration’ or ‘filing’ procedures. Herebyproduct registration is a lengthier andstricter procedure than filing (see below).

CBEC product categories that requireregistration or filing are cosmetics, infantformula milk powder, medical devices,health food and food for special medicalpurposes (FSMP).

CFDA filing and registration are extremelylengthy procedures (two up to five years)and can be summarized as follows:

Filing procedure:

1. Sample testing;2. Dossier preparation;3. Dossier submission;4. Filing approval.

Registration procedure:

1. Sample testing;2. Dossier preparation;3. Dossier submission;4. Technical evaluation;5. On-site verification and re-testing;6. Registration approval.

Under existing regulations, productscategories found in Table II require theCFDA registration of or filing.


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Table II: Registration or Filing of special categories

Categories Includedor not

Details

Alcohol

Most areexcluded

I. Small packaged wine (< 2L) is included in the positivelists.

II. Other alcohols, such as other packaged wine, beer,and distilled spirits are all excluded.

Common pre-packagedfood Most are

included I. Most categories of common pre-packaged foods areincluded in the positive list (refer to the list for details)

Cosmetics

New areexcluded

I. The positive lists exclude those cosmetic products thatare imported to China for the first time.

II. Relevant filing or registration license at CDFA isrequired.

Dairy products

Most areexcluded

I. Yoghurt, cheese, butter etc., are listed.

II. Liquid milk (including pasteurised milk, UHT milk,modified milk), and milk powder (except formulated milkpowder) are all excluded from the positive list.

Fresh food (vegetables,fruits, animal products)

Part areincluded

I. Many limited to commodities imported viaCBEC under the bonded warehouse mode.II. Companies and products must be registered withAQSIQ and CNCA.See chapter on fresh food and cold chain logistics.

Health food & FSMP

Most areexcluded

I. Nutrition supplements must be filed with CFDA

II. Health foods must be registered with CFDA

Infant food

Part areincluded

I. Only registered infant formula milk powder under CFDAcan be imported by CBEC, no exemptions.

II. Other pre-packaged common infant foods are allincluded.

III. Currently only a draft on formula registration ofinfant formulated milk powder exists. Hence, theregistration certificate is not required until January 12018.

Medical devicesMost areexcluded

I. Medical devices imported via CBEC must be incompliance with CFDA regulations.II. Registration or filing with CFDA is required

Source: CIRS and Swiss Business Hub China


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Impact of the new regulations

One of the biggest advantages of CBEC

over general trade was the relative low

taxation and simpler CIQ procedures.

Before the newest regulations, Dutch

companies were able to sell their products

to the Chinese market swiftly via CBEC.

However, for the aforementioned special

categories (relevant to a fair share of

Dutch exporters) CBEC will no longer be a

channel to import their products to China

without CFDA licensing.

Moreover, the new taxation rules certainly

increase tax burdens for Dutch CBEC

exporters. Though, compared to duties

levied on general trade, bonded imports,

direct mailing and direct purchase import

CBEC are often cheaper, especially for

general consumer goods.

In short, price-wise the best import model

does very much depend on the products

to-be-imported. This is illustrated by the

comparative examples in the chart below.

For different commodities merchants

should consider different ways of import

and different logistic solutions. The latter

will be elaborated upon in the logistics

solutions section in 4.5.

Comparative example: Cosmetic products (on Positive List) priced at 400 RMBImport method Tax payable Price after clearance

General trade - 400 RMB +- Tariff (6.5%-18%) +- VAT (17%) +- Consumption tax (30%)

614-660 RMB

Direct purchase import(if checked by Customs)

- 400RMB +- Personal postal articles tax

category 3 (60%)

640 RMB(no waived tax)

Bonded import / DirectMailing

- 400RMB +- Tariff (temporarily 0%) +- VAT (11.9%) +- Consumption Tax (21%)

531,6 RMB

Comparative example: Books priced at 100 RMBImport method Tax payable Price after clearance

General trade - 100 RMB +- Tariff (0%) +- VAT (13%) +- Consumption tax (0%)

113 RMB



category 1 (15%);

100 RMB(115 RMB, but waived tax)

Bonded import / Directmailing

- 100RMB +- Tariff (temporarily 0%) +- VAT (70% x 13%) +- Consumption Tax (0%)

109,1 RMB

Comparative example: Cheese (on Positive List) priced at 100 RMBImport method Tax payable Price after clearance

General trade - 100 RMB +- Tariff (12%) +- VAT (13%) +- Consumption tax (0%)

113 RMB



category 1 (15%)

100 RMB(115 RMB, but waived tax)

Bonded import / Directmailing

- 100RMB +- Tariff (temporarily 0%) +- VAT (70% x 13%) +- Consumption Tax (0%)

109,1 RMB


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Deadlines of the transition policy

A transition period for companies to adaptto the new regulatory requirements wasgranted in pilot cities by the Chinesegovernment. Until 31 December 2017products not on the positive list are stillexempted from checks of their CustomsClearance Certificates, and first-timeimported cosmetics, baby formula,medical equipment and food products forhealth/medical purposes are not requiredto provide import permits, registration orfiling. Hence, until the end of 2017 theycan ship these imported goods to bondedwarehouses in the pilot cities, or via thedirect mail model without having tocomply with rules from April 8, 2016 oncross-border e-commerce activities.Important to note here is that theRegistration Measures for these productsalso include tighter and more detailedrequirements for (amongst others)manufacturing and labeling, of which it iscurrently unclear if the Chinesegovernment also applies leniency to this.It is wise to consult with policy expertsbefore importing any of these productsduring and after 2017.

Moreover, this grace period should only beregarded as a postponement. While cross-border e-commerce remains an attractivechannel to sell products to Chinesebuyers, Dutch exporters are advised toregister their products with Chineseauthorities as early as possible before theend of the regulatory grace period on 31December 2017. As the duration of filingand registration applications are oftenextensive, companies currently doingCBEC business are suggested to start andconsider the application process sooner,rather than later. Advanced preparation ofthe required materials will shorten thecertificate application duration and make

the entrance to Chinese market relativelyeasier via CBEC at large.

Future developments

Chinese authorities have generally shownto be interested in and supportive ofCBEC. Though, supervision on CBEC-imports is most likely to tighten in thefuture, rather than loosen. As is commonin China, discovering the best policyapproach is conducted on a trial-and-errorbasis.

However, the process of custom clearanceis uncertain. Positive lists requireverification and registration of goodsimported via bonded zones/warehouses(in contrast to direct internationaltransport to Chinese customers) by‘Customs Clearance of EntranceCommodity’. Although traditional importsalready require these forms,implementation for cross-border e-commerce is unclear and likely to bedetermined by the interpretation andexecution of inspection and quarantine ofproducts by pilot cities like Shanghai

Finally, some experts believe that localauthorities of the several pilot cities willhave a great say in how to interpret andimplement the new CBEC rules. Therefore,in the long term, CBEC policies andregulations will differ, to a certain extent,from place to place.

Companies are advised to consult therespective local CBEC authorities’ website,or third party service providers forupdated rules and regulations, andtailored information respectively, in orderto find out which Cross-Border E-Commerce Comprehensive Pilot Zones willsuit their businesses best.


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4.2 ONLINE SALES CHANNELS FOR CORSS-BORDER E-COMMERCE

The vast development of CBEC activities inChina brings about a high demand forforeign brands and products. Afterthorough consideration of why a brand’smerchandise could be successful withChinese consumers, an initial scan of thee-market, and checking the rules andregulations that may apply to one’sproducts, businesses should be ready toconsider the sales channels through whichthey can actually sell their products.

The purpose of the ‘sales channels’ sectionis to provide companies interested inChinese CBEC with a comprehensiveunderstanding of those main marketplacesand their characteristics available forcross-border e-commerce.

Background on online-sales channelsin China

On an individual level, Chinese onlineconsumers find and purchase foreignproducts through various channels.

Before the current trend towards officialB2C channels, CBEC to China was mainlythe domain of purchasing agents, socalled daigou. Via C2C platforms, such asTaobao, these purchasing agents sellsmall quantities of overseas products,which they acquired from abroad directly.These products (e.g. milk powder) arethen sent to the customers by means ofdirect mailing, without paying any importduties, nor passing by mandatory customsinspections as would be the case withnormal trade.

Due to the fact that import procedures areoften a lengthy process and taxes cansurge to 50 percent of the product value,alternatives to traditional trade are in highdemand. Despite their success, due tocurrent developments in CBEC, moreofficial B2C channels are quickly replacingC2C purchasing agents. According toiResearch Global, in 2012 the ratio of

percentage online retail sales of importedgoods via C2C vs. that of B2C channelswas 98.9% vs. 1.1% respectively. Onlyfour years later, in 2016, this ratio was43.6% for C2C vs. 56.4% for B2C.Needless to say, as merchants on B2Cplatforms have to be established andauthorised abroad, these companies andtraders are considered more trustworthy.This is a great advantage and offersopportunities for Dutch merchants.

Even though these B2C cross-border e-commerce possibilities exist, Chineseconsumers rarely buy overseas productsvia stand-alone websites or third partyplatforms outside of China. The highshipping costs, slow delivery, problemswith dissimilar payment methods, slow ofdifficult website access due to the ‘GreatFirewall’, risks of blockage by customs,and the lack of customer services (e.g.return policy), let alone the languagebarrier, are reasons behind thisreluctance.

Rather, Chinese customers use stand-alone websites in China or - by far mostpopular - a third party platform insideChina. These options are preferred due tofast and cheap delivery, customerservices, integration of Chinese paymentmethods, and an enhanced feeling of trustthat the ordered product actually willarrive on ones doorstep.

Recently, nearly all major e-commerceplatforms in China opened new B2Cchannels specifically for products fromabroad. For instance, the biggestmarketplaces on the Chinese domestic e-markets, Alibaba’s Tmall.com andJingdong’s JD.com, initiated their CBEC-variants; Tmall.hk and JD.hk.Respectively Tmall Global and JDWorldwide (among others) sell foreignproducts directly from abroad, either viadirect sourcing or via bonded warehousesin Mainland China, to Chinese customers.


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Cross-Border E-Commerce Models Platforms

Currently there are six major models forbrands to sell their products via CBEC toChinese customers: via a brand’s stand-alone web shops outside China, via shopfronts on online malls, via self-operatedhypermarkets, via vertical specialtymarketplaces, via flash sales sites and viaWeChat stores.

Although all of these models can be usedto sell foreign products without obtaininga business license in China, some saleschannels are far more well-known thanothers. Nevertheless, using huge, leadinge-commerce platforms will certainly notguarantee success stories. Consideringless evident or niche sales channels mayvery well be more lucrative for DutchSMEs and smaller brands.

Below, advantages and disadvantages ofeach model, their entry requirements, andgeneral entry procedures will beintroduced. Moreover, the most famousmarketplaces in each model will be brieflyintroduced as to provide companies with awell-rounded view of all options available.For an overview of China’s main CBECplatforms, refer to Figure II below.

Figure II. China’s main CBEC platforms

Online Malls Hypermarkets

Chinese e-consumers almost exclusivelyshop on third-party online marketplaces tobuy their goods rather than on stand-alone websites (either domestic or foreignbased). 54% of Chinese consumers wantto shop on global market places in thefuture, 65% (also) do so on the globalchannels of Chinese e-commerce sites.10

Different from domestic Chinese websitesthat require a Chinese business entity,there are separate markets for productswhich are imported or sent from abroad.Many domestic e-commerce platformshave a section, or entirely differentwebsite, for products from outside ofChina.

As mentioned in last year’s OpportunityReport; “overseas products have becomea category in its own right”.

Only companies with a Chinese entity canopen a store on regular B2C platforms,while only companies with a foreign entitycan open a shop on cross-borderplatforms. Chinese third-party CBECplatforms come in a variety of models. Asthese platforms offer a lot of businesspotential for foreign merchants, it isessential to have a good overview of thepossibilities, requirements and costs thatcome with each model. Dutch companiesmay approach different platforms directlyto obtain relevant information

Specialty Flash sales WeChatMarketplaces websites stores

10 iResearch 2016/Ecommerce Foundation: SeeAnnex 2


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Annex II. Preferred platforms by Chinese consumers for future CBEC purchases (2016)

Source: iResearch 2016 / Ecommerce Foundation


Page | 27

Stand-alone web shops (outside China)

Selling products directly to China via awebsite hosted outside of China at firsthand might seem to be the mostconvenient and cheapest entry option forthose brands that do not have a legalentity in China.

However, the chances of success in Chinawith a foreign stand-alone website arevery limited. Traffic is alreadymonopolised by big Chinese e-commerceplatforms. Creating one’s own traffic iseven more costly than being active on theplatforms. Due to internet restrictions,even if the website is translated toMandarin, Chinese e-consumers areunlikely to find the website. Moreover, ifChinese consumers can find the website,issues with after-sale support, refund orexchange schemes, and compatibility withChinese payment methods (e.g.UnionPay) makes direct selling fromabroad nearly impossible. In addition, fewChinese consumers are willing to bear thedelivery risks of this kind of CBEC.Therefore, this model is not a viableoption for foreign merchants that want toenter the Chinese e-market, and willtherefore not be elaborated upon in thisreport.

Online Malls

Online malls are large, well known,marketplaces where e-customers canroam around to select items from differentindependently operated shopfronts(stores). Different from websites likeAmazon.com, they provide a centralisedplatform (similar to an offline mall) wheregoods from a variety of individual shopscan be purchased from a merchantdirectly with a single transaction via theoverarching marketplace checkoutsystem. The most famous examples ofonline CBEC malls in China are TmallGlobal and JD Worldwide.

On several platforms the shopfronts arebranded according to country of origin.Good examples are Tmall Global’s and JDWorldwide’s country pavilions. After theState Visit in 2015, the Netherlands hasbeen selected to have its own ‘HollandPavilion’ on Tmall Global (see Figure III.on the next page). On JD Worldwide thereis a European Pavilion.

Figure III. Example of an online mall (Philips on Tmall Global)


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Hypermarkets

The hypermarket model, different fromthe online mall model, is based on B2B2CCross-Border E-Commerce. Therefore,Chinese e-customers are reachedindirectly by overseas suppliers. Theintermediary is the hypermarketmarketplace that charges a mark-up fromthe wholesale price to retail prices on theironline platform. ‘Pure’ hypermarkets, suchas Kaola and Jumei, purchase a greatvariety of popular goods directly fromoverseas companies and adds them totheir own product assortment. As a result,they only have one shopfront, and notcountless individual brand shops.

In turn, products are stored and deliveredthrough their own online platforms anddistribution centre. Foreign companies anot required to manage distributions ofoperate shop fronts. Companies can sell toa hypermarket via a procurementmanager with whom they negotiate theprice. Furthermore, popular brands andhigh-turnover items may find it easier tosell their products because hypermarketplatforms are more confident to bare therisk of storing and distributing theseitems.

Many CBEC platforms currently offer boththe online mall and the hypermarketmodel to foreign merchants. However, fordirect purchasing, these hybrid platformstend to focus on certain categories andbrands for overseas products, which theyexhibit on either their domestic or CBECplatforms. For example, JD concentratesits overseas’ products on domesticwww.jd.com to categories like wine,watches, handbags and milk powder.

Figure IV. Hypermarket model

Source: JD Worldwide

A selection of different brands that sellmilk powder on JD’s cross-border e-commerce hypermarket: JD Worldwide.

Vertical specialty marketplaces

The specialty marketplaces typically buygoods directly from overseas suppliers.Different from hypermarkets, they focuson specific product categories, targetaudience or geographical region. In recentyears many specialty marketplaces haveentered the competition with the largestonline malls and hypermarkets.

Despite the fact that consumer traffic islower and the product catalogue is limited,specialty marketplaces provide brands inniche-markets with a valuable opportunityto sell their goods which would likelyremain under the radar of consumers onlarge e-commerce platforms. Traffic onspeciality marketplaces tends to be morequalitative, with a higher conversion intosales.


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Figure V. Specialty Marketplace

As one would expect from the name, ‘specialtywebsites’ dedicate their marketplaces to certainniche categories. For instance, beibei.com (seebelow) specialises in mother and baby products.

They present a good CBEC opportunity forDutch retailers with a specialised range ofproducts.

Source: beibei.com

Figure VI. Flash sales websites

Christmas flash sale, ending in 17 hours and 39minutes on the European pavilion of VIP.com

Source: VIP.com

Flash sales websites

Flash sale, or ‘branded sales’ sites focuson offering limited quantities of new-to-market, or surplus products at highlydiscounted rates for a limited period oftime (according to the gone=goneprinciple).

As consumers go to these sites especiallyto hunt the newest overseas gadgets,flash sales sites can be an effective trialtool for foreign merchants to test their(newest) products in the Chinese marketbefore venturing into more substantial(cross-border) e-commerce activities. Atthe same time flash sales websites can beconsidered an effective marketingtechnique to give more exposure to one’sbrand.

Despite the fact that these website sell‘limited quantities’ of products, the marketsize of the Chinese flash sales web shopsis substantial. Therefore foreign sellersought to keep in mind that the ‘limitedquantity’ of products that are allowed tobe sold via these websites during a certainperiod of time can still be a vast amountof goods that need to be supplied by smallto medium sized companies once theproducts prove popular. Therefore, SMEsmay encounter sudden stock shortageswhen dealing with these platforms’procurement demands. In this case it ispossible to sell their products first B2B tosmaller trading partners, also referred toas TPs (read more in section 4.8). Whensaid products prove to be in high demand,new negotiations with flash sales websitesfor larger quantities can be initiated.


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Cross-Border E-Commerce Online Malls

Tmall Global (www.tmall.hk), the sister-website of China’s leading online marketplace Tmall, isChina’s first and largest official cross-border B2C platform, and therefore its most famous. Owned byAlibaba Group, it was launched in 2014 and sells imported merchandise only via foreign merchant’sstores hosted on Tmall’s website. At the end of 2015 Tmall Global offered more than 5400international brands in various categories. As mentioned above, Tmall opened various countrypavilions, which bundle products of different merchants from the same country on one page (seeFigure V.).

The Netherlands held a 6th spot among the 53 countries Tmall Global shoppers ordered from most. Ituses Alibaba’s online payment escrow service, Alipay, to complete transactions in a preferredcurrency.

JingDong (JD) Worldwide (www.jd.hk) is the largest competitor of Tmall Global as China’s secondlargest online mall. Moreover, JD is China’s largest (direct sales) hypermarket, with a 54% marketshare. JD dominates in home appliances and consumer electronic goods. Direct sourced foreignproducts are shown on JD’s domestic website (www.jd.com) and indicated by a special sign.

JD has seven fulfilment centres and 200 warehouses across China. Furthermore, it operates with morethan 5000 of its own delivery and pickup-stations. JD launched its cross-border website, JDWorldwide, in 2015. For its hypermarket model JD Worldwide purchases inventory from overseascompanies and resells it to Chinese consumers. For its online mall model JD Worldwide hosts foreignbrands’ flagship stores similar to Tmall Global. JD uses Tencent’s online payment escrow service,Tenpay, to complete transactions in US Dollars.

Suning Global (g.suning.com) is the CBEC online mall of China’s largest commercial company,Suning, and launched in 2014. It currently features about 300 foreign shopfronts and offers integratedlogistics (4 aviation hubs, 12 automatic picking centres and 660 urban distribution centres), storeoperator and financial support services. Their most popular product categories are electrical appliancesand maternity & baby.

Similar to JD, Suning’s CBEC hypermarket (hk.suning.com) is stocked by direct sourcing.

It uses its own online payment escrow service, Yi-Pay, to complete transactions in RMB or foreigncurrency.

Amazon China Global Store (www.amazon.cn/globalstore) is Amazon China’s CBEC platform forChinese customers. Brands can sell their products without an annual fee. Commission is based onsales only. These referral fees, depending on the product category, are paid on each item sold. OnAmazon each product has its own independent page – if more than one seller sells the same items,offers from different sellers will appear in a ‘more buying options’. It uses Alipay, Tenpay andUnionPay online payment escrow services to complete transactions in RMB or foreign currency.


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Fees of China’s largest CBECmarketplaces

The general characteristics on the entryprocess, operating models and the basiclicensing requirements for selling via eachof the largest cross-border marketplacescan be found the appendix.

Both opening as well as operating a shopfront on the largest platforms is generallyvery costly. Besides continuouscommitment and investments in their owne-commerce team and TP, companies thatseek to open a shop on one of the CBECplatforms should take in consideration thefollowing fees.

Table III: Breakdown of deposits and fees (Tmall Global, JD Worldwide, Suning Global andAmazon China Global Store).

Source: Tmall Global; JD Worldwide; Suning Global; Amazon China

11 The commission fee is calculated using the product price and the logistics cost.12 A detailed Commission Fee Schedule can be found on Tmall Global’s website (English)13 A detailed Commission Fee Schedule can be found on Suning Global’s website (Chinese)14 A detailed Commission Fee Schedule can be found on Amazon China’s website (Chinese)15 Alipay Service Fee =((Product Price) + (Logistics Fee))* .01 – source: www.tmall.hk

Tmall Global JD Worldwide Suning Global Amazon ChinaGlobal Store

Security Deposits150 000 RMB or 300000 RMB, depending

on the type ofproducts sold by the

merchant

10 000 USD or15 000 USD,

depending on thecategory of products

10 000 USD 5000 – 50 000 RMB,depending on the

category of products

Annual PlatformFee 30 000 RMB or

60 000 RMB,depending on

different operatingcategories

1000 USD per year 5000-10 000 USD,per year depending

on differentcategories

Annual Fee ReturnPolicy 50%-100% if

target sales areachieved

NB: In 2017 SuningGlobal will cancel

the annual platformfee

N/A

Commission Fee11

0,5% - 5%, basedon the category ofthe product sold.12

2% - 10%, based onthe category of the

product sold.

2% - 6%, based onthe category of the

product sold.13

5%-15%, based onthe category of the

products sold.14

Payment ServiceFee 1% commission per

transaction viaAlipay.15

N/A N/A

N/A


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Assessment of China’s biggest CBEC marketplaces

The section below will provide the general characteristics on the entry process, operatingmodels and the basic licensing requirements for selling via each of the largest cross-bordermarketplaces.

Tmall Global

Entry Process

Tmall Global allows foreign brands without a Chinesebusiness entity to sell to consumers directly byopening their exclusive flagship stores. Though,since March 2015 companies are required to useauthorised third party service providers, so called‘TPs’.

Via the ‘Partnership Business Structure’ a local TPwill help the foreign brand to open a Tmallshopfront. The brand is responsible for the products,branding and marketing strategy whilst it outsourcesdaily operations16 of the storefront to the TP.

After investing considerable time and resources intoentry preparations, setting up a shop will take 4-8weeks.

Basic requirements17

- A registered corporate entity outside of MainlandChina;

- Overseas retail and trade license;- Own the brand or be an authorised distributor;- Chinese customer service must be provided;- Product returns should be handled in China.

Since 2015 shopfront registration for Tmall Global is oninvitation-only basis.

Admission priority

- Well-known international brands without officialpresence in China;

- Merchants with a turnover of at least 100 000000 RMB

JD Worldwide

Entry Process

JD has three operating modules;1. Franchise Business Partner – brands open a

storefront on JD Worldwide. JD is fullyresponsible for warehousing, delivery andcustomer service;

2. Licensing Business Partner - companies canset up their own store and handle alllogistics, JD will supervise customer serviceand invoice

3. Self-Operation Partner – brands open astorefront on JD Worldwide and take care ofwarehousing and delivery themselves.

In order to sell products or open a store on JDWorldwide, merchants should directly contact thecategory sales of JD according to the productcategory they wish to sell their goods in. Theircontact details can be found on JD Worldwide’swebsite. Although not required, it is strongly advisedto use a reliable TP for business on JD Worldwide.

Basic requirements18

- A registered legal entity outside of MainlandChina;

- Overseas retail and trade license;- Own the brand or be an authorised distributor or

franchiser;- Chinese customer service must be provided and

product details page should be written inMandarin;

- Products must be dispatched within 72 hoursafter order placement;

- Product return centre must be available inMainland China.

Admission Priority

- Reputable overseas products;- Excellent operation team and infrastructure;- Reputable B2B/B2C online companies, or

experience brand owners and retailers in e-commerce;

- Following categories: maternal and baby,apparels and accessories, cosmetics and personalcare, health supplements, food, bags, luggage,watches etc.

16 Including store maintenance, product content editing, customer service, fulfillment, shipping and warehousing.17 Source: rule.tmall.hk18 Source: JD Worldwide (www.jd.hk/service/joinus.tml)


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Suning Global

Entry process

As a hybrid platform Suning Global has twocooperation models;

1. Entry Model – Suning provides storeoperator, logistics and warehousingservices;

2. Procurement Model – Suning purchasesfrom overseas partners directly;

On Suning Global, although not required, it isstrongly advised to use a reliable TP.

Basic requirements

- A registered legal entity outside of MainlandChina;

- 100% foreign sellers, 100% overseas goodsmailed from abroad or bonded areas;

- Own the brand or be an authorised distributor orfranchiser;

Preferred requirements

- Famous overseas brand or B2C website that hasnot yet entered China;

- Operating team with experience in e-commerce ofat least two years;

- Following categories: mother & baby products,clothes, cosmetics and health products, footwear,bags and suitcases, food;

- Members of Tmall Global, JD Worldwide and otheroverseas B2C websites.

Amazon China

Entry Process

Amazon China Global Store provides two modes ofcooperation.

1. Self-distribution: independent warehousing,distribution and customer service.

Costs: commission fee

2. Use Amazon logistics: storage, distribution,customer service and cash on deliveryservice is done by Amazon.

Costs: commission, logistic fees, storagefees.

Basic requirements

- A registered corporate entity outside of MainlandChina;

- Own the brand or be an authorised distributor;- Self-distributors have to make sure they can

deliver goods nationwide;

Companies that submit their electronic applications willhave to wait for three working days to get their auditcompleted.


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Advantages

Shopfronts are fully operated by individualmerchants. This means that sellers areresponsible to manage and operate theirown shopfronts and are required to takecare of their shopfront design, productpricing, marketing, order fulfilment, aswell as customer and delivery services. Inturn, they can benefit from the enormouscustomer traffic, the reliable reputation,marketing opportunities, and matureinfrastructure that these marketplacesoffer.

For leading international brands a flagshipstore presence on either Tmall Global orJD Worldwide is almost compulsory. In thesecond quarter of 2016 their marketshares of China’s huge domestic marketwere 54.4% and 26.3% respectively. It isimportant to Chinese customers that abrand is present on Tmall or JD, becauseit is regarded as proof that a brandmatters. This is why, especially from abranding perspective, brands that can(financially) afford to be present on theseonline malls will definitely choose to opentheir own shopfront on Tmall or JD.

Disadvantages

Of course establishing an official CBECshopfront on a potentially lucrative onlinemall is not without costs and otherpreconditions. On the previous pages anoverview of the biggest online malls,platform service fees and otherrequirements has been provided. Theextreme costs, a minimum of 1 millionRMB (± €130 000) per year may very wellfrom an obstacle to t many entrants to theChinese market. Moreover, due tomandatory promotions, and pressuredprice undercutting the big online mallsoften try to play brands off against oneother to get the lowest prices for their e-customers. The result is a ‘race to thebottom’ with an extraordinary highcompetition amongst companies.Therefore, being present on Tmall or JD,even after all the investments may notnecessarily result in good sales records.

Figure VII. Holland Pavilion on Tmall Global

Please make sure to consult any of themarketplaces directly for updated andmore detailed information.


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Medium-size vertical CBEC platforms

Kaola (www.kaola.com) is a cross-border e-commerce hypermarket platform with the largest bondedwarehouses in China. Hence, its main ‘global partnership’ model is direct purchasing of large quantities ofoverseas goods (B2B2C). Via self-operated bonded warehouses Kaola mainly sells products related to healthand wellness, including mother and baby products, cosmetics, skincare, sports and outdoors, and healthfoods. Country stores are available, although Dutch products are not (yet) a category in its own right.

Moreover, companies can set up ‘POP stores’ at Kaola’s platform operated by third-party merchants, or optfor a hybrid option, whereby they both open a shopfront (B2C), as well as participate in direct sales to Kaola(B2B).

Xiaohongshu (www.xiaohongshu.com), translating as small red book, is a rapidly growing CBEC platformwith over 17 million registered users. As the key example of a social selling, it allows Chinese users todiscover and purchase foreign products posted by like-minded users. Being a large word-of-mouthmarketing platform Xiaohongshu is the gateway to reach Chinese consumers, especially females under theage of 30. The social platform is mostly used to discover cosmetics, skin care, food, nutrition, mother &baby, household, small appliances & electronics, fashion categories.

Currently Xiaohongshu is looking for quality brands and retailers to partner with.

Yiguo (www.yiguo.com), founded in 2005 and based in Shanghai, is the leading fresh food e-commerceplatform in China in terms of volumes of fresh food sales. Yiguo sells over 3600 SKUs of fresh fruits in 8categories including; fruit, meat, seafood, vegetable, poultry, beverages, desert, and grain & oil products. Itis a one-stop fresh-food service provider that manages each step of the food procurement process, cold-chain quality control, order processing and food distribution. Moreover, since 2014 it partnered with Alibaba,making Yiguo the exclusive operator of Tmall Supermarket’s ‘Fresh Food’ category.

In 2015 Yiguo covered 27 provinces and 301 cities across China, serviced by Yiguo’s subsidiary, ExFresh (安

鲜达) - China’s largest cold-chain logistics service company - and third party contractors.

Besides local and imported produce, Yiguo seeks to increase direct purchasing overseas to cater to the ever-changing and more demanding tastes of Chinese CBEC consumers, which are looking for more varieties offresh products from abroad.

VIP.com (www.vip.com) was launched in 2008 and opened their CBEC-website, VIP International(global.vip.com) in 2014. They have 200 million registered users. Currently the section of VIP International

is only responsible for 4% of VIP sales, but it is expected that CBEC will take over normal e-commerce by2018.VIP operates under the so-called ‘branded sales events’ (flash-sales) model. As such, they specialise inoffering products that are either completely new to the Chinese market, discontinued or surplus stock. Foroverseas products VIP main focus is on mother and baby products.


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WeChat

A unique feature of Chinese e-commerce is its connection with social media. The biggestadvantage of using unique social media applications, such as WeChat, is that companies canboth sell to, and, engage with their customers/followers on one overarching platform whichis deeply embedded into everyday (Chinese) lives.

Providing a brief account on the ways social selling on WeChat is connected with CBEC isvital for companies that seek to enter the Chinese CBEC market. The use of WeChat as asocial branding mechanism will be covered in the ‘social media’ section of this report.

WeChat

Besides individual users’ accounts,WeChat offers range of choices forbusinesses to initiate a corporate or publicWeChat account. Currently companiesmay choose between three public WeChataccounts:

o WeChat Subscription Accounto WeChat Enterprise Accounto WeChat Service Account

For overseas companies that aim toparticipate in cross-border e-commerceService Accounts are generally the bestoption due to the fact that they unlockboast a wide(r) range of features enablingmarketing, customer service and sales via(cross-border) e-commerce.

Service accounts appear directly inWeChat users’ contact list and are, thus,highly visible branding resources.

WeChat Stores

In China, product research or gettingrecommendations is often done throughsocial media. Recently, this consumerbehaviour has been expanded fromdeciding what to buy, to actually buyingdirectly on social media. According to theiConsumer China Survey carried out byMcKinsey, the percentage of users thatused WeChat to purchase doubled from2015 to 2016 (to 31% of WeChat users).A distinct feature of WeChat, not found inwestern equivalents, that allows for thispurchasing behaviour is the so called“WeChat Stores”.

Merchants with verified accounts, whichhave coupled their accounts to WeChatpayments platforms, can open an in-appstore on WeChat. In this way, (foreign)businesses can sell their goods to millionsof potential WeChat customers directly,without the need to guide them toexternal platforms. And the customers inturn can utilise the WeChat-integratedonline payment systems to pay for theirordered goods.

WeChat, founded in 2011, is primarily known as a messaging app to foreigners,but it serves as the virtual lifeline of 700 million Chinese smartphone users.

Originally, WeChat started as a messaging app which allowed users to chat withfriends and family. As of this moment, apart from messaging, WeChat isomnipresent in Chinese daily lives; it allows users to top-up their mobile phones,pay bills, rent and fines, order food and taxis, monitor the air quality, and evenbook doctors’ appointments. Moreover, it also serves as a competitor to traditionalbank with wireless payment and investment options everywhere in China.


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Compared to other platforms, opening astore on WeChat via their own ServiceAccounts gives brands a lot of creativespace to maneuver and interact with their(potential) customers directly.

Furthermore, customer behavioural datais easily accessible and shared with officialaccount owners (contrary to largeplatforms like Tmall and JD, which keepthe raw data for themselves), therebycreating high potential for customerrelationship management (CRM). Thisallows companies to manage and analysedetailed customer interactions and data toimprove their sales growth.

Currently, local business license and ICPlicensed website domain are requiredwhen applying for a service account orany official WeChat account. Overseasmerchants are advised to explore twoother options to circumvent thischallenge:

Figure VIII: WeChat Store

1. Engage a local partner to use theirbusiness license or engage a third-party agent to register an account.

Although technically overseas merchantscan operate their own cross-borderWeChat e-Commerce channel, to besuccessful on WeChat requires a thirdparty service provider that will assist indesign and daily operations.

2. Open a local WeChat shop on alocal third party WeChat platform.

These platforms offer a variety of designs,familiar interfaces, multiple cross-borderpayment options and are trusted byChinese mobile shoppers. Despite beingan easy and relatively economical entrymode, WeChat e-Commerce platformsincreasingly start to charge platform andcommission fees, they lack customizabilityfound on Service Accounts and offer littlesupport in terms of counterfeitingactivities.

More information

For a practical guide on everythingWeChat, please refer to:

“Everything You Need To Know AboutWeChat” by WalktheChat, or one of theblogs on their website.

Example of a WeChat Store on Weidian, one ofChina’s most popular third-party WeChat platforms.

https://walkthechat.comThomas Graziani, [email protected]+86 10 5625 7533


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WeChat CBEC platforms

Mengdian, different from the other largest domestic WeChat E-Commerce platforms likeYouzan and Weidian, is the biggest third party WeChat E-Commerce platform that supportsCBEC sales. It supports both the ‘shop in shop’ principle (like an online mall), as well as theprocurement model (like a hypermarket). After registration, operating a store via theMengdian platform, including an audit on the authenticity of the products, takes up to 10days. Currently Mengdian supports Tenpay, Alipay and UnionPay as payment solutions.

Detailed information can be found on www.mengdian.hk [in Chinese].

Table IV. Breakdown deposits, fees and basic requirements

Source: TMO Group / Mengdian

Fees Basic requirements

Security Deposits10.000 – 20.000 RMB (depending on the

product categories)

Depending on the type of sales model.Detailed information can be found on

their Chinese website(www.mengdian.hk/index/merchants)

Monthly PlatformFee 500 RMB

Commission Fee1,5% - 4%, based on the category of

the product sold.


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4.3 ENTRY STRATEGIES AND BUSINESS DEVELOPMENT

After familiarising themselves with therules and regulations, the five models ofselling via CBEC and the differentmarketplaces, many foreign companieswill have the same question: which modeland marketplace is “the best” for mycompany? Providing a generic answer tothis question is particularly hard. DifferentCBEC models and platforms are suitablefor different products, types of businessesand budgets. In general, companies haveto make a choice in the kind ofmarketplaces, logistic and paymentsolutions, marketing strategy, and thirdparty service providers they will use. Thedecision on which one suits the companybest will depend on four things:

1. One’s products2. Rules and regulations3. The company’s business model4. Budget

The Chinese user is extremelysophisticated and online channels are verydeeply integrated in their lifestyle.Companies will need to understand thedynamics of their specific industry anddefine the appropriate channels,investments and marketing executionstrategy based on in-depth knowledge ofthe Chinese user preferences as to besuccessful sellers.

To this end, engaging third party serviceproviders (TPs) familiar with the Chinese

CBEC market and with the infrastructureto provide these alternative models allowsbusinesses to experiment with the ChineseCBEC market before committing to full-fledged investment.

Choosing the best fit: multi-channele-commerce strategy

How can foreign businesses use thedifferent platforms and marketplaces totheir advantage? Broadly speaking thereare two business development strategiesfor companies that just start to enter theChinese market via CBEC. Both growthstrategies focus on different aspects ofselling cross-border, have their distinctivestarting points and development cadence.

1. Fast growth strategy (high costs,higher growth)

2. Organic growth strategy (lower cost,slower growth)

It should be reiterated that in both casesCBEC is not the final objective. Merely,selling via CBEC serves as an entrystrategy in order to acquire market share,brand equity and a relevant consumerbase in China. Ultimately, brands will tryto aim to achieve an omni-channel salesstrategy whereby they sell their productsvia traditional channels (both off- andonline). Figure IX, provided by TMOGroup, shows different entry strategies.

Figure IX: Entry strategies

Source: TMO Group


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Two possible multi-channel cross-border e-commerce strategies

Fast growth strategy(high costs, higher growth)

Organic growth strategy(lower cost, lower growth)

Step 0: Reflect on brand equity, do market research, check compliance rules andregulations ( Omitting this step can be costly in the medium-long term i.e. fines, problemsmoving money in- and out of the country, relocation costs, etc.)

Step 1: Flagship store on online mall orlarge hypermarket CBEC platforms (B2C).

Most foreign companies hoping to sell on theChinese e-commerce market for the first time willhave heard about the huge market share ofplatforms like Tmall and JD.com. Online traffic ismonopolised by large platforms and instinctively,as an entry strategy, many rush to acquire aflagship store on the big CBEC platforms likeTmall Global and JD Worldwide.

AdvantageVery high traffic, first-hand consumer feedback,official brand status, acquisition of seed users(who interact with brands and show how one’sbrand is perceived by the general public) andoperation support by TPs are the main reasons tochoose for early presence on big CBEC platforms.

DisadvantageCosts and regulatory barriers of being present onthe biggest platforms are very high for an entrystrategy and there is a lot of competition togenerate sustainable traffic and build a dedicatedconsumer base. Moreover set-up times may takelong, and platforms often demand special lowprices and discounts for their consumers whichcan make it difficult to materialize profit forstarting companies.

Step 1: Selling and branding via WeChatstore (B2C).

Alternatively, for SMEs without large budgetsstarting to enter the Chinese market via lessformal (social) CBEC platforms like WeChat canbe a valuable decision.This strategy is based on slowly, but surely,familiarising and testing the Chinese market andis especially useful for niche products.

AdvantageOpening a store on a WeChat e-Commerceplatform gains brands more exposure and low-cost, accurate branding via social marketing.Consumers will generally have a strong consumerimpression due to the more personal interaction.Brand equity can grow quickly among a dedicatedconsumer base. Set-up times are much lower

than on big platforms. WeChat is stillfragmented and not monopolised by bigplayers.

DisadvantageInitial sales volumes will most likely be low. Forlesser known brands difficult to attract newconsumers. Operating is labour intensive due topersonal connections. Pricing and regulation isdifficult due to competition and easycounterfeiting.

Step 2: Hypermarket, Specialty or flashsales marketplaces (B2B2C).

The procurement model may fit brands’ overallsales strategy or product category better.Moreover, adding to their multi-channel strategy,presence on CBEC hypermarkets, specialty shopsand flash sales sites, foreign companies canreach a wider Chinese consumer base and quicklyexpand their sales volumes.

Compared to selling on online malls merchantswill lose a certain margin of their profit toprocurement of selling on vertical CBEChypermarkets.

Step 2: Hypermarket, Specialty or flashsales marketplaces (B2B2C).

After receiving initial response via socialmarketplaces, foreign companies can commit toinitial selling on specialty marketplaces to alimited, but niche audience.

Entry expenses, and thus trial and error costs,are usually significantly lower than on largeonline malls and big hypermarkets. Moreover,although merchants will lose a certain margin, byengaging in the procurement model, verticalCBEC hypermarkets will bear the risks of sellingproducts.


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Step 3: Branding via WeChat stores andPublic Accounts (B2C).

Being present on WeChat is increasinglybecoming a given, and merchants can make aprofitable business out of it.

Rather than an initial entry method, already well-known brands can integrate WeChat tocomplement their existing omni-channel brandingstrategies. Operating via their own PublicAccounts or selling on WeChat e-Commercestores, strong interaction, data analytics andsales functions can contribute to higherconversion rates and maximize coverage.

Step 3: Flagship store on online mall orlarge hypermarket CBEC platforms (B2C).

To complement their sales activities and create awell-rounded CBEC strategy, foreign brands canopt to open a flagship store on for instance TmallGlobal or offer their products to largehypermarkets such as JD Worldwide.

By doing so they will have access to very hightraffic and strengthen their brand status (in theeyes of Chinese consumers).

Step 4: From CBEC to General trade via domestic e-commerce platforms (e.g.Tmall.com/JD.com).

This is the stage where companies outgrow the dependence on CBEC platforms. At this point theymay opt to transition from CBEC to domestic e-commerce platforms.General trade will substitute CBEC imports because of the increased volumes of goods. General traderequires a business entity in China, compliance with local product registrations, long preparations andless available SKUs. Moreover, it will generally add 20-50% costs on imports and 15-30 days of delaybefore products arrive at the customer.

Nevertheless, a brand’s market expansion will be around 10 times, because CBEC still accounts for asmall portion of overall retail in China.

It should be noted that a local trade agent or business entity is required to sell on domestic Chinesee-commerce platforms.

Step 5: Traditional channels (e.g. regional distributor, offline stores).

From here on merchants may wish to embark on traditional ways of trade that transcend (cross-border) e-commerce.


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43%

16%

15%

26% Alipay

Tenpay

UnionPay

Others

Source: China Internet

4.4 PAYMENT SOLUTIONS

To any brand financial security is amongthe top priorities of doing businessabroad. Hence, they seek secure paymentsolutions. For foreign companies without alegal entity or bank account in China,getting paid for selling their goods onChinese CBEC platforms can seemchallenging at first. However, Chinesecross-border payment methods aregenerally very sophisticated andconvenient, and Dutch companies shouldnot be discouraged to engage in cross-border e-commerce because of them.

After searching for foreign products andcomparing prices on the various CBECplatforms, Chinese customers pay for theirpurchases through a single transaction viathe overarching marketplace checkoutsystem. Although available credit cards(MasterCard and Visa) are particularlyunpopular payment methods for Chinesee-consumers. Instead, they usually opt topay via third-party online paymentplatforms such as Alipay, Tenpay orUnionPay. These have been integratedinto all cross-border marketplaces andserve as transaction intermediaries.

Chart IV. Online payment platforms marketshare (total transaction value Q2 2016)

Chinese online payment platforms worksimilar to PayPal; both the customers’ and

corporate online payment accounts arelinked to their respective bank accounts.However, different from instant cashtransfer on PayPal, Chinese onlineconsumers typically prefer to pay viaescrow payments, which they consider tobe safer.

After product ordering, but beforedelivery, a customer’s payment is put inan escrow account hosted by one of thethird-party payment platforms. As soon asthe customer receives the order andconfirms the delivery on the onlinepayment platform or marketplace, theonline payment platform will release thepayment to the merchants. Apart from thefewer risks suffered by the consumer,foreign companies selling via CBEC willalso be protected from scams. When amalevolent consumer takes no action toconfirm the receipt – the payment will nottake place without confirmation – than theonline payment platform will automaticallyconfirm it after 7 or 14 days.19

For companies without a bank account inChina Alipay and Tenpay, among others,offer cross-border e-payment solutions.This allows Chinese shoppers to pay inRMB for their CBEC purchases.Accordingly, once the RMB payment isconverted into a foreign currency, the sumwill be remitted into the company’soverseas bank account. For these servicesno Chinese bank account is required.

19 The online marketplace and online paymentplatform monitor the products’ delivery statusprovided by the last-mile delivery company.

Sources: Dezan Shira & Associates, 2016 andAustrade, 2015.


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Figure X: Escrow payments CBEC China

To sell on their marketplaces many CBECplatforms require a mandatory connectionwith their integrated online paymentsystem. For example, opening a flagshipstore on Tmall Global requires a corporateAlipay account. Therefore, in order to getpaid, foreign brands that seek to engagein CBEC in China should take into accountwhat cross-border e-payment solutionsthey want to, should or can use whenchoosing for a CBEC marketplace.

Although all e-commerce platforms haveintegrated online payment systems,government regulation stipulated that e-payments have to be independent from e-commerce platforms as to ensuretransaction safety. At the same timeDutch companies are advised to choose alicensed, certified third party paymentservice provider with a foreign tradelicense. Fourth or fifth party serviceproviders should generally not beapproached, because foreign brands havelittle resources to guarantee their creditbackground.


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China’s main payment solutions

Alipay is Alibaba’s proprietary online payment system. With400 million users, it has the largest market share 20 (43%)among all third-party online payment platforms in China.

Its cross-border website and mobile payment service currentlysupports 12 foreign currencies. The spot rate is determined bythe Bank of China and China Construction Bank. Currently,applying for a cross-border Alipay account costs 1000 USD.

Foreign companies can settle payment by turnover, meaningthat once a company’s turnover accumulates to 5000 USD(lower limit), Alipay will transfer the payments to thecompany’s bank account immediately. Alternatively, paymentcan be settled on a weekly, montly or quarterly basis. Atransaction fee of 2,0%-3,0% of the transaction value applies.The higher the transaction value, the lower the fee.

Application: https://global.alipay.com/ospay/home.htm

Tenpay is an integrated payment platform launched byinternet giant Tencent (founder of WeChat). It has 200 millionregistered users. Tenpay is often used by consumers ondesktops to checkout at major CBEC platforms like JDWorldwide. Furthermore, Tenpay’s payment portal WeChat Payis highly popular among Chinese consumers for (cross-border)mobile payments - especially via WeChat.

The transaction fee for WeChat Cross-border Payment (WeChatPay) is 3%, with a minimal settlement of 5000 USD, or ondemand with a service charge. Settlement date is T +1 (T beingthe transaction date). Currently, applying for a cross-borderWeChat Pay account is free of charge.

Application: http://global.tenpay.com/

Unionmobile Pay (UMP) was founded in 2011 and is a thirdparty service provider that specialises in cross-border e-commerce payment solutions. According to iResearch 2016 itwas the 4th largest facilitator of mobile payments in transactionvolume. UMP is certified by the Chinese government and offerspayment settlements within 1-3 days to companies from allover the world.

20 By total transaction value in the second quarter of 2016 (source: China Internet Watch).


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UnionPay (UP) is the only network authorised to handle (credit)card transactions in RMB in China. With more payment cardsissued worldwide than Visa and MasterCard combined, ChinaUnionPay is increasingly expanding its payment services acrossthe world through its subsidiary, UnionPay International.

Although not currently the most popular payment method, UPfacilitates cross-border e-commerce with strategic partnershipsthat integrate UP payment options on overseas e-commerceplatforms. This allows Chinese e-consumers to purchaseoverseas products directly from foreign platforms. Moreover,UnionPay customers can already use its “Shop the World” CBECplatform to make cross-border purchases. Therefore, UP is apayment method well worth consideration for Dutch merchantsengaging in CBEC with China.

Accordingly, the cross-border online transaction volume ofUnionPay cards increased by nearly three times in 2015.

In the summer of 2016 China UnionPay and PayPal agreed to apartnership to nurture corss-border e-commerce betweenEurope and China.

For more detailed information on cross-border e-payments, please refer to the websites ofthe respective third-party online payment platform.


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4.5(A) LOGISTIC SOLUTIONS

After placing the order for overseasproducts and having used their e-paymentplatform to deposit their payments inescrow, all Chinese e-customers can do isto wait for their products to arrive at theirdoorsteps.

In general, Chinese consumers are usedto and expect reliable and quick delivery.In first-tier cities, locally warehousedproducts can be delivered the same day,though buyers are a little more patient foroverseas orders.Due to the integration of track-and-tracesystems, Chinese online shoppers canfollow the entire logistic process; from themoment their parcels are dispatched fromthe warehouse, to the minute the kuaidilast-mile delivery drivers park theirelectric-scooters and ring the doorbell.

Figure XI: last-mile delivery

JD.com local kuaidi distribution station in Shanghai.

In order to meet the expectations ofdemanding Chinese e-consumers whilstchoosing the most convenient logisticmodel for themselves, foreign companies

that want to sell their products via CBECshould develop a good understanding ofthe logistic options available to them. Thischapter should give more insight on thelogistic developments for CBEC in China.

As the e-commerce ecosystem in China iscontinuously changing, so are the logisticsolutions that come with it. The maincomplexity for logistics is the importcustom clearance and regulations. Findingthe optimal logistic solution for your Chinastrategy can be quite challenging. Gettingthe goods from A to B is not very difficult,but due the required import licenses,product registrations and changingregulations it is not that easy andstraightforward.

Cross-Border E-CommerceComprehensive Pilot Zones

Cross-Border E-commerce import startedmainly via sales of Chinese entrepreneursliving abroad offering foreign products ona Taobao store. The orders were boughtoverseas, packed as individual orders andsent by post to the Chinese consumer.When this kind of CBEC really started tothrive, many postal parcels sent fromabroad could be qualified as B2C or evenB2B and entered China without any legalregistration, ownership and taxes.

In response to the outburst of semi-legalcross-border shipments from overseasdaigou, the Chinese government startedopening several Free Trade Zones in late2013. They were designed to offer a moreregulated and reliable Cross-Border E-Commerce solution. Accordingly, inJanuary 2016 the State Council officiallyapproved the establishment of Cross-Border E-Commerce Comprehensive PilotZones in thirteen Chinese cities (seeFigure XII). The provincial and municipalgovernments are responsible for theirissuance.


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Figure XII. Cross-Border E-Commerce Comprehensive Pilot Zones across Mainland China

1. Shanghai 5. Chongqing 9. Hefei 13. Suzhou2. Hangzhou 6. Guangzhou 10. Chengdu3. Ningbo 7. Shenzhen 11. Dalian4. Zhengzhou 8. Tianjin 12. Qingdao

10

11

12

131

23

4

5

67

8

9


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The CBEC Comprehensive Pilot Zones aredesignated areas, generally near largetrade ports, that provide a favourablebusiness environment and infrastructurefor CBEC activities. The main feature ofthese pilot zones are the so called bondedwarehouses, which will be elaborated onbelow. Initially the advantages of thesezones were that it made the physicaldistance between the product andconsumer much shorter. Furthermore, noimport licenses or test reports wererequired, and only a one-time companyand product registration was needed.Moreover, lower (postal) taxes are appliedfor brands that used bonded warehouses,making CBEC Pilot Zones both an easierand cheaper launch mechanism for newand unknown products from abroad.

The Pilot Zones have boosted the growthin Cross-Border E-Commerce, but, as inpractice the collection of governmenttaxes was mostly avoided, new rules wereintroduced. As mentioned before, themost impacted changes happened in April2016. These new regulations reallyrevolutionised, but also paralysed themarket for several months.

Logistic solutions for different importmodels

After the goods have been purchasedonline, cross-border e-commerceplatforms will process the order in theirown domestic distribution system.Generally, for sales on online malls,products will either be shipped from amanufacturer’s overseas warehouse to abonded warehouse in Mainland China, orbe distributed via direct shipping.

In order to guarantee reliable and quickdelivery service, many e-commercewebsites operate their own logisticsinfrastructure. Overseas brands mayoutsource (part of) their logistics to theplatform or a consortium of logisticsproviders recommended by them.

For self-operated distribution, companiesthat seek to export their products to Chinaand sell them on e-commerce platformshave generally three ways to do so.

Choosing the most suitable logisticsolution can control companies’ risk,investment and operating margin. InChina, more than in other countries,logistic solutions are dependent on rulesand regulations. Which of the optionsmentioned below is most suitable to aparticular merchant depends foremost on(the newest) regulations that apply to thetype, weight and value of those goods.Moreover, the business model of the CBECplatform will have an impact on whatlogistic solutions a foreign company canopt for.

Bonded Imports (B2B2C)

As introduced in ‘Rules and regulations’chapter, bonded warehousing (B2B2C) isa quicker options in terms of logistics tosell products in China via cross-border e-commerce. A bonded warehouse is abuilding or secured area in a specialcustoms supervision area in China inwhich dutiable goods may be storedwithout payment of duty. So, orderedproducts generally arrive quickly at thecustomer’s home. Moreover, with newCross-Border E-Commerce Zones inChongqing, Chengdu etc. the Chinesehinterlands can more easily be served.

In case a brand’s goods are on thepositive list, it can consider holding itsgoods on stock in a bonded warehouse.Simplified and faster product registrationwill apply, overseas companies canpostpone import duty and VAT chargesand it is more convenient to move theirrevenue to a foreign bank account.Furthermore, no local Chinese businessentity is required.


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For these reasons, bonded import is anexcellent method to test new products onthe Chinese market. By stocking a smallinitial batch of goods in bondedwarehouses, which can quickly bedistributed to the Chinese consumer,companies can simulate selling CBEC inChina without risking large losses as aresult of high investment in stock.

Thus, for new to the market, mediumturnover, or larger items with steadydemand, reasonable stocking in China is

advisable to decrease operational costs,logistics costs and turnaround time. Forcontinuous and matured sellers highinvestments in stock (which may expire)and limitation in adaptability of one’stranshipment are possible disadvantagesto this mode of logistics.

Figure XII: Bonded Imports

Based on: HKTDC/TMO Group


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Direct Purchase Imports (B2C)

Despite the majorly reduced delivery timefor bonded imports, Chinese consumersgenerally accept longer delivery times forproducts coming from abroad directly.Direct shipping, and its longer servicetime, is often even considered moretrustworthy because goods undoubtedlycome from overseas.After the goods have been ordered online,and the product, VAT and customs dutyhave been paid by the consumer, thegoods (in individual parcels) will bedispatched from overseas warehouses bydirect mailing.21

This solution is suitable for brands thatseek to introduce new to the marketproducts, small products, or low turnover,high value items.There are three ways of direct mailing andeach of them differs significantly. Theexpectations are that direct mailing willgain popularity with stricter customs ruleson bonded warehousing.

a. PostalPostal was the most common way to sendindividual parcels into China beforebonded warehouses were introduced. Thismode falls under the postal importclearance rules as described on page 16.In this mode the goods are customcleared by China Post or EMS. No datainterface is required as clearance will bebased on the description and value writtenon the postal label. The customsinspection will be done on a sample size,so there is a chance products will not betaxed. Since the introduction of thefollowing two options the total volumesent by post has reduced significantly. Themain reason is that international postalrates are higher than B2B freight chargescombined with local solutions. Though, theconvenience and lack of datarequirements still renders postal a viablesolution.

21 Please do note that the term “direct mailing” or“direct injection” are most commonly used. Some ofthe below solutions even go by this definition. Thiscan be quite confusing so please take note of this.

b. CommercialWhile Postal and Personal Express fallunder the postal clearance rules, thecommercial model is run under thebonded import and direct mailingclearance as described on page 16. Thegoods are not physically stocked in abonded warehouse, but the bondedwarehouse is only used as a hub toarrange the custom clearance. Allindividual parcels are packed and labelledin an overseas location and put on pallets.The custom clearance is done by dataexchange with data about shipping,product and payment information. Thisdata is submitted in advance to determinethe content and value of the goods uponarrival.Finally, last-mile delivery to the consumeris taken care of by any preferred localexpress company.

c. Personal ExpressThe personal express solution is a mix ofthe commercial and postal options. Thismode falls under the postal importclearance rules as described on page 19.Similar to the commercial option dataabout shipping, product and paymentinformation is required, and companiescan choose their preferred last-mileoperator. In addition, besides theclearance rules, the main difference fromthe commercial mode is that a copy of theconsumer ID is required for the clearance,making personal express much moredifficult to implement as a logistic solutionfor CBEC.


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Figure XIII: Direct Purchase Imports

Based on: HKTDC/TMO Group

General Trade Imports (B2B)

Although technically not CBEC, by meansof general trade goods will be importedvia regular import where, upon arrival inChina, import duty and VAT will be paidfor the whole bulk shipment. After thegoods are cleared, they can be sold vialocal (i.e. non-cross-border) e-commerceplatforms.

Warehousing and fulfilment will be donefrom a non-bonded warehouse and therevenue will be received on a localChinese bank account.

To the Chinese consumer also a fapiao(official purchase invoice) can be providedfor their online purchase.

This solution is suitable for establishedbrands that are both focused on sellinghigh turnover products online and offline,as well as for companies that have optedfor a procurement strategy with domesticor CBEC platforms, essentially selling theirproducts B2B2C.


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Table V. Comparison main logistic solutions

Source: MAiNS International

Bonded Commercial Postal PersonalExpress

Customer lead timeafter placing order 2 – 7 days 5 – 12 days 7 – 21 days 7 – 15 days

Overall logisticcosts Lowest Medium Highest Medium

First-mileBoat Air (bulk) Air (post) Air (bulk)

E-Commerceinventory location Bonded warehouse in

Mainland ChinaAt country of

originAt country of

originAt country of

origin

Last-mileFree selection China Post / EMS Free selection

Customs clearanceUnder CIQ supervision pre-approved;

Tax paid by shipperManual by postal Automised

Taxes70 % of Consumption Tax and VAT;

Temporary 0% import tariff15%, 30%, 60%

Customerexperience Reliable and transparent Possible custom delay due to random

inspection, ID-check, HS code-check

Taxes applicableCBEC taxes Personal import tax (if checked)


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Advantages and disadvantages

Which of the above import options is mostsuitable entirely depends on the type,weight and value of the to-be-sold goods.As mentioned before, different taxes andduties apply to different goods. Therefore,companies should consider differentimport modes for different products if theywant to take advantage of lower taxschemes. Again, goods not on the PositiveList cannot at all be imported via thebonded mode as per the April 2016regulations.

Nevertheless, despite the fact that certainproducts are eligible for lower taxschemes under bonded imports, thislogistic solution may not be the preferredbecause of stocking concerns. Forinstance, for quick delivery and lowertaxes and duties fresh products (e.g.yoghurt) may be very well be stored in(cooled) bonded warehouses in China.However, in this case, foreign sellers facethe risk that if their products are notordered online, they may expire and go to

waste. Because they are stored in(bonded) warehouses on the other side ofthe world, it may be costly and less easyfor them to move residual stock tocustomers elsewhere. Instead, in thesecases, sellers could opt for general tradeor direct mail solutions.

Companies should take into account thattheir import modes can change drasticallyover time. Infant milk powder, one of themain goods sent from Europe, exemplifiesthis well. Before the introduction of theCBEC Pilot Zones most infant milk powderproducts were sent by post by daigou.After the initiation of the pilot zones a lotof milk powder stock moved to bondedwarehouses as it was cheaper and faster.Since April 2016, infant milk powderproducts are no longer on the PositiveList. Increasingly infant milk powder issent by the commercial or personalexpress solutions to lower the investment.

The advantages and disadvantages ofeach logistic solution are summarised inTable VI below.

Table VI. Summary advantages and disadvantages per operating model

Source: MAiNS International

Advantage Disadvantage

Bondedwarehousing

- No Chinese business entity required- Taxes paid upon clearance- Simplified product registration

- High investment on stock- Risky for goods with expiration date- Limited product categories (positive

list)

General trade - Suitable for selling online and offline- Lower logistic warehousing costs- Taxes paid on CIF value

- Product registration and importlicenses required

- Duty and taxes to be paid uponarrival

Direct mail - No stock in China required- Limited customs requirements- More products categories allowed for

shipping

- Longer transit time until delivery- Higher costs

a. Postal- High value single items are accepted- Tax exemptions < 50 RMB- No data exchange required- No 100% customs checks on goods

- Slower transit time- Lower customer experience- Highest costs

b. Commercial - Faster customer clearance- IT integration required- Customers’ ID number required- No tax exemption possible

c. Personal Express - Tax exemption < 50 RMB- Faster customer clearance

- IT integration required- Customers’ ID number and ID copy

required


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4.5(B) FRESH FOOD AND COLD CHAIN LOGISTICS

The Chinese fresh food market has beenstartled by food safety scandals in recentyears. Unsafe domestic food products,counterfeiting and cutting corners onhygiene or quality control, make newsheadlines and is often the ‘talk of thetown’. Benefitting from the harmfulreputation of domestically produced foods,the increased access to foreign productsvia CBEC has proliferated imported freshfood products. Fresh Food includes fruitsand vegetables, meat and poultry, dairyproduct, bread and bakery products,seafood etc. Fruit is the biggest categoryof fresh food, Mexican avocado, Californiacherry, New Zealand kiwifruit, SouthAfrica grapefruit are the ‘explosion’ offresh food category on Amazon in 2015.According to the statistical data, in 2015,the imported fruit at Shanghai portamounts to 1 million tons, the averagedaily import of more than 2,700 tons.

Accordingly, online platforms have jumpedon the bandwagon and many specializedfresh food platforms have emerged:womai.com, sfbest.com, miao.tmall.com,to name a few. All of those platforms arecontinually searching for more varieties offresh products from abroad to cater to theever-changing and more demandingtastes of Chinese CBEC consumers.

Although CBEC creates excellent newopportunities for foreign businesses to selleasily to the yearning Chinese market,moving highly perishable goods is aninteresting challenge - especially whenpotentially high value goods are to beshipped via CBEC to the other side of theworld. However, this does not mean thatDutch companies should shy away fromselling fresh or frozen products online inChina. As the loss rate of fresh foods isrelatively higher than other products,which requires that operating companiesmust be equipped with professionalstorage facilities and cold chain logistics.Further, experienced local partners (TP)can also help to determine the export

volume based on their professionalestimation on sales.

Figure XIV: cold chain logistics

Source: ExFresh

Fresh food import materialises both viathe direct sourcing or procurement(B2B2C) models. Most e-commerceplatforms rely on third party warehousingand logistic. At present, domestic third-party cold chain logistics enterprises aresmall, which has not yet resulted in ahighly efficient and low-cost logisticsnetwork. This is mainly because the entireprocess involves too many differentcompanies, besides, product qualitycontrol and delivery efficiency hardlymeets the basic requirements ofconsumers either. Secondly, as most ofthe platforms are not involved in theoperation, it is difficult for them to controlthe stability of the supply chain foroverseas foods.

In view of above, overseas direct sourcingis the inevitable trend of fresh food CBECdevelopment. However, direct sourcingbusiness requires a large amount ofcapital input and sophisticated logistic andwarehousing systems of the platform.Hence, only major e-commerce platformsare able to conduct such business. As anexample, on January 11, JD and YiJiangnan announced a strategiccooperation in Guangzhou Baiyun Airport


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cross-border free trade zone, whichofficially opened the first domestic cross-border bonded cold-chain warehouse toprovide a more optimised service in freshfood business. JD aims to reach overseasfarms or manufactures via direct sourcingin order to control and reduce the cost ofpurchasing, logistics and the storage.Consequently, e-customers can receiveimported fresh food as fast as in fourdays. The ‘Farm to Table’ concept ishappening for real, Chinese consumerscan enjoy safe, imported fresh food bydirect overseas sourcing. It should benoted that currently the chilled bondedfacilities are not represented sufficiently tocover demand in all of China.

Apart from direct souring model, theprocurement model is fairly common infresh food CBEC. For the procurementmodel, finding a right local partner is thekey to success, as they will be responsiblefor entire operation including saleschannel layout, logistics, chilledwarehousing and customer services.

Rules and regulations

For fresh foods imports to China, whethervia CBEC or normal trade, the first thingto note is that even though certainproduct categories may be present on thepositive list for CBEC, they still cannot beimported under the AQSIQ regulations.Special rules apply to fresh produce,health food, cosmetics and infant formula.For fresh foods the AQSIQ list arecategorized per country. Dutch companiesare urged to check whether their freshproducts are both on the positive list forCBEC, as well as on the AQSIQ list.

Thereafter they should apply via theNetherlands Food and Consumer ProductSafety Authority (NVWA) to be a certifiedseller of AQSIQ approved goods underCertification and AccreditationAdministration of the PRC (CNCA)regulation.

Useful links for rules and regulations

- Official AQSIQ lists [in Chinese];- Official CNCA lists of companies that

can export foods to China [in Chinese]- Translated information on the AQSIQ

list is provided by the NVWA[in Dutch].

Needless to say, ‘freshness’ is one of theprincipal pillars of fresh foods’ productquality. Hence, the highest handling rateof inventory is demanded in order todecrease lead time as much as possible.The total time spend in storage should,therefore, be as low as possible toguarantee the highest quality andsatisfaction of Chinese cross-border e-commerce consumers. Understandably,there is a preference for high speedwarehousing options.

‘Chilled’ versus ‘frozen’

For cold-chain logistics there are twooptions to deliver fresh products.Depending on the product and preferenceof the seller or consumer they are eitherstored ‘frozen’ or ‘chilled’. For the qualityof the product, chilled is the preferredoption, though the margin of errorcompared to frozen products is higher.Therefore, taking beef as an example,chilled beef is handled with priority since itis far more perishable compared to itsfrozen counterpart. Customers will pay forthe higher priorities since the product is ofhigher value when it arrives - thus makingchilled products more expensive. Apartfrom their more competitive pricesChinese consumers have developed aslight preference towards frozen deliveryto ensure that the product is not perished- and therefore safe.


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Last-mile delivery

Last-mile delivery is commonly executedby kuaidi on electric delivery scooters. Inthe area of perishable goods this mode oftransportation forms an additionalchallenge. Even in the world’s mostpopulated country it appears hard to finda working business model in which arefrigerated truck, rather than an ordinaryelectric bike, commits to last-mile chilleddelivery for a competitive price. Thismaintains to be a missing link in a valueadding cold-chain logistics and is yet to besufficiently solved in China. Currently,foreign-sourced timely delivery of chilledproducts (which require a quickerdistribution) is insufficient to cover allparts of China. At this time, for chilledforeign sourced products, it is onlypossible to engage in last mile delivery tofirst tier cities. Several Chinese cold-chainlogistic companies, like ExFresh (Yiguo’ssubsidiary) are rolling out nationwidecoverage by establishing transportationhubs all over the country – see Figure XV.

Figure XV: Yiguo’s cold-chain logistic hubsin Mainland China.

Reverse logistics

The major influencer in cold-chain logisticscurrently is that of reverse logistics. Inevery shipment a margin of error exists,and perishable goods are no exception –unfortunately, fresh foods are sometimessent back; and upon return there is nomeans to save them.

However, non-delivery (e.g. if a customeris not home to accept the order) forms amore pressing problem. Non-deliveryusually results in the delivery beingreturned to non-cooled local distributioncenter. In a country like China wherestorage temperatures regularly hit 40+degrees Celsius this is not preferred, andgoods are bound to expire.

In order to cope with the nationwidecoverage and reverse logistic challenge,many platforms have adopted a deliveryappointment system, which meanscustomers can choose the delivery time,and platform will deliver ordered productsaccordingly. This will help to reduce thedelivery loss.

Experience teaches that economising onwarehousing costs in China createssubstantial risks often because ofmalfunctioning staff, language barriers orother unforeseen issues that accompanycheaper (cold-chain) logistic partners.Therefore, cooperating with a trustworthylocal logistic partner or using the CBECplatforms integrated logistics will, in theend, result in higher return oninvestments and help overseas companiesto succeed in the logistic challenges thatCBEC business entail.

Source: Yiguo.com


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4.6 MARKETING AND LOCALISATION

For SMEs or startups yet unknown in China it might be challenging to conquer market sharein the (over-)saturated marketplace. With tens of millions of SKUs on platforms like TmallGlobal, standing out is no easy task. A search query for ‘milk powder’ on JD Worldwideresults in around eight thousand products to choose from. Investing in marketing is the onlyway to be conspicuous and attract qualitative traffic, which will convert into sales.

With a potential audience of 292 million CBEC consumers in 2020, smaller brands need tochoose a targeted and specific audience group before embarking on their Chinese cross-border e-commerce voyage. Doing so will generate more opportunities to connect with theChinese audience, avoid unnecessary cost and enhance the chance of success. To this end,the home-market and the Chinese market are not to be compared. Both markets need adifferent approach and a different point of view to succeed. Needless to say, Dutch brandsshould focus on the demands of the Chinese CBEC markets.

This chapter will list some of the most decisive factors that need to be taken intoconsideration for a solid marketing strategy in China.

Brand equity

For brands planning to enter China (eithervia CBEC or through other channels) avery critical, but often overlooked, self-reflective question is: “why would aChinese consumer buy thisproduct/service?” Besides product qualityand pricing the most imperative asset isbrand equity.

Over recent years the market has becomehyper-competitive in almost any industryand for every single product, manydifferent alternatives are readily available.At the same time, international companiesare flooding in. Foreign brands are notonly competing with local vendors, butalso with providers from all over theglobe. Therefore, finding a unique sellingpoint is the only way to differentiateoneself from countless competitors.Indeed, a very clear proposition of one’sbrand image and target audience is mostessential.

Accordingly, overseas brands areencouraged to use a storytelling approachto communicate their unique selling pointsthrough all of their channels they arepresent on.

Many foreign companies are striving tolocalise their brand image and products asmuch as possible. Though, whilstlocalisation to the Chinese market is a‘must-do’, overseas brands should bewary to overdo it. Or it will result insuspicion from Chinese CBEC consumersabout the origin of the products/brand.The outcome of this suspicion could belosing the main asset of overseasproducts, namely the fact that they areforeign. The ‘international gene’, most ofthe times, still helps to establish an imageof good quality and ‘broad vision’.

Thus, leveraging between one’s(overseas) brand image and the Chinesemarket is both essential and challenging.

A good approach to accommodate bothone’s brand image and cater to theChinese market is to launch exclusiveproducts or limited editions just for theChinese (cross-border) e-commerceconsumers.

Pricing

Pricing also affects brand equity. Mostforeign brands believe that their foreignnature allows them to ask for a higherprice for their products — this is only


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partially correct. On the one hand,Chinese e-consumers tend to associatehigh prices with good quality. Traditionallythey have been willing to pay high pricesfor these foreign quality and luxury items;and foreign vendors do need theadditional charge to compensate forimport fees.

On the other hand, many local brands arecatching up and even leading the market,leaving the premium positioninginfeasible. At the same time, now that theChinese middle-income consumer basehas increasing interest in makingpurchases via CBEC affordable foreign

quality products are ubiquitous. In thiscase, the pricing should be bothcompetitive to similar imported goods andreflective of the product quality.

Moreover, periodic promotions andparticipating in nationwide campaigns like‘11/11’ is a valuable tool to attain moreexposure.

Consider that CBEC platforms will oftenpressure foreign brands to lower theirproduct prices upon market entry as tocreate attractive prices for their customersand attract more visitors. Again, a clearproposition on brand image isfundamental. Dutch companies areadvised to refrain from inconsistentpricing because once brand equity isestablished, this impression is oftenirreversible.

Promotions

Discounts are not only for those merchants selling on flash sales websites. In fact, in order to staycompetitive and be noticed brands on all CBEC platforms merchants should adopt attractivepromotions throughout the year – especially during key seasonal events. Displayed below are themost important Chinese (e-commerce) holidays.Notably, during Spring Festival (‘Chinese New Year’) e-commerce activities are very limited due tothe fact that all last-mile delivery services also take days off.

‘Double 11’ ‘双十一’, or ‘Single’s Day’ is the world’s biggest online shopping holiday, dwarfing

‘Black Friday’. Initially instigated by Alibaba 11/11 developed into a nationwide shopping spreewith high discounts on all major (CB) e-commerce platforms. In 2016 Alibaba saw a whopping 120billion RMB (16 billion EU) of gross merchandise volume within 24 hours (Alibaba, 2016).


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Consumer psychology

In order to develop a market entrystrategy tailored for the Chinese CBECmarket it is first and foremost imperativeto recognise its unique ecosystem. TheChinese online environment and consumerjourney are unique and require companiesto rethink their marketing approach andbusiness strategy.

Purchase cycle

In most European markets, users oftenstart their online customer journeythrough a search engine. Even if theyknow the website they want to go to, orthe product they are looking for, thesearch engine is the default entry-point.In China this is not the case. Because theChinese internet space developed in itsown distinctive way, search engines arenot a major part of the purchase cycle.Product discovery will mainly happenthrough social media, while productresearch is done directly on the bigplatforms like Tmall Global and JDWorldwide.

It is still useful to have a marketingpresence on the regular search engines,however most companies will need torethink their strategy if the majority oftheir online marketing investment usuallygoes to Search Engine Marketing.

Social Media and KOLs

For Chinese consumers social media arethe ‘go to places’ for product discovery.Chinese e-consumers use their friends andonline influencers as a natural barrier tofilter new trends and products. This alsomeans new products and concepts canspread incredibly fast once they arepicked up by influencers in certaincommunities. Social media can thereforebe a logical starting point for companiesentering the Chinese CBEC market. Unlikeother media channels, social media offerssolutions on all investment levels.

To be able to promote products, it isimportant to understand the nature of the

social media space. Unlike most globalsocial platforms, Chinese social platformslike Weibo and WeChat have not (yet)optimised their target-advertising tools forcompanies.

It is for now not possible to simply definea narrow audience and target themeffectively on these platforms. In Chinathis gave rise to individuals andcompanies that help commercial playersfind their target audience andcommunicate with them. They fall underthe umbrella name; key opinion leaders(KOLs). This name is generally used forany social media account with a followeraudience that can be relevant forcompanies; from individuals with a veryniche hobby and a loyal follower group, tocommercial companies broadcasting towide audiences, or online celebrities whoendorse products from e-commerceplatforms. They can leverage the potentialof the local market. The e-commercesocial platforms will help brands tounderstand what is most preferred andpopular among Chinese consumers (e.g.Japanese and Korean cosmetics).

Trustworthy recommendations by famousKOLs, as alternative sources ofinformation, are highly valued amongcustomers. The published reviews containshort descriptions, reviews and ademonstration. For a higher fee and largeraudiences, live sessions can be organizedfor interactive contact with their audience.Using KOLs can be a very cost effectiveway of getting in touch with the righttarget audience. The KOL industry,however, is still very fragmented and willrequire management and strongcoordination.

Third party service providers can assistforeign companies to reach out to KOLs.

Personalised communication

Similar to the western world, social mediaand online advertising are playing animportant role in marketing to the masspublic. However, in recent year, manyenterprises realised that Chinese


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Figure XVI: WeChat branding on ‘Moments’

Source: personal image

consumers are so diversified that nosingle message fits everyone — this is thelogic behind content personalization (andKOLs).

1-to-1 communication in China is mainlydelivered through email and SMS.Customers’ online behaviour 22 is trackedand stored in a CRM system. Based onthis information, companies are able tosend out the right information to the rightperson, at the right time and through theright channel. As for SMS, companies areable to personalize the text by adding aunique signature, so that the recipientsimmediately know who the sender is. Inthe message, you can also include a URL

22For instance, the products the consumer

purchases, at what time and through whatdevice.

directing to a webpage and track whichrecipients actually clicked on it.

Social Branding

The biggest advantage of using uniquemessaging apps such as WeChat is thatcompanies can both sell to, and, engagewith their customers/followers on oneoverarching platform which is deeplyembedded into everyday (Chinese) lives.Furthermore, WeChat provides apromotion possibility for businesses withinteractive accounts competing for highercustomer engagement via engagementpoints, promotions, coupons and productannouncements.

Cost-per-click (CPC) campaigns

More traditional, but not less effective, areCPC campaigns, which continue to be alow cost investment for a diverse public.Unlike the use of KOLs or personalisedcommunication, these campaigns areoften static and not tailored to diverseaudiences on a personal level.On the other hand, this entails that CPC isrelatively cheap. Needless to say, brandscan attract a wider audience than bymeans of KOLs if the quality of the CPCcampaign is sufficient to attract manypeople to click on one’s advertisement.Subsequently, after redirection, this mayresult in more diverse traffic on a brand’sweb-store. The payment settlement isusually handled via fixed payments perclick.

On WeChat brands can, besides beingpresent in users’ contact list viaSubscription of Service Accounts targetpotential consumers with ads on their‘Moments’ (an oft-used timeline functionwhere friends post updates).

ICP License

If you want a serious web presence inmainland China to ensure your message isgetting across to Chinese consumers andclients, you’ll need an ICP (InternetContent Provider) License. Applying for


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ICP license is a mandatory step beforeyour website goes public.

Customer service

The Chinese user expects and demandspersonal service. In China customerservice is available at least 7 days a week,16 hours a day - much wider coveragethen consumers are used to in theNetherlands. 83 percent of all customerservice happens via web-chat or WeChatand customer service by email is nearlynon-existent.

Besides the availability of customerservice, another important distinction canbe found in the way e-consumers actuallyuse customer service in China. In Chinese(cross-border) e-commerce a whopping85% of all customer services take placepre sales. Indeed, 90 percent ofconsumers, prior to purchasing products,will inquire with customer service staffabout the product they considerpurchasing. These enquiries range fromquestions about product origin andauthenticity to contemplations about sizeand delivery of the goods.

Figure XVII: Customer Service

Are you there?

I am, whatcan I help youwith? We have aWeChat account:Yangbinsun“New items have

arrived! [nameof Taiwanesesnack + link]”

If I buy somethingnow, what timewill it be sent out?

This afternoon.

Oh, how manydays will it taketo Shanghai?

About 2-3 days

For brands that offer less coverage,conversion rate (and thus revenue) will beseriously affected. As such, companies willneed to be able to accommodate thesecustomer services standards and integrateit in their cross-border e-commercestrategy, in order to succeed in China. TPsspecialised in customer care may assistforeign companies with a customer serviceteam in China.

SMS IntegrationChinese consumers would like to knowwhere their package is at every moment.Some TPs offer cross-border e-commerceSMS integration that keeps Chinesecustomers up to date on the ordering,payment and delivery process.

Design

Finally, due to hyper-competitiveness theoverall look and interaction of any productor service offering in China needs to beoptimised to perfection. Chineseconsumers are not used to anything lessthan that. In general overseas companiesshould adopt Chinese design and UXguidelines from Tencent and other leadingChinese tech companies as to make sureusers feel familiar and ‘safe’.

Moreover, as the vast majority of ChineseCBEC shoppers purchase on their mobilephones, all information, websites andwebstores should be easily accessible on amobile device. To accommodate thetailored fit for CBEC customers hiring (atleast) one full-time designer isrecommended. The designer will need todesign the shopfront, create productdetails pages, promotions and othermarketing campaigns.

It is evident that the Chinese marketrequires a dedicated and tailoredmarketing approach. The marketinglandscape and online ecosystem demandcompanies take a holistic approach andassess the different channels andaudience groups before making the bigstep to China.


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4.7 INTELLECTUAL PROPERTY RIGHTS IN CROSS-BORDERE-COMMERCE

Risks

Intellectual Property Rights (IPR) violationhas been a concern for many internationalcompanies that do business in or withChina. Even those overseas companiesthat have acquired a business entity inChina indicate that IPR violation is one ofthe most pressing challenges they face –despite being familiar with Chinese IPRregulations and having registered theirIPR in an early stage of their businessentrance to China.Therefore, brands that use Cross-BorderE-Commerce as their initial entry point tothe Chinese market should be extra alertto the risks they may face in this regard.

It goes without saying that if brandowners do not register their IPR in China,they run the risk of copycats abusingthese unregistered trademarks, logos,designs, etc. for counterfeit products.Furthermore, trademark squatters mayattempt to rush-register these brands inChina under their own names, with theaim to sell the registrations to the highestbidder. New brands, luxury products (e.g.fashion items, cosmetics, jewelry) andimported food (e.g. milk powder, petfood) are frequent targets.

Dutch companies - the true brand owner -will face difficulties when they enter theChinese market if their brands,trademarks and possible domain names(.cn) are already registered by aninfringer. When a true (Dutch) brandowner imports products into China viaCBEC, those products may be detained bycustoms for reasons of trademarkinfringement. In fact, the infringer (theofficial trademark registrant in China),may even sue the true Dutch brand ownerand its distributors.

In addition, leading e-commerceplatforms, such as T-mall and JD requirepotential shop owners to present theirChina IPR registrations before they allowan online shop to open, regardless ofwhether you are the true brand owner ornot. Therefore, if someone else registers atrademark before the true brand owner,this can severely complicate theregistration process of the true brandowner when starting its cross-border e-commerce business.

Since social media like WeChat and Weiboplay a central role in Chinese e-commerce, the rapid distribution ofinfringing information presents anotherproblem for those brand owners seekingto engage in cross-border e-commercebusiness. It is difficult to trace onlineinfringers, because they can easilyoperate through different and smaller e-platforms and marketplaces that do nothave strict (IPR) requirements. Theseinfringers might use fake business licensesand ID information, and can frequentlychange their sales channels.

Trademark Registration

In order to avoid any of the abovecomplications, even if a brand owner doesnot have any business plans for China inthe near future, companies would be welladvised to register their trademarkssooner rather than later. This is because,besides a relatively long applicationprocess (an average of 12 months)23,

23 However, it might be possible to make use of EUor international registrations to antedate thetrademark application date in China (with amaximum period of 6 months) to the date a previoustrademark application procedure is started in the EUor a member of the World Intellectual PropertyOrganisation (WIPO). I.e. if the applicant starts anapplication in the EU on 1 January and starts anapplication in China on 1 March, the applicant canrequest to change the application date in China to 1January.


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China follows the ‘first-to-file principle’.This means that, in principle, authoritieswill not check if applicants are the truebrand owners. Accordingly, Dutchcompanies may face competition byinfringers to register their own trademarksat the Trademark Office in China.

Foreigners and foreign companies canonly register through a trademark agent.Trademarks are to be registered with theTrademark Office of The StateAdministration for Industry & Commerceof the People's Republic of China (link).

Accordingly, the first steps of trademarkregistration include choosing relevantclasses (product categories) in which toregister one’s trademark and checking thecurrent register for possible copycatsand/or trademark squatters. Trademarkagents have access to a more elaborateregister than the public register inChinese. The new trends in IPRinfringement are the trademarkregistration of domain names, slogans andsearch machine key words. Therefore,these forms of trademarks should also beincluded in the check.

In addition, it is strongly advised thatbrands prepare and register a Chineseversion of their IPRs which includes notonly the brand’s names in Chinese, butalso the Chinese company’s name.Companies should also be aware thatdistributors or the public may havealready created a Chinese name for theirbrand; therefore they should considerregistering this name as well.

If an IPR has already been registered byan infringer, the true brand owner cantake legal measures against thisregistration. Conducting possible legalproceedings (and other measures)depends on the status and phase of theregistration or application by the infringerand the identity of the infringer.

For instance, it is possible to try to havethe registrations cancelled based on bad

faith by providing adequate evidence ofthe true brand owner’s historical andinternational use of the trademark.Moreover, foreign companies can provideevidence of earlier registrations elsewhereand how the trademark was developed.They may also demonstrate possible tiesbetween the true trademark owner andthe (Chinese) infringer, or show otherregistrations in the infringer’s name.

Preventing IPR violations throughCBEC-platforms

If counterfeit products are found on(leading) e-commerce platforms like TmallGlobal or JD Worldwide, foreign brandowners can turn to the platform’strademark infringement help centers.These platforms have an obligation to takeremedial measures. If such measures arenot taken, the platforms can be heldjointly liable for the infringement.Unfortunately, it is not always easy toprove a violation. Even if a brand ownerprovides all the relevant trademarkregistrations, the platform may decidethat a violation has not taken placebecause it believes the counterfeit productis not similar to the brand owner’sregistration. Gathering of evidence in thisrespect usually includes the notarization ofwebpages and infringing products by aChinese notary public.

Companies are advised to do regularchecks on e-commerce platforms andsearch engines to identify potentialinfringers and to search the database ofthe China Trademark Office for new filingsthat may constitute an infringement.Some trademark agencies and law firmsprovide such a “trademark monitorservice”.

Please refer to the Customs IPREnforcement website:https://english.customs.gov.cn/service


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Methods true brand owners can utilise toprevent IPR violations:

1. Add an IPR clause in agreementswith local agents, suppliers,producers or distributors

It is critical to have well drafted IP clausesin agreements with other parties. Itshould be made clear that involvement inthe production, distribution, logisticchannel, etc. does not grant such partiesuse of the IPR and that such parties arenot allowed to register the trademarksunder any circumstances. If the brandowners decide to work with a local factory,it is important to include a non-disclosure,non-use and non-circumvention (“NNN”)arrangement.

2. Register the IPR at the localcustoms

By registering the IPR (usuallytrademarks, designs and patents) at thelocal customs, the Chinese customs cantake action by checking imports andexports for infringement and detainingfake products at the border. For moreinformation on customs IPR registration,please refer to the Customs IPREnforcement website:https://english.customs.gov.cn/service

3. Turn to the governing authority,the State Administration ofIndustry and Commerce (SAIC)

If a company producing or providinginfringing products can be identified, thetrue brand owners can (1) start antrademark invalidation application with theTrademark Office, (2) file a claim with thelocal AIC to take action against aninfringer or (3) sue the infringer in courtbased on trademark infringement. Theseauthorities may take remedial measures ifit decides the scale of infringement issignificant.

4. Issuing cease and desist letters

The true brand owner can issue a ceaseand desist letter demanding that infringerstake down the infringing webpages and/orstop providing the infringing products andservices.

In the past few years, the Chinese government has made efforts to improve IPR protection.This is demonstrated by the amended laws and legislation, shorter registration procedures,specialized courts and judges etc. Although such measures have proved helpful, activeinvolvement by the true brand owners is still required to protect their IPRs when engagingin CBEC in China.

Furthermore, The China IPR SME Helpdesk supports European Union (EU) small andmedium sized enterprises (SMEs) to both protect and enforce their Intellectual PropertyRights (IPR) in or relating to China, through the provision of free information and services.For free expert advice on China IPR, EU SMEs can e-mail questions to enquiries@china-

iprhelpdesk.eu, and they will receive a reply from one of the Helpdesk experts within sevenworking days. The China IPR SME Helpdesk is funded by the European Commission’sDirectorate-General for Enterprise and Industry (DG ENTR) under the Competitiveness andInnovation Framework Programme (CIP).The China IPR SME Helpdesk Webpage can beaccessed here: www.china-iprhelpdesk.eu


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4.8 THIRD PARTY SERVICE PROVIDERS

One of the core advantages of entering the Chinese market via CBEC is that foreignmerchants will not have to acquire their own Chinese business entity to sell their goodsfrom abroad or employ costly trade agents. Nonetheless, that is not to say that overseasbrands can take full advantage of CBEC without cooperating with local (Chinese) third partyservice providers - so called ‘TPs’. These agencies offer foreign companies without abusiness entity in China, access to Chinese cross-border e-commerce platforms. In fact,these third party service providers are a vital part of one’s business strategy and, thereforeit is essential to choose a trustworthy and suitable TP

This section will deliver a brief overview of the tools and benefits that third party serviceproviders (can) offer foreign merchants. Furthermore, it will address the potential risks ofcooperating with a local TP. Finally, it presents foreign companies with advice on how tochoose a trustworthy and suitable local service provider.

Introduction to TPs

Third party service providers offer easieraccess to (cross-border) e-commerceplatforms. In fact, large platforms such asTmall Global and JD Worldwide onlyaccept foreign merchants to sell on theirplatforms if they cooperate with approvedTPs. To ensure quality and authenticity ofboth sellers and service providers, TPs arecertified by these e-commerce platformsafter meeting certain requirements, suchas several years of experience with CBEC,(overseas) bonded warehousing options,multilingual staff etc.

Besides lobbying for a presence on theplatforms, TPs can assist in a wide rangeof secondary services related to all thetopics mentioned before. Though, theexpertise they provide depends on theneeds and product categories of theforeign counterpart and, therefore, differwidely per TP.

Some TPs offer one-stop solutions thatencompass the entire chain of onlinecross-border selling, from brand building,logistic solutions, to daily operations andeverything in between. Others offerspecific solutions.

Secondary services include:

Anti-counterfeiting solutions App/Web development Business strategy development Cold-chain logistic solutions CRM Cross-border payment solutions Data analysis Digital marketing Digital media support Industry market scans

Legal solutions Multilingual customer service O2O integration Operations Order fulfilment solutions Platform integration Procurement solutions Sales promotion Store design WeChat integration

Source: Dezan Shira & Associates, 2016; TMO Group


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Additionally, TPs can act as authorisedstore owners. In this case, the foreignbrand sells products directly to a TP, likethe vertical hypermarket and specialtymarket models, which then re-sells theproducts on its own online storefront orvia affiliated authorised re-sellers.

As the local team will understand theChinese online market best, they canassist with quick responses to demandsfrom the big platforms. They speak thelocal language and help tailor one’sbrand(ing) to the Chinese market, whilstleveraging between a brand’s imageabroad and the Chinese market. In short,they are the local handhold for one’s CBECstrategy.

In general, TPs charge either a fixedmonthly service fee, a commission onsales, or both.Merely collaborating by revenue sharing isusually not the most beneficialcooperation model. This is because TPscannot guarantee that they will spend afixed amount of time on a brand’sshopfront. Reality teaches that for thiskind of collaboration TPs tend to focus onthe low hanging fruits and if a foreigncompanies’ products are not a direct saleshit, their focus will be switched to theproducts that are currently popular.

Depending on the additional services andcommission employing a TP may bringextensive costs, which are oftenoverlooked when determining the budgetfor CBEC.A resourceful TP charges anywherebetween 20.000 to 100.000 RMB permonth and charges a revenue sharepercentage of 5 to 10%. This excludesCBEC platform fees and commissions.Though, depending on their reputation,services and size of their clients’ onlinesales, the annual costs of enlisting a TPcan be a multitude thereof.

These costs might seem very high forentering the Chinese market via a

seemingly low-cost entry options likeCBEC. However TPs will help foreigncompanies to be able to achieve economyof scale.

Companies are advised to contact TPsdirectly to enquire about the costs of theirindividual services.

Possible risks when employing TPS

Despite being a vital and valuable part ofone’s CBEC ventures into China, Dutchcompanies should take into account thatbesides extensive costs, engaging TPsmay also bring additional challenges.

The necessity to cooperate with TPs to setup a flagship store on one of the bigplatforms has complicated the process ofexpanding foreign business. Firstly, theburgeoning cross-border e-commercemarket has resulted in the mushroomingof a massive amount of TPs without anextensive track record or experience.Secondly, foreign companies areincreasingly dependent on them, even ifthey boast their own e-commerceoperations and branding departments. Infact, being certified does not warrantquality of service.

As mentioned before, one of the mostimportant challenges overseas brandsencounter is directing a sustainableamount of traffic to their online stores andproducts. Although most TPs offersolutions such as business strategydevelopment, sales promotion and digitalmarketing to advance the traffic, acomplaint often heard from companiesthat already sell in China is that eager TPscan sell traffic only. However, thesustainable traffic that results in theconversion brands are looking for oftenlacks.

More extreme, but not unheard of, arestories about unreliable Chinese TPs thatengage in selling their clients sales andconsumer data, counterfeiting or otherabuse of IPR.


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Choosing a trustworthy TP

As can be understood from the aforementioned paragraph, one major factor that willdetermine the success of cross-border e-commerce is to partner up with the right TPs.Experts advise that brands themselves should first create their own long-term CBECstrategy. Subsequently, they should let their TPs determine the best local execution thereofto maintain in control of their CBEC business in China.

Some key considerations:

1. Select on type of marketplace.Some TPs specialise at procurement on flash sales platforms, whereas otherspredominantly facilitate operations on online malls. Select according to one’s CBECbusiness model.

2. Select on platform.The strength of the relationship between one’s TP and the CBEC platform willdetermine the ease of communication with the platform and effectiveness ofcooperation. Some TPs only deal with Tmall Global, whereas others also certify for JDWorldwide or Suning Global.

3. Select on service expertise.TPs often offer myriad of (one-stop) solutions, though they may have limitedexperience in some of them. Determining one’s secondary service needs andselecting a TP based on expertise accordingly, will ensure the solutions’ quality.

4. Select on product category.E-commerce platforms often assist brands by classifying their lists of certified TPs byproduct category. For instance, TPs that deal mainly with foodstuffs have differentexpertise (e.g. on cold-chain logistics, fresh food regulations etc.) than thosehandling mother and baby products.

5. Select on geographical location.Despite uniform national regulations, CBEC Pilot Zones may have their specificprocedures. Supply chains and logistic solutions may also depend on the foreigncompany’s preferred mode of import. Needless to say, regional differences are avalid selection criteria for TP cooperation.

Execution of one’s e-commerce strategy is impossible without a reliable TP. Choosing atrustworthy and suitable TP is not straightforward and foreign brands looking to establish anonline presence on one of the earlier mentioned platforms would be well advised to investsufficient time and resources in establishment consultation. Foreign companies could ask forrecommendations from other companies that already operate in the same region, on thesame CBEC platform or sell products in a similar category.


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5. ASSISTANCE FROM DUTCH DIPLOMATIC MISSIONS

Foreign companies may find it challengingto verify the credit background ofpotential third party service providers. TheDutch diplomatic network in China canassist Dutch companies to carry out basicbackground checks 24 . Moreover, in thearea of (cross-border) e-commerce theeconomic network can delivermatchmaking with well-known platformsand experienced service providers.

In the past and present, Dutch companiescooperate in online campaigns onJuhuasuan and the Holland Pavilion andHolland Center on Tmall Global to have agreater impact on the vast Chinese onlinemarket. In 2016 the Holland for Chinainitiative was started to create a platformespecially for Dutch products on JD.com.

24 For example, is the Chinese partner legallyregistered, have they be involved in law suits.Checks are carried out via the provincialAdministration of Industry and Commerce (AIC).

By joining forces and taking up theopportunity to promote a diversified rangeof Dutch products they created moreinterest from Chinese consumer. Makinguse of the momentum for Dutch products,some brands were able to triple its dailysales during the campaign.

The Dutch diplomatic network highlyencourages these initiatives of joint effortsamong Dutch companies and individuals.The missions in China have a nationwidebird-eye view on such collaborations. Tothis end, entrepreneurs who areconsidering selling their products to Chinathrough (cross-border) e-commerce areencouraged to directly contact themissions.

Source: Philips

Figure XVIII: Juhuasuan Campaign 2015


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6. FEATURED THIRD PARTY SERVICE PROVIDERS

A number of Dutch companies are active in China, which offer technical support in cross-border e-commerce and online marketing. This report has been created in cooperation withthe DigiDutch platform. A special thanks to their contribution for this report.

DigiDutch Contributors

DigiDutch is a Shanghai-based collective of Dutch companies all specialised in e-commercein China. Combined they have 50 years of experience and 200 employees at your service.DigiDutch helps foreign brands to sell their products and services online in China.

Key services offered by DigiDutch fully focus on eCommerce of which; E-commerce Strategy& Market Entry, Brand & Online Marketing Planning, Online Channel Development &Operation and Online Marketing & Customer Service.

Contact:[email protected]


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7. DIGIDUTCH COMTRIBUTORS

The following DigiDutch members contributed to their topics of expertise in this guidebook.

Logistic solutions

MAiNS International enables foreign companies to do business in, from or to China. The core of thebusiness is Cross-Border E-commerce ranging from B2B trade, Online Sales, B2C Logistics and Officerepresentation. With offices in the Netherlands and China (Shanghai & Shenzhen) we have been thedriver of developing business and account management for both SME’s as well as Multinationals.

Legal solutions

Bonnard Lawson International Law Firm has offices in Geneva, Lausanne, Luxembourg, Paris,Dubai and Shanghai. The Shanghai office has been operating since 2007. Our multicultural lawyers,who can give support in different languages, are well placed to advise clients, both cost effective andpractical, on transnational businesses. Bonnard Lawson can cater to different types of clients includingstart-ups, SMEs or MNEs. Since our establishment, many companies and individuals from around theworld have worked with us successfully to realize their objectives in the Chinese market in variousindustries including the sale of consumer products through e-commerce.

Marketing and Branding solutions

The George, with offices in Milan, Barcelona and Shanghai helps multinational companies to connectand engage with their audience. The George helps them build and nurture relationships. Theirexperience ranges from Education and B2B, to fashion and FMCG. Well-known brands like Nestle,Microsoft and Wall Street English trust The George for their marketing activities.In China, The George specializes in brand building for overseas companies and integrated marketingcampaigns. Projects range from brand identity and web development to celebrity campaigns andWeChat games. All the activities have as goal to improve the bottom-line by creating a deep, long-lasting relationship between the brand and the user.

Contact:www.mains-international.comSimon de Raadt - General Manager [email protected]+86 21 3363 2911

Contact:www.iamthegeorge.comSiebe Gerbranda, Agency [email protected]+86 21 5298 0501

Contact:www.ilf.chChoy Yiu CHAN, Local [email protected]+86 21 6321 8838 - 818


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Webpower is a leading provider of marketing automation. The company was founded in theNetherlands in 1999 and entered the Chinese market in 2006. Up to now, Webpower has established10 offices in Europe and Asia.During the past decade, Webpower China has proudly served thousands of companies in over 14industries. The company strives to help clients achieve personal communication with Chineseconsumers. Email, SMS and mobile marketing are integrated to create an intelligent and multichannelapproach.

UI Design, Development & Hosting Solutions (entry strategy)

TMO Group is an eCommerce Agency with representations in Shanghai, Hong Kong and Amsterdamwhich service medium & large enterprises with cutting-edge solutions on eCommerce, WeChat, O2O,Mobile and Cloud value-added services. TMO has been engaged in Cloud-based (Cross-border)eCommerce Platform Solutions since 2014. For WeChat it has developed standard & custom solutionsfor medium & large companies to sell Cross-border including direct Custom filling and Paymentgateways. Payment gateways supported are Alipay, WeChat Pay & UnionPay covering Hangzhou,Shanghai, Guangzhou and Qianhai Customs. TMO guides their clients from initial strategy, planning,design, development, hosting and long-term support. Clients include Mannatech (NASDAQ), OrganicNordic (Denmark) and NZ1mall (New Zealand) which sell goods via direct clearance or Free TradeZone ware house mechanism. More clients we are serving include: VISA, Philips, Allianz PernodRicard, Nu Skin (NASDAQ), BMW, Hilton, Osborne, Mannatech (NASDAQ), Bugaboo, Flora Holland,Torres, and Kerry Logistics.

Cold chain logistics solutions

Arctic Solutions is a (cross border) e-commerce service provider focusing on temperature controlledproducts for the Chinese market. Our specialty is imported fresh food. Arctic covers everything from(cold store) logistics, custom handling, last mile delivery, customer service and marketing. We canhandle the day to day activities that are necessary to successfully run your e-commerce operations inChina.

Contact:www.webpowerasia.comClaudia Verbost, International Sales [email protected]+86 21 60730601

Contact:www.tmogroup.asiaDominiek Pouwer, Business [email protected]+86 186 21 677 377

Contact:www.arcticsolutions.cnBjorn van der Veen, Managing [email protected]+86 21 62411679


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Dr2 Consultants

Dr2 Consultants is an international firm assisting organisations to navigate through the regulatorylandscape in China and Europe. With offices in Shanghai, Brussels, and The Hague our internationalteam of consultants provides and executes tailored market access-, public affairs-, and communicationstrategies. For over 17 years we have been committed to delivering high-quality services allowing usto work for leading retailers, service providers, multinationals, governments and trade associations inworldwide e-commerce

Contact:www.dr2consultants.euStefanie Ros, International Business [email protected]+86 156 0174 3763


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8. OTHER E-COMMERCE SERVICE PROVIDERS CHINA

Beijing

WebshopinChina

www.webshopinchina.comDaphne Tuijn, Managing [email protected]+31(0)642234554

WebshopinChina assist companies to enter the Chinese online market or to improve the currentbusiness results in China. Most of the operations are executed in China. The team in China consists ofChinese designers, marketing experts, Chinese customer service and social media experts.WebshopinChina will open an office in Shanghai in 2017.

Sovereign (China) Limited

www.sovereigngroup.com/china/Robbert Gorris, Business Development [email protected]+ 86 10 6582 0268

Sovereign offers a range of high value advisory and support services to assist companies of all sizes tounderstand their market opportunities, develop actionable market strategies and establish businessoperations successfully in foreign markets. Their services for China entail market entry, corporateformation and accounting & payroll. Sovereign has branches in Beijing and Shanghai.

Vistra

www.vistra.comMs. Pianpian Huang, Business [email protected]+ 86 15 510193442

The services of Vistra cover general business advisory, corporate services & company formation,company secretarial services, financial services and HR services. Vistra has offices in Beijing,Shanghai, Shenzhen and Guangzhou.


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Hong Kong

Solutions Lab Ltd

www.vitaminstore.nlLoek Bosman, [email protected] 5942 4106

Solutions Lab Ltd is a consultant for online marketing strategies and market introductions focuses onomni-channel retail and services industries in Asian and EMEA markets. Solutions Lab Ltd isresponsible for all aspects of international online operations, marketing and software development ofVitaminstore.nl and its affiliates.

Mirabeau BV

www.mirabeau.nlVanessa Elizabeth de Groot, Director of Business [email protected] 13660 468 440

Mirabeau combines marketing and innovative technology to provide the best digital experience fromcontent management to e-commerce, CRM and analysis for their clients mainly in aviation or retailbusiness from their long last work relationships with Air-France-KLM, ING, Transavia,…..etc. Mirabeauhas commenced their Guangzhou office in September 2016 to enhance their work relations withChinese State owned- and privately owned enterprises.

Blue Arca

www.bluearca.comRichard Beetz, Associate [email protected] 6754 0326

Blue Arca’s Cyber Security experts have been in the information risk management field formore than 10 years. Blue Arca is certified according to the cyber security industry standards.Blue Arca has protected a large number of companies globally by advising, implementation and testsecurity governance structures, processes, education programs and technologies.

CAC Holdings Ltd

www.cacholdings.comJeroen Koldenhof, Managing [email protected] 2724 7011

CAC Holdings Ltd and its affiliates deal worldwide in bulk and value-added food products to the retail,foodservice, and processing industries. CAC Holdings Ltd provides one stop shop for all yourrequirements in the agro-food and meat packing industry.


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Guangzhou

Second Company Ltd.

Second Company is specialised in software development in Xiamen for mainly Dutch clients, includingresponsive web-apps and portal development.

RB2 (Kooboo)

RB2 is a Dutch web development company with its headquarter in Purmerend (The Netherlands) and adevelopment center in Xiamen. Kooboo is a product developed by RB2. Since Kooboo is more well-known in the Chinese market than RB2, the company sometimes also presents itself under its nameKooboo.

www.secondcompany.nlJerome Chen, [email protected]+86 15605020942

www.rb2.nlDennis van [email protected]


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APPENDICES

APPENDIX: Positive lists

CBEC positive list one (released 08 April 2016):

ChineseSource: Ministry of Finance (official)http://gss.mof.gov.cn/zhengwuxinxi/zhengcefabu/201604/t20160401_1934275.html

EnglishSource: Swiss Global Enterprisehttp://www.s-ge.com/sites/default/files/censhare_files/list-imported-commodities-retail-cross-border-e-commerce.pdf

CBEC positive list two (released 15 April 2016):

ChineseSource: Ministry of Finance (official)http://gss.mof.gov.cn/zhengwuxinxi/zhengcejiedu/201604/t20160406_1939013.html

EnglishSource: Swiss Global Enterprisehttp://www.s-ge.com/sites/default/files/censhare_files/list-imported-commodities-retail-cross-border-e-commerce-nd-batch_4.pdf


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TERMINOLOGY

Alibaba – China’s largest e-commercecompany.

Alipay (支付宝)– Alibaba’s proprietary

online payment system.

Aliwangwang 阿里旺旺 – Alibaba’s

proprietary messaging tool used on allAlibaba e-commerce platforms for real-time communication between customersand customer service.

API – Application Programming Interface,a set of routines, protocols and tools forbuilding software applications.

AQSIQ – General Administration of QualitySupervision, Inspection and Quarantine.

Baidu (百度) – China’s largest and most

popular search engine.

Baokuan (爆款) – Currently most popular

products.

Baoyou (包邮) – Shipping costs included in

the price.

Beihuo (备货) – stock up (in bonded

warehouse).

Bonded warehouse (关栈 ) - a customs-

controlled warehouse for the retention ofimported goods until the duty owed ispaid.

Baozun (宝尊)-is a leading, digital and e-

commerce service partner in China.

Cainiao (菜鸟) – Alibaba’s own logistics

network, linking Alibaba with a consortiumof logistics providers.

CIF – Cost, Insurance and Freight is atrade term requiring the seller to arrangefor the carriage of goods to a port ofdestination, and provide the buyer withthe documents necessary to obtain thegoods from the carrier.

CIQ – Bureau of Entry and Exit Quarantineand Inspection.

CFDA – China Food and DrugAdministration.

CNCA – Certification and AccreditationAdministration of the People’s Republic ofChina.

Consolidated shipment - A distributionmethod whereby an agent (a consolidator)combines individual batches of goods fromvarious companies into one shipment. Thebenefit of this combined shipment toindividual shippers is the preferentialrates.

Daigou (代购) - agent buying, whereby a

third party (often a friend or relative)purchases and dispatches overseasmerchandise.

Dianpu (店铺) – shopfront on online mall

or hypermarket.

Escrow – a monetary arrangement inwhich a third party receives and disbursesmoney or documents for the primarytransacting parties, with the disbursementdependent on conditions agreed to by thetransacting parties. For e-commerce:Alipay, WeChat Pay etc.

ExFresh (安鲜达) - China’s largest cold-

chain logistics service company.

Guanzhan (关栈) – bonded warehouse.

Haitao (海淘) – overseas purchases, often

used for cross-border section of e-commerce platforms.

Holland Pavilion – Dutch country-focusedshop on Tmall Global.

ICP License – ICP license is a legalrequirement for all websites hosted in thePeople’s Republic of China.

Jiesuan (结算) – checkout process.


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Jingdong (京东) – JD.com.

Juhuasuan (聚划算)– owned by Alibaba,

this website offers goods at a limited-timediscount.

KOLs - Key Opinion Leaders are onlineinfluencers with a big following on Chinesesocial media. They are widely used topromote products through word of mouth.

Kuaidi (快递) – express, last-mile delivery

(mostly electric scooters).

Kuajie (跨界) – cooperation to promote

products from different sectors orindustries.

Kuajing (跨境) – cross-border sales.

Lenglian (冷链) – cold chain (logistics).

Miaosha (秒杀) – a time or volume-limited

flash sale. Websites like VIP.com makeuse of this model.

Peisong (配送) – distribution.

Personal postal articles tax - a kind ofimport tax levied by Chinese Customs oninbound parcels. It includes import VATand consumption tax.

Pingtai (平台) – e-commerce platform or

marketplace.

Qin (亲) – term used by Customer Service

to address customers (see in-textexample).

Ruanwen (软文) – to invite KOLs or other

influential celebrities to promote productson social media or WeChat.

SF Express (顺丰快递) – the largest

domestic logistics company in China.

Shangou (闪购) – a time or volume-limited

flash sale. Websites like VIP.com makeuse of this model.

Taobao (淘宝) – Chinese C2C online

marketplace, often regarded as China’sfirst CBEC platform.

Tencent – Popular provider of websiteportals, software and mobile applicationssuch as WeChat and QQ.

Tenpay 财付通 – proprietary online

payment system developed by softwarecompany Tencent; the software behindWeChat Pay.

Tmall (天猫) – China’s largest online mall

(B2C) operated by Alibaba Group.

Tmall Supermarket (天猫超市) –

Supermarket based on Tmall.com. Freshfood section is solely operated byYiguo.com.

Tmall Global – Tmall’s cross-border e-commerce platform.

Tuan Gou (团购) – group purchasing.

Weibo (微博) – Chinese social media

platform, equivalent to Twitter.

Weidian (微店) – a social sales store

operated on the WeChat social mediaapplication, either by an individual orcompany.

WeChat (微信) – instant messaging and

social media application developed bysoftware company Tencent.

WeChat Pay (微信支付) – proprietary

online payment method on WeChat and inoffline stores.

Weixin (微信) – see WeChat.

Xiao’er (小二) – customer service

representatives, especially those onTaobao and Tmall.

Yushou (预售) – presales.

Zhuizong (追踪) – parcel tracking.


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www.hollandinchina.org www.zakendoeninchina.org

china cross-border e-commerce

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