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How to Set Up and Run a Successful Online Marketplace Store in China

From the ePublication “Setting Up and Running Successful Online Marketplace Stores in China” by KUNG FU DATA in 2020

If You Want To Enter China, Start Thinking In Terms Of NICHES

I recently met with a potential client who owns a successful swimwear brand. Globally, they are crushing it … but the majority of sales are to “tanning” nations. Demographics are ideal.

Even using Chinese models, beach culture in China isn’t ready. He’s insistent. But I’m quite sure it is a BAD idea. Saying “no” to entry required ZERO data analysis. One walk in China on a sunny day and you can see Chinese women under umbrellas hold a different view. The sun is the skincare equivalent of a death sentence.

Now this isn’t always true (e.g. full body suits could work). But the general idea that masses of Chinese women will wear skimpy bikinis isn’t right.

As it turns out, he’s got deep experience in Shanghai. So after arguing for 2 hours, he mentioned that his partner has secured a license to operate food trucks.

Now THAT is a good idea: Shanghai is desperate for late night snacks. I can’t imagine the party crowd won’t make this 100% successful. Thriving in China is about acceptance and flexibility over force of will.

Niche Hunters Win.

The rest ice skate uphill. If most aspiring entrants thought this way, success rates would be much higher.

“Setting Up and Running Successful Online Marketplace Stores in China” by KUNG FU DATA

You know you’ve got a WINNER if you have:

Unique Product
Control Over Channels
Pre-Activation
Solid Marketing Plan

UNIQUE PRODUCT

First of all, we’re looking for some type of uniqueness. Don’t come to me with a vitamin C tablet. There are already a thousand brands selling vitamin C tablets. I need to see something that is unique.

You need to be a leader in your own way. Either you’ve created your own sub category, you have an iconic product, you’re in a great position, or you’re just lucky and Chinese tourists buy your stuff.

The latter happens all the time. If you’re in the fortunate position of living in a popular destination for Chinese tourists, you just need to get your products out in front of them. Activation happens like that everyday. You must also have product market fit. “Me too” products don’t fare well.

CHANNEL CONTROL

You absolutely need control of your channels. By that I mean, you don’t want to be in a situation where a parallel importer can buy the product and cut you on price in China. You will never win against these traders. So that’s another thing everyone has to understand – that you’re supply chain and centralized inventory and price control goes along with uniqueness.

PRE-ACTIVATION

Arguably the most important consideration for a brand looking to enter China is pre-activation: Are you known through word of mouth?

That could be because travelers, traders, or students buy your product and sell it to their friends through the Daigou networks.

Another option is having a niche. For example, one of my clients is in the motorbike category. If you buy a motorbike, and you’re going to buy a uniform to protect yourself in a race, they’re one of the three brands available to buy. So they’re already activated and known to hobbyists and enthusiasts. So if you’re in that kind of iconic or specialized space and your products are good, you have a great shot at the title.

SOLID MARKETING PLAN

And last, you need a solid and clear marketing plan that includes activation budgets, and professional brand assets that we can actually use.

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Company Spotlight: Understanding TikTok & ByteDance, China’s Attention Factory

From the book “Attention Factory: The Story of TikTok and China’s ByteDance” written by Matthew Brennan and edited by Rita Liao

Overview

Today, ByteDance is a sprawling corporate leviathan. Much like other large internet conglomerates, it has expanded into a myriad of online services consisting of gaming, education, enterprise productivity, payments, and much more. This is made possible by three flagship businesses: Toutiao, Douyin, and TikTok.

ByteDance’s Apps in China and International Markets

The Applications that Evolved into TikTok

These are the core drivers of the company’s valuation and fast growth. The rise of these businesses reveals three distinct growth stages that enabled the company to reach hundreds of millions of new users.

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Thought Bubble: Embracing China’s “New Retail”

From the publication: “EMBRACING CHINA’S ‘NEW RETAIL’: as online, offline and logistics merge, some brands are pulling ahead by redefining consumers, merchandise and stores” by Bain & Company & Ali Research

Summary

The era of “New Retail” that Alibaba founder Jack Ma envisioned is starting to emerge across China in ways that promise big gains for consumer products companies that act decisively and systematically while causing others to lag behind. In 2016, Ma predicted a seamless merger of offline, online and logistics for a dynamic new world of retailing. His vision now can be seen in the millions of mom-and-pop stores throughout China that are taking on new life as order-and-delivery stations for e-commerce. It is there in the booming food delivery platforms such as Hema (盒马), which fulfills more than half of its orders online. And you can glimpse it in China’s ubiquitous mobile payments. Chinese consumers use their phones for 60 times more mobile payments than consumers in the US do.

Indeed, China’s e-commerce platform, represented by Tmall (天猫), is evolving to establish a New Retail infrastructure, empowering brands with data. Leading brands are gaining an edge by using the emergence of New Retail as an occasion to build a new consumer-centric model while at the same time creating operations that are more efficient.

“For starters, people are no longer viewed only as consumers. The most forward-thinking brands also see them in the role of co-producers.”

In the past, with relatively limited consumer insights, it was sufficient for a brand to identify target consumers and determine their needs. Now, armed with a comprehensive and dynamic profile, brands have new missions, such as finding ways to stimulate consumer needs, identifying look-alike consumers and turning consumers into brand ambassadors who effectively co-create the brand.

Also, products are advancing from commodities to become part of the consumption process and an integrated consumer experience. As the old business-to-consumer model evolves from the simple goal of meeting mass demand to a world of consumer-data-inspired personalized products and delivery, the best brands are determining how to integrate products into the overall customer experience—which includes not only shopping but learning about a product, using it and recommending it.

In addition, stores have extended from online-only or offline-only into a seamless omnichannel consumer experience that’s fully integrated. People can shop while enjoying content or while spending time on social networks. Brands are creating occasions beyond the constraints of time and location.

Winning brands are taking six steps to reshape the future and make the most of New Retail:

Identify new governance principles for a customer-centric model
Develop new flexibility and efficiency in R&D and supply chains
Reimagine marketing and consumer management for New Retail
Modernize route-to-market and retail formats
Transform the organization and operating model for digital
Invest in new technology development

As New Retail takes root, the brands that thrive will acknowledge that the changes they make today—the new capabilities they develop and the operating models they devise—won’t necessarily help them a year from now.

New Retail is a work in progress, requiring brands to constantly refine and reinvent themselves for new occasions, new formats and the steady flow of new ideas that will defi ne retailing tomorrow.

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Industry Spotlight: Free Trade Zones in China

How do Free Trade Zones in China differ from those in other countries?

Free trade zones (FTZs) are a type of special economic zone used by the Chinese government to pilot preferential trade and investment policies. As of 2017, there are 11 FTZs in China. Each FTZ has its own strategic positioning within the larger economic plan of the Chinese government.

The first and largest FTZ, the Shanghai Pilot Free Trade Zone, was introduced in 2013. The government first piloted streamlined registration processes for businesses in the Shanghai Pilot FTZ before expanding the policy nationwide through the 5-in-1 business license.

FTZs in China differ from other countries because they are almost exclusively used for piloting programs and “testing” them before expanding nationwide. As such, preferential policies in FTZs must be replicable on a national scale.

In contrast, other countries use FTZs as customs-friendly zones to encourage exports or imports with preferential tax policies playing a major role. For example, in the United States, FTZs (known there as foreign trade zones) offer exemptions from state and local inventory taxes.

How did free trade zones in China evolve over time?

Founded in 2013, the first and largest FTZ is the Shanghai Pilot Free Trade Zone, which holds strategic importance as a financial and logistics hub.

Two years later, in 2015, the government announced a second batch of FTZs, including Fujian, Guangdong and Tianjin. The second batch focuses on regional economic integration. The Fujian FTZ encourages closer economic integration with Macao and Taiwan, while the Guangdong FTZ does the same for Hong Kong. The Tianjin FTZ seeks to support the economic growth of the Beijing-Tianjin-Hebei region, as well as encourage offshore financial markets.

The third and latest batch was announced in 2016. This third batch of seven FTZs highlights the government’s intention to aggressively industrialize inland China and support the “Belt and Road” initiative. The FTZs include Chongqing, Liaoning, Henan, Hubei, Shaanxi, Sichuan and Zhejiang.

China’s Current & Planned Free Trade Zones

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Expert Spotlight: Michael Michelini, Founder, Global From Asia

Who is Michael Michelini?

Michael Michelini: I am the founder and host of a weekly podcast, Globalfromasia.com which has turned into a full-on blog, service platform, and builder of global (cross-border) e-commerce businesses.

Michael Michelini, Founder, Global From Asia

Global From Asia (GFA) is about the current shift in the world as Asia as the center for doing international business – more specifically called cross border business. As a “foreigner” (non-local Hong Kong-ese) you can still fully own 100% and control your company from Hong Kong SAR (special administrative region), with easy access in China and Southeast Asia.

Due to changing times, Hong Kong has been much more challenging to do banking, and we work with you on the process by sharing in our blogs, and also working on more services and options for you. This is the real core value statement of Global From Asia – to make it as easy as buying a product on Amazon as it is to do international business.

Click here to join our community of business owners and executives doing business in Asia!

Tell us about the Cross Border Summit

Michael Michelini: The Cross Border Summit is an annual conference bringing together top e-commerce cross border business leaders from around the world to share expertise about business strategy, marketing, team building, and other strategies to stay ahead in today’s global world.

While internet and technology have done amazing things to improve society and business, it has sprouted competitors from around the globe.

Keep on top of these trends by attending the Cross Border Summit!
Learn more here & Register here

Cross Border Summit

Featured

Solution Spotlight: Market Entry Studies

The Challenge Set

Business leaders must meet rigorous information requirements to support their decision-making process. They develop market entry strategies with reports that should define:

1. Business Environment

Economy and investment landscape
Corporate establishment regulations
Taxation policies
Incentives for businesses
Legal institutions
Government transparency and corruption
Health and safety concerns

2. Industry & Market Performance

Size and growth of the industry and market
Geographical distribution
Evaluation of industry clusters or chain

3. Operational Costs

Land access, availability, and cost
Labor access, availability, and cost
Basic service provision and costs

4. Support Networks

Presence of business associations
Availability and costs of service providers
Identification of production or distribution partners

5. Competition

Identifying competitors
Competitors’ market share and position
Competitors’ sales channels

Why is China imposing harsh curbs on its $100 billion private tutoring and online education sector?

Why has China introduced these reforms?

On September 18, 2021, China’s Ministry of Education clarified the registration guidelines for online education platforms, providing a legal way forward for the sector to develop. The guidelines mark the latest and most aggressive Chinese effort to rein in the country’s private education industry.

This change reasserts the role of government-run schooling in order to improve school-life balance for families. The move aims, in part, to alleviate the rising costs of raising children for families, thereby encouraging future birthrate, as well as to reduce stress on the students themselves.

It comes after the government released its census results in May of 2021 showing that the China’s population is ageing more rapidly than previously thought.

China’s education system is exceptionally competitive, a problem exacerbated by previous instated one-child and two-child policies. According to the Chinese Society of Education, over 75 percent of students aged 6-18 years attended after-school tutoring in 2016.

This percentage is said to have risen in recent years. The new reforms come on the heels of a new education law released in March, which limits the private sector’s role in core education and bans the use of foreign education materials.

Thought Bubble: What to do about China’s New Data Security Law (effective September 1st, 2021)

From German Chamber of Commerce in China Presentation “Data Security Law Effective 1 September 2021”

Passed by the National People’s Congress on 10 June, the Data Security Law (DSL) will take effect from 1 September 2021.

How the Data Security Law fits into other legislations & regulations in China.

With the term “data” broadly defined as electronic or non-electronic records of information, the DSL would impact corporate production, management, and other operations alike.

As the DSL governs two highly consequential topics of data and security, amid extensive data growth and increasing security concerns, the legal system is complex and intertwined.

What is the Essence of the Data Security Law?

Data refers to any record of information in electronic or non-electronic form. Data security refers to the ability to ensure data under effective protection and in lawful use, and remain so through taking necessary measures. Data processing includes activities such as the collection, storage, use, refinery, transfer, provision, or public disclosure. Data classification& hierarchy is to be specified later (Article 3).

Chinese Communist Party’s (CCP) Directive is that data is now a production input, equal to labor, capital, land, and technology.

Thought Bubble: How Do You Know Your China Market Research Is Working?

From the article “How Do You Know Your China Market Research Is Working?” on Jing Daily

Jing Daily’s Findings:

China’s western and central regions are skincare-focused, while its north and south regions are passionate about makeup and fragrance, making them very different target markets.
Marketers must consider location-based clusters as a relevant marketing factor, as a consumer may live in a Tier-3 city but work and shop in a Tier-1 city, for instance.
Generational differences do matter, but researchers can take their analysis one step further by providing a micro-segmentation of a specific generation.

Our Take:

The Chinese luxury market is anything but homogeneous therefore marketing research cannot rely on singular framework to derive insight much less consensus of decisions at the boardroom level of leadership in luxury goods companies.

Not only can geographic segmentation of the Chinese market reveal key data dynamics to consumer behavior, businesses cannot ignore other overriding factors such as generational gaps (80’s vs 90’s generations), economic disparities (1st tier cities vs. 3rd tier cities) when conducting their research analysis.

In the end, as the article aptly pointed out, the “sample size” matters a great deal when it comes to how reliable is your data collected? For a market of 1.5 billion consumers, gigantic market opportunities require gigantic sampling size to make marketing research work.

Explore our Market Research Services to gain key insight into Chinese market segments and regions

Industry Spotlight: E-Commerce in China

Article originally published on Sept. 1, 2017, last updated on Aug. 1, 2021

What are the top B2C e-commerce platforms in China?

China’s B2C e-commerce market totaled approximately US$391.77 billion in 2016, growing 31.6% from 2015. According to iResearch, the B2C market made up 55.3% of the online shopping market in China.

The main players in the B2C market include Alibaba’s marketplace, Tmall, as well as the fast growing Jingdong or JD.com. While Tmall and JD.com are the most recognizable platforms, there are several other platforms growing in popularity and market share.

Tmall – Tmall (天猫) is currently the top B2C e-commerce platform in China. In 2016, Tmall made up 56.6% of market share. Tmall has done particularly well as it connects buyers with sellers on its platform, allowing it to grow quickly.

JD.com – Popularly known as JD.com, Jingdong (京东) ranks second with 24.7% of market share. JD.com has been able to grow quickly through management of its own inventory which allows the company to ship directly to customers.

Suning.com – Suning is an online appliance and electronics retailer. Suning has a cooperation with Alibaba whereby Alibaba has 49% stake in the company. In 2016, Suning ranked a distant third with 4.3% of market share.

Vipshop – Vipshop, or vip.com, is an online discount retailer, offering branded products to Chinese consumers. It now has over 2,200 brands on its platform In 2016, vip.com ranked fourth with 3.5% of the market.

Yihaodian – Yihaodian, which translates to “number one store” in Chinese, is an online grocery business. In 2015, Walmart acquired full ownership of Yihaodian, but sold it to JD.com in 2016 in exchange for 5% stake in JD.com shares. Yihaodian ranked fifth with 1.1% market share.

Is it possible to run an e-commerce store in China without speaking Chinese?

It is possible but not recommended. Of course, much depends upon the exact nature of the e-commerce business. But in general, at some points, Chinese language skills will become necessary, as will an in-depth understanding of the Chinese consumer base.

It is possible to run a cross-border e-commerce business through global platforms like Tmall Global, and not have to establish legally in China. However, just having a store on Tmall Global will not guarantee business success – far from it. Companies should also recognize that they will need a marketing plan in order to reach out to potential consumers and stand out from the immense competition.

As e-commerce has grown, so has a number of companies that focus on marketing for companies on platforms like Tmall and WeChat. These companies can also build brand awareness, and help legally set up in China if necessary.

How to Effectively Market Your Brand on Little Red Book (小红书) in China

This Article is written by Tingyi Chen 亭伊 and originally published on Walk The Chat on July 18th, 2021

Little Red Book (小红书, pronounced Xiaohongshu), sometime referred to as RED, is the Chinese equivalent of Instagram. It’s the best platform to read about product reviews, share outfits of the day, learn about fashion tips, and discover high-quality brands. Since RED reviews could directly impact sales, it’s one of the most important social media channels for brand marketing.

Overview

RED targets a specific user group: young, female shoppers living in top-tier cities. Having 100 million monthly active users (MAUs), it is not the largest Chinese Social Media App (WeChat has 1.2 billion MAUs) but its audience is distinct in that 90% are female, and 46% of the users are under 24 years of age.

In general, RED’s users are based in tier 1 and tier 2 cities, with higher than average purchasing power. The platform’s content has a strong focus on premium brands, and content containing notable foreign brands usually can get stronger engagements.

RED’s design is similar to Instagram: pictures with text descriptions usually between 20 to 200 characters. The style of the content on Little is usually personal, often with lots of emojis. Users engage with algorithm-driven content distributions via likes, bookmarks, sharing, private messaging, and comments.