Getting Started with e-Commerce in China: By Azoya Group (interview)

Listen to this article
Voiced by Amazon Polly

don-zhao-azoya

The Chinese e-Commerce market is growing with double digits year-on-year and has become the biggest in the world. Many, mainly big multinational companies, have managed to ride the wave and capitalize on the online frenzy. It’s becoming increasingly popular among SMEs to take on the market as well.

But China is still developing and it’s not easy to manage a market entry on your own, with little or no knowledge about the market. Everything from regulations, branding and marketing is different to what we are used to in the West, for example.

Therefore, I decided to invite Don Zhao to explain more about how it works when selling online in China. He has a long experience in e-Commerce and is the Cofounder of Azoya Group, one of the biggest e-Commerce enablers in China.

The company helps clients with a number of services to successfully launch their products in China, like: e-commerce platform setups, logistics, marketing, customer service and more.

Thanks for having you Don! First, can you please tell us a little bit about yourself and how Azoya helps foreign companies to get started in China?

Hi, my name is Don Zhao and I am the co-founder of Azoya International. In 2013, Alex Huang and I established Azoya with the aim of helping international retailers and brands enter the booming Chinese online market. Since then, we have helped over 35 businesses from around the world successfully crack the Chinese online market.

We offer a comprehensive package of solutions with the core of a retailer’s standalone Chinese e-commerce site, supported by consulting services, online marketplace and social media (WeChat) strategy. In the past 5 years of development, Azoya had grown with our retail partners and achieved over 250% CAGR.

I am passionate about the e-commerce and retail industry, regularly contributing to key retail media, and also being invited as a guest speaker at some of the most important industry events around the world.

1. What are the prerequisites when you determine whether a company is qualified to start selling online in China?

There are several criteria:

E-commerce capability:

To sell online in China, a brand or a retailer must first have e-commerce capability in their own country. It’s not just about the mind-set, but also the infrastructure, such as supply chain, fulfilment, logistics, digital feeds, etc. It could be quite difficult for a company with zero e-commerce infrastructure to do online business in China.

Popularity:

Popularity: Chinese consumers love to follow fashion trends and tend to purchase top sellers, especially for foreign products. If your brand and products are already known by Chinese consumers, it will be much more effective to launch a marketing campaign or sales promotion.

Category:

Some categories are already mature in the China cross-border market and it will be easier for the companies to sell in China. Among immature categories, such as oil skin care, organic food, wines/champagne and healthy-lifestyle products, companies will need to expect long term investments to educate consumers.

In our latest report in partnership with Frost & Sullivan, which will be released in May, the top 5 most popular categories for cross-border shoppers are fashion, beauty & cosmetics, grocery, sports & leisure, and mom & baby.

Mindset:

Mindset: Unlike 3 or 4 years ago, the China cross-border online market is not a market where you can simply create a successful case by investing in one channel (say social media). With more established players joining the market, the competition is getting increasingly fierce, plus regulations constantly change.

To stand a chance to succeed, retail decision makers must be determined with their China expansion, look for a trusted local partner with knowledge who acts fast on market opportunities, and approach your Chinese customers through multiple touchpoints.

2. Do you think it’s important to stay ‘vertical and professional’ when targeting Chinese clients? Can you give us a few examples?

Yes, that is so because of the changing demands of Chinese consumers. Chinese consumers were once known as fans of top sellers, especially when it comes to cross-border shopping, as they didn’t have enough information about foreign brands and products. But as cross-border ecommerce has become increasingly popular in China, accordingly consumers are a lot more educated and informed on foreign brands and products.

Thus consumers now are more rational about picking suitable products for themselves, instead of just following the top sellers. Today many customers are turning to niche brands and products which fit them better in terms of their desired functions and personalities.

By “vertical and professional” this phrase refers to more than merchandise selections for your target customers, but also the marketing strategy – content, approach and channels, etc.

On cn.Feelunique.com, a UK beauty retailer’s Chinese website under our management, there are lots of niche beauty brands that can hardly be found offline in China. Filogar, Charlotte Tilbury and Barry M are just a few of these niche brands. The customers of Feelunique are savvy beauty shoppers who deeply understand their demands and are willing to trial on new brands.

Therefore, we engage with the customers through touchpoints where they are actively looking for information, such as social media platforms WeChat and Weibo. We also collaborate with niche KOLs (Key Opinion Leaders) who are relevant, favoured and trusted by their communities, rather than simply seeking influencers with the most followers.

3. Normally, exporters need to conform to Chinese regulations and quality standards (see GB standards and CCC certification for example). Are there any benefits of selling via cross border e-Commerce? Can I avoid lengthy certification processes and necessity to show compliance with some of the regulations?

Importing in China via cross-border ecommerce does not require the same registration and filing compared to traditional imports. The process is much faster and require much less up-front investment.

That’s because the Chinese government views cross-border purchasing as an individual behavior. Customers buy products for their personal usage, therefore, they should be the ones responsible for the safety and quality of the products.

A common question we are frequently asked by beauty brand is: Are companies required to do animal testing (as traditional imports do) when they enter China via cross-border ecommerce? The answer is no.

Selling in China via cross-border e-commerce does not just lower the efforts on registration and everything, it also opens the door for those who are not able to enter China through traditional imports due to policy reasons.

4. I see that you help many pharmacies to start selling their products online. What are the major differences in terms of product regulations when helping a pharmacy compared to a clothing company for example?

Again, there no restrictions on selling every category in China in the case of cross-border e-commerce, so there’s no difference in pharmacy and clothing and many other categories.

There’s a sensitive area for those pharmacy businesses who want to enter China now is OTC (over the counter) medicines. The Chinese government is keeping a closer eye on it and there’s a trend for the government to take stronger control, but there’s no clear regulation yet.

5. What are the other popular categories for cross-border e-commerce in China now, and what do you think is most important for overseas companies when doing each category?

As mentioned in answer to the question no.1, as we found in the Frost & Sullivan report, the top 5 most popular categories for cross-border Chinese shoppers are fashion (22%), beauty & cosmetics (20%), grocery (19%), sports & leisure (18%), and mom & baby (15%).

For the fashion category, merchandise selection is the no.1 factor for successfully attracting Chinese consumers. Many fashion brands and retailers failed because they cannot gain sufficient insight into consumers’ needs or distinguish their products in this competitive and fast changing market.

Another pain point for fashion in China e-commerce is the returns, as Chinese customers love to return products. Thus, balancing the return policy to ensure profitability while also attracting customers is crucial.

For beauty products, as mentioned in answer to question no.2, consumers increasingly seek niche brands and products; thus, brands should dive into consumer needs and trends, and reflect them in their assortment. In addition, as a category with fierce competition, beauty customers are highly price sensitive and get used to comparing prices across different platforms, requiring companies to have a concrete, competitive pricing strategy.

For the mum & baby category, consumers tend to purchase the same products and don’t change their preferences quickly. Thus, newcomers should research the market and find out their compelling and unique selling points for the Chinese customers.

6. Tmall is a bit selective and mainly let larger companies sell products on their website. But there are some other marketplaces available that should be of interest to exporters. Some websites that come to mind are VIP, Kaola or Redbook (Xiaohongshu). What are the benefits and disadvantages if choosing any of these websites compared with Tmall?

Tmall seems to be the first name to pop up when business owners think of cracking the China market. However, Tmall Global (the international marketplace for foreign products) is actually not the biggest platform when it comes to cross-border, and they are now turning the strategy of focusing on their own retail business, rather than having more cannibalization between new and old foreign retailers. In fact, Tmall Global accounts for only a small proportion of Tmall’s total sales while they mainly focus on domestic platforms.

In the case of cross-border e-commerce, Kaola is now the no. 1 marketplace for cross-border sales, accounting over 20% market share. Their advantages are good shopping experience and a quality customer community, as they own a large group of customers or fans with high loyalty. However, their focus in creating top sellers also limits the sales on niche trendy categories, such as fashion.

For Redbook (Xiaohongshu), I reckon it is a community commerce platform with strong social function. By introducing niche and professional brands and products through the word of mouth of influencers like KOLs and celebrities, Redbook has been good at engaging Chinese millennials. At the moment, Redbook is mostly known as a community for beauty products, so it may take a while for them to expand to other categories. Another important feature is the high commission to enter, which leaves especially low margins for retailers.

In regards to VIP, their focus is flash sales, so they are good at building top sellers as well. However, for nicher brands with less market awareness, VIP is not exactly the perfect match. Customers of VIP global are looking for bargain, and they might not be as loyal as those from your own shop. while at the same time worrying about counterfeit products.

7. Let’s say that I have a smaller company (1-10 employees) and want to try out the Chinese market. What would be the best entry strategy in your view? Is WeChat E-commerce a better option to try out the market first?

It’ll really depends on what categories and products are you target to sell though. WeChat is actually offering an entry model for foreign businesses to enter China with little size investment at the beginning.

Based on the huge amount of users (up to 100 million daily active users), WeChat is always an important part of digital marketing in China, as they offer solutions such as a WeChat account, advertisements on the Moments and articles, O2O marketing via QR codes, etc. WeChat has growing ambition for e-commerce, they now offer more solutions fitting brands of different sizes and stages to approach their customers in different sceneries with WeChat Pay, Mini-Program, WeChat store, WeShop and more.

WeChat allows customers to finish the whole journey within its system, and offers foreign retailers a range of solutions to choose flexibly accommodate different sizes of budgets. The minimum investment for starting a WeChat business in China could be just few thousand dollars.

WeChat is suitable for businesses who want to test the market with a low budget and low risks. However, if a business aims to do long-term business in China and distinguish itself from the competition by building its own customers base, WeChat would not be enough.

8. As mentioned earlier, the e-Commerce market grows much in China, but we see more fierce competition. Some bigger foreign companies have even decided to pull out from platforms like Tmall. Is now the right time to enter the Chinese market and how does the future look like?

Three to four years ago, the phrase “cross-border e-commerce” itself was an emerging trend, as early entry brands enjoyed fast growing volume and high ROI. Now with more and more established players selling in China via cross-border e-commerce, the competition is fierce and will be more and more fierce in the coming years. (One notable retail failure is Marks & Spencer.)

Success in China e-commerce requires brand owners to have an even sharper mindset, quicker actions and localized China strategy and execution. I suggest decision makers should careful research the market first, then seek a local partner with a proven history of expertise and fast agility to respond to market opportunities.

The future is hard to say; they say the only constant is change. But there are a few things I am sure about:

  • More and more players will test the market with cross-border e-commerce and then enter in-depth with traditional imports. These trends drive the market to become more integrated and mixed with different models and channels.
  • Social commerce will be a new growth area.
  • The cross-border market volume will continue to increase. For now females are the bigger spenders, according to our upcoming report; however, there will be more and more male shoppers covering broader categories in the future.

9. How can I deal with unsatisfied customers or product claims, if I work from Europe or the US, and let Azoya sell my products in China?

Azoya will settle the return policy with our retail partners at the beginning, and our customer service team handles complaints and returns. All the partner needs to do is to deal with the products shipped back to their local warehouse.

10. What is the minimum budget that SME’s and larger companies should set aside when planning for a market entry in China?

It depends on the model and objective the business wants in China. As mentioned, entering through WeChat could cost just a few thousand dollars for a brand. There’s even low-cost model that’s intended to sell to Chinese customers via a local language website and handle the orders with international deliveries.

Typically, if a business wants to enter China through cross-border e-commerce in a proper and localized approach, the cost structure would be:

Logistics:

10-15%, depending on the supply chain strategy.

Customs taxation:

Varies according to the logistics routes. For a personal parcel approach it can be 15-60% depending on the categories. For a cross-border e-commerce approach, it can be 7-25.5%, depending on the categories. Details can be found on Azoya’s webpage.

Operational costs:

Depends on sales channels and manpower.

Marketing budget:

Typically it’s 5-30%, depending on the margins.

Thanks for having you Don. Finally, can you give 3-5 tips to readers who wants to start selling online in China within a near future?

I would suggest they consolidate their China expansion actions into:

  • Research on business potential
  • Settle on an entry model strategy
  • Look for a local partner
  • Tags:

    One Response to “Getting Started with e-Commerce in China: By Azoya Group (interview)”

    1. ivan May 10, 2018 at 6:54 am #

      test comment

    Leave a Reply

    * Checkbox GDPR is required

    *

    I agree