In recent times, an increasing buying power and disposable income have created a sharp demand for foreign goods in China. The primary interest of Chinese consumers lay in a variety of products that are mostly sourced from the west.
While affluent Chinese consumers want to buy quality products from the west, lack of availability within the homeland makes them look outside. This is driving cross-border e-commerce in China.
Another driving force that’s helping western sellers is Trust. Chinese people apparently relate to western brands with a lot of trust. This works as an advantage for brands that come from the US or Europe to China. Major American brands are already selling in China and making substantial profits.
However, as much opportunities are there in the Chinese market, it comes with its own set of challenges. Your mode of operation within China will define the way you solve these challenges.
The biggest challenge, however, is to leap the language barrier and understand the psyche of Chinese consumers.
If you are an omni-channel seller based in the US, and looking to step into cross-border e-commerce, then China is undoubtedly the most potential destination right now. It is the biggest e-commerce market in the world and also responsible for driving the highest cross-border e-commerce transactions worldwide despite the challenges it presents.
A lot of work is required to enter the Chinese e-commerce market. The legal framework and regulations in China are quite different than the west and a proper set of information is necessary before you make a move.
This post is an attempt to familiarize you with legal compliance, market information and various other factors that you would want to know before you plan for China. Let’s begin with ‘registration of the brand’.
Registering your Trademarks and Brands in China-
When it comes to trademarks, China is a “first to file” country. That means, if the Nike logo and its label graphics are registered by a counterfeit shoemaker before Nike, then, they become the legal owner of the trademark and not Nike. As a result, he can now sell his fake shoes with the Nike logo and won’t come under any legal scanner anywhere in China.
Obviously, this is something that you would not want upon your brand. Hence, it is necessary to register your brand separately in China.
However, keep in mind that registering your brand does not finish the job there. Registration in China is product specific and must state the class/classes and subclass/subclasses the product belongs to. China follows the World Intellectual Property Organization or WIPO nomenclature to identify products and Services into 45 separate classes. These classes are then divided into numerous subclasses as well.
The problem is, China allows usage of identical logos between classes and subclasses.
This means that a counterfeit seller may register your brand within some other subclass and sell goods in China. Example- If Nike registers its trademark only in ‘shoes’ a counterfeit manufacturer may start selling health and fitness products using the Nike logo by registering into some other Class or Subclass.
It takes around $500 to register your trademark for a single class in China. Hence, it is necessary for you to identify all the classes and subclasses and register your brand within those.
You can hire a lawyer to get this done of you may apply online on China Trademarks Office. http://www.chinatrademarkoffice.com/
Another thing to note, If you are thinking to set up your online shop on Tmall or some other site, you would need class 35 trademark registration.
Requirements for registration-
There are a few key requirements as stated in the registration procedure featured in the Trademark office website. These are –
Here is how the trademark application forms looks like-
Prerequisites before selling-
One of the major prerequisites for western sellers is to have their brand name registered in their country of origin along with 2 years of operational experience in their own country.
Other operating compliance include-
- Certificate of origin to prove authenticity of the brand
- Verification of the same by Chinese Customs and Tmall Security
- Product labeling and customer support in Mandarin
- Product Labelling in international units
- Physical Locations within China to accommodate returns
- Must have a tracking system for delivery
- Create an Alipay account (synonymous to Paypal)
- If you are a brand reseller, have reselling authorization
- Stock Certificates
A large share of cross-border selling in China takes place through Tmall global(formerly known as Tao Bao). It is the best gateway to enter the Chinese market. Tmall’s support and guidance can potentially increase your chances to succeed in China.
The entry process include a host of steps and may take a duration of 5-8 weeks
Types of Stores-
There are 4 types of stores with which you can operate in China-
- For a flagship store, products must have relevant trade mark registrations in Hong Kong (® or ™).
- If the merchant is a brand owner, they must provide the trademark registration certificate for their products.
- If the merchant is an exclusive authorized dealer, they must also provide the letter of authorization for selling the products.
Merchants with brand authorization documents giving them distribution rights to sell products without geographical restrictions in the Greater China region are eligible to open this store format.
Franchise Store or “Monopolized” Store
- Merchants who hold brand licensing goods can open a franchise shop in Tmall.
- This means that retailers can sell two or more types of goods in several different categories.
- This includes two types: stores authorized to sell goods of a certain brand; and stores authorized to sell multiple sub-brands which belong to the same controller.
Listing on Tmall-
Many established brand names of the west have dedicated online store on Tmall. The sites are often prefixed with the brand name as subdomain followed by the domain.
Registration Fees for Tmall-
Registering in Tmall costs around $25000 as a security deposit.
In addition to it, yearly charges in the form of a commission fee are applicable which varies with respect to the product categories. Here is a list to give you a complete idea on the prices. Please note that the prices are listed in Yuans.
Once you start selling and generating money, it will be transferred into your Alipay account. You would incur an Alipay Service fee which is 1% of the total price (product and logistics).
Once the order are received, depending on the location of the goods, they are fulfilled
Here is the complete Tmall workflow-
Most of the marketplaces in China take care of the entire workflow as shown here. It is highly unlikely that you would be negotiating with any shipping company or so.
What Products to sell in China?
China is a huge consumer market for western cosmetics and apparel. However, cross-border e-commerce has opened up markets for a lot of specialty items as well.
Some of the hot selling items in the Chinese market are-
- Women Accessories, Bags etc.
- Women’s and Men’s Apparel and Shoes
- Watch, eyewear and jewelry
Marketing Strategy for your Brand-
Purchasing goods and services from Smartphone is quite common in china. According to a Bloomberg report, almost 90% of smartphone users have done transactions from their devices. Hence, a mobile-first strategy is important for your e-commerce store to grow in China.
Also, Social media is very closely connected to e-commerce in China. Many e-commerce sites are closely connected to WeChat or Weibo. From a western POV the level of closeness is pervasive, but for a country, that is relatively new to consumerism, it does not clamp down the Public enthusiasm.
People in China love to review and suggest quality products to their friends and family- A very thoughtful way to use Social media Indeed.
As a matter of fact, Alibaba’s Tmall integrated social media is a great tool where people can rate the accuracy of product, descriptions, delivery and overall consumer experience.
Detailed Product Description-
Chinese consumers can be voracious diggers for information. And the prime reason they do so is to make sure that the product is Authentic. As I’ve mentioned earlier about people’s obsession with rating and suggesting authentic products, the same is reflected here as well.
Thus, it is always best to give as much information as possible which is centered around the authenticity of the product. Chinese enjoy a vast amount of product information as they want to be sure about the authenticity of the product and avoid counterfeit goods.
Understand Baidu, Tencent, and Alibaba-
These three are the biggest tech innovators in China. If you are planning to sell in China, you have to keep updated with recent happenings connected to all three of them.
Tough Competition in Digital-
Scoring brownie points in Baidu and other social channels are essential for a successful e-commerce stint in China. If you come from an SEO or digital background, you may figure out the science yourself.
However, it is always better to hire experts in order to avoid unnecessary dabbling and also give yourself an efficient induction into the market straight away.
A lot of experts are out there. You can hire freelancers for digital marketing and SEO from the US itself. Price range varies anything between $20-$40/hour. Translations come cheaper, starting at less than $15/hour.
Two modes of shipping are prominent in relation to Cross-border e-commerce in China. These are –
Direct Shipping Model-Shipments arrives from other countries, clears the customs, enter China and delivered to the customer.
Bonded Warehouse Model- Shipments are stocked in a warehouse in China and then delivered as per orders.
Most of the brands are opting for the second one.
Taxes in China-
The China General Administration of Customs has made various adjustments to the classification table and taxes on imported goods into China. The revised tax rates are given below.
There are clear signals from the Chinese Government to streamline the entire cross-border e-commerce business and provide value for its citizens at the same time.
The level of trust that Chinese people have on western products is motivating and can be used to your advantage. Hassles with Order fulfillment is also feeble as Tmall has its entire order fulfillment and shipping system in place. This is no surprise that Cross-Border e-commerce in China is growing at the fastest pace than anywhere else in the world.
If you are contemplating to enter this market, there cannot be a better time than this one.