To all the foreign companies now eyeing China's e-commerce platforms after seeing the headlines light up with $14.3 billion in Single's Day sales, Ernie Diaz offers one stern reminder: “It's called Singles Day, not Sellers Day.” Diaz cautions those eager to make it in China to remember these billions don't take into account the marginalized profits behind the big numbers.
Diaz is the Publisher and Cofounder of China Digital Review, an online magazine that helps those in the West to better understand the Chinese market. Based in Beijing for 12 years now, he shared case studies and best practices related to e-commerce at the Dec. 7 AmCham China event, “An Introduction To E-Commerce And Market Trends.”
Listen to the entire podcast below.
Q: E-commerce channels in China are dominated by domestic companies. What barriers does that create for foreign companies?
A: The Chinese Internet is dominated by the BAT – Baidu, Alibaba and Tencent. Because of their regulations, in general, if you want to advertise and cooperate with a third-party channel like Tmall, Taobao, Jindong, that means you have to establish in China. You have to have a Chinese entity, which means setting up a WFOE, or you have to ride on an agency license, which will create its own set of problems. That's what it used to mean – registering in China and making sure your products were cleared for china, which in itself can be problematic because most of the things that are popular are consumables, supplements, cosmetics. It can be very time consuming to have those approved for the Chinese market.
The good news is, though, that there is massive, massive demand for all these Western quality products. If you're thinking of bringing a social media app or creating a third party for sales, you're better off staying at home, but if you have some kind of quality brand, quality product, I guarantee you there's a targeted Chinese segment that wants it and will pay for it. The evidence is in the blooming of cross-border e-commerce over the past few years. You can use a channel that doesn't bring your goods in for importation. Instead, you're going to ship your stuff to a bonded warehouse or direct consumer. Cross-border presents its own problems. It's much harder to drive a lot of sales and have a lot of volume going in and out. But for SMEs, you want to start with a cross-border approach. That means letting Chinese find you and shipping your stuff from overseas and bringing it in as an overseas product rather than coming here and trying to establish here.
Listen to the whole podcast for more on why Singles' Day doesn't translate major profits for any company.