Crossing into China: Is Cross-Border
E-Commerce a Worthwhile Strategy?

We hear of amazing growth in China domestic e-commerce, yet cross-border e-commerce has experienced even greater growth due to new platforms and payment methods.  What is the big attraction, both for Chinese consumers and for brands?

Chinese consumers are willing to go out of their way to get certain products from overseas.  In spite of the fact that domestic e-retailers can deliver in hours, versus days or weeks from overseas, cross-border deliveries still have their place.  Here are some motivations for China to shop internationally:

• Confidence that the products are authentic and safe.  This is the reason for the strong sales of infant formula.  This motivation affects the entire mother and baby category, as well as cosmetics and food.  It also affects apparel and luxury where people want to be sure that they are getting the real item.
• Lower prices on luxury goods.  Luxury goods are typically 30% to 50% more expensive in China due to taxes, duties, and different pricing strategies.  That difference easily pays for shipping costs.
• Avoidance of sales tax and VAT.  Domestic taxes include consumption tax which can add 10%, and VAT can add 17%.  Imported goods might still face duties of 10%-50%, though orders of less than RMB1000 are not subject to import duty.  Many shoppers arrange for items to be hand-carried in country to avoid these duties.
• Exchange rate advantages.  This is more of an issue for B2B sales since companies are known to arbitrage exchange rates.  However, consumers are not unaware of when the Japanese yen, for example, weakens and creates an opportunity to buy cheaper cosmetics from Rakuten.  They only need to wait for their item to be shipped from Tokyo.  The gradual strengthening of the Chinese Yuan over the past decade has contributed to the affordability of cross-border purchases.

Whether you should be selling cross-border to China depends on how your products fit into these consumer motivations.  While cross-border e-commerce will never suffice as a long-term China strategy, it does provide a low-risk way to have a presence in the market.  It is also a way to make slow-moving SKUs available without holding inventory in China. 

Costco launched cross-border sales in China through TMall Global.  While this sounds like a major undertaking, for them it was relatively straightforward given that they already have 10 stores (“warehouses” as they call them) in Taiwan.  This allows Costco to use existing inventory points to sell their own Kirkland brand, among other things, on the mainland.

Smaller brands can dip their toes into China with just payment and logistics solutions. Even without a Chinese language site, it is possible to reach a smaller group of highly motivated shoppers.  These “highly motivated” consumers are typically English-speaking young urban professionals who are trying to build their own style and status.  But even the highly motivated Chinese shoppers are going to need a different payment option.  They are not likely to have international credit cards, so offering Alipay as an option is a must.

The major cross-border platforms are as follows:

Alipay ePass is a solution that Alibaba offers foreign brands including payment, logistics, and marketing in China. This is a very scalable option that caters to brands in the early stages of selling to China.

Shoprunner was invested in by Alibaba in October 2013, a move which gives Alibaba the ability to introduce all 100+ Shoprunner brands to China.  It essentially provides all the Alipay ePass services to Shoprunner partner retailers.  The brands can offer payment through Alipay, and goods are delivered through Alibaba’s China Smart Logistics Network.

Amazon launched US direct delivery to China in August of 2014.  Fast-moving items can be stored in one of six bonded warehouses in China for fast, low-cost delivery.  Long-tail SKUs would then be shipped from the US, though not all Amazon SKUs are available to Chinese customers.

Borderfree is an e-commerce company which specializes in providing cross-border delivery tracking for major department stores in the US, such as Macy’s, Neiman Marcus, Bloomingdale's, and Saks Fifth Avenue. Borderfree is a global service reaching over 100 countries.  Though it does not focus solely on China, it does offer Alipay and Chinese website translation.

These are not the only options, but you can see that there are ample platforms to choose from.  Cross-border e-commerce is not a gold mine, especially in China where shoppers view online shopping as a fiercely cost-competitive market, and where significant marketing investments are needed.  But crossing borders may be the best way for your brand to test the waters.