For British companies looking to test the Chinese retail market, cross border e-commerce offers low barriers to entry and quick and affordable access. Alessio Casablanca of LehmanBrown explains how to register and set up on China’s e-commerce platforms
Businesses looking to expand into the Chinese market are attracted to using cross-border e-commerce as it allows their products and services access to the market without the need to invest in establishing an HQ or register a company. They can simply rely on Chinese trade agents or e-commerce platforms. Alternatively, the e-commerce strategy is a solution for businesses under economic duress, permitting them to maintain their market share in China by continuing to supply their products and services even while closing their offices in China.
Sweetening the deal for many businesses in the retail sector who become part of the Cross-Border e-commerce Pilot Programme are exemptions from VAT, Consumption Tax and Enterprise Income Tax. Further, there is a proactive push by China to expand consumption and provide access to new developing regions.
Eventually, once products and services begin generating revenue, businesses should consider establishing their HQs in China in order to optimise production and services and reduce additional fees by supplying the customers directly.
What to consider before entering China’s e-commerce sector
China’s market and culture are very complex and therefore demand a coherent strategy to navigate them successfully. The main cause of failure for non-Chinese businesses is usually multiple small blunders or a lack of oversight in their e-commerce strategy.
The best rule of thumb when entering China is for businesses to carry out thorough due diligence, which involves identifying trustworthy Chinese trade agents and mapping out the best way to enter the market while simultaneously protecting the business from unforeseen risks.
Often the first steps are to register all trademarks and intellectual properties because China administers a “First to file” instead of a “First to use” system. Consequently, even if a business aims initially to introduce only a single product or service, it is advisable to register all its brands and products to avoid trademark squatting and malicious filings down the line. Thereafter, businesses can take their time to develop a pragmatic e-commerce strategy for each product or service they intend to introduce in China. Plans should take into consideration their competition in the market, repatriation of revenues, and Chinese content guidelines. Only with proper planning and local awareness can businesses find success in China.
What are the main e-commerce platforms in China?
All major foreign companies already operating on Chinese e-commerce platforms have local trade agents who provide a business with space, dedicated or shared, to promoting products and services in the country. Most businesses choose to collaborate with trade agents who have many years of experience promoting a varied number of products and services as well as an established customer base.
Given the differences between the various Chinese e-commerce platforms, it is crucial for businesses to conduct a product search on each platform to evaluate which would be the best fit for a specific brand and product. Whichever e-commerce platform a business may choose, it is advisable to understand the need for sustained promotion of their brands given the heavy competition.
In China, WeChat is a jack-of-all-trades application whereby users can chat, call, publish articles, share their moments (as on Facebook or Instagram), purchase goods, pay bills and more. The latest trend for international businesses has been to open official accounts, with Sephora being a key example, and sell products directly via the app.
WeChat transactions are instantaneous and payments (in RMB) are sent directly to an account’s WeChat Account Balance, from which profits can be transferred to the bank. The best option for businesses is to register with Tencent for a WeChat Pay account, which they then connect to their official bank account. Businesses can choose the currency they would like to exchange every month and Tencent takes a 1-2% commission for a minimum withdrawal of US$800.
Registration for WeChat Pay usually takes between two and four months and requires businesses to provide their business licence, financial licence, anti-money laundering agreement, and company information. If working with a trade agent, the time required is greatly reduced, and businesses can set up a WeChat Pay account in 1-2 weeks. While this option has lower cash-out amounts of US$0-$5000 and a better refund capability (within a month), it incurs a 2-3% commission.
Opening an account on WeChat via a trusted trade agent entails the creation of a trademark agreement and payment of fees to the trade agent who opens and maintains the account.
A business intending to register an account themselves should follow these steps: visit the WeChat Account Platform; fill in the forms for a ‘Service Account’; pay the annual fee of US$99 and register for WeChat Pay. There are two types of accounts with different terms of services and features: a local account, and an overseas account. One can open an ‘overseas account’ with a foreign business licence and business owner credentials; it should be noted, however, that businesses will then lack many of the tools for promoting their brand. If opting to create an account for the brand itself, then it is recommended to first set up a business entity in China and then create a local account by submitting the Chinese business licence and trademark registration.
JD, Taobao and TMall
The biggest decision for businesses will be to choose the right e-commerce platform to market their product. JD, Taobao and TMall. So how do they differ? Taobao and TMall are both part of the Alibaba ecosystem, however they do not compete with each other. Together, the two platforms make up more than 65% of the e-commerce market in China, with TMall expanding more aggressively.
Taobao is an online market where almost every kind of product can be found, and each product is available in a wide range of qualities and prices; overall, the platform focuses increasingly on handmade crafts and bargains. Even though most brands are registered on Taobao, they face heavy competition from similar products that are readily available for a fraction of the price.
TMall, on the other hand, is more brand-friendly, granting preferential deals if businesses approach them directly. Most of the products on TMall tend to be quality-based and offer Chinese consumers plenty of international and local top-quality brands ranging from Samsung to Huawei, or Gucci to Hugo Boss; in terms of products available for online sale in China, TMall might be compared to Amazon.
JD – or JingDong – presents an alternative for businesses who prefer a less hands-on approach for promoting their brand in order to focus on higher sales volumes. Whereas initially on TMall, businesses would set up and handle each brand page, JD allowed businesses not only to upload product details but also to ship them in bulk to JD, who would deliver on their behalf. Now, despite both TMall and JD offering similar services, JD has grown more popular as a locus to purchase electrical appliances and high-tech products—with plans to expand this advantage over TMall.
As a general rule, given the increased range of services offered by cross-border e-commerce platforms, it is advisable to contact various platforms directly to see if they might offer preferential deals for products placed with them.
Registering on TMall Global and JD Worldwide
Businesses outside of China should consider registering for either TMall Global or JD Worldwide accounts as both offer the ability to access the Chinese market without issues related to the logistics of setting up a business in China and warehousing.
The only requirements are a business licence, business owner’s details, a USD bank account, and international trademark registration information. In addition, to avoid any trademark squatting problems, it is strongly recommended that every business marketing its products in China also register their trademark/s in China even when it is not a requirement.
In terms of fees, businesses should expect to pay a security deposit and an annual fee for their accounts. Security deposits for business accounts cost US$25,000 with TMall and US$15,000 with JD, while the amount of the annual fee for maintaining the accounts depends on the products being sold; on average, annual fees tend to range between US$1,000 and US$10,000.
One can open an ‘overseas account’ with a foreign business licence and business owner credentials, but will then lack many of the tools for promoting their brand
Once the registration has been completed and the account information reviewed, the account usually takes between one to two months or longer to become functional, dependent on any issues or concerns arising from the application. These accounts are advantageous for businesses because they allow them to introduce their products to the Chinese market and gauge consumer reaction, and to access the lucrative Chinese market remotely. However, the business’s control over online promotion, logistics and customer service will be minimal. For businesses that place a premium on protecting their brand image, careful consideration should be given to the options of either working closely with a reputable trade agent or potentially setting up a business entity in China.
For those curious about Taobao cross-border e-commerce accounts, it should be noted that this specific platform does not offer the service. Like TMall, Taobao is part of Alibaba, however, they do not compete in the same market segments, and only provide their e-commerce platform and services exclusively to companies registered in China.
The logistical route will depend on the platform that the company has registered with, the city where products are stored, and whether the product is part of the “positive list“. Each factor will affect the final price the customers in China will have to pay, and primarily affect the profit margins of foreign companies.
If your platform of choice is servicing the cities listed in the cross-border e-commerce Pilot Program, it will allow you to benefit from bonded warehouses. Bonded warehouses are spaces under China customs supervision where goods can be placed without covering the duty payments beforehand. Once the product has been purchased on the Chinese e-commerce platform in question, the products can be processed and released to the customer, and the customer takes care of the duty and VAT payments. If the products are part of the “positive list”, then the registration and customs clearance will be expedited.
JD Worldwide, as mentioned previously, has the added benefit of using its network of bonded warehouses, allowing companies to send their products in bulk and have them ready to ship to customers in China. Foreign companies would therefore only have to worry about shipping their goods to China and let JD.com take care of the logistics part.
It is important to note that both JD and TMall will assist with the delivery of the products from the warehouse in China to the customer’s desired address.
Lastly, foreign companies can register their businesses in China, establish their brand on the Chinese version of the e-commerce platform, and establish their own bonded warehousing network, all the while being able to establish whether their product is part of the positive list, gaining full control over the logistics of their products. Alternatively, foreign companies can enlist the services and warehouses of their trade agent, worrying only about supplying the goods.
As one can see, there is more than one logistical option for foreign companies to benefit from the Cross-Border E-Commerce Pilot Programme, and the solutions are ideal for any size company wanting to enter the Chinese market or expand further.
Registering via a trade agent
An overseas business seeking greater control and access to the Chinese market without establishing a business entity in China can opt to work with a trade agent or partner. The trade agent would assist in opening the account on the platform of choice and ensure delivery of the product to customers.
Trade agents need to be selected carefully, and while they don’t necessarily need to be in the e-commerce sector, a thorough background check should be conducted to avoid risk. Once the necessary background checks have been undertaken, the trade agent will need to be authorised to act as the overseas business’s agent to market its product/s in China. Other agreements will also need to be made for the declaration of entry of goods, warehousing, e-commerce platform services, parcel delivery, taxation and other regulations specific to the region, city, and local government relevant to the location of the agent and his or her business activities.
In general, working with a trade agent will greatly expand the entry of a product in the Chinese market and give more control to the business to promote the brand and offer better customer service
Typically, the documentation that will be needed during this process includes an agency agreement, agent’s customs declaration registration certificate of import and export, agreement with the Chinese e-commerce platform, ICP license of the affiliated platform, and goods information as well as other documents required by the local government.
Overall, the entire process usually takes between two and six months; however, the time needed differs significantly for different regions and cities, all of which have various processing times for their required documentation. In general, working with a trade agent will greatly expand the entry of a product in the Chinese market and give more control to the business to promote the brand and offer better customer service.
Registering a business in China
Businesses that seek to retain complete control over their brand and products in China would need to establish an HQ, hire local staff, register their trademarks and create logistical routes. The entire process of setting up a business in China can take several months, but it would retain maximum control over one’s brand and products, while also allowing for better customer service and disintermediation from trade agents, generating larger returns.
Once a business has been established, it would then also need to register with Taobao, TMall or JD with its Chinese business licence, a Chinese bank account (connected to a WeChat and/or Alipay account), the Chinese trademark registration, and other documentation depending on its region/s of operation and product/s offered. Registration as a business entity in China generally takes less than two months and offers access to promotional tools that are available solely to Chinese businesses promoting products on those platforms.
LehmanBrown supports and guides businesses – from conducting due diligence and selecting trade agents, to taking care of repatriation of funds from China. To find out more, please contact firstname.lastname@example.org