April 29, 2019

E-Commerce in China for Canadian Businesses

Many Canadian businesses would like to propel their growth by tapping into China’s massive consumer market. But how exactly would you go about doing this? With all the talks of trade wars, regulations, and not to mention language barriers, there are many obstacles to overcome when trying to export product to China.

Companies like Canada Goose have been wildly successful marketing their products to Chinese consumers. However, most Canadian businesses aren’t $7 billion behemoths with brand recognition that transcends borders.  

China Offers Unparalleled e-commerce Opportunities

The Canadian e-commerce market is strong. With an estimated 20 million online buyers projected to spend about $50 billion by 2020, the national digital shopping market is healthy and growing. But international retail giants like Wal Mart and Costco are making it difficult for small and mid-sized businesses in Canada to get a piece of that pie. SMBs searching for opportunities to grow its revenue should consider looking to China’s online consumer base and begin cultivating a deep understanding of how your company can enter the Chinese e-commerce market. Doing so means your business stands a chance of capitalizing on an estimated 650 million active online shoppers.     

With online retail sales eclipsing 1 trillion in 2018, e-commerce in China is largely driven by marketplaces rather than company-specific websites you’d expect to see in the North American market. The Alibaba Group owns the two largest online marketplaces in China – Taobao (C2C) and Tmall (B2C) – which combined account for 80% of the country’s transactions. These marketplaces run similar to how Amazon operates, where various third parties put their products and services for sale on the platform. In addition to marketplaces, you’ll also find independent merchants accounting for only 10% of total e-commerce transaction volume. Independent merchants are primarily used as marketing tools and have approximately a 4% EBITDA loss while marketplace stores have roughly a 9% positive EBITDA.

Is Your Company Built to Sell in China?

The issue is understanding your own business’ ability and limitations for potentially entering any international market. Formulating a strategy that determines your company’s level of aggression when entering a market like China, along with weighing the reality that a return on investment may not come for years, are all considerations that need to be carefully mapped out. Plus, on top of identifying competitors, you’ll need to properly assess if the product you’re selling is desirable in the Chinese market and determine what partners can best assist in getting your product in the hands of those consumers.    

It’s also important to consider what kind of emerging market experience you currently have in-house. If none of your managers or no one on your board has experience exposing businesses to emerging markets, you may need to bring someone in to facilitate the shift. This will prevent underestimating both the operational and financial burden that entering a foreign market can present.    

High Demand for International Products

According to Canada’s Trade Commissioner Service (TCS), “in a country where traditional channels of commerce are fragmented and often not consumer friendly, e-commerce provides customers with an abundance of choice, accessibility, easily-managed returns (not prevalent in other channels in China), and confidence in vendors at a clear price point. Millions of Chinese are now purchasing foreign products, including those in developing regions, which were unavailable even just a few years ago.” TCS – 2017

Concerns from Chinese consumers around product safety has partially fueled demand for high-quality Canadian products. Cosmetics, high-quality foods, and baby/maternity products are items Chinese consumers are most willing to spend their dollars on internationally. But competition is still fierce and it’s important to carefully select the right platform to sell your product. You may find that selling through your own independent website is challenging due to numerous hurdles including translations, logistics, payments, customs, tariffs, and government regulations.  

How can I test demand for my products in China?

Cross-border e-commerce (CBEC) platforms may provide the best opportunity for brands to test demand for their products with Chinese consumers. The two main models of CBEC platforms include Jihuo and Beihuo (Bonded Warehouse). In the Jihuo model, a consumer places an order on a CBEC platform which will electronically submit the order for customs clearance. Products are then shipped directly to customers from overseas locations. With the Beihuo model, products are shipped in bulk to a bonded warehouse in one of many Chinese e-commerce pilot cities. When a consumer places an order, the platform will make a declaration to customs as products are shipped to consumers from the bonded warehouse.

CBEC platforms do not require brands to have established a local business in China. This minimizes the risk and investment required with more traditional methods. Furthermore, this channel faces fewer restrictions and tax advantages for some products – making the process simpler for the foreign brand. That said, success on CBEC platforms still require a strategic go to market strategy combined with significant marketing investment. These platforms aren’t shortcuts, they simply provide a proven medium to reach a foreign audience.  

CBEC platforms like Tmall Global and its 400 million users is a viable option for Canadian brands wanting to expose their products to the Chinese consumer.

Next steps for doing business in China

If you’re interested in exploring the viability of your products in China, you may want to consider doing so with Route86’s Access China.

This article offers general information only and is not intended as legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. While information presented is believed to be factual and current, its accuracy is not guaranteed and it should not be regarded as a complete analysis of the subjects discussed.  All expressions of opinion reflect the judgment of the author(s) as of the date of publication and are subject to change.  No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by RBC Ventures Inc. or its affiliates.