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Digitalization in China - What is crossborder e-commerce?

Most businesses were eager to expand their market across borders, believing that having an international presence will be essential for their company’s success in the long term perspective.

Digitalization in China

If we look into the dictionary, cross border means an activity that involves people and businesses from different countries. However, cross border e-commerce nevertheless means international online trade, where buyer and seller are located in two different countries and often are using different currencies and languages. Most cross border e-commerce is divided into three types, such as B2C (business to customer), B2B (business to business) or C2C (customer to customer). At the moment, the most popular platforms that are used in Asia for cross border transactions are Tmall Global, Lazada or Shopee.

As mentioned by the Global merchant e-commerce study, the majority of 87% of e-commerce business leaders see that the cross border e-commerce model is critical to the business’ long term success. Proportionally from a global perspective, there are 66% of business owners selling their products internationally through e-commerce, whilst 31% of them mentioned that nearly a third of their revenue came from cross border business.

Thus, it goes without saying that most businesses were eager to expand their market across borders, believing that having an international presence will be essential for their company’s success in the long term perspective.

Cross border e-commerce in China

According to a Deloitte report, in 2018 China’s retail market has soared up to USD 5.8 trillion, making them the second largest retail market in the world. Highlighting one with the most potential growth to this number is the cross border e-commerce channel. But what’s so special about cross border e-commerce in China? International companies are allowed to sell certain goods directly online to Chinese consumers through some of the most popular platforms in China, like Alibaba’s Tmall Global and Kaola, with additional benefits such as no requirements for a business license to operate in the country and availability of Free Trade Zone warehouses in China.

Currently, Tmall is the No.1 B2C cross border platform in China, with 700m monthly active users and a total of 25k international brands. Overall, 92 countries/regions are actively joining the Tmall Global platform, selling in 5100+ listed categories. Tmall particularly saw a compound annual growth rate of 76% between 2015 and 2018 and continued to generate RMB 78.5 billion in gross merchandise volume (GMV) last year in 2019. So, what are the key factors that will support the cross border ecosystem?

According to a survey by the Chinese Ministry of Commerce, quality, design, and product safety are the key purchase drivers for Chinese consumers. With safety and quality being the primary considerations, beauty and mother/baby categories are -unsurprisingly - the most popular through the cross-border channel. Beauty is the largest category on Tmall Global, accounting for 32% of the total GMV in 2018, up from 20.8% in 2014. This is followed by electronics and pet supplies, which are the fastest-growing categories on Tmall Global in 2018.

And as we may already know, live streaming has always been playing an important role in attracting Chinese consumers to cross border e-commerce platforms.
It allows consumers to learn about the products and to secure a good deal while receiving personal-like recommendations in an interactive way from their favorite KOL/KOC or Brand Ambassador. Beauty, personal care and household cleaning products are the most live streamed products on Chinese platforms.

The availability of cross border e-commerce channels is also paving a new way for international brands to test the market without allocating too much of an initial investment. For example, dm-drogerie markt, one of the largest offline retailers in Europe, entered China through a Tmall Global store in 2016, and brand recognition has been successful ever since.
For small international brands that may have limited resources to launch businesses in China, cross border e-commerce is a fast and efficient way to tap into the China opportunity.