In conversations about e-commerce and omni-channel retail, China inevitably comes up. When it comes to online shopping, China is seen as a leader in new trends, including wide adoption of mobile payments, social commerce and retail gamification.
In spite of these trends, China is also seen as a difficult, insular market. It’s true that China can be inhospitable to foreign competitors, but Chinese consumers are actually very interested in overseas products and increasingly so.
Cross-border e-commerce is on the rise in China. An examination of this kind of retail, referred to as haitao in Chinese, revealed that about a quarter of online shoppers in China are buying on platforms that serve this function. These include Kaola, Tmall Global and JD Worldwide.
That’s 125 million Chinese consumers buying overseas products online, which pushed up total haitao expenditures to $105 billion in 2017. That’s $840 per consumer.
Anyone familiar with the Chinese market won’t be surprised by the reasons Chinese consumers buy overseas products. The main reason, cited by two thirds of respondents in the report, is to get “higher quality, more reliable” goods. Another major concern is fake products, with 45 percent of haitao shoppers saying they use these platforms to avoid them. More than a third of respondents also said they get products cheaper on these platforms.
These reasons all speak to unique needs and concerns in the China market, and it’s something overseas brands should heed. High-quality, overseas goods are often much more expensive in China because of tariffs, taxes and other expenses. Well-established foreign brands also tend to position their products as luxury goods in China, charging a premium so consumers with the money can show it off.
China also now has an established middle class and mid-range brands in certain sectors, like Uniqlo and H&M in clothing, are doing well. There is still plenty of room for disruption from foreign brands in China, though. Competition among haitao outlets is providing more opportunity for this than ever before.
The favored markets among Chinese consumers are Japan (72 percent), South Korea (60 percent) and the U.S. (55 percent). The types of goods haitao consumers buy is wide-ranging. They include baby products, hygiene products, cosmetics, food items, healthcare products and more.
Homewares and electronics only capture about 10 percent of haitao purchases each, but it may not be fair to say there’s no market it. China has a lot of domestic competition for these kinds of goods. Health scares have spurred more purchases of overseas food, cosmetics and related products. That’s not the case for electronics.
Foreign electronics brands can still see enormous success in China. Apple is the most obvious shining example. Apple and other major electronics brands have their own distribution network within China, though. Apple Store locations are popular shopping destinations.
Startups generally don’t have the means for this level of distribution and exposure in China. It can take enormous financial resources and the right partners to make it work. This is why startups are often warned away from expanding to China too early. On this blog, we have noted the advantages to expanding to a region like Southeast Asia first.
Increasingly, there are more resources out there for brands that want to find other ways of cracking the China market. Azoya Consulting, which commissioned the above report (free preview available here) from Frost & Sullivan, is one such company looking to help foreign brands leverage China’s growing haitao consumer base.
Many firms and commenters these days are specifically helping overseas businesses utilize Chinese social media for brand building and e-commerce. Ashley Dudarenok, who spoke at the Startup Launchpad Conference in April, has literally written the book on this. With the trend of social commerce growing, it’s a good time to look at options for growing brand awareness in China and using the country’s social platforms as potential revenue streams.
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