China has become the largest e-commerce market in the world, accounting for more than 40% of global transactions, distributed across more than 5,000 platforms. At the same time, the Chinese government is providing further policy and investment support to encourage foreign companies to participate in the development of e-commerce.

The question is: how can SMEs tap into China's cross-border e-commerce market, estimated at more than RMB 275 billion (EUR 36 billion)?

Takeaways

Work with a local partner.

If you are small, choose a specialised, cross-border dependent platform outside the top 10.

Your entry should be supported by an omnichannel marketing execution that includes website, WeChat and Weibo to actively engage consumers.

Opening up

Since 2016, foreign companies have been able to sell and ship their goods directly from overseas to Chinese consumers at zero tariffs and reduced VAT within certain transaction limits. However, despite the continued opening of the Chinese economy to foreign trade, China's unique online ecosystem is heavily dominated by local players such as Alibaba (Tmall.com), Jingdong (JD.com) and Tencent (WeChat).

Alternative Chinese cross-border platforms

Most people underestimate the extent of China's cross-border e-commerce ecosystem, which is highly integrated between i) suppliers (retailers, brands), ii) platforms (independent, dependent, hybrid) and iii) support (shopping tool, payment gateway, logistics, bonded warehouse).

The hybrid platform combines the characteristics of the independent and dependent platform models (see below) by selling products from its own inventory and inviting other sellers to sell through its brand and platform.

Your platform alternatives: independent platforms

An independent eCommerce platform is really just an online retailer like an online hypermarket that you can completely own and control. There are hundreds of thousands of independent eCommerce stores based on eCommerce platforms such as Shopify, Big Commerce, WooCommerce and Magento.

Pros

• No merchant fees
• Full control over the supply chain, logistics, storage, and customer services
• Full control over the brand and customer relationships.

Cons

• Requires massive amounts of resources to break through
• Risk of inventory waste.

Why?

• You already have a strong brand for your product
• You have a solid supply chain established already
• You have a significant cash flow to back up the investment over the long run
• Your product or service emphasizes on quality and features more than quantity and price.

Your platform alternatives: dependent platforms

A dependent model facilitates online B2BB or B2C sales. These platforms typically generate revenue by charging merchants.

Pros

• Fast access to a larger user base
• Possible to use original product labels
• No development or IT headaches
• Shorter lead time to sales
• No need for a Chinese business license
• Easy to expand the number of SKUs you sell
• Relatively low risk and low cost at the early stage
• No tariffs and reduced VAT for approved product categories within certain transaction limits.

Cons

• Many competing brands
• Harder to brand your store and to build customer relationships
• Limits on approved product categories
• Often price-sensitive environments that fertilizes price wars
• Higher service fees, sales commissions, as well as higher costs for marketing, logistics costs, warehousing and customer support
• Choosing the right platform is mission critical - your reputation, traffic, and even survival will be dependent on it.

Why?

• You want a low risk / low gain market entry to test the opportunities
• You lack funds and other resources to start your own store handle supply chain, logistics, storage, or customer services.

Alternative Chinese dependent platforms for cross-border ecommerce

The vast majority of foreign SMEs will be targeting the dependent e-commerce platforms for foreign companies as a good compromise for a first experience in the Chinese market. Through dependant platforms businesses will have better access to knowledge of regulations, local market and buying habits, language, logistics, customer service, preferred payment methods, and e-commerce events such as Singles Day. The main alternatives are:

1. Kaola
2. Tmall Global
3. VIP Shop
4. JD Worldwide
5. YMatou
6. Xiaohongshu
7. Mia
8. Yihaodian

There may be good reasons (such as cost) why you should choose a narrow platform, of which there are thousands, that caters to more specific needs, or focus on fewer product categories such as maternity & baby care, sports & outdoor, food & drink, and cosmetics & skincare. For new, smaller and/or lesser-known consumer brands, it is likely to be more productive to choose a platform that targets a narrower, more specialised user base. These are often less expensive to join and benefit from.

You still need a trusted local partner

Your entry should be supported by an omnichannel marketing execution across website, WeChat and Weibo that actively engages with the Chinese consumer. Therefore, despite the lower barriers to entry via dependent platforms, the key to successful performance is strong local partnerships with trusted local intermediaries who speak the language, understand the market and the ever-evolving dynamics of the cross-border e-commerce landscape.

Prepare yourself for a steep learning curve

The local partner should help you navigate the ever-changing market conditions. Not only are market dynamics changing rapidly, but the Chinese market is very different from most western markets:

• Online shoppers spend more time comparing products (+20% more time before purchase) and product pages are much more detailed, with longer descriptions and multiple photos.
• Cross-border e-commerce consumers are young. 36% are aged 19-29 and 74% are aged 30-40
• There is strong to fierce price competition, so you need to know how to play with promotions, gifts and free delivery. Do not be afraid to slash prices on certain SKUs
• In terms of delivery times, Chinese online shoppers are used to receiving their orders within 24 hours and having access to customer service until 10 pm
• There is no Facebook, Twitter or YouTube - they are all banned in China. WeChat is the main application to use for community management and to generate additional sales
• Finally, China is rapidly moving towards a fully mobile and cashless society.

Don't assume that your local design has a higher brand value in China. As the largest market in the world, the Chinese audience is naturally exposed to superior brands and value propositions from around the world.

The Chinese consumer's reasons for cross-border shopping are product quality, value for money, wide brand choice and genuine products, and the top product categories are cosmetics, nutrition & healthcare, bags & fashion, food & beverages and childcare. About 80% of all online purchases of imported products have a total value of less than RMB 1,000. And about 20% of cross-border e-commerce consumers spend more than RMB 2,000 per month on online shopping - a high figure considering China's average GDP per capita of about USD 14,000 per year.

A few tax perspectives

Products sold in China via cross-border e-commerce are duty-free, with VAT at 70% of the standard 13% rate, resulting in an effective 9.1% rate. This applies to individual transactions up to RMB 5,000 (EUR 650), with an annual cap of RMB 26,000 (EUR 3,380) per person.

To qualify, products must be on the official cross-border e-commerce retail import commodity list ('positive list'), which includes 1,476 approved product categories such as clothing, cosmetics, food, and beverages.

Products not on the positive list or exceeding transaction limits can be imported as 'personal effects,' subject to a parcel tax on retail value but exempt from import duties and VAT. The parcel tax is:

• 60% for luxury cosmetics, perfume, tobacco, alcohol, jewellery, golf equipment, and watches
• 30% for non-luxury cosmetics, clothing, sports equipment, bicycles, and similar items
• 15% for food, beverages, computers, cameras, furniture, appliances, toys, games, newspapers, books, and magazines.

Tmall Global and JD Worldwide examples

Although Tmall Global and JD Worldwide generally target larger brands and merchants with annual sales of more than USD 10 million, their terms and conditions set the bar high for entering the Chinese market through a cross-border platform. Both platforms offer foreign brands and merchants an easy way to sell their products directly to Chinese consumers without having a legal entity in China.

Only imported original goods with a trademark registration certificate are allowed, and the seller must provide customer service in Chinese, handle product returns in China, and organise local delivery to the Chinese consumer by international parcel service or from a bonded warehouse in China.

Tmall Global is by invitation only or by applying through an authorised Tmall partner. Companies can choose to set up a flagship store, flagship store marketplace, specialty store or authorised store. Authorised and certified Tmall Partners offer one-stop solutions covering most of the value chain or individual services such as store design, logistics, sales promotion, customer service and WeChat integration.

JD Worldwide offers to set up a brand flagship store, an outlet type flagship store, a franchise store, or an exclusive store. Businesses can choose from three operating models: i) franchise business partner, where the overseas company opens a store with JD Worldwide fully responsible for warehousing, delivery and customer service; ii) licensing business partner, where the overseas company opens a store and handles all logistics, while JD Worldwide supervises/manages customer service and invoicing; or iii) self-operating partner, where the overseas company opens a store and takes care of its own warehousing and delivery. Approved and certified third parties provide one-stop solutions covering most of the value chain or individual services such as store design, sales promotion, customer service and WeChat integration.

Seizing the future of China’s e-commerce market

China’s cross-border e-commerce market is evolving rapidly, with trends like live-streaming commerce, social commerce, and sustainability shaping the future. For SMEs, starting small on niche platforms and collaborating with local partners can provide a low-risk entry point. Stay agile, adapt to consumer preferences, and embrace the dynamic landscape. With the right strategy, your brand can unlock the immense potential of China’s e-commerce market and thrive in this competitive space.