E-commerce is a term that covers a very broad range of activities from simply cementing orders over the phone to the highly sophisticated online marketing and selling systems that are increasingly dominating economies around the world.
The huge economy that is China is no laggard in the e-commerce area and those trading with China need to come to terms quickly with what electronic trade looks and feels like there.
There are the Amazon-style emporiums like Alibaba’s Tmall, but there is also the recent phenomenon of Daigou – a channel that has evolved in which people buy goods in countries outside China “on behalf of” (the literal translation of Daigou) consumers in China. They locate themselves in, for example, New Zealand, buy the item or items and send them back to China, either individually, or in bulk - in which case they are repackaged in Hong Kong and on-forwarded to the individual customers.
It’s a workable and legitimate channel and for small to medium enterprises (SMEs), it’s not a bad option if you don’t have the marketing resource to get goods to China or have a presence there to sell. Moreover, if the goods take off, it can go viral for the lucky kiwi company via word-of-mouth and social media, especially if you can access a niche, targeted market and have key opinion leaders KOLs) on board to endorse your product.
But Daigou can be a double-edged sword. It’s a very quick, easy and cheap way to get your products out there – but easier ways usually come with higher risks. The Chinese marketplace can be brutal on naive suppliers; you still need to take steps to protect your brand, locking it up with suitable IP protection. Unprotected brands will soon draw the attention of opportunists and the risk of trademark “trolls” ripping your IP out from under you.
Kiwi companies selling through Daigou in New Zealand are often lulled into the false comfort that they are only doing business in New Zealand, and so don’t prepare themselves accordingly. The products end up in China, so you must have capabilities in-house to monitor what your consumers are saying about your product, and you must ensure that you have ownership and control of your brand(s) in this market.
Another interesting e-commerce development in China was the emergence of the cross-border bonded warehouse trade in 2015. This opened up in free-trade zones in mainland China to perform the role Hong Kong did, removing a lot of the costs involved in getting goods to the Chinese consumers. This came as a welcome liberalisation of trade restrictions and all seemed positive, especially for products like cosmetics, skin care and nutraceutical products. But last year, the regulations around this mode of commerce changed significantly – the authorities began looking at what goods could or couldn’t come through that channel and for many suppliers trade was halted for most of the year before the agreed lists of allowed and prohibited products were finalised.
For those who put all their eggs in the cross-border, bonded basket this was a big blow to their marketing. Although the implementation of this regulation has been deferred, this is a great reminder to be aware that regulations can change very quickly in China, without a lot of advanced notice. You need to be monitoring closely what’s happening in the regulatory area and understand how any changes might affect your business with China. Support for this comes from NZ Trade and Enterprise, and in some areas the Ministry of Foreign Affairs and Trade and Ministry of Primary Industries. Industry-specific organisations like Natural Products New Zealand and the New Zealand China Trade Association are also good sources of any regulatory updates. Make sure your networks in this area are solid and keeping you apprised of changes.
E-commerce is certainly not going to go away; it’s the wave of the future as online increasingly bullies retail out of business. Channels like Daigou aren’t a get-rich-quick scheme; they still require work and preparation for market, including locking up your IP and other usual business practices.
Preparation is also about having your e-marketing strategy clear; the products won’t sell themselves. You are going to be competing with millions of other products in the same genre and what you do will determine whether the consumer looks at your product first and is persuaded to prefer it over the myriad others they can locate. That calls for a smart, compelling pitch and you’re not there in person to make it.