China remains one of the largest and most attractive domestic markets in Asia and the world. While some companies including Chinese are diversifying their production bases, for companies that sell directly to consumers, China is a difficult market to ignore. Domestic consumption in many advanced economies is the main driver of growth, but in China domestic consumption accounts for 54% of China’s GDP. In 2022 the consumer class in China is a huge 899 million people, growing to 935 million in 2023, almost double that of nearby India. 935 million increasingly affluent spenders is a near impossible market to ignore and reaching them is becoming significantly easier with new E-channels and E-platforms through which to influence, promote and sell. Scott Brown, Asian Insiders Partner for China and Hong Kong, explores and investigates E-commerce in China.
The Chinese consumer market has become one of the leading drivers of the global economy, surpassing the United States in 2019 and reaching a staggering USD 6.4 trillion in 2022. Even this number reflects an economy recovering from a pandemic-induced retail slump however the indicators are that 2023 will be up on the previous year and as Chinese domestic spending resurges. Some analysts suggest that money saved during the pandemic is now available for post-recovery household spending.
E-commerce in China has been a story of recent, rapid growth offering a range of advantages to home shoppers, circumventing distance, traffic congestion and opening hours. E-Commerce in China is steadily gaining market share, increasing to 27.2% in 2022, and a mobile-first market. Brands establishing themselves in China can avoid much of the costs and regulatory stress of the general trade route, especially if working across multiple provinces, by using cross-border E-commerce (CBEC).
As E-commerce in China requires much less investment than traditional methods of establishing themselves, it has become increasingly popular for international companies. CBEC doesn’t require formal company registration, nor registration with the Chinese Food and Drug Administration, nor a formal corporate bank account, nor even official in-country warehousing. It is recommended however to conduct proper trademark registration, although again, this is not formally required. CBEC therefor offers significantly less risk as an approach to Chinese market entry.
Particular sectors are seeing stronger growth online – food & beverage, personal care and cosmetics, sports and wellness and apparel, while other sectors such as electronics and appliances are recovering from poor performance during the pandemic.
Social commerce is the merging of social media and E-commerce in China, where shopping and entertainment come together and support the purchase of goods directly on social media platforms. Social commerce allows personalised and user-generated content, influencer marketing and greater levels of direct interaction between brands and consumers, facilitating stronger emotional connections between producers and users. This is leading to a wholesale shift in the whole retail dynamic in China and means that brands, especially international brands must develop whole new skillsets in order to access that USD 6.4 trillion + marketplace.
This has led to a proliferation of channels and platforms in China, where other global platforms, usually American, are limited or prohibited. These Chinese entities include Douyin, Alibaba, WeChat and Wexin, Taobao, JD, Pinduoduo and Little Red Book. All these carry particular strengths in scale, logistical and commercial integration and reach across their defined demographics. Links and tie-ups between the various platforms and sub-brands also either support or limit other forms of engagement and reach.
There is also a wide range of vertical platforms focusing on specific sectors such as fitness, fashion and childcare. While these might be niche platforms, the sheer volume of consumers in China mean that ‘niche’ in China still means 10’s of millions of buyers. Integrating a selected wider platform with one or more niche verticals means that developing a strategy for E-commerce in China requires a planned and sophisticated approach. Just as with any business venture, adequate corporate resources should be allocated to selling online in China, especially where there is little present brand recognition and where operating in a competitive sector. Where brand and brand awareness is the most valuable asset, it will take budget to build this.
Establishing or growing an international brand in China may lead towards a strategy involving a main city, flagship store acting also as a brand home, a bonded warehouse and a fulfilment centre. Alternatives may be a series of mini-stores and local fulfilment centres or working through a Chinese agency network, or even fulfilment directly from overseas, although this limits brand building and penetration. Different Chinese platforms favour various approaches to the market and levels of investment, these tagged to the companies desired levels of revenue and return.
Simply opening an E-commerce store in China will not be enough in itself, no matter the scale. Brands need also to develop a multi-layered digital marketing strategy that drives traffic through related social media platforms to the E-commerce channels. This will require careful product and audience segmentation, refined creative and audience targeting along with consideration towards pricing, logistics and support. A successful campaign in China, as anywhere, needs a managed mix of media and message but where China is unique is the actual platforms and tools required, making a local marketing partner absolutely essential. Accounts will be required across multiple and complimentary channels and platforms and using suitable key opinion leaders across tested demographics and urban centres, supported by offline activities to boost profile and presence. Further, deploying emotively driven, contemporary content – usually video.
China is the world’s largest consumer marketplace now and that is unlikely to change in the near future. With just a little under 1 billion active and increasingly affluent consumers, E-commerce in China surely offers a vein of gold impossible to ignore.
With thanks to Redfern Digital www.redferndigital.cn
E-commerce in China requires a carefully developed plan based on a clear understanding of the market and the time required to thoroughly test the many complimentary elements. Asian Insiders offers expertise in China to fit within client’s international strategies for entering foreign markets. For a no-obligation call, please contact Jari Hietala, Managing Partner: jari.hietala(at)asianinsiders.com or Scott Brown, Hong Kong and China Partner: scott.brown(at)asianinsiders.com