succeeding in china’s e-commerce market · 12/11/2017 · carrefour walmart - buy-out model -...
TRANSCRIPT
December 11, 2017
SUCCEEDING IN CHINA’S E-COMMERCE MARKET
Prepared for: The Israeli Chamber of Commerce
PERCEPTION…
…It’s a Wonderland!!!
REALITY……It’s a minefield, it’s not easy,
and you need to be prepared
ABOUT ME
10+ years of China experience assisting more than 300 clients with their China market entry and growth
Some key clients:
SOVEREIGN’S E-COMMERCE DATA PARTNER
• Data & Analytics Firm
• One of just a few hundred official TPs
SOME KEY TERMS:
TP
Marketplace/Platform
Cross-border
B2B, B2C, C2C
SOVEREIGN’S MARKET APPROACH MODEL
Three stages to approaching a market
1 2 3
Market Investigation Market GrowthMarket Entry
What Stage Are You In?
Understanding the market
opportunities and
challenges
Expanding market share
and consolidating businessNegotiating with partners,
customers, or establishing
an entity
12/12/2017
REMEMBER: E-COMMERCE IS JUST A CHANNEL FOR
APPROACHING A MARKETC
om
pan
y /
Bra
nd
DOMESTIC
CROSS-BORDER
PARTNER(distributor, etc.)
CHINA ENTITY(WFOE)
Flagship Store(online mall)
Brick & Mortar(traditional shop)
Boutique Shop(online mall)
Sell to Marketplace(online hypermarket)
Exclusive Shop(online mall)
Other 3rd Party Distributor in China
THREE THINGS NECESSARY TO
SUCCEED IN CHINA’S
E-COMMERCE MARKET
Understanding
Activation/Demand
Expertise
THREE THINGS NECESSARY TO
SUCCEED IN CHINA’S
E-COMMERCE MARKET
Understanding
Activation/Demand
Expertise
20 2283
126210
298
452
646
1,000
2008 2009 2010 2011 2012 2013 2014 2015 2019 e
US$ Billion
CHINA IS THE
WORLD’S
LARGEST E-
COMMERCE
MARKET
And by 2019 is expected to reach
1 Trillion USD
The # of online shoppers has grown from 74M to
460 MILLION +
74108
161
203
247
302
380
460
2008 2009 2010 2011 2012 2013 2014 2015
Millions of
online shoppers
KEY DIFFERENCES BETWEEN CHINA AND THE WEST
VS.
Only 10% of top retailers
have a brick and mortar store
Only 10% of top retailers DO
NOT have a brick and mortar store
90% of retail sales are on
marketplace platforms
24% of retail sales are on
marketplace platforms (US)
Source: Sovereign analysis on multiple sources, including EU Chamber whitepaper
Tmall63%
JD27%
VIP3%
Everyone Else7%
90% OF ONLINE
RETAIL SALES
ARE MADE ON
MARKETPLACES
(*) Excludes sales from bazaar and B2B platforms
Source: Sovereign Analysis on multiple sources, including, China Briefing 2016
COMPLICATED E-COMMERCE ECOSYSTEM
12/12/2017
ConsumerMarketplace / Cross-
border marketplaceFactory
Domestic Delivery
Freight
3PL
Partners:
• Distributors
• Search optimization
• Inventory control
• Mobile optimization
• …
MARKETPLACES USE DIFFERENT MODELS
Model Example
Hypermarket
Online Mall
Bazaar
Some marketplaces use multiple
models (e.g. mall/hypermarket)
Carrefour
Walmart
- buy-out model
- Placement fee
- Byers market
- B2B2C
IAPM
Kerry Centre
- Shop in Shop
- $ Rental & Sales
-You run the shop
- B2C
Garage Sale
Swap Meet
- Individual shops
- Many products
- Stand fee
- C2C
A PRACTICAL COMPARISON
Hypermarket Mall Bazaar
UNDERSTSANDING THE DIFFERENCE
Main categories Multiple Multiple
Transaction fee 3% to 7%Company operated store:
5% to 8%
Management feesUS $1,000 and up +
Deposit
Company operated store:
US $1,500 and up +
Deposit
Payment methods Alipay & bank cardsWeChat Pay, JD pay &
bank cards
Core Model Online Mall Hypermarket
Source: Sovereign analysis on multiple sources
SMALLER MARKETPLACES / PLATFORMS
USUALLY NICHEName Website Key ProductsAmazon www.amazon.cn General merchandise
Dangdang www.dangdang.com Books
Tmall Grocery www.chaoshi.tmall.com F&B
SF Best www.sfbest.com F&B
Fields www.fieldschina.com F&B
Epermarket www.epermarket.com F&B
51Shuichan www.51shuichan.com Seafood
Fruit Day www.fruitday.com Fruit
Maijiuwang www.maijiuwang.com Alcohol & Spirits
Yes My Wine www.yesmywine.com Wine
Winekee www.winekee.com Wine
VIPSHOP www.vip.com Fashion/Luxury
Mei www.mei.com Fashion/Luxury
Vancl www.vancl.com Apparel
Gome www.gome.com.cn Electronics/Appliances
Suning www.suning.com Electronics/Appliances
LAMALL www.LAMALL.com Baby Producuts
Muyingzhijia www.muyingzhijia.com Maternity and Babdy Products
SNAPSHOT: YESMYWINEBackup
SNAPSHOT: VIPBackup
CASE: SELECTING THE
RIGHT MARKETPLACE
The Right Choice?
China is a huge and potentially great market. Spend the necessary
time to develop your strategy and select the right partners
• Sovereign was contacted by a potential
client
• company planning on selling cosmetics
in China by
• partnering with a Chinese company.
The Chinese
• partner wanted to setup a store up on
Taobao
WHY ARE MARKETPLACES SO SUCCESSFUL?
Marketplaces address key concerns of consumers
• On top marketplaces, it is easier to obtain authentic productsAuthentic
• Consumers can return products more easilyReturns
• Number of brands, payment, and shipping are all made easyConvenience
HOWEVER, CHALLENGES EXIST ON MARKETPLACES
Counterfeiters
Unauthorized Stores
Confusion Over Authentic Sources
ArtificiallyLow prices
Market control systems for brands must be addressed
CROSS-BORDER VS. DOMESTIC MARKETPLACES
Domestic Marketplace Cross-Border Marketplace
• Requires a legal entity within China • No legal entity required within
China• ~90% of user traffic • Growing rapidly
• Products (generally) need to have
been imported into China meeting
all regulations and requirements
• Products can be imported as
individual parcels and bypass
many requirements
• Usually easier to get preferred
status
• Positive List poses huge risk
TYPICAL CROSS-BORDER LOGISTICS
12/12/2017
ConsumerFactory
Domestic
DeliveryFreight
3PL
China’s national
border
China’s customs
border
Free Trade
Zone
OTHER KEY POINTS TO
REMEMBER:
Underdeveloped Traditional
Retail Sector
Consumer Readiness
Developed Infrastructure
2017: T-MALL
SMASHES SALES
RECORDS
Source: Sovereign Analysis on multiple sources
0.10.8
2.9
5.4
8.6
13.8
18.2
25.4
2010 2011 2012 2013 2014 2015 2016 2017
Unit: 100 Mil USD
…AGAIN
Shanghai
Zhejiang
Fujian
Beijing
Jiangsu
Shandong
Guangdong
Sichuan /
Chongqing
Hubei
Henan
TOP SALES IN MORE DEVELOPED AREAS AND CITIES
Topy Cities
Shanghai
Beijing
Hangzhou
Shenzhen
Guangzhou
Chengdu
Wuhan
Chongqing
Suzhou
Nanjing
MOBILE TRANSACTIONS NOW DOMINATING
2013 2014 2015 2016 2017
15.3%
42.6%
68.7%81.9%
90%
ABOUT HALF OF THE TOP 10 SELLING BRANDS
ARE FOREIGN
HOWEVER, THERE ARE FEW THINGS TO KEEP
IN MIND ABOUT 11.11
• Due to discounts, the brands are likely not making any money (maybe
losing money)
• 11.11 (and other special events) is primarily to pump search rankings
during the rest of the year
THREE THINGS NECESSARY TO
SUCCEED IN CHINA’S
E-COMMERCE MARKET
Understanding
Activation/Demand
Expertise
TWO WAYS TO CREATE
DEMAND / ACTIVATION:
Spend $$$$
Accident
Would you buy
it?
Snow Beer:
ONE OF THE LARGEST SELLING
BEERS IN THE WORLD!!!
• 100 Million hectoliters produced each year!
• Sold mostly in China
How would this beer do in your home market?
MASSIVE ADVERTISING SPENDS CAN ACTIVATE BRANDS
AND CREATE DEMAND
However, not every brand can afford this type of
financial commitment
EXAMPLES OF BRANDS ACTIVATED BY ACCIDENT*
14,000+ daily
searches
15,000+ daily
searches
20,000+ daily
searches
(*) daily search results in December 2015, prior to the brands launching their own stores
Source: KFD
12/12/2017
How can brands
be activated
without
spending a
fortune
CHINESE OUTBOUND TOURISTS…
• 122+ Million outbound tourists
• Increasing at ~5% per year
• Chinese like to travel to:
Thailand
Japan
South Korea
Indonesia
Singapore
United States
Malaysia
Philippines
United Kingdom
• Born in the 70’s, 80’s, and 90,s
THREE THINGS NECESSARY TO
SUCCEED IN CHINA’S
E-COMMERCE MARKET
Understanding
Activation/Demand
Expertise
THREE WAYS TO OBTAIN
EXPERTISE:
Learn
Hire
Outsource/Partner
WHAT TYPES OF ACTIVITIES ARE OUTSOURCED OR
LEFT TO PARTNERS
Marketing / branding
Operational
Search optimization
Logistics
Product customization
Distribution
Market intelligence
Professional services
Operations support
YOUR TP IS PROBABLY THE MOST IMPORTANT PARTNER
The TP operates and runs your store, get free traffic, and help you maintain control of the brand
RMB 2.59 Billion
43%
RMB 3.44 Billion
57%
RMB 0.03 Billion
3%
RMB 1.01 Billion
97%
Xiaomi Revenue in
Tmall Overall
Xiaomi Revenue in
Flagship Store
Samsung Revenue
in Tmall Overall
Samsung Revenue
in Flagship Store\
CASE: SELECTING THE
RIGHT PARTNER
The Right Choice?
• A potential client approached
Sovereign because one distributor
was giving deep discounts
• This upset other distributors who
could not compete
• Company did not have well thought
out plan for China
China is a huge and potentially great market. Spend the necessary
time to develop your strategy and select the right partners
SOME FINAL
THOUGHTS
Buy-out model
• Partner buys inventory
and re-sells through
various channels
• Similar to most distributor
relationships
Consignment model
• Partner holds inventory
and sells through various
channels
• Partner takes a fee for
sale of goods and remits
remainder to brand
TP + Brand Support
Team
• Company sets up own
store on Tmall and has
own support team
• TP hired to optimize and
manage the store
High Cost
High Risk
Low Cost
Medium Risk
No Cost
Low Risk*
CONSIDER YOUR MODEL CAREFULLY
WHAT YOU NEED TO DO:
Register Trademark
Gain Market Knowledge
Activate Brand / Create Awareness
Acquire Expertise (Partners)
Develop Strategy
What Sovereign
Can do for you
SOVEREIGN CAN ASSIST YOU REGARDLESS OF WHAT
STAGE YOU ARE IN
12/12/2017
Investigation Entry Growth
• Market
assessment
• Regulatory analysis
• Entry strategy
• Accountancy
• Tax compliance
• Human resources
• Other fiduciary
services
• Trademark registration
• Partner identification
• Partner vetting
• Location analysis
• Corporate structuring
How Sovereign can help:
Stage:
OTHER CHINA RESOURCES
Thank [email protected]
Mark RayManaging Director – Sovereign China
12/12/201753
• Managing Director, Sovereign China
• Director, Consulting Division, The JLJ Group
• Tax Analyst, Freddie Mac
• MBA, American University
• B.A. in History, The University of
Tennessee - Knoxville
Professional Education Professional Experience
• Developed market expansion strategy for key consumer durables brand in China
based on extensive competitive analysis and consumer research
• Supported leading B2B clean-tech clean tech company with their regional strategy in
North-East China through extensive analysis of customers and potential new
customers
• Lead market analysis project for leading global B2B supplier of industrial equipment
and portable power generators
• Supported market entry decision for leading global consumer retail company though
e-commerce data analytics
• Wrote the e-commerce guide book for the Israeli and Canadian embassies
• Key panel expert at E-Shop Talk Asia (Hong Kong) 2017
• Key speaker at the Canadian Trade Commissioner Service “E-Commerce Road
Show” that visited multiple cities across Canada
• Key Speaker at the China British Business Council (CBBC) annual conference
(London – 2017)
• “Master Class” presentation at London’s Going Global Conference (November 2017)
Key Projects
SOVEREIGN (CHINA) LIMITED
Serving Foreign Investors In China Since 2004
12/12/2017
With offices in Shanghai and Beijing, Sovereign China (www.sovereigngroup.com/China)
accelerates international clients’ ability to understand and operate in the China market, and has
successfully assisted more than 700 companies from over 50 countries with their China market
entry and operational activities.
Sovereign China provides a suite of services designed to lead foreign investors through the
market entry process and stay with them to develop long-term success in China. From assisting
with understanding the market, developing a market entry strategy to establishing their
operations and finally providing back office and compliance support services, we are with our
clients from planning through to execution.
12/12/2017
SOVEREIGNN’S MARKET ENTRY MODEL & SERVICE OFFERINGS
Sovereign supports clients through each of the market entry phases
Market Investigation Market GrowthMarket Entry1 2 3
We support our client’s to
understand the market
opportunities and potential
challenges…
… as well as offering a full
market entry solution…
… and once our clients are in
market, we offer them a full
back-office solution
Market Research and
Opportunity Analysis
Customer/market Segmentation
and Prioritization
Regulatory Analysis
Risk Identification
Partner Identification and
Vetting
Site Location Analysis
Trademark Registration
Global Corporate Structuring
and Entity Establishment
Monthly bookkeeping
Tax compliance
Human Resources
Pensions and other fiduciary
services
Through our global presence and key specialized strategic partners, we are positioned to help our
client’s enter and grow in key markets
12/12/2017
SOVEREIGN (CHINA) LIMITED
Your Global Partner For Market Entry & Growth
Market Entry
Sovereign China has more than 30 years’ of experience in assisting individuals and enterprises structure their companies
around the world. – from site location to holding structures, we are our client’s global partner.
From establishing a representative office to structuring complex investment holding companies, Sovereign has
experience with the entire spectrum of Foreign Invested Enterprises in China.
Market Assessment
Through our network of strategic partners, Sovereign (China) supports our client with their market assessment in B2B
and B2C industries ranging from E-commerce and Consumer Goods to industrial machinery and professional services.
Through our in house teams and specialized strategic partners, we have track-record of helping our clients to
successfully understand the market opportunities and mitigate potential risks.
Back Office Support
Operations, especially in a developed market such as China, can be extremely frustrating for foreign investors as the
regulatory and operational environments can be opaque and complicated with inconsistent enforcement of regulations.
From a full back-office outsourcing solution to standard tax and regulatory compliance, Sovereign provides our clients
the flexibility needed to focus on its long-term success in China
12/12/2017
Americas
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Middle-East
Asia
Suite 805 Tower A
Guangqi Culture Plaza
2899 Xietu Road, Shanghai
200030, China
Tel: +86 21 5211 0068
Shanghai
1440 , 14F Tower A
Pacific Century Plaza
2 A North Workers Stadium Road
Chaoyang Distric, Beijing, 100027
China
Tel: +86 10 6587 6947
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Suites 1601-1603 Kinwick Centre
32 Hollywood Road, Central
Hong Kong
Tel: +852 2542 1177
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112 Robinson Road #12-01
Singapore 068902
Tel: +65 6222 3209
Singapore
Asia Office Contact Details
SUPPORT FROM A GLOBAL COMPANY BRINGS
INTERNATIONAL STANDARDS AND ACCOUNTABILITY
12/12/2017
SOVEREIGN’S EXPERIENCE COVERS A FULL
SPECTRUM OF INDUSTRIES
AutomotiveManufacturing & Engineering
CleantechConsumer Goods Medical Devices & Technology
Retail / e-Commerce
12/12/2017
OUR GOAL IS TO PROVIDE OUR CLIENTS WITH HANDS-ON
SOLUTIONS THAT GENERATE RESULTS
Our knowledge and experience enable us to offer our clients creative and customized solutions
to set growth strategies and cut costs, despite a rapidly changing environment