Conducting Market Research

Before committing to e-commerce in China, it has to consider whether the Chinese market is ready for your product and if it will appeal to this audience.

To determine the appropriateness of your product or service, you must carefully evaluate and analyze your idea as it relates to the Chinese market. This is an integral step to complete before attempting an Asian market launch.

It is important to remember that even if you have a product or service that has been successful in the western market, it may not resonate with the Chinese market.

If you are launching a new product or service, the risk is even greater.

Chinese consumers have different needs and values than western consumers. They also have different buying behaviors. Some things to consider during this evaluation process include identifying the following:

• The needs of your customers
• Your target audience, such as the age, gender and annual income of your potential customer
• How your product addresses those needs
• The size of the market
• An absence of your product in the market
• The strength of any competing businesses

In order to be successful, it is important to verify your idea with your prospective market. The best way to complete this process is to conduct effective market research with a trusted partner like Horizons.

This may be conducted by interviewing real potential customers and listening to their reactions about the product. Focus groups may provide greater insight into the potential market, as well as identify possible problems with the product, service or idea, such as packaging or marketing strategy.

Our experts can organize these interviews and groups on your behalf. This is an important investment to make and should be factored into your overall global growth plan.

By carefully evaluating how your product or service will resonate with the Chinese market, it is more likely that you will be able to create a successful e-commerce platform in China.

Legal Requirements to Open an e-Commerce Business in China

There are a number of legal requirements that must be met before opening an e-commerce business in China. Here are a few of them.

ICP License

China requires most businesses to obtain an Internet Content Provider (ICP) license before opening an e-commerce business. The Chinese Ministry of Industry and Information Technology issues the license and allows China-based websites to operate in the country.

This license is necessary to establish China-based websites for any purpose, to get hosting services in the country and to access a China Content Delivery Network.

Obtaining an ICP license may be difficult and not everyone can successfully obtain one. The type of website that you are attempting to register will play a part in whether you can successfully obtain a license.

Generally, it is easier for Chinese citizens or companies to receive approval for an ICP license than international applicants.

Additional restrictions for obtaining an ICP license include the following:

• Foreign companies without a local business license cannot apply for an ICP license
• Foreign passport holders can be the named contact for the website, but they will be contacted, so they should be able to speak Mandarin
• There are different procedures and application times that vary by the province and type of city

In some situations, it may be possible to sell merchandise in China without having an ICP license. However, business owners should be aware that if their e-commerce site is blocked by the government, this is irreversible.

Company Incorporation

Another important consideration for your e-commerce site is what type of business entity to establish in China. Not all forms of businesses can legally sell products in China.

Having a local company can provide you with the freedom to conduct operations in China, but it requires compliance with various regulations.

E-commerce retailers are required to obtain a business license, which is only possible by setting up a Wholly Foreign Owned Entity (WFOE).

Local, specialized support can assist you with this process. Horizons can help you with the company incorporation process in China and help you determine which type of entity will best serve your needs.

This help can make the process faster, increase your chance of obtaining the mandatory documents and provide you with the important peace of mind of knowing that you are in full compliance with local regulations.

Prohibition of Daigou

Daigou is the process of purchasing a product out of China for a lower price than it is available in China and then bringing it back to China to resell it.

This process is illegal in China, although it is a fairly common practice. The government has taken many strides to enforce this law.

Taxes When Making Purchases

Recent Chinese changes in the law altered the amount of tax-free purchases across the border that a person can make. For one transaction, the limit is 5,000 RMB. The annual limit is 26,000 RMB.

This change made it easier for e-commerce companies to purchase high-end fashion and cosmetics that are attractive to cross-border purchasers. These purchases are not subject to import tariffs.

Import value-added tax and consumption tax is only collected at 70% of the ordinary rate.

New Regulatory Protections

China implemented new regulatory systems to handle various aspects that affect e-commerce, including the methods that people use to pay, clearing products through customs and inspecting goods.

WeChat and other shopping channels and social media are required to comply with the new regulations.

The country is actively attempting to increase cross-border e-commerce by speeding up the custom registration and goods examination processes.

The Chinese government is also actively investigating claims of unfair competition and consumer protection complaints.

Fake reviews on items are banned. Domestically-based websites are required to offer stronger consumer rights protections.

If an e-commerce platform sells fake goods, it can face serious legal action. Platforms are responsible for the products sold on their site and are required to conduct due diligence to ensure products are authentic.

Intellectual Property Protections

For many years, China has grappled with intellectual property theft, including brand-stealing and counterfeits.

E-commerce platforms have the responsibility of protecting intellectual property rights and must respond promptly to a report accusing someone of violations.

Those companies that do not provide quick action can face significant penalties. Additionally, businesses must take action to protect their brands so that they do not lose favor with the Chinese domestic market.

One effective way to protect intellectual property in China is to register it with the Chinese government. Even if a business has a registered trademark in their company of incorporation, they may not have a protected mark in China.

To receive protection from the Chinese government, the company must file a trademark in China.

If the company begins doing business in China before registering their trademark with the Chinese government, someone else can register the trademark in the country. This can ultimately result in the company having to pay the registered trademark owner for using their mark.

Determining Where to Host the E-Commerce Business

An important decision to make when launching your e-commerce business in China is determining where you want to host your e-commerce site. The Internet is not freely accessed in China.

Foreign websites must go through the country’s censorship system, which is referred to as the “Great Firewall of China.” This makes the website slower than websites and have lower performance than those websites hosted inside the country.

This can cause the user to have a poorer experience and may cause them to choose other platforms. If you want an alternative to hosting in China to avoid the complicated procedures involved with the Chinese government, you can choose to host your site in another country. However, you do so at the risk of lower performance.

An ICP license is necessary if you host your website in China.

This creates additional steps and regulations that you must comply with. However, hosting inside the country will provide your customers with a better experience and instill more trust and confidence in customers.

Selecting the Right Sales Platform

There are several different sales platforms that you may use to start e-commerce business in China. The option you select depends largely on your target market, business type and budget.

There are advantages and disadvantages of each option. Some of your options include:

Standalone Website

The easiest solution may be to use a standalone website outside of China. This option is affordable because you probably have your website in place. It is also convenient. You do not have to worry about complying with complex Chinese laws.

However, it is unlikely that a Chinese customer will choose to go to a foreign website instead of a Chinese one.

Additionally, due to Internet restrictions, Chinese customers may not even be able to access your site. You may have to invest more in marketing in order for Chinese customers to even be aware of your business.

Online Mall Store

Another potential option that you may choose is to sell through a CBEC online mall store. A few examples of this option are JD Worldwide, Suning Global and Tmall.

These platforms provide a type of virtual mall for many different types of businesses. Benefits of this method include organic traffic and support for sales.

However, there may be more competition with other e-commerce businesses. There may also be higher investment costs associated with using this type of site.

Intermediary in China

Another option for foreign businesses is to sell goods electronically through an intermediary. This method is preferred when a business does not want to have to manage inventory. It can pass off this responsibility and distribution to the intermediary.

This option allows the business an opportunity to take on this pathway with lower risk. Additionally, intermediaries are often more familiar with consumer demands in the local market.

However, there are potential problems with this option, including a lack of being able to control one’s own brand, only being able to sell products at a reduced wholesale price to the distributor and only having limited product categories.

WeChat Store

A relatively new method of an e-commerce business is through the WeChat Application. This app is considered an all-around app that provides messaging, social media and payment availability.

However, as stated previously, WeChat and similar apps must meet additional legal requirements. Additionally, there is not traffic that goes directly to the e-commerce business, so the business must market its products aggressively.

Each of the options listed above have their own distinct advantages and disadvantages.  You will have to consider multiple factors when choosing your platform, including the following:

• The type of product being sold
• The market development plan
• Regulations related to the platform
• The available capital
• The company’s current operations
• Distribution concerns

Whichever platform you choose, it is important to remember that you are trying to appeal to a different market, so you will need an e-commerce marketing strategy that resonates with the domestic Chinese market.

Develop a Chinese Marketing Strategy

The next step in establishing a successful e-commerce in China business is to adapt your product to the local Chinese market. There are several aspects that you will need to address to create a comprehensive plan to market your product.

Unique Selling Proposition

Before trying to sell your product, it is important for you to establish your unique selling proposition. This step involves analyzing the data you collected during market research.

This proposition should explain why a customer should buy your product and specifically from you. For example, your unique selling proposition may explain the following:

• How your product solves the customer’s problem
• How your product fills a void in the market
• How your product is superior to those already on the market
• How your product has additional features that make it more attractive

This message can help you stand apart from competitors. It is important to work closely with an agency that has ties to the local community and understands its values and principles to ensure that you create a new marketing message to the new market instead of relying on strategies that worked only in western cultures.

Branding

Branding is another important aspect of your business. While you may already have a western brand and logo, you may need to adapt these to the Chinese domestic market.

Your logo and name should appeal to local customers and the new market. It should be easy to remember and not too similar to an existing brand. Ensure that there is not a translation issue with the name or logo.

Marketing Strategy

It is also important to consider what type of marketing strategy to implement. The easiest place to begin is with the content on your website. Explain your products and services in a way that addresses the needs of the local Chinese market.

Include education in your content, especially if the products may be new to this part of the world. Identify the factors that influence your new market’s buying decisions.

In some situations, what people are drawn to is an idea or lifestyle behind a product, rather than on some aggressive sales tactic. Once you have identified the message you want to convey, keep this message consistent across all of your platforms, including your website and social media channels.