21 Sept 2015
Developing the Mainland Cross-border B2C Markets: How Hong Kong Businesses Can Work with E-commerce Platforms
An Interview with Horace Mak, General Manager of Deep Blue eCom Cross Border Trade (Shanghai) Co Ltd
As cross-border e-commerce grows rapidly in China, some established companies have lost no time in seizing the opportunity to set up sales platforms for cross-border e-commerce and B2C online sales. One example is Deep Blue eCom Cross Border Trade (Shanghai) Co Ltd and its associated website ftzmall.com, as well as bricks-and-mortar supermarkets and experiential shops at its Shanghai Waigaoqiao Direct Imported Goods (DIG) outlets. Together these provide O2O (online-to-offline) sales services to product and brand suppliers, traders, agents and consumers. Horace Mak, general manager of Deep Blue eCom, spoke to us about the development potential of cross-border e-commerce in China and about how Hong Kong companies can tap the mainland B2C online market via cross-border e-commerce platforms.
Cross-border e-commerce pilot cities
As demand from Chinese consumers for imported goods grows, many consumers are making use of the Internet to buy foreign products via overseas online shopping or overseas agents, with products mailed directly from foreign countries to the consumer. According to the estimates of China E-Commerce Research Center (CECRC), the number of people buying foreign products via overseas online shopping sites on the Chinese mainland will rise from 18 million in 2014 to 35.6 million by 2018, with their expenditure soaring from Rmb150 billion to Rmb1,000 billion.
Chinese consumers like to try new products and brands from other countries. However, problems have often arisen from buying these via overseas sites or agents – there is no guarantee of products’ quality or authenticity, there may be no way of returning goods, and there are opportunities for tax evasion. In light of this, eight government departments, including the National Development and Reform Commission (NDRC), People’s Bank of China (PBOC) and General Administration of Customs (GAC) jointly issued the Circular on the Work of Promoting the Healthy and Rapid Development of Electronic Commerce (Fa Gai Ban Gao Ji No.226 ) on 8 May 2012, with cross-border e-commerce pilots launched at e-ports in selected cities. Currently, there are seven cross-border e-commerce import services pilot cities in the mainland – in Shanghai, Hangzhou, Ningbo, Zhengzhou, Chongqing, Guangzhou and Shenzhen.
The cross-border e-commerce platforms operating in these pilot cities are under the supervision of the relevant Chinese government departments. Risk monitoring and quality traceability systems are in place to protect consumer rights and ensure product safety. While imported products are subject to import tax, calculated according to the actual retail price – in accordance with the Classification Table of Import Goods of the People’s Republic of China (GAC Announcement No.15 ) – personal postal articles entering the country are, under the Adjustment of Management Measures for Inward and Outward Personal Postal Articles (GAC Announcement No.43 ), subject to personal postal articles tax. Currently, four tax rates apply to such articles entering the country: 10%, 20%, 30% and 50%. It is worth noting that for articles with an import duty payable of Rmb50 or below, tax will be waived by Customs.
Mak explains: “For example, in the case of buying one pack of disposable diapers with a sale price of Rmb130, the personal postal articles tax rate of 10% applies and the tax payable is Rmb13, which is less than Rmb50 and therefore waived. But in buying four packs of disposable diapers in one go, the total tax payable is Rmb52, and that personal postal articles tax of Rmb52 has to be paid.”
It is understood that in general goods imported under traditional trade formats are subject to import duty and value-added tax (VAT), but goods sold through cross-border e-commerce platforms are only required to pay personal postal articles tax. As a result, the price of goods sold through cross-border e-commerce platforms is about 30% lower than that of goods imported under traditional trade formats. Moreover, since cross-border e-commerce platforms are under the supervision of the relevant Chinese government departments, not only is the authenticity of import products guaranteed but a reliable goods replacement system is also in place, thus attracting an increasing number of mainland consumers to purchase import goods via cross-border e-commerce platforms.
E-commerce firms offer one-stop services
Hong Kong companies or brands wishing to tap the mainland market but not well-versed in e-commerce or online sales operations may consider cooperating with cross-border e-commerce companies. For instance, Deep Blue eCom provides one-stop services acting as an intermediary between companies interested in developing cross-border e-commerce in China and cross-border e-commerce platforms. The services offered include systems integration; product sourcing; financing guarantees; customs declaration and commodity inspection; marketing and promotion; O2O sales; logistics and delivery; and product traceability. Deep Blue eCom can also provide services for packaged online sales or individual projects depending on the requirements of the client or brand owner. For example, if a Hong Kong company wishes to carry out multi-channel sales on such e-commerce platforms as Tmall.com and jd.com, Deep Blue eCom can perform as an agent, assisting the Hong Kong company in managing its operations on different e-commerce platforms. This helps the Hong Kong company circumvent the tedious work of managing different e-commerce platforms, allowing it to focus its time and resources on its core business. Apart from offering services for packaged online sales, Deep Blue eCom also provides service plans for individual projects. For instance, if a company needs specialised digital marketing services, Deep Blue eCom can track the visitors to the company’s website and analyse their profiles based on such variables as browsing duration, age, location, preference and favourite product type, in order to formulate the right sales strategy for the company.
How it works
Hong Kong companies can also conduct cross-border B2C sales via ftzmall.com, the official online shopping mall of Shanghai Waigaoqiao Direct Imported Goods. This cross-border e-commerce platform has already linked up its systems with those of the mainland’s customs, commodity inspection and other relevant departments. The whole process (from placing orders to making payments to logistical arrangements) is fully automated and handled electronically, which streamlines trade procedures. At the same time, the bricks-and-mortar supermarkets and experiential shops at Deep Blue eCom’s Waigaoqiao DIG outlets offer consumers the chance to check out real products first before purchasing them online – which can enhance consumer confidence. Currently, ftzmall.com offers the following two import modes:
Direct purchase import: “order first, delivery later”. After the consumer places an order at ftzmall.com in China, this online platform will forward the electronic order, payment and logistics to the Chinese Customs in real time for processing. The goods are packed in a warehouse overseas and delivered by an international logistics service provider to a Chinese Customs supervised cross-border e-commerce facility for customs clearance. After clearance, the goods are delivered to the consumer. Under normal circumstances, consumers will receive their goods within 7-15 days.
Bonded import: “stock first, order later”. Whole batches of foreign goods are stored in Shanghai Waigaoqiao special supervision areas. After ftzmall.com has received an order from a mainland consumer, these goods go through customs clearance directly in the bonded area and are then delivered. Consumers in the Shanghai area will normally receive their goods within 2-3 days.
Says Mak: “Companies can cooperate with ftzmall.com in two main ways: (i) the company can sell off its products to ftzmall.com, thus lowering its risks; (ii) the company can sell its products on ftzmall.com on a consignment basis; the commission payable for general products is about 10-25%, but higher for health products and cosmetics. Most companies settle payment with ftzmall.com once a month and the payment currency is predominantly the US dollar.
Inspection and quarantine requirements
According to the Administrative Measures on Cross-Border Electronic Commerce Inspection and Quarantine issued by the Shanghai Entry-Exit Inspection and Quarantine Bureau (Shanghai CIQ), enterprises operating in customs-supervised facilities in Shanghai where e-commerce companies, e-commerce platforms and e-commerce logistics service providers engaging in cross-border e-commerce are concentrated, should file their records with Shanghai CIQ. In filing their records, they should fill in the Cross-border E-commerce Enterprise Inspection and Quarantine Record Filing Form, and provide copies of their business licence, product quality safety management system and integrity pledge.
Mak points out that the inspection and quarantine procedures for import products sold through cross-border e-commerce platforms are more streamlined than those for imports under general trade. As long as the products concerned are not goods on the cross-border e-commerce negative list, they can normally enter the country easily. Certain products, such as imported foods and cosmetics, are not required to come with a new product label. Since the import procedures are streamlined and the overall import and supply chain costs are lowered, companies are able to bring a greater variety of products to the China market.
Import goods market potential
There are currently over 100 foreign brands suppliers, offering 1,000-2,000 stock keeping units, (SKUs) on ftzmall.com. They mainly sell such mass consumer products as mother and baby goods, personal care products, imported foods, health products, and beauty and cosmetics products. Mak says that as the number of affluent consumers in China continues to grow, they are growing more demanding where shopping is concerned. As they shop for new products and new brands not yet available on the mainland market, the range and style of the goods being sought by them are also increasing. In view of this, ftzmall.com is constantly on the look-out for high-quality products for import.
Hong Kong companies have accumulated years of experience in cooperating with foreign traders. They are knowledgeable about products from foreign suppliers and also have a good understanding of the preferences of mainland Chinese consumers. Hong Kong traders, importers and agents therefore possess advantages in bringing foreign import goods to the mainland market. Says Mak: “Hong Kong has some quality local brands and products. For instance, Lion & Globe, Dai Pai Dong, Doll Instant Noodles, Koon Wah Food and Wah Yuen Food have already made an entry into ftzmall.com.” Since cross-border e-commerce platforms are under the supervision of the Chinese government, the authenticity and quality of the products imported from foreign countries are guaranteed. This helps build consumer confidence in companies’ brand image and products.
Recommendations for Hong Kong companies
For Hong Kong companies or brands interested in tapping the mainland market through cross-border e-commerce platforms, Mak has the following three recommendations:
Hong Kong companies should have a clear market positioning. They must have a good understanding of the target customers for their products or brands and should not use low price as the selling point. The reason for this is that consumers who shop on cross-border e-commerce platforms tend to go after quality and unique designs. They will therefore look for brands or products not yet available on the mainland market. As such, Hong Kong companies should rely on quality and exclusiveness to develop their e-commerce business. Of course, industry players should also maintain product quality and brand image and continue to launch new products to attract repeat purchases from consumers.
Industry players should adopt sales channels different from existing ones. Some brands have already entered the mainland market by way of traditional trade formats. Companies must separate the product lines offered on cross-border e-commerce platforms from those available on existing sales channels in order to avoid direct competition. For instance, on cross-border e-commerce platforms they should try to sell fashion and accessories designed by foreign designers, or limited edition cosmetic sets.
Hong Kong companies should look for trustworthy strategic partners. Many Hong Kong companies are interested in tapping the mainland market but do not know where to begin. They must therefore devise win-win cooperation plans with partners who have a thorough knowledge of the mainland Chinese market and can formulate quick response strategies according to market conditions.
In summary, as demand from mainland consumers for foreign import goods continues to grow, many foreign brands have already reached – via cross-border e-commerce platforms – medium to high-end consumers who demand high-quality products. As Hong Kong products and brands enjoy a good reputation in the mainland, Hong Kong companies should therefore capitalise on this advantage to establish a foothold in that market.
 A strategic partnership between Cybernaut, IBM and eCom, Deep Blue eCom Cross Border Trade (Shanghai) Co Ltd is jointly funded by Cybernaut, Deep Blue and eCom.
 In cross-border e-commerce, four types of customs clearance models apply: general import, bonded import, general export and bonded export. As B2C (business to consumer) sales here refers to imports, this article deals with the “general import” and “bonded import” customs clearance models only.