8 Aug 2019
Selling to Mainland Consumers through Cross-Border E-Commerce
Interview with Eagle Chen, Deputy General Manager of Guangzhou Carrot Mall Network Technologies Co Ltd
China’s retail market offers enormous potential, with the boom in e-commerce particularly notable. Given the special characteristics of mainland retail, overseas businesses wishing to tap the market often do not know where to begin. Having been in the business of cross-border e-commerce retail imports since 2013, Guangzhou Carrot Mall Network Technologies Co Ltd now pitches itself as a service provider helping overseas businesses break into the mainland retail market. Carrot Mall provides mainly online and offline retail solutions to overseas brands, including assisting them in opening and running flagship stores on mainland e-commerce platforms like Tmall.
Eagle Chen, deputy general manager of Carrot Mall shared his views on cross-border e-commerce retail import  policies and his experience in business strategy formulation. He also talked about how overseas businesses can make forays into the mainland retail market through cross-border e-commerce.
How Government Regulates Cross-border E-commerce Retail Imports
Chen noted that mainland authorities adopt different ways of regulating cross-border e-commerce retail imports and imports under general trade. Chen said: “In regulating cross-border e-commerce retail imports, the government focuses on ensuring that there are no harmful substances or ingredients in the products and taxes are paid by consumers.
“Cross-border e-commerce retail imports do not have to comply with all requirements imposed on imports under general trade. For instance, they do not have to meet all mainland standards on product formulation and packaging wording, or affix a product label in simplified Chinese characters on each product, etc. Compared to importing goods under general trade, it usually takes less time to import new products via cross-border e-commerce retail imports. Hence, businesses can make use of cross-border e-commerce retail imports to test the market response to their new products.”
Though time cost can be saved by importing products through cross-border e-commerce, other costs have to be borne in mind. Chen said: “In importing goods through cross-border e-commerce retail imports, higher warehousing and packaging costs are involved. Enterprises have to wait for consumers to actually place an order before Customs will handle and complete clearance and inspection procedures at the supervision areas.
“This means that upon arrival on the mainland, goods have to be stored in special supervision zones or bonded supervision zones pending completion of clearance procedures. In addition, every product has to be individually packed to the customer’s order and checked by Customs. Higher warehousing and packaging costs are thus incurred in cross-border e-commerce retail imports than imports under general trade.”
Chen advised businesses entering the mainland market to start with cross-border e-commerce first and explore other sales channels later, saying: “The simple procedures and workflow in cross-border e-commerce facilitate overseas brands moving into the mainland market swiftly. When businesses are testing the potential of products imported via cross-border e-commerce retail imports, they can at the same time start the application procedures for importing goods under general trade.
“Based on the market response to their products, companies can then bring in their more popular products through other sales channels. After all, the mainland retail market as a whole is far bigger than the cross-border e-commerce retail imports market.” 
Cross-border E-commerce Business Model
Overseas brands penetrating the mainland market via cross-border e-commerce retail imports are often concerned about possible problems in cross-border logistics and warehousing. Chen said: “The logistics and warehousing sectors on the mainland are very well-developed. For a company which has shipped its goods to a mainland port, the logistics and warehousing service providers can help it receive, manage, store, pick and deliver the goods, as well as deal with Customs, doing away with the need for the company to rent a bonded warehouse.
“After the company has received orders, it can send the information via computer to the service provider, which will in turn pass on the information to Customs for clearance and deliver the goods thereafter. The company only needs to keep sufficient stocks and provide quality customer service, while the logistics and warehousing functions can be outsourced to the specialised service providers. These service providers also serve businesses setting up their own factories on the mainland, helping to take goods directly from the factories to warehouses for onward delivery later.”
There are many rules on the mainland to protect the consumers, including return of goods or refund. How to provide quality customer service within controlled costs has been of much concern to businesses setting up online stores on mainland cross-border e-commerce shopping platforms. Chen said: “In operating a brand on a mainland online shopping platform, stringent quality control is crucial. Moreover, businesses must be proactive in listening to consumer feedback in order to build better word-of-mouth for their brand.
“In face of requests for refunds or return of goods, businesses should not be discouraged, but should instead strive to improve the efficiency for goods return. In fact, if the products are of good quality, the costs of goods returns will make up only a small percentage of the total operating costs, and this should not be a cause for concern. Further still, if businesses can provide better customer service, such as pledging that customers can reach a customer service agent within 10 minutes or customers’ problems can be resolved within 30 minutes, publicity through word-of-mouth can be enhanced.”
Brand-building: Strategies and Costs
To succeed in cross-border e-commerce or the retail market generally, building a competitive brand is the key. Chen said: “With the low threshold for opening an online store on an online shopping platform, an online store’s success hinges on its product quality, operation mode and publicity tactics. In promoting a brand, businesses should aim not just to drive sales, but also to enhance the brand image.
“Since 2018, numerous overseas brands have made their way into the mainland market through cross-border e-commerce platforms. For these businesses, the key to getting ahead lies not only in running a brand with good selling points and operating the online store efficiently, but also raising awareness of the brand among consumers through active promotion.”
Assessing the cost for an overseas brand to open an online store on a mainland cross-border e-commerce platform, Chen said: “Currently, for an online store on a mainland cross-border e-commerce platform, the annual promotion expenses make up roughly 20% of the annual turnover. For brands operating on the mainland for the first year, more promotion and discount offers have to be made to increase brand awareness. Promotion costs can then take up more than 40% of the turnover. In addition, well-known e-commerce platforms charge an annual fee and a deposit amounting to RMB200,000-300,000 as well as a handling fee equivalent to 3-6% of the turnover. Depending on the size of the online store, manpower costs in customer service, design, procurement, logistics and warehousing are also involved.”
In preparing to expand into the mainland market through cross-border e-commerce retail imports, overseas brands must first adjust their supply chain. Chen said: “First, businesses must be adequately staffed to manage the online stores’ daily operation. In addition, during major promotional campaigns such as the ‘Double 11’ and ‘Double 12’ shopping festivals, there should be enough production capacity to cope with the peak demands as well as sufficient resources to launch brand promotion.
“Meanwhile, the huge and intensely competitive mainland market is putting much downward pressure on prices of similar products from different suppliers. As such, businesses must also establish an efficient supply chain for offering quality products at low costs, leaving more resources for the other business areas.”
After years of growth, the mainland cross-border e-commerce market has greatly matured. Chen believed that overseas brands moving into the mainland market will stand a better chance of success if they collaborate with their more experienced mainland counterparts to leverage each other’s strengths. He said: “In the fiercely competitive mainland market, overseas brands including Hong Kong brands do not necessarily have to operate on their own. Hong Kong traders offering quality products can partner with experienced mainland companies to develop an appropriate business model to reap the maximum benefits.”
 The cross-border e-commerce retail imports model mentioned in this article refers to products on the list of Cross-Border E-Commerce Retail Imports being imported through the “bonded import” or “direct purchase import” mode. Consumers buying goods through the above trade model have to place their order via cross-border e-commerce platforms linked online with Customs. The e-commerce platforms will make real-time declaration to Customs based on the particulars of the order, payment and logistics.
 According to the National Bureau of Statistics and China Customs, the total retail sales of consumer goods in 2018 topped RMB38 trillion, with online retail sales valued at more than RMB7 trillion, and imports through Customs’ cross-border e-commerce administration platform amounting to RMB78.58 billion.