A newer trend of cross-border e-commerce in China

IN RECENT years, China’s traditional foreign trade has slowed down, while cross-border e-commerce has maintained a rapid growth rate. Cross-border e-commerce is an advanced form of electronic commerce. The growth in cross-border e-commerce has supported a new category of trader, referring to both sides of business from different countries or regions. The traders work in the negotiation and transaction of traditional trade to achieve import and export of the product through the Internet mail or Courier forms to enable customs clearance.

There are three primary forms of cross-border e-commerce transaction modes: B2B (Business-to-Business); B2C (Business-to-Customer); and, C2C (Customer-to-Customer). Furthermore, cross-border e-commerce can be categorised as either export or import activities. E-commerce services (such as trading platform services, logistics distribution, and electronic payment) have been intensively developed to support and facilitate the development of cross-border e-commerce.

The development status of cross-border e-commerce industry

China’s cross-border e-commerce industry currently has three key characteristics. First, the scale of cross-border e-commerce transactions continues to expand, accounting for an increasing proportion of China import and export trade. Second, the focus is mainly on exports, which is expected to continue the rapid development trend. Third, the trade is dominated by the B2B category, which enjoys rapid expansion. At the same time, the national policy support for cross-border e-commerce has continued to increase, embodying the important role of this form of trade as a development catalyst. The increasing national policy changes providing further support and rapid growth of the sector will continue to provide a powerful impetus for the increased development of cross-border e-commerce.

As the ‘One Belt and One Road’ (OBOR) initiative continues, cross-border e-commerce is entering a new period of development. According to preliminary estimates, the total population of the 65 countries along the OBOR is about 4.4 billion and the total economy is about $21 trillion, accounting for 63% and 29% of the world’s population and economy, respectively (see note 1). China’s total imports and exports are 6.25 trillion yuan with the countries along the
OBOR; this accounts for 25.69% of the total Chinese imports and exports to the value of 24.33 trillion yuan (see note 2). From that, we can conclude that cross-border electronic business transactions still have significant development potential in those countries involved with the OBOR initiative.

The current advantage of cross-border e-commerce in China

Since 2016, when the national strategy of OBOR and “The Silk Road on the net” was advanced, the reform of the supply-side has been carefully managed. Therefore, a cross-border electronic dealer market has rapidly developed in China, and this further infiltrates production, circulation, services, and other areas of trade links. The cross-border electronic business platform has become an economic booster that leads small- and medium-sized enterprises (SMEs) to trade internationally. The strong promotion of Chinese brands overseas and to increasingly large digital trade with other countries along the OBOR has been an advantage to Chinese firms.

With the implementation of the OBOR national strategy, the bilateral trade volume between China and countries along the OBOR has increased synchronously. The development of industry and tourism industry has also been promoted. At the same time, air and sea channels are gradually opening up, which will bring broad development opportunities for the cross-border e-commerce industry and will also promote the development of domestic e-commerce.

Cross-border e-commerce has great potential for development and will become an important growth point for foreign trade in China, which has a broad market, and the competitive situation is more relaxed at this stage. Cross-border e-commerce lowers the threshold to enter global markets and raises brand awareness while enabling access to international consumers. As support for businesses, it enables low operating costs and large profit margins. Also, the Chinese government continues to issue supportive policies, and the domestic economic environment is in good shape.

Major issues and challenges

At present, China’s development of cross-border e-commerce still faces some challenges. For instance, the customs clearance service urgently requires improvement; the market supervision system needs to be improved; the exchange settlement method requires adjustment and optimisation; and, domestic logistics delivery enterprises are weak and inefficient.

To promote the healthy development of cross-border e-commerce in China, the government should focus attention on the following work: optimising the service support system of customs clearance, payment, logistics and settlement; establishing and improving the cross-border e-commerce market supervision system; strengthening international cooperation in cross-border e-commerce; and, guiding and supporting the development of cross-border e-commerce platforms.

Foreign investment accelerates into the China market

In 2016, the transaction volume of cross-border e-commerce was much higher than in previous years. Over the past two years, several important e-commerce shopping festivals have emerged. The ‘double eleven’ has become the national shopping carnival, and the ‘Black Friday’ event is gaining attention from the family of overseas online shoppers. On the traditional Chinese national holidays, a range of promotions is constantly appearing that will support e-commerce popularity. The sales volume of cross-border e-commerce platforms such as shopping carnival, Tmall International and foreign terminals has grown rapidly.

Cross-Border e-commerce has been developing rapidly in China, and more and more consumers buy overseas goods through cross-border e-commerce platforms. According to the survey, the products that people are keen to buy mainly include cosmetics, baby products, food and beverages, clothing, and shoes. To meet the needs of online shopping consumers, the e-commerce platforms of all the major cross-border importers are also expanding the category of importers in their platforms.

In recent years, the cross-border imported electronic business has seen swift developments in China. Consumers have increasingly turned to cross-border imported electronic goods business platform to purchase goods from abroad. According to the survey, consumers are keen to buy product categories including cosmetics, maternal and child supplies, food and beverage, clothing, shoes, and hats (see note 3).

Consumers’ demand is the extension of the importer category platform. Like Tmall International, besides original costumes and makeup categories, new categories are emerging including red wine and fresh food. Netease Koala’s sea goods category also has adjusted to cover beauty makeup, daily, maternal and children’s clothing, food, and digital variety orders. Integral to the e-commerce are facilities relied on by the closeness of Zhengzhou Airport, for example, constantly optimising and increasing product categories to achieve a global strategic partnership.

Analysts are very bullish about the Chinese e-commerce market and believe it has positive prospects. As a result, it has attracted the attention of foreign investors. Not only have foreign e-commerce companies changed their business models in recognition of the rise of the market, but the foreign traditional retail companies have also expanded their operations to take advantage of these changes in China.

Moreover, the reduction of restrictions on foreign access will attract more foreign investors to participate the domestic market in many ways, including investing or becoming a shareholder. The new involvement will ensure that very successful foreign e-commerce companies will expand into China using joint venture cooperation or other partnerships. The market expansion will attract investment and produce stronger economic growth. The involvement of foreign companies will bring domestic Chinese consumers greater choice in the goods they buy and stimulate the consumption of foreign goods. At the same time, the Chinese e-commerce market will face a new round of developments.

However, despite the agreement on the wealth of opportunities in the Chinese market and the strong Chinese demand, some foreign investors have shown caution on the entry into the Chinese market. This phenomenon is particularly common to European and American enterprises. There are four leading causes for caution.

First, the firms are unfamiliar with the state of the Chinese market. Foreign cross-border merchants need to look for reliable partners in China to consider the full spread and distribution of their products in the Chinese market. Otherwise, their entry may result in limited market penetration and stunted growth.

Second, they should establish local logistics operations. To increase profits and facilitate more transactions, firms must establish Chinese-based management positions after the market has matured. In this way, it is advantageous to allow local consumers to experience shopping as the firm optimises and promotes the market.

Third, the establishment and promotion of the independent website are important; as it is online shopping, people cannot avoid browsing the store’s page. The perceptual intuition and speediness of independent websites is a big concern for foreign e-commerce companies.

Fourth, cross-border payment is increasingly important. The security, localisation, and speed of payment methods can stabilise the recognition of overseas e-commerce companies in China.

The change of cross-border online shopping

At first, cross-border online shoppers focused on personal online shopping, and the goods they purchased were mostly products for personal consumption. With the development of cross-border e-commerce, the category of goods purchased has become wider.

Many consumers are over the age of 26 years, are married, and their consumption reflects this with many purchases now being in the family category. Cross-border online shopping consumers have shifted from personal consumption to household consumption.

The age of cross-border online shoppers is increasing, and firms are now focused on consumers with families, and the concept of family consumption is crucial to the success of traders.Moreover, the growth of cross-border online shoppers demonstrates that cross-border shopping has gradually become more popular and common.

With the improvement of the quality of life of Chinese people, consumers pay more attention to the quality of imported goods rather than their prices. Cross-border online shoppers have shifted from being price-sensitive to quality-sensitive consumers.

The domestic Chinese market contains many opportunities if foreign cross-border e-commerce companies want to become internationalised. Further improvements should focus on analysing and optimising the links such as logistics, products, and payments and firms should focus on the integration of their resources to ensure a seamless and smooth customer experience.

Notes:

  1. Song, Y., & Hao, Y. (2014). Retrieved from http://world.people.com.cn/n/2014/1227/c1002-26285988.html
  2. Yan, S. (2017). Retrieved from http://news.xinhuanet.com/money/2017-04/11/c_1120785294.htm
  3. Xu, J. (2017). Retrieved from http://www.cifnews.com/article/27996

Dr Yangyan (Peter) Shi has received his PhD from the University of Auckland, and is a senior lecturer in Operations and Supply Chain Management at Macquarie Graduate School of Management (MGSM), Faculty of Business and Economics, Macquarie University, NSW, Australia. Also, he is a member of the Centre for Supply Chain Management at the University of Auckland Business School.