The China opportunity is huge, there’s no doubt about that; its ecommerce market is forecast to be worth $1.1 trillion by 2020, according to Forrester.
However, for every western company that cracks the market successfully, there are many casualties that have fallen by the wayside en route to the East.
Getting your head around not just the logistics of trading in China, but the cultural complexities of selling to an audience where there are substantial differences in behaviour compared to Europe and North America, is no small feat. And even with a relatively low risk route to market, such as ecommerce, there’s still ample opportunity to get it wrong.
Frank Lavin is CEO at Export Now, specialists in ecommerce solutions for China. Frank spoke to Retail Connections, offering his insights for breaking into the world’s fastest-growing online retail market.
What do you think prevents most retailers from expanding into China currently?
There’s a huge gap between the value of the Chinese market and its complexity. As the largest ecommerce market in the world it’s enormously appealing, but because companies operating outside of China are unfamiliar with the market conditions, they are quite hesitant. They want to be able to access it without spending a lot of time and money.
Is ecommerce the answer to that dilemma?
It certainly gives retailers a national reach, and potential to test their brand without having to put people on the ground in China. It’s also a cost-effective route to market; a research survey prior to launching a store footprint will cost $50,000, but for less than that you can set up an online store. What’s the point of doing the survey if you can just start selling?
What places a retailer in a strong position for success in China?
There are a number of factors, and that’s why Export Now will do due diligence on behalf of our clients before launching them in China. For example, if a business has no ecommerce presence currently, there’s no point picking the most complex market in the world as a first venture. Retailers that are selling online in their domestic market are looked on more favourably when entering China.
Social media is another important barometer for success. China is the most advanced country globally in terms of digital engagement – consumers are using social networks as research tools, review points, and discussion forums. And the good news is that most retail brands don’t have to have a completely new social strategy for China; with the right support they can adapt what they’re doing on Twitter in their existing markets for Weibo, localising the language for their new audience.
Would it be fair to say the main reason for failure in China is a lack of cultural understanding?
I think people know intuitively that their brand won’t behave the same in China as their home market, but they need to develop a strategy that still works as a business model, to help them make their Chinese enterprise profitable.
Analytics are really important here – understanding behavioural patterns in the market is key. Don’t jump in without doing research, because not all brands and products work in every market.
An interesting example of this is a major peanut butter manufacturer that we work with in North America. Over there, they have such enormous organic strength, that they barely have to advertise the product. However, to enter China they need to launch a major educational process – how do you sell to someone who has not only never heard of peanut butter, they may have never even tried the slice of toast or the sandwich that you spread it on?
Equally, we were recently in conversation with a successful wine brand. We asked them under what circumstances a person in China would buy wine as a gift for someone, and they didn’t know. Merchants need to be aware of these cultural differences before planning their go-to-market strategy.
What would be your top tips for retailers considering China’s ecommerce opportunities?
Don’t make the ‘mistake of nothing’, and by that I mean think you can do nothing different in China than your home markets and still be successful. It’s not just a case of translating your website into Chinese; the distribution model, value proposition, marketing strategy, consumer engagement techniques – everything – is different. You can be 99% right and 100% wrong in the same breath.
Set a clear goal for market entry. Most companies launch with the aim of breaking even as quickly as possible – if you can set an objective and a time frame, this allows you to put a basic model for launch together.
Finally, don’t be too ambitious. You need to have a sufficient breadth of SKUs for your website to be populated and look authentic – so the Chinese website stacks up in comparison when compared to your home market – but simplify your offering and build it up over time. You’re going to have to adjust that range for local sizing, colour preferences etc. as it is.