china: a big and unique country of opportunities

Riccardo Porta

Milan, 15 March 2014 Riccardo Porta [email protected]

China is BIG

China is DIFFERENT

China is DIFFICULT

China is SMART

China is CHALLENGING

China, a Big and Unique Country of Opportunities

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Agenda

Facts and figures: Why China?

How to Access the Market

- challenges

- online selling models

- platforms

- logistics

- payments

Online fashion: examples about the complexity of the market

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Facts

There are 22 million SMEs in the EU

13% of EU27 SMEs export beyond internal market

Only 250,000 SMEs export to China

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The market is huge and growing

Why China?

Population of 1.34 billion

58% of these 618 M Chinese netizens spend 3 hours on the internet each day

41% of that time is spent on Social Media

There are currently 618 Million Internet users in China, 46% of population. This is expected to be over 840Million by 2015

Due to political situation, digital is the most trusted media in China

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Why China?

The market is huge and growing E-commerce market US$113 bn in 2012; expected to reach US$ 176 bn by 2014 (24.8% CAGR - compounded annual growth rate) 220 million online shoppers in 2012, rising to 423 million by 2016 A Chinese buy online 4 more times than an European

Source Access Asia, CNNIC 2013, China Internet Watch 2012, TAC

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Why China?


China Online Shoppers and Internet Users

Source: CNNIC BCG ObserverSolutions Analysis 2013

464 million Mobile Internet users in China – Jun 2013

By 2015, e-Commerce transactions in China are projected to reach USD 540 billion or 7.5% of all retail transaction

CNNIC (China Internet Network Information Center – 32nd Statistical Report Jul. 2013

KPMG China Connected Consumers Feb-2013

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Why China?

Source: China Internet Watch

Nearly 60% Taobao (淘宝) shoppers between 25/35 years old;

They come from urban areas (over 70%) and have a monthly income of under CNY 5000 (Euro 575); They are likely students (29%), white collar staff (18%), self employed/freelance (16%) and professional technicians (11%);

Women account for 45% of all internet users from only 20% ten years ago.

What about the average user profile?

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Why China?


Heavy Spender: 7% of e-shoppers are responsible for 40% of total online spending

Source: Wiseline 2012 (iResearch, Boston ConsulGng Group, report 2011).

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Why China?


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Why China?

The market is waiting for us

According to the Statistics released by China E-Business Research Center,

the trading volume of China's overseas purchasing are 12 billion, 26.5

billion and 48.5 billion in 2010, 2011 and 2012 respectively. In 2013 the number

rises to 74.4 billion and it is estimated that in 2014 overseas purchasing will

exceed 100 billion.

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Pay attention

You will need some local help

Your favourite marketing tools will not work in this country …

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Pay attention: a quick example 1/2

This is the typical social media environment we know right? The web marketing

tools we have in Europe or in USA, right? Fine. Look at the next chart.

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Pay attention: a quick example 2/2

China Pie…

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How to access the market?

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Top challenges in China for Overseas eMerchants 1. Local entity or stay overseas? 2. Unequal Competition 3. Logistics fulfilment 4. Establish Awareness &Trust 5. Marketing, Traffic generation

Other key challenges in China 1. Cross Border Payments 2. Translation that works 3. Customer Service (Chinese people are used to get instant answers via instant messaging platform)

Key Challenges to Overcome First

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Main online selling models: which one? 1/2

Internet Content Provider License: this is a permit that can be issued by the Chinese Ministry of Industry and Information. Any website hosted inside of Mainland China needs to apply for this license. An ICP License is only required if your website is hosted inside of Mainland China.

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Main online selling models: which one? 2/2

*EMC = Export management consultant

Representative office is not really enough. You need a legal entity (so an office in the center of the city, Remember also: once you open your legal entity, than it’s not so easy to close it.

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Which platform and how do I apply?

What about the new “TMALL Global” service*?

* Tmall Global is a new solution (march 2014) from Tmall.com that offers Chinese consumers high-quality, branded products from outside China.

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B2C platform(s)

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Example of Platforms pricing

1000 Yuan = 116.61€ (14/03/2014)

5000 Yuam = 583.07€

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Control of provision of commercial information and activities through the

internet via the Internet Content Provider (ICP) system.

Do you need an ICP license?

Difference between ICP Filing and ICP Licence

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How do you get your goods to customer

Large networks offering basic services Rely on speed and price Wide network coverage E.g. EMS, 20,000 locations

Smaller networks offering more complex services.

Compete regionally Offer warehousing, collect-on-delivery, scheduled returns Select cities with most volume E.g. Fedex, DHL, TNT

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Logistics Challenges 1/3

Consistent delivery service to cover lower tier cities

Shipping of some goods (temperature sensitive,

high value, strange shape etc.) is still a challenge

Short of hands in holiday seasons, especially

Chinese New Year, resulting in delay on delivery

Many of the significant players have invested

heavily to build their own logistics system

Global returns management

Did you know… The total cost of the package can not be more that the 15% of the value of the product. No more than 3 layers.

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How can an European small medium enterprise trade goods in China without setting up a legal entity in China?


Shanghai Free Trade Zone

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Shanghai Free Trade Zone

LGM Group: first company to have received the free trade license in its sector

10-20%

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Payment Processing in China

Popular payment methods are :

Online Bank Transfers

Wallets like 99bill, Alipay and Tenpay

Cards of China Union Pay (CUP)

Who are the players?

PSPs such as 99bill or Alipay work like

acquirers

All PSPs provide at least card acquring

and bank transfers

Wallets are available at Alipay (Retail),

Tenpay (Gaming) and 99bill (express

checkout/ high order values)

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Fees are significantly lower for Chinese legal entities with RMB settlement Values per order are often limited to 500 RMB – can be negotiated Chinese PSPs have a different coverage of banks and consumers Fees can vary depending on their coverage of banks To get a broad reach and low fees use Least Cost Routing Mobile payments require special interfaces and authentiation Alipay is a MUST but:

- don't just integrate the wallet but also online bank transfers

- adding several PSPs at lower costs can be rewarding

Payment Processing in China: suggestions

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34.8% of e-commerce users (187 million) have used online payment methods. Many still see it as unsafe and complicated. Cross-border settlement possible via Alipay, Paypal, ChinaPay. Alipay US$1000 set up fee. 3% or 7% transaction fee. 0.7% to 1.2% transaction fee for domestic payments. Paypal – No set up fee, 3.9% transaction fee on the total sales amount in addition to a fixed fee of US$0.30 per transaction. RMB only third party payment platforms –TenPay, 99Bill, ChinaPnR, YEEPAY and IPS

How do I get paid?

Implement fraud prevention before fraud hits you…

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The Whole Process

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Fashion industry: some examples

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Example: Sales and Distribution Channels

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Customs inspections and customs classifications CIQ Statutory Supervision for Imported Textile China retail labeling requirements Logistics Distribution Random inspections and sample testing at retail shops by SAIC

Fashion challenges: imported products 1/4

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Fashion challenges: don’t forget the China IP

Protect your business by filing your IPR (Intellectual property rights) as soon as

you plan to enter the Chinese market !

Implement proper protection and overall strategy in advance and use all available resources Timely register relevant and core IP in China Select the right partners and sign with them contracts including specific IP clauses (e.g. distribution agreements, import/export, Non-disclosure Agreements ) Always be proactive and monitor the market Plan budget for the enforcement of your core IP

IP Action Plan for China

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Fashion challenges: online infringements 1/3

If the IP-protected material is uploaded without the right holder’s consent , request in written that the ISP removes the infringing works or the relevant website (‘take-down notice’) In order to issue a take-down notice you must have registered your IPR in China and able to prove it with relevant documents User friendly tools provided by popular Chinese ISPs Powers of ISP are limited: E-commerce platforms ISPs cannot impose fines on infringers or grant any compensation to the right holders Conflicting IP infringement claims should be taken before Chinese administrative authorities (AIC) or before Chinese Courts

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Remember that although the Internet acts as a gateway for European SMEs, it is also an ideal platform for infringers to commit fraud Companies operating in China face an increase number of online threats and such activities may lead to brand dilution, increased risks, loss of business and eventual loss of reputation and of profit Register domain names with the CNNIC such as “.cn” “.com.cn” “.中国” Register the images and content of your website under Copyright

If you are selling online through your own website

Fashion challenges: online infringements 2/3

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Fashion challenges: a clear example 3/3

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Thank You Riccardo Porta [email protected] http://www.linkedin.com/in/riccardo

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