The e-commerce companies hurt small retailers

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For many German dealers, China is a mystery. The market holds huge potential. How online shops in the Middle Kingdom can score - a guest post.

They are colorful, kitschy and overloaded: Chinese online shops take getting used to for Europeans, not only because of the unknown characters. Instead of minimalist design, the dealers in the Far East are overloading their pages, adding product information to product information and immersing their websites in bright colors. This is one of the reasons why some German retailers are skeptical towards the Far East; only a few have dared to move to China so far.

The market holds huge potential. The turnover in Chinese e-commerce in 2015 was around 570 billion euros. For comparison: The total retail revenue in Germany in the same period was 472 billion euros. According to forecasts, China expects sales of 871 billion euros by 2018. By 2020, the market is expected to be larger than the USA, Japan, Great Britain, Germany and France combined. And it should continue to grow. Because not all Chinese are online yet. The reason: the growing middle class, which already numbers 225 million people. That's around 70 percent of the total population in the United States.

For German retailers it is therefore worth considering entering the Chinese market. Also because products “Made in Germany” are highly regarded by Chinese consumers. The target group is mainly located in the big cities: the customers there usually have a higher income and a greater interest in international products. In addition, the Chinese are now more than ever looking for individuality in metropolises - including products and brands. This development extends to the rural regions.

But: What works in Germany can flop in China. Because there are extreme differences between cultures. A company that wants to try its hand at China should therefore first carefully approach the market. One possible and relatively risk-free way is via so-called cross-border e-commerce. Companies can thus sell goods in China without opening their own location there.

How do I reach the customer in China?

An easy way to get a foothold in China: marketplaces. Traditionally, almost everything runs through them. The largest online platform is Tmall from Alibaba, followed by JD Mall. Both marketplaces offer all product groups and each have a segment that focuses on international brands: Tmall Global and JD Worldwide. Dealers can set up their own page there and thus sell their products. However, this approach also has disadvantages. There is a risk that your own products will be placed next to counterfeit goods. And counterfeit products are available en masse from the market leader Tmall, despite all efforts.

Dealers also have to be prepared for relatively high placement fees and extremely high product competition. On Tmall alone, around one billion products are offered by several 10,000 retailers. As in Germany, there are either discount campaigns or additional marketing to get the consumer's attention.

In China, retailers can reach customers not only via web offers, but also via QR codes. (Photo: Azoya)

Each provider is like a small fish in the ocean. A supplement for retailers who want to establish their brand sustainably in China is therefore their own online shop with a corresponding brand building. This is the only way to sustain the brand trust that European retailers and manufacturers enjoy over the long term. Or to put it another way: Anyone who wants to be sustainably successful as a retailer in China should invest in their own Internet presence.

What do I want to sell - and with what aim?

It is not easy to answer for which dealers an expansion to China is worthwhile. Basically, every retailer should check whether the products he offers are in demand from the Chinese market. Statistics provide an insight into this: Products for babies, toddlers and mothers have been very popular for years, as have electronic goods and clothing. One area that has been added in the past three years is care products and cosmetics as well as dietary supplements. Anyone who sells in these segments as a dealer will definitely find China interesting.

A second question retailers should ask themselves: What do I want to achieve? Is it only about sales and revenue generation and not primarily about profits and the focus on market development? Then the established marketplaces such as Tmall and JD are ideal, because around 80 percent of the e-commerce business is done there.

What should my webshop in China look like?

The Chinese consumer has an enormous appetite for information.

The user guidance of Chinese online shops differs from that in Germany. Image elements in Chinese shops are much more colorful, in Germany they are minimalist and subtle in comparison. While we try to present as much relevant information as possible in the visible area when designing online shops, this is not possible in China. The Chinese consumer has an enormous appetite for information. This means that sometimes 30 to 40 pages of information about a product have to be scrolled through in the mobile view. The Chinese customer does this because he is eager to learn.

How important is a mobile website?

The Chinese love their smartphones and usually use them to organize half of their lives: They chat, share moments from their everyday lives, order food at home, buy groceries, clothes or medicines and pay for almost everything with their mobile phones - even at the weekly market. Mobile commerce is part of everyday life in China today. So it is hardly surprising that in 2016 more than 50 percent of all online purchases were made via mobile channels.

Tencent's Wechat app. (Photo: dpa)

The success of mobile commerce lies in the combination of advanced digital technologies and cultural trends in society. Wechat, the most popular app in China, has 700 million active users alone - roughly as many people as there are in the whole of Europe. German retailers can also create profiles and sell products in the app.

Because even if the Chinese e-commerce market is still dominated by Alibaba: Many retailers - both domestic and international - are fighting ever more successfully for market share. To do this, they open up new channels and mobile products that are flexible and, above all, agile. The result: booming mobile commerce.

What do I have to consider technically?

China has a firewall. With cross-border e-commerce, retailers must therefore form a solid technical basis. Anyone who thinks they can conquer Chinese consumers with German servers is wrong. A lot of information is filtered out by the firewall, and the data transfer rates are so low that they do not achieve acceptable performance.

What aspects do I have to consider when dealing with customs?

When retailers have sold a product, the question remains: How do they get it to China? This is a transport and logistics problem, but also a political issue. Dealers need to find out which products they are actually allowed to sell, which customs conditions they are subject to and which value limits must be observed. Otherwise there is a risk of punishment.

The Chinese market is unknown and risky? Unknown yes, risky but not necessarily. As with any expansion, retailers need to get detailed information in advance. Those who do not dare to take the step alone can look for a local partner on site. Either way: with the right strategy, China can be a gold mine for German e-commerce retailers.

The author

Elena Gatti Since November 2016, he has been the Deputy Managing Director of the Azoya Group in the DACH region. After completing her bachelor's degree in telecommunication engineering at the University of Parma, Italy, Elena Gatti completed a master's degree in computer science and communication engineering at the University of Duisburg. She began her professional career as a project manager in the Department of Multimedia and Software Engineering at her alma mater. She then worked as a consultant at Accenture for five years in the Finance and Performance Management department before she also worked as a consultant at Macromedia GmbH. Since November 2016 she has been heading the sales activities of the Azoya Group in the DACH region. Elena Gatti is married and has three children.

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