China is Big. China is Different. China is Difficult. China is Smart. China is Challenging. Market insights, special focus on the digital/ecommerce business

1. Riccardo Porta
Milan, 15 March 2014
Riccardo Porta
me@riccardoporta.it
China is BIG
China is DIFFERENT
China is DIFFICULT
China is SMART
China is CHALLENGING
China, a Big and Unique Country of Opportunities

2. Riccardo Porta
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

3. Riccardo Porta
Facts
There are 22 million SMEs in the EU
13% of EU27 SMEs export beyond internal
market
Only 250,000 SMEs export to China

4. Riccardo Porta
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?
The market is huge and growing
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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The market is huge and growing
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?
The market is huge and growing
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?
The market is huge and growing

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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.

18. Riccardo Porta
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.

19. Riccardo Porta
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?
Logistics Challenges 2/3
Shanghai Free Trade Zone

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Logistics Challenges 3/3
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: imported products 2/4

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Fashion challenges: imported products 3/4

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Fashion challenges: imported products 4/4

36. Riccardo Porta
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

38. Riccardo Porta
 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

40. Riccardo Porta
Thank You
Riccardo Porta
me@riccardoporta.it
http://www.linkedin.com/in/riccardo