Len Padilla, VP product strategy at communications specialist, NTT Europe, advises businesses on winning e-commerce sales in China
Nobody is in any doubt that the opportunities for e-commerce are enormous in China – local giant Alibaba’s profits have increased threefold over the past year and KPMG predicts the e-commerce market in China could be bigger than those of the US, UK, France, Germany, and Japan combined by 2020.
Given these numbers, it’s no wonder 80% of 200 senior e-commerce decision-makers at UK and US firms are looking to expand into Asia in the coming year, according to recent research by NTT Communications.
However, they are also concerned it won’t be an easy ride; almost all claimed they face specific challenges establishing their business in Asia and not just in terms of a language barrier. What’s more, while China is by a long way the top destination, they are also, according to respondents, the hardest markets to crack. The Chinese government however is gradually liberalizing and opening up the Renminbi (RMB) controls.
Chinese tax regulations and compliance are the top concern for Western businesses, with 44% citing it as the number one barrier. There are many sectors, such as cosmetics and food and drink, which are so tightly bound in regulation that companies find it a struggle to understand and comply. Companies have to gain approval and/or register their products with local regulators before they’re allowed to start selling them and taxation regimes vary widely.
Next on the list of barriers comes understanding the local market, voiced by 43% of respondents, followed then by language barriers, cited by 41%.
Some of the biggest concerns highlighted by our survey, however, relate to taking and processing payments, and cross-border settlement. For example, the Chinese market is dominated by a wide-variety of home-grown payment systems, such as Alipay and Tenpay. By contrast, Visa, MasterCard and Amex users are in the minority. E-commerce sites need to be able to process these different payment methods, and remit funds to the country (and the currency) determined by the business. Indeed, cross-border settlement was highlighted as a key issue by 39% of respondents to our survey.
Indeed, when it comes to the key success factors highlighted by our respondents, the right payment platform emerged as a key issue. In particular, acquirer connections in China were flagged as the number one key success factor, by 45% of respondents, closely followed by risk and fraud management (43%). Successfully mitigating the risk of fraud relies on strong local market insights and good relationships with banks and payment schemes.
Partly as a result of these concerns, many major Western retail brands have opted to work with local ‘e-mall’ providers such as T-mall and Shangpin, who provide the shopping platform, the payment processing, and settlement capabilities. Peace of mind on these fronts, however, comes at the expense of a fully branded, digital customer experience, around which businesses differentiate themselves and build brand loyalty – the shopping experience on many of these sites is vanilla at best.
However, payments and e-commerce providers are emerging that have the technical infrastructure and the capability to transfer payments both inside and outside the ‘Great Firewall’. These, along with deep, local market insights and links to local acquiring banks, can ensure that retailers can level the playing field with local competitors, while retaining total control of their brand online. Once retailers crack the cross-border settlement in China, they will stand in good stead for cross-border e-commerce opportunities in other growing Asian markets such as India, Indonesia and Malaysia.