Chinese cross-border eCommerce has peaked
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Chinese cross-border eCommerce has reached a turning point, says new research from Oliver Wyman.
Spending online offshore by Mainland Chinese reached RMB 120 billion (US$17.963 billion) in 2015 according to iResearch, and is expected to grow more than 60 per cent, reaching 7 per cent of total Chinese eCommerce value by 2018.
However, Oliver Wyman warns increasing regulation may mean the industry has now reached an inflection point.
“Chinese consumers are probably the most informed and digitalised in the world,” said Wai-Chan Chan, Oliver Wyman partner and author of the report. “As Chinese consumers travel abroad, they are increasingly aware of offline prices around the world.
Cross-border eCommerce provides Chinese consumers with access to the best products at the best prices without leaving home. At the same time, companies entering or currently in the market need to consider their positions.”
The report, titled Shopping Without Boundaries found that one in five online Chinese shoppers made a purchase on cross-border eCommerce platforms in 2015, double the proportion in 2014. This represents more than 3 per cent of total eCommerce transactions in China including both B2C and C2C.
Today’s cross-border eCommerce businesses expanded out of the Daigou model which involved small businesses abroad who brought or sent products back to China. In 2013, the Chinese government established experimental zones of cross-border eCommerce for better regulation. Shanghai was the first to be selected, followed by 11 further cities by June 2016.
International brand owners and retailers are taking advantage of the new channels through different models. The most common are platform providers such as Tmall International and self-operated plays such as Jumei. JD Worldwide operates across both models. Vertical specialists have also emerged, including the rapidly-growing Xiao Hong Shu (Little Red Book) that has established itself as a challenger.
After a strong boom, the report finds that cross-border eCommerce has arrived at a tipping point.
“The future now seems unclear to many players due to a series of government regulations,” concluded the report. “Covering a wide range of topics such as tax, product safety, manufacturing standards and logistics, these regulations have not been fully defined and leave room for speculation.”
“While cross-border eCommerce still presents great opportunities, companies may want to have a Plan B in case the market dynamics change completely due to the new regulations,” added Chan.
The full report details how both incumbents and new brands should review and adapt their strategic approach to China’s cross-border eCommerce market. For example, incumbents need to define what role cross border eCommerce should play in their overall Chinese business while ensuring global price harmonisation. New entrants, need to select a product that appeals to online shoppers in China.
Questions & Answers
Q.What is the primary reason the cross-border eCommerce industry is at an inflection point?
What is the primary reason the cross-border eCommerce industry is at an inflection point?
Oliver Wyman warns that increasing government regulation is making the future of the industry unclear. These new rules cover aspects like tax, product safety, and logistics, and are not yet fully defined.
Q.How significant was cross-border eCommerce for Chinese online shoppers in 2015?
How significant was cross-border eCommerce for Chinese online shoppers in 2015?
In 2015, one in five online Chinese shoppers made a purchase via cross-border eCommerce platforms. This represented double the proportion seen in the previous year and over 3% of total Chinese eCommerce transactions.
Q.Which models do international brands and retailers use to enter the cross-border eCommerce market?
Which models do international brands and retailers use to enter the cross-border eCommerce market?
Brands and retailers commonly use platform providers such as Tmall International, or self-operated models like Jumei. Some, such as JD Worldwide, operate across both models, while vertical specialists like Xiao Hong Shu also exist.
Q.What advice does Oliver Wyman offer companies operating in this market given the changing dynamics?
What advice does Oliver Wyman offer companies operating in this market given the changing dynamics?
Oliver Wyman advises companies to consider a 'Plan B' in case new regulations significantly alter market dynamics. Incumbents should define cross-border eCommerce's role in their overall Chinese business, while new entrants need to select appealing products.