China Market Insights – Why companies/brands fail in China’s e-commerce market

China is the world’s largest e-commerce market – and it’s still growing. The market is expected to reach over US$1 trillion in annual sales by 2019 and the media is awash with articles about new records for e-commerce sales – on 11 November 2016 (known as “Single’s Day” in China), one-day e-commerce sales reached nearly US$18 billion!

How can any company fail in a market that is so big and vibrant? It’s so simple. All you need to do is grab a fraction of the “pie” and you can’t lose. Right? Well no, is the answer. And that is why so many companies and brands sink without trace in China’s e-commerce market. It’s sheer scale and fluidity means that unless you get everything right, you will just get lost in the crowd. This short article looks at three of the main reasons – failure to understand the market, lack of commitment and poor partner selection.

• Failure to understand the market – the numbers and coverage reported by the media concerning China’s e-commerce market, as well as the advice of many less than reputable “experts”, often give the impression that China is a “Wonderland”. All companies have to do is pay a small fee or make a small investment in order to capture a small percentage of the market. And because the market is so large, the money will come rolling in.

The reality is that China’s e-commerce market is more akin to a minefield. It is complicated, highly competitive and dependent upon increasingly intelligent and often fickle consumers – one misstep can end the venture. Potential entrants must therefore spend the time and resources necessary to understand the market dynamics and the various third-party e-commerce platforms – such as Taobao T-Mall, Tmall Global, JD.com/JingDong, Amazon China and shop.QQ. – which all have different pros and cons. No matter what anybody tells you, this is not a simple process.

• Lack of commitment – Commitment comes in many forms. It can range from a straightforward financial investment, to a less tangible commitment in time and resources. As stated earlier, China’s e-commerce market is the largest in the world, so it doesn’t pay to skimp on your strategy, partner selection or investment in marketing/branding initiatives. A professional company, such as a Tmall Partner or Trusted Partner (TP), can be hired to optimise a brand’s Tmall store for just a few thousand dollars a month. Yet, too often I’ve seen companies unwilling to spend the money on this, or on other activities that would help them reduce risk and increase the chances of success in the market.

Even the simplest form of market entry requires commitment. Time from management is needed to develop an effective strategy – regardless of what that strategy is – and money needs to be spent to optimise the brand’s online presence. If you don’t have the time and resources to commit properly to what could potentially be your largest market, then don’t try and join the game.

• Poor Partner Selection – There are a number of different types of partners needed to succeed in China’s e-commerce market. These include: consulting firms to assist with strategy, buy-out partners to distribute you products, TPs to support your marketplace store, data and analytics firms to assist with making informed decisions, branding firms to help with activation, and so on.

Selecting the right partners can minimise risks and help your brand to succeed in the market. Understand where you need partners, invest in identifying and selecting the right partners, and make sure that your partners are also benefiting from the relationship. Don’t be too closefisted – this is an area where you really will get what you pay for.

The case above summarises these three mistakes in one scenario: failure to understand the differences between the various marketplace platforms in China; failure to invest time to understand the differences between the marketplaces and determine which was most suitable for its products; and finally, the chosen partner was not equipped to assist the company with long term success in the market – otherwise they would have advised the company differently.

About Sovereign China

With offices in Shanghai and Beijing, Sovereign China was formed by the merger of the JLJ Group into Sovereign’s existing China operations in 2013. The JLJ Group was established in 2003 to accelerate international clients’ ability to understand and operate in the China market and has successfully assisted more than 500 companies from over 50 countries with their China market entry.

Sovereign China provides a suite of services designed to lead foreign investors through the market entry process and stay with them to develop long-term success in China. From assisting with understanding the market, developing a market entry strategy to establishing their operations and finally providing back office and compliance support services, we are with our clients from planning to execution.

Within the e-commerce arena, Sovereign works closely with Kung Fu Data, a leading e-commerce data and analytics firm located in China, whose mission is to level the playing field for foreign brands in one of the world’s most competitive markets.