Long is the list of international brands seeking to tap into the Chinese market. Yet for them, understanding the complexity and competitiveness of China’s market can be quite daunting. No matter how promising their products are, foreign companies need to navigate the regulatory hurdles and make the right connections to succeed there.
First and foremost, foreign companies need to decide which market entry strategy to opt for. They may establish a business in China (WFOE Wholly Foreign-owned Enterprise, Joint Venture, Representative Office) or engage an importer who would legally represent their brand in China.
As China is the most dynamic retail market in the world, the question of where to sell is critical to consider early in the process. Foreign brands wishing to sell their products on e-commerce platforms can chose between two main structures: General Trade (import) and Cross-border E-Commerce (CBEC, in Free Trade Zone).
In CBEC, the overseas merchant exports the product to a bonded warehouse (B2B2C) or via direct mail (B2C). However, products may only be sold on e-commerce platforms. In General Trade, the overseas merchant does not need to have a business licence in China as a legal entity based in China imports its goods from abroad. The goods can be sold on e-commerce platforms and in physical stores.
Different sets of regulations apply to each model. Here is a snapshot for General Trade:
– When products arrive at the China ports, the overseas merchant should already have import registration, an automatic import license, and product labeling (for food products) ready for inspection.
– The foreign brand should submit some of its products for Quality Control testing, according to Chinese national standards (Guo Biao, GB), the equivalent of ISO.
– Imported cold chain food should undergo a thorough preventive disinfection before coming into contact with local Chinese personnel. The inspection takes place at the port.
Any product sold in China must bear a label with simplified Chinese characters. This label should be compliant with national standards (Guobiao). For food products, the Chinese label is required to go through Customs clearance while for non-food product, it can be added later. For apparel products, sew-in labelling is required.
Bravo! Your product can now be sold in China. But what happens next? How does your product end up in the hands of a Chinese consumer?
We visited one the warehouse of the third-party logistics (3PL) company ELEE Logistics to see by ourselves what imported products go through once accepted on China soil. Elee offers services such as Trading Services, Quality Control, Packing Assembly, Labelling, Deliveries to the stores to companies exporting their food or non-food products to China.
For food products especially, the right logistics solution is paramount to any brand’s success in the e-commerce business. After a vendor delivered its goods to Elee’s warehouse, products are checked and inventoried before being moved to a rack in a temperature controlled room. The warehouse offers Refrigerated Storage Facilities with different temperature range (down to -28 degrees) to maintain optimum quality and taste of premium food products.
They also have the capability to support cold chain fast last mile delivery: the last leg of the delivery process which takes place from the distribution centre to consumers’ homes. It is an important element in the logistics and supply chain business and the key to customer satisfaction. Refrigerated Food products can be delivered in two ways: Packed in a Styrofoam box with ice packs to be transported in a non-refrigerated vehicle, or packed for refrigerated transport (cold chain truck). In that case, the reefer truck drives into the warehouse to load the goods.
When a consumer places an online order, the order is received and prepared at the warehouse. Orders are prepared in real time, and during the major online shopping festival 11/11, Elee’s capacity increases to be able to process 200,000 orders per day.
Fast delivery and low delivery fees (vs other markets) contributed to the high adoption rate of online purchases in China, including in clothing. This however comes with a major drawback: product refund. The 7-day return policy for non-perishable goods bought online was implemented in 2016, and Chinese shoppers aren’t shy about using it. Indeed, Diana Chen, Managing Director at Elee, estimates that about 20% of orders in the clothing category are returned by customers. This makes the logistics effort even more complex.
We asked Jean Pierre Roquet, CEO and Founder of Elee Logistics, what major challenges foreign manufacturers faced when importing their products in China and why.
‘Foreign customers tend to pay insufficient attention to the issuance of the shipping documents. It is key that they submit the shipping documents to the 3PL before they finalize their issuance. The 3PL (like Elee) will ensure that the documents are compliant. It is a guarantee that when the documents are submitted to the Import Customs House, shipment will not be blocked by due to non-compliant shipping documents. The same issue is true with product labelling: Chinese labelling should be prepared well ahead of product import. Foreign brands should comply at 100% with the Chinese labelling requirements to ensure the smooth clearance of the products; it will also protect the Brand from claims issued by consumers later on.’
Here at China Skinny: We are on the ground, based in Shanghai. We can meet potential partners and visit their facilities in China on your behalf. Building on our decade of expertise in China, we can help you uncover:
– Market size & trend for your product category
– Country sentiment: What is the perception of Chinese consumers regarding products from your country?
– Market entry strategies: We can assess the pros & cons of various entry strategies based on your objectives and budget, and put you in touch with relevant potential partners.
Contact us to discuss how we can guide your success in China.