Alibaba Tmall

Chinese consumers have developed a burgeoning appetite for high-quality foreign products. Given the size of the country’s consumer base, it’s no surprise that China is seen as an essential market for many foreign brands. 

It stands to reason that cross-border e-commerce (CBEC) in China would also be taking a hit. Is that what’s really happening?

China’s top cross-border e-commerce players

Market share of import CBEC platforms in mid-2018:

(Image credit: Ashley Galina Dudarenok)

Market share of import CBEC platforms in the second quarter of 2020:

(Image credit: Ashley Galina Dudarenok)

In 2018, Alibaba controlled around 20% of China’s CBEC market. A year later, the company acquired Kaola for $2 billion from Chinese internet and gaming company Netease, drastically tightening its grip on the sector. Now, though Tmall Global and Kaola, Alibaba controls more than 60% China’s CBEC market.This makes sense, given that Alibaba began and founded its empire on cross-border trade.

What was happening pre-Covid?

CBEC in China has seen steady growth since 2015, but the marketshowed signs of slowing down before the outbreak of Covid-19 earlier this year. 

China’s cross-border shoppers have increased steadily since 2015, reaching 154 million users in 2019. Export trade in China’s CBEC sector reached RMB 94.4 billion ($14.3 billion) in 2019, up an average of 60.5% a year, from RMB 33.7 billion in 2017. In 2019, exports were up 68% compared to the previous year. 

Meanwhile, import trade has slowed. In 2017, the value of imports more than doubled compared to the year before, reaching RMB 56.6 billion. But by 2019—when total imports reached RMB 91.8 billion—year-on-year growth hit just 16.8%. The slowdown in growth is reasonable given that the CBEC market is gradually stabilizing and maturing. Future growth is expected due to stable demand and CBEC-friendly government policies.

Supply chains lock up?

In early 2020, logistics networks across the globe were thrown for a loop. Covid-19 spread worldwide and governments took measures to curb the disease, resulting in long delivery times, high shipping fees, and warehousing issues. In the first three months of 2020, total retail trade in China fell by almost 10%. Exports plummeted by 15.9%, while imports dropped by 2.4%.

Import CBEC, however, has come out largely unscathed. Consumers’ purchasing power increased by 40% during the first three months of the year, while CBEC platform usage surged by 65%, according to iiMedia. The number of CBEC users in 2020 is forecasted to reach 158 million users, a 2.6% increase from 2019. 

In the first quarter of this year, Chinese consumers purchased 52% more imported goods on Alibaba’s Tmall Global marketplace than they did during the same period in 2019. Tmall Global has added more than 200,000 new products to its platform in the past three months, and the rate of foreign brands opening stores on the platform has more than quadrupled.

Far from buckling under geopolitical pressure and the Covid-19 slowdown, CBEC appears to be holding its own—and even growing. To offset the impact of US trade tariffs and the pandemic, the Chinese government is prioritizing specialized free trade zones for cross-border e-commerce, with plans for 46 new integrated pilot zones for cross-border e-commerce and backing from top officials, including Chinese Premier Li Keqiang.

Which products and brands are set to benefit from China’s strong rebound and determination to pursue cross-border e-commerce?

Babies, beauty, and healthy bodies

Maternity and infant care, as well as beauty and healthcare products have traditionally been the most popular purchases on CBEC platforms. While this trend is set to continue, consumers have shown greater interest in a diverse array of products.

In the first quarter, consumers used CBEC to purchase food, beverages, personal hygiene products, and health supplements. This fits the health and hoarding-oriented patterns seen all over the world during the early stages of the pandemic. 

Since February, imported kitchen appliances, at-home beauty devices, gaming consoles, maternity and infant care products, and beauty products were among the most popular products on Tmall Global. Sales of at-home beauty devices have grown nearly fivefold compared to a year earlier. 

What cross-border brands need to do now

• Get in on China’s big shopping festivals
  As festival-related sales have become the most important driving force for consumers to make purchasing decisions, merchants on CBEC platforms should work on designing and perfecting these campaigns to stand out among the competition.
• Work on getting private traffic on social media platforms like WeChat 
  Recommendations by family and relatives are a top incentive to make purchases. They are one of the best ways to form strong relationships with customers and fans. Garnering private traffic on social media is an excellent way to encourage recommendations. 
• Livestream. Livestream. Livestream.
  Livestreaming has taken over China and proven to be an effective channel for sales. Get a camera ready, livestream, and use short video apps to attract prospective customers.
• Smooth out shipping issues 
  The primary obstacles reported by consumers in the first half of 2020 were hassles associated with exchanges or refunds, long waiting times, and high shipping costs. Although some of these issues may be beyond the control of smaller brands and companies, CBEC merchants need to keep in mind that lowering shipping costs and improving delivery efficiency are key to survival in a cutthroat retail environment that boasts extremely fast domestic delivery times.
• Check your product offerings
  Consumers are becoming more segregated into sub-groups that show shared spending patterns and demand for specific products. Merchants need to refine and diversify their product offerings to provide more specialized products.

Looking ahead for cross-border e-commerce

Foreign businesses that have set themselves up on Chinese CBEC platforms are reaping the rewards. For example, Ryukakusan Co. Ltd., a Japanese pharmaceutical company that specializes in throat lozenges, set up a store on Tmall Global in August 2019. Before the outbreak of Covid-19, their main source of sales to Chinese consumers was through local drugstores in Japan. With Chinese consumers no longer able to travel to Japan, Ryukakusan’s Tmall Global store now generates over RMB 1 million in sales per month. Over the past three months, the company’s Tmall Global store has seen its revenue more than double.