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1 December 20, 2016 Deborah Weinswig, Managing Director, Fung Global Retail & Technology [email protected] US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 Copyright © 2016 The Fung Group. All rights reserved. 6th China Cross-Border E-Commerce Conference 2016: Key Takeaways 1) 48% of the businesses surveyed showed a willingness to set cross-border e- commerce (CBEC) as a significantly greater priority in the future. 2) With the emergence of opportunities for CBEC imports, traditional retailers are leveraging CBEC to bring quality products to Chinese customers. Third-party vendors are aligning themselves with the opportunity by providing localized solutions for marketing and operations to international retailers penetrating into China. 3) The “cewebrity” economy and mobile e-commerce are two trends that will continue to propel the growth of CBEC, which international retailers wanting to penetrate the China market are recommended to utilize. Fung Global Retail & Technology attended the 6th China Cross-Border E-Commerce Conference in Shanghai, which was attended by over 500 senior executives representing over 50 e-commerce platforms. We summarize the key takeaways below. Cross-Border E-Commerce—A Logical Way To Drive Future Growth China’s cross-border e-commerce (CBEC) industry is expected to continue its spectacular growth into 2017. The conference kicked off with an overview from Rolf Visser, the Chairman and Co-Founder of Cross-Border Ecommerce Community, who presented the latest global trends. Cross-Border Ecommerce Community is a non-profit association of regional partners that conducts research and connects CBEC platforms with the aim of boosting import and export trade. Visser argues that the impact of the disruptive forces of CBEC will likely be most positive for small- and medium-sized enterprises (SME) by enabling them to enter the global value chain: In research conducted by the University of Southern California, 82% of those surveyed indicated that cross-border e-commerce will have a great impact on SMEs over the next three years. Some 48% of the businesses surveyed indicated their company’s willingness to set CBEC as a significantly greater priority in the future. CBEC is estimated to account for 21% of total global online trade.

6th China Cross-Border E-Commerce Conference … indicated that cross-border e-commerce will have a great impact on SMEs over the next three years

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1

December20,2016

DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2016TheFungGroup.Allrightsreserved.

6th China Cross-Border E-Commerce Conference 2016: Key Takeaways

1) 48%ofthebusinessessurveyedshowedawillingnesstosetcross-bordere-commerce(CBEC)asasignificantlygreaterpriorityinthefuture.

2) WiththeemergenceofopportunitiesforCBECimports,traditionalretailersareleveragingCBECtobringqualityproductstoChinesecustomers.Third-partyvendorsarealigningthemselveswiththeopportunitybyprovidinglocalizedsolutionsformarketingandoperationstointernationalretailerspenetratingintoChina.

3) The“cewebrity”economyandmobilee-commercearetwotrendsthatwillcontinuetopropelthegrowthofCBEC,whichinternationalretailerswantingtopenetratetheChinamarketarerecommendedtoutilize.

FungGlobalRetail&Technologyattendedthe6thChinaCross-BorderE-CommerceConferenceinShanghai,whichwasattendedbyover500seniorexecutivesrepresentingover50e-commerceplatforms.Wesummarizethekeytakeawaysbelow.Cross-BorderE-Commerce—ALogicalWayToDriveFutureGrowthChina’scross-bordere-commerce(CBEC)industryisexpectedtocontinueitsspectaculargrowthinto2017.TheconferencekickedoffwithanoverviewfromRolfVisser,theChairmanandCo-FounderofCross-BorderEcommerceCommunity,whopresentedthelatestglobaltrends.Cross-BorderEcommerceCommunityisanon-profitassociationofregionalpartnersthatconductsresearchandconnectsCBECplatformswiththeaimofboostingimportandexporttrade.

VisserarguesthattheimpactofthedisruptiveforcesofCBECwilllikelybemostpositiveforsmall-andmedium-sizedenterprises(SME)byenablingthemtoentertheglobalvaluechain:

• InresearchconductedbytheUniversityofSouthernCalifornia,82%ofthosesurveyedindicatedthatcross-bordere-commercewillhaveagreatimpactonSMEsoverthenextthreeyears.

• Some48%ofthebusinessessurveyedindicatedtheircompany’swillingnesstosetCBECasasignificantlygreaterpriorityinthefuture.

• CBECisestimatedtoaccountfor21%oftotalglobalonlinetrade.

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December20,2016

DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2016TheFungGroup.Allrightsreserved.

• Onaverage,e-commercefirmsexportto30-40economiescomparedwith3-4economiesfortraditionalexporters.

Asdomesticmarketsmature,CBECbecomesthemostlogicalwaytodrivefuturegrowthforSMEs—firmsbenefitfromawiderreachofglobalmarketsandreducedbusinessrisks,whichleadstomarginexpansion.VisserconsidersitunlikelythattheUS,underaTrumpadministration,woulddrasticallyreducetradewithChinabyimposingtariffsof45%onimportsfromthecountry,toavoidretaliationfromChina.RetailersAndConnectedCross-BorderRetailWeattendedseveralpresentationsofbusinessesadjustingtheirmodelstocatertoconsumers’demandsunderthenewlandscape.Forexample,traditionalretailersleveragingCBECtoincreasesalestocustomers,andCBECthird-partyvendorsprovidingvalue-addedservicesforinternationalretailerspenetratingintoChina.

MetroChina—InternetPlusRetailerStrategyMetroChinahasadoptedan“InternetPlus”strategytoactivelymeetthedemandofChineseconsumersforhigh-qualityimports:

• Expandomnichannelretailing:MetroChinasellstoChineseshoppersthroughitsonlineshoppingplatformpoweredbydatatechnology.

• Poweredbyaglobalsupplychain:MetroChinaleveragesthegroup’sglobalsupplychain,whichconnectsover2,200MetrostorestodelivertoChineseshoppers.

• FurtherstrengthenitsO2Ostrategy:MetroChinafocusesonpartnershipswithqualityO2OpartnersandthedevelopmentoflocalservicesO2Oandconvenience-storeformats.

HeadquarteredinGermany,MeroGroupservicesChina,oneofitsfocusmarketsgloballythroughMetroChina.

ForSingles’Day2016,MetroChinaactivelyengagedChineseconsumersthroughlivestreamingandtargetedadvertising.Duringthepresaleperiod,Metro’soverseasflagshipstorewasrankedtenthamongTmall’shealthyfoodmerchants.

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December20,2016

DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2016TheFungGroup.Allrightsreserved.

Figure1.MetroChinaOnline—Sold-OutMerchandiseonSingles’Day2016,byTime

Source:MetroChina

Leqee—IntegratedServiceProvidertoAlignImportsWithChineseConsumers’ExpectationsLeqeeisathird-partysolutionsproviderforCBECanddigitalmarketingforinternationalbrandssellingtoaChineseaudience.Leqeespecializesincross-borderconsumerimportsintoChina,focusingonbaby,foodandskincareproducts.Since2009,thecompanyprovidesaone-stope-commercesolutionforbrandstargetingChineseconsumers,includingchanneldistribution,integratedgloballogistics,big-dataservicesande-commerceplatformoperations.Leqee’spartnersincludeNestle,Heinz,Kanebo,Unilever,Dove,etc.

Figure2.ConsumerTrendShifttoQuality-CentricfromPrice-Centric

Source:Leqee,KantarRetail

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December20,2016

DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2016TheFungGroup.Allrightsreserved.

Leqeeclaimedthatcewebritiesplayasignificantroleincross-bordere-commerceastheyfacilitateconsumers’productdiscoveryandconversion.Inidentifyingproductopportunities,CBECretailersshouldpayattentiontothefollowingprinciples:

• Identifythoseproductsthathavethepotentialtogoviralwhenspreadbycewebrities.

• Engagecewebritiesinproductpromotion,viapopularWeChatofficialaccounts,Weibo,B2Cplatformsandonlinecommunities.

• Operatesustainablyandrespectconsumers.

Figure3.Leqee—2015WyethCBECExpansionInitiative

Source:Leqee

Rkylin—CBECasAnotherAvenueforForeignBrandstoSelltoChinaRkylinisanotherintegratedserviceproviderforCBECimporterssellingtoChina,withservicescoveringstorage&logistics,operationsanddistribution.Specifically,thecompanyhelpsforeignbrandssucceedinChinainthefollowingareas:

• Improveproduct-managementoperations:RkylinadvisesinternationalretailersonpricingandmarketingstrategyinChina,productandevent-pagedesign,promotionsandcustomerservice.

• Customizedservices:Rkylinhelpsretailerssetuptheirofficialwebsite,provideonlineintegratedmarketingservices,O2Osolutionsandacustomizedclient-relationshipmanagement(CRM)service

• Channeloperationservices:RkylinhelpsinternationalbrandsmanagethesupplyandsalesofmerchandiseoncommonlyusedB2BandB2CplatformsinChina.Rkylinalsoprovidesafter-salessupport,includingcollectionandshipment,customsclearanceanddeliveryservices.

YingZhou,Rkylin’sCEO,claimsthatCBECenablesinternationalretailerstoselltoChina’smarketefficientlyandatalowcost.However,healsopointedoutthreecommonchallengesthatforeignbrandsfaceinsellingtoChinathroughCBEC,namely:1)thecomplexityofmultiplevaluechainsforCBECinChina;2)fragmentedchannels;and3)brandbuildingandraisingcustomers’awareness.

5

December20,2016

DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2016TheFungGroup.Allrightsreserved.

Figure4.TimelineofChina’sCBECIndustry

Source:Rkylin

ZhououtlinesfourstepsforinternationalretailerstopenetrateintoChineseonlineshopping:

1) TestChineseconsumers’reactiontoaninternationalbrandandproductviakeywordsearchindex(whichshowshowwellabrandisremembered),theclickrateofbrandwords(whichshowshowinterestedconsumersareinabrand),productsales(whichshowshowpopularaproductistoconsumers).

2) OpenaTmallinternationalflagshipstore,whichprovidesopportunitiesfortrial-and-errortestingandacquisitionoffirst-handfeedbackfromconsumers.

3) StartdistributingonTaobao,inordertogainmoreexposureandmaximizepotentialforlow-costbrandingandcoverage.

4) Distributeonacross-borderthird-partyplatform,suchasJD,Kaola,Vipshop.

5) TransitiontogeneralimporttradefromCBEC,which,accordingtoRkylin,canpotentiallyexpandthemarkettenfold.Thetransitionprocessincludestrademarkregistrationandathoroughcommodityinspectionprocedure.

HomeCredit—FinanceInnovationinOnlineShoppingTheavailabilityofconsumercreditwilllikelyfuelthecontinuedgrowthofCBEC,whichispreciselywhereconsumerfinanceproviderssuchasHomeCreditcomein.MartinFiala,HeadofOnlineBusinessofHomeCreditChina,sharedthecompany’svisioninprovidingsmallconsumerloansforbothonlineandofflineshoppersglobally,includingthosewhoareunbanked,i.e.withoutacredithistory.HeadquarteredintheCzechRepublic,HomeCreditisatop-rankedconsumer-financeproviderinChina.

TheonlineversionofHomeCreditChinapresentsasimpleandeasywayforconsumerstoapplyforconsumercreditandhavetheirapplicationsapprovedinreal-time,supportedbybig-dataanalyticsforriskmanagement.

HomeCreditfoundthatconsumersarewillingtospendanadditional20%–30%onmoreexpensivemerchandiseiftheyweregiventheoptiontopaybyinstallment.Theavailabilityoftheinstallmentpaymentoptionalsoincreasestherevenueofanonlineshopbyfourtimesinthreemonths.

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December20,2016

DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2016TheFungGroup.Allrightsreserved.

Figure5.HomeCreditChinaOnlineProducts

Source:HomeCredit

MobileE-CommerceTrendShowsNoSignOfSlowingAppAnnierecommendedthatbothcross-borderanddomesticretailersalikewillneedtocompeteinthenewretailingenvironmentbyprovidingmoreoptionsforconsumers,inparticular,inmobilee-commerce.

AppAnnieemphasizedthatretailersshouldimprovetheuserexperienceofmobileapps,enhanceinteractionwithappusersforbetterengagementandincreaseloyalty.Moreover,mobileappsthatfeaturecross-industrycooperationhavethepotentialtoleadtoawin-winoutcome.AsuccessfulexampleisthecollaborationbetweentheinternationalrestaurantchainMcDonald’sJapanandPokémonGo—theMcDonald’sJapanappwasthetoprankedmostfrequentlyusedappamongPokémonGoplayers,whilethePokémonGoappwasranked#1asthemostfrequentlyusedgamingappamongtheappusersofMcDonald’sJapan.

Figure6.Cross-IndustryCollaborationofMobileApps

Source:AppAnnie

7

December20,2016

DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2016TheFungGroup.Allrightsreserved.

ConclusionInsummary,thetonesharedbyspeakersattheannualCBECconferencewasgenerallyoneofoptimism,ascross-bordere-commerceisexpectedtogrowsustainablyagainstthebackdropoftheslowingphysicaleconomy.OurmostimportanttakeawaywasthebroadspectrumofservicesthatwereavailabletointernationalretailerswhoareseekingtoimportintoChina—rangingfromprovidersofintegratedsolutionstoconsumercredit—toincreasetheappealoftheirgoodstoChineseonlineshoppers.

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December20,2016

DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2016TheFungGroup.Allrightsreserved.

DeborahWeinswig,CPAManagingDirectorFungGlobalRetail&TechnologyNewYork:917.655.6790HongKong:852.6119.1779China:[email protected]

IvyHuangResearchAssistant

HongKong:8thFloor,LiFungTower888CheungShaWanRoad,KowloonHongKongTel:85223004406London:242–246MaryleboneRoadLondon,NW16JQUnitedKingdomTel:44(0)2076168988NewYork:1359Broadway,9thFloorNewYork,NY10018Tel:6468397017