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How to Sell in China: Top 3 China Cross-border E-commerce Platforms

Dragon Social > Doing Business in China  > China Market Insights  > How to Sell in China: Top 3 China Cross-border E-commerce Platforms

How to Sell in China: Top 3 China Cross-border E-commerce Platforms

With increasing digitalization, cross-border e-commerce (CBEC) is booming globally and has become a massive factor in the growth of the global economy. An increasing amount of people are shopping online across borders, especially in China. According to a report by McKinsey, China accounted for less than 1% of the value of worldwide e-commerce transactions only about a decade ago, while the share now has grown to more than 40%!

 

 

Such substantial growth reveals a great market opportunity in China. As of 2018,  China’s cross-border e-commerce market reached 8.8 trillion yuan in total transaction value, over 20% of which are import e-commerce sales!

 

 

China Cross-border e-commerce platforms have become highly popular among consumers as major channels to buy authentic foreign goods. It is exciting news for foreign businesses as cross-border e-commerce is an efficient way to get a slice of the China retail market without actually setting up an offline store in the country.

 

 

In this article, we’ll talk about some must-know rules and regulations, as well as introduce the top 3 China cross-border e-commerce platforms. Hopefully, this article will help you get the most out of the flourishing China cross-border e-commerce market!

 

 

 

Table of Contents

 

 

Overview of China’s Cross-border Ecommerce Market   Read Now

 

 

Must-know China Cross-border E-commerce Rules for Foreign Players   Read Now

 

Q1: What products can be shipped to China?

Q2: How can my commodities be shipped?

Q3: How is the currency conversion handled throughout cross-border trade with China?

Q4: Are there any rules and regulations related to China cross-border e-commerce?

 

 

The Top 3 China Cross-border Ecommerce Platforms   Read Now

 

#1: Tmall: The Biggest Player Backed by Alibaba

#2: Kaola: Direct Selling of Authentic Goods

#3: XiaoHongShu: Content-driven Platform for Beauty Lovers

 

 

 

Overview of China’s Cross-border Ecommerce Market 

 

 

China’s Internet population has passed a prominent milestone. According to China Internet Watch, as of December 2018, the total number of internet users in China has reached 829 million, which occupies 59.6% of the total population. Comparatively, the United States has around 300 million internet users. Interestingly, 98.6% (816.98 million) used mobile devices to access the internet. This illustrates that Internet and Mobile technology has become an indispensable facet of Chinese people’s everyday life, providing a fertile breeding ground for e-commerce business.

 

 

With technology advancement, it was reported that as of December 2018, the number of China’s online shoppers has increased 14.4% year-on-year to hit 610 million! From another perspective, it means that around 73.6% of China’s online population shop online! Aligned with the mobile penetration rate, over 592 million people shop via mobile devices – indicating the importance of a mobile-friendly e-commerce platform for brands.

 

For more on China’s Online Shopping Apps, check out the article below:

 

Top 5 China Shopping Apps: China Ecommerce Trends

 

Mobile users in China Internet population | Dragon Social

Mobile users in China Internet population

 

 

Given the large number of online shoppers, the trend of China cross-border e-commerce transactions is also worth noticing. With rapid economic growth and higher disposable income, people in China are demanding high-quality products and a broader selection of goods and services.

 

 

Also, the concerns towards safety and quality issues of domestic products are also pushing consumers to look abroad for brands with a good reputation and a focus on quality. According to China Internet Watch, the China cross-border e-commerce retail import market is valued at 620 billion yuan (US$96.98 billion) in 2019

 

 

China cross-border ecommerce retail imports market | Dragon Social

China cross-border ecommerce retail imports market

 

 

Digging deep into insights about China’s cross-border online shoppers, a majority of them (76.8%) aged between 18-34. Besides, most of the online shoppers are highly educated with over 61% own a degree or above. Around 47% of them receive a high salary with over 10,000 yuan monthly income. Foreign brands can expect that they are mainly selling to relatively young, high-end consumers.

 

 

Demographic distribution of China cross-border ecommerce customers | Dragon Social

Demographic distribution of China Cross-Border E-commerce customers

 

 

Talking about which type of products are on top of the list of China online consumers, “Cosmetics & Personal Care”, “Health Supplements & Food” and “Maternal Child” are the three main categories for imported goods. According to the sales value on Tmall Global, cosmetics saw the highest growth in 2016 while home appliances rose fastest in 2018. Overall, consumers’ demand for imported goods has been shifting from fulfilling daily necessities to improving quality of life. 

 

 

Must-know Cross-border Ecommerce Rules for Foreign Players 

 

 

Supported by advanced technology, selling your products through China cross-border e-commerce platforms may be more cost-effective than traditional models (setting up brick-and-mortar stores, independent online platforms, etc.). Still, operation details such as laws and regulations, payment and logistics issues may be confusing for new players.

 

 

Q1: What products can be shipped to China?

 

 

The first and foremost question that you must consider is – Is it legal to ship and sell your products in China via cross-border e-commerce? In 2018, 13 ministries and commissions of China including CFDA, MOF, GAC, etc. co-released the updated version of “Positive List for Commodities Traded through Cross-Border E-Commerce (2018)”, under which 63 new items categories were added to the positive list for cross-border trade, while the 2016 version was abolished.

 

 

Check the Chinese version of the list here:

 

 

Positive List for Commodities Traded through Cross-Border E-Commerce (2018) 

 

 

For those who cannot read Chinese, thankfully, the EU SME Center has translated the list into English. You can find the list here

 

 

The list goes on for nearly 100 pages, so read it carefully!

The list goes on for nearly 100 pages, so read it carefully!

 

 

The positive list is very long with around 1,321 types of commodities, but generally includes product categories such as:

 

 

  • Fashion and Apparels (Footwear, Accessories, Dresses etc.)
  • Food and Drinks (Seafood, Fruit, Dairy products, Coffee, Juice etc.)
  • Furniture and Machinery (Keyboards, Fans, Laser printers, Chandelier etc.)
  • Supplements (Coenzyme Q10, Vitamin C & its derivatives, linolenic acids etc.)
  • Sports and Activities Equipment (Basketball, Fishing Rods, Skateboards etc.)

 

 

As the list greatly influences overseas businesses’ e-commerce operations in China, make sure that you have gone through the list before you make any significant investment. If you have enquiries about products that can be sold to China, please feel free to contact us for detailed information!

 

 

Q2: How can my commodities be shipped?

 

 

For retailers or brands who would like to expand their business through China cross-border e-commerce there are two major shipping models that they can consider, the bonded warehouse and direct shipping.

 

 

A Bonded warehouse is a secured area in which dutiable goods may be stored, manipulated, or undergo manufacturing operations without payment of duty. Imported goods can be temporarily stored in the domestic bonded warehouses, and be delivered to customers after customs clearance once an order is placed. This shipping model is beneficial as tax is paid only after the commodity is sold. Besides, the shipping process is also very quick, meaning that it requires about the same delivery time as domestic goods, ensuring a good customer experience.

 

 

The process of Bonded Warehouses | Dragon Social

The process of Bonded Warehouses

 

 

Another option would be direct shipping from overseas to China, this is a cost-effective method for merchants who would like to test the market with a small number of products. Products would be stored in overseas warehouses, and shipped directly to China after an order is placed.

 

 

The process of Direct Shipping | Dragon Social

The process of Direct Shipping

 

 

Although direct shipping seems more secure as a product is shipped overseas only if it is sold, it takes a much longer time to deliver products to the end-users in China, as it is shipped from overseas and involves a more complicated customs clearance procedure. While bonded warehouses can ensure customers enjoy the same delivery experience as if they are purchasing from domestic online retailers.  Also, the policy of return & exchange of products can be more easily implemented through the bonded warehouse model.

 

 

To get your products shipped in China, you can either develop your own logistics network (which is extremely difficult) or rely on 3rd party logistics providers or e-commerce platforms that you are cooperating with. Many well-established logistics providers handle import inspections and customs clearance, warehousing space, order management services, and other services to their clients.

 

 

Also, many of China’s e-commerce giants provide various modes of warehouse and logistics support for overseas partners. For example, Tmall Global’s “Tmall Overseas Fulfillment” allows new merchants to send a small number of commodities to Alibaba’s overseas warehouses, which would then be shipped to China (managed by Alibaba) after an order is placed.

 

 

Outsourcing to 3rd party logistics providers or e-commerce platforms is beneficial as you can leverage on their experience and expertise to ensure smooth delivery, at the same time save time and cost for yourself.

 

 

Q3: How is the currency conversion handled throughout cross-border trade with China?

 

 

With the rise of online payment, several payment institutions have been flourishing in China. The most notable ones would be Alipay (Alibaba) and WeChat Pay (Tencent). According to Alipay and Tenpay’s official statement, in terms of mobile payment, WeChat Pay recorded 460 billion annual transactions in 2018, while Alipay only recorded 197.5 billion transactions.

 

 

In total, they have reached a penetration rate of 93.3%. Therefore, merchants are highly recommended to use these two payment platforms to leverage the potential of their large-scale user base.

 

 

WeChat Pay and Alipay | Dragon Social

WeChat Pay and Alipay

 

 

So how does cross-border payment work?

 

 

  1. Chinese customers pay in RMB.
  2. Payment companies (Alibaba, Tencent, etc.) collect RMB payment and buy foreign currency at the spot exchange rate.
  3. The amount will be sent to the payment companies’ overseas accounts.
  4. A transfer will be made to the merchant’s receiving bank account during settlement.

 

The process of cross-border payment | Dragon Social

The process of cross-border payment

 

 

Merchants can choose which type of currency they would like to receive from the list provided by the payment companies. For example, WeChat Pay Global supports 16 currencies including GBP, HKD, USD, JPY, CAD, AUD, and EUR. For unsupported currencies, transactions would be made in US dollars.

 

 

Payment settlement details of WeChat Pay and Alipay | Dragon Social

Payment settlement details of WeChat Pay and Alipay

 

 

To apply for a WeChat Pay/ Alipay cross-border payment account, merchants should possess:

 

 

  • A valid business license
  • A valid URL/app for implementation.
  • Basic information about your company (industry, company name, register country/region, address, contact person, and contact information, etc.)
  • ID certificates of Legal Representative and Shareholder.

 

For details about how to open an account on Alipay Global, please check here, for WeChat Pay Global, please check here

 

 

Q4: Are there any rules and regulations related to China Cross-Border E-commerce?

 

 

With an increasing number of Internet giants and traditional retailers setting up their own CBEC businesses in China, the government has tried to be as supportive as possible to encourage further investment in the country. So far the government h has rolled out a number of favorable policies since 2012 to regulate CBEC and allow it to grow. Let’s walk through the important changes in policy in recent years.

 

 

Expanded Product Range and Higher Purchase Limit

 

 

As mentioned previously, as of November 2018, the Ministry of Finance (MOF) and several other authorities jointly issued the Announcement on Adjusting the List of CBEC Retail Imports and the List of CBEC Retail Imports (2018 Version).

 

 

The positive list contains at least 60 more goods than were on the preceding version, including high-demand goods such as wine and fitness equipment. These retail imports would be eligible for the preferential policies set out by the government.

 

 

Besides, The MOF, the GAC and the State Administration of Taxation (SAT) also issued the Circular on the Improvement of Tax Policies on Cross-Border E-Commerce Retail Imports, raising the cut-off amount for tax-free cross-border purchases from RMB 2,000 to RMB5,000 for single transaction, while the annual per person limit will be increased to from RMB 20,000 to RMB 26,000. Within these limits, orders are eligible for a 0% tariff, 70% of the import value-added tax (VAT) and 70% of the consumption tax (also known as integrated tax for CBEC).

 

 

The formula of the integrated tax for CBEC:

[(Consumption Tax rate + VAT rate) / (1 – Consumption Tax rate)] x 70%

 

 

Example of CBEC integrated tax calculation | Dragon Social

Example of CBEC integrated tax calculation

 

 

If the dutiable value of an item exceeds RMB 5,000 for a single transaction but is below the annual limit of RMB 26,000, it may still be imported via the standard China cross-border e-commerce retail channels. The item will be subject to import tariffs, VAT and consumption tax at the standard rate and the transaction value will count towards the annual limit. If the total value of transactions in a given year exceeds the annual limit, this issue will be handled under general trade import terms.

 

 

The new measures took effect on 1 January 2019, which opens up the cross-border market for luxury retailers who are selling high-end products. By increasing the transaction value and widening the product scope that is favorable to the CBEC preferential policies, Chinese consumers now have greater access to a range of different foreign products.

 

 

Lowering VAT and Personal Postal Articles Tax

 

 

As of March 2019, The Ministry of Finance, GAC, and SAT issued the Announcement on Policies for Deepening VAT Reform, announcing a slew of new tax policies which took effect from 1 April 2019, latest updates include:

 

 

  • Reducing the VAT levied on imported goods from 16% to 13%. 
  • For goods on the positive list ordered via CBEC platforms, the integrated tax rate was cut from 11.2% to 9.1%. 

 

 

The government did not lower consumption tax, which means consumers still have to pay for consumption tax on CBEC imported products including high-end skincare and cosmetics (15%), fine jewelry (10%) and red wine (10%). For tax rates in different product categories, please check the list here (in Chinese).

 

 

Apart from selling through mainland CBEC platforms, businesses may also choose to sell goods on overseas websites for mainland consumers shopping online. The goods enter China as personal postal articles and customs levies import duty (also known as Personal Postal Articles Tax) on the imports.

 

 

Haitao.com links Chinese shoppers to foreign ecommerce websites | Dragon Social

Haitao.com links Chinese shoppers to foreign ecommerce websites

 

 

The difference between levying Personal Postal Articles Tax and integrated tax for CBEC is that integrated tax for CBEC is based on the unit buying price of the goods while Personal Postal Articles Tax is based on their dutiable value. Dutiable value is calculated on the basis of the transaction price appraised by Customs, which includes the price of the goods and packing, shipping, insurance, and other fees. Customs will levy Personal Postal Articles Tax on personal imports according to their dutiable values and tariff rates specified in the Schedule of Dutiable Values of Personal Imports of the People’s Republic of China

 

 

The maximum value of personal imports is RMB 800 if posted through Hong Kong, Macao and Taiwan and RMB 1,000 if posted from other countries. Goods exceeding the maximum value must be returned to the consignor or clear customs according to existing regulations. On the other hand, the import levy will be waived by Customs if the duty payable does not exceed RMB 50.

 

 

In April 2019, the State Council issued the Circular of the State Council Customs Tariff Commission on Issues Concerning the Adjustment of Import Tax on Personal Effects, which affects the Personal Postal Articles Tax as below:

 

  • Tax rate was reduced from 15% to 13% on imported food and medicines
  • Reduction from 20% from 25% on goods such as textiles and electrical appliances.

 

 

Example of personal postal articles tax calculation | Dragon Social

Example of personal postal articles tax calculation

 

 

The reduction of tax greatly encourages China cross-border e-commerce transactions, as it benefits both goods purchased via local CBEC websites or other overseas e-commerce sites.

 

 

New China Cross-border E-commerce Pilot Zones 

 

In 2018, the State Council approved the establishment of a further 22 Cross-border Ecommerce Pilot Zones across the country, in addition to the 15 existing sites set up since 2015. The pilot zones would be benefited the new regulations and the preferential tax policies, also with streamlined logistics, storage and customs clearance procedures in a bid to optimize the level of imported premium and everyday goods.

 

 

The full list of cities covered by the pilot zone program:

 

Beijing, Tianjin, Shanghai, Tangshan, Hohhot, Shenyang, Dalian, Changchun, Harbin, Nanjing, Suzhou, Wuxi, Hangzhou, Ningbo, Yiwu, Hefei, Fuzhou, Xiamen, Nanchang, Qingdao, Weihai, Zhengzhou, Wuhan, Changsha, Guangzhou, Shenzhen, Zhuhai, Dongguan, Nanning, Haikou, Chongqing, Chengdu, Guiyang, Kunming, Xi’an, Lanzhou, Pingtan

 

 

The introduction of the CBEC new policies facilitates further growth and development of the market. With more business support and lenient regulations, overseas merchants should grab the chance to explore the prosperous China consumer market.

 

 

 

The Top 3 China Cross-border Ecommerce Platforms

 

 

With all the boring tax stuff out of the way let’s get to the top 3 China Cross-Border E-Commerce Platforms! As a booming e-commerce market, there are many cross-border e-commerce platforms in China selling overseas products to Chinese consumers. The major players include Tmall Global, Kaola and JD WorldWide.

 

 

 

 

In 2019 Q1, Kaola (27.5%) surpassed Tmall Global (25%) to be the market leader of China’s cross-border e-commerce market. Other prominent platforms include JD Global (13%),  VIP Global (9.2%) and XiaoHongShu (6.5%).

 

 

China cross-border e-commerce platforms offer different cooperation models for businesses with different needs. For example, brands can open a 3rd party flagship store, or simply supply products to the platform without setting up a brand name store.

 

 

Some platforms like Tmall Global are difficult to enter as they mainly invite well-established, high-end brands. While Kaola also accepts factory suppliers that sell fast-moving consumer goods (FMCG). Below we’ll introduce the 3 most popular cross-border e-commerce platforms in China.

 

 

#1: Tmall Global: Market Leader Backed by Alibaba

 

 

Tmall Global's logo | Dragon Social

Tmall Global’s logo

 

 

Tmall (Chinese:天猫), introduced by Alibaba, is a website for business-to-consumer (B2C)/ wholesale (B2B2C) online retail in China. Unlike its counterpart Taobao which focuses on C2C retail, Tmall specializes in selling branded commodities from international brands. Through selling authentic and high-quality goods, Tmall has established itself as the destination for quality, brand-name goods catering to increasingly sophisticated Chinese consumers.

 

 

Tmall has two extensions, the domestic version, and Tmall Global. The domestic version is only for companies with a China business entity, with operations and stock held in China. Companies with overseas licenses (including Hong Kong, Macau and Taiwan) are eligible for Tmall Global, a marketplace designated for cross-border e-commerce. It is a premier platform for foreign brands and retailers to reach Chinese consumers without setting up on-the-ground operations in the country.

 

 

Tmall Global's website | Dragon Social

Tmall Global’s website

 

 

Being one of the largest China cross-border e-commerce platforms, Tmall Global currently hosts more than 20,000 brands in over 4,000 categories from 77 countries and regions. The number has been increasing year on year as T-Mall Global invites more and more brands onto the platform. In 2018 alone the marketplace introduced 122% more overseas brands, over 80% of which entered the Chinese market for the first time. To further attract foreign brands, Alibaba launched an English-language portal in 2019, which aims at assisting merchants with tasks such as opening shops on Tmall Global.

 

 

To launch a store on Tmall Global, brands can choose from 3 main business models, which are Tmall Overseas Fulfillment, Tmall Direct Import, and Tmall Global Flagship store.

 

 

Tmall Overseas Fulfillment (TOF) works for brands with lower brand engagement to test the waters with relatively low risk. It applies a direct import consignment model by allowing brands to place a small batch of products at the nearest Tmall Global fulfillment center for sale on the platform.  Imported goods can be stored without import duties until the items are dispatched, thus reducing the cost for vendors. This approach allows brands to fine-tune their product selection for the market without the need for a physical retail presence in China or significant investment in developing a logistics network.

 

 

Tmall Overseas Fulfillment process | Dragon Social

Tmall Overseas Fulfillment process

 

 

In addition, brands and suppliers can participate in Tmall Global’s new Centralized Import Procurement program (CIP), which leverages six warehouses around the globe to source goods for all of the online and offline outlets within the Alibaba ecosystem, including technology-driven grocery chain Freshippo (also known as “Hema” in Chinese) and Tmall Supermarket. Similar to TOF, this program is another efficient way for international brands to penetrate the Chinese market.

 

 

To support these new initiatives, Alibaba’s smart logistics network, Cainiao, will continue to expand its network of bonded warehouses in China, aiming to triple its total size to three million square meters in three years.

 

 

Another option is Tmall Direct Import (TDI), which works like a wholesale (B2B2C) model.  Under this model, The TDI team would purchase products from brands/suppliers and sell them on Tmall’s direct import store. Unlike TOF which places unsold products in overseas warehouses, the selected products will be shipped in bulk directly to bonded warehouses in China. 

 

 

Tmall Direct Import process | Dragon Social

Tmall Direct Import process

 

 

The last business model is the Tmall Global Store (TMG).  These are extremely popular among global brands that already have a recognizable brand in China. Participating brands can manage their own flagship store on Tmall Global through the help of a Tmall Partner (3rd partner professional service company approved by Tmall).

 

 

Tmall Global store application orocess | Dragon Social

Tmall Global store application process

 

 

The TMG model is attractive as it is a self-managed flagship style business where the brand can use the store to promote new products and drive traffic to its top sellers. It allows more brands to customize their storefront, allowing them to optimize the page to the best of their ability and maintain their brand image.

 

 

Among the three business models, the TMG provides more autonomy as brands can co-manage their sales and marketing efforts on Tmall with their Tmall Partners. While for TOF and TDI models, sales and marketing are managed by Tmall’s TOF category team and TDI operations team. Ultimately, the TMG model gives brands more autonomy and the ability to control their store as opposed to the other models.

 

 

Kiehl's flagship store on Tmall Global | Dragon Social

Kiehl’s flagship store on Tmall Global

 

 

Within Tmall Global Stores, there are also a few categories. Merchants can either open a Flagship store, Specialty Store or an Authorized Store on Tmall Global depending on their business nature, and submit relevant documents for authentication. For details (fees, procedures, documentation, etc.) about opening a Tmall Global store, please check here. Now let’s go over the different type of stores: 

 

  1. Flagship Store: Tmall Global allows foreign merchants to sell directly to consumers without a Chinese business entity. Since 2015 brands are required to work with authorized service providers, or “TPs” to gain access to the platform. TPs help foreign brands to open their Tmall store. Upon engaging a TP a brand can have its store opened within 4-8 weeks. TPs handle daily store operations while brands are responsible for branding and marketing their products (however in many cases brands also outsource to their TPs as well).
  2. Specialty Store – This type of store exists for merchants who have been given distribution rights from foreign brands to sell their products in China. The merchant is only able to sell products in up to two categories under this model, making it more restrictive than a flagship store.
  3. Authorized Store – Authorized stores are often called “multi-brand” stores. Authorized stores can sell multiple products in a range of different categories but must receive the rights to sell the products from brand owners.

 

 

Requirements for opening a Tmall Global store

 

 

Since its launch in 2014, Tmall Global has evolved to become the top-of-mind platform for Chinese consumers to purchase imported products. During the Tmall Global merchant summit 2018, Alibaba pledged to bring international goods worth US$200 billion in China over the next five years, which underscores the giant’s ambitions to further globalize and narrow the gap between China’s consumers and international brands.

 

 

#2: Kaola: Direct Selling of Authentic Goods

 

Kaola's logo | Dragon Social

Kaola’s logo

 

 

Kaola, was launched in 2015 by Nasdaq-listed NetEase, and is another of the larger China cross-border e-commerce platforms. It focuses on the direct selling of high quality and authentic commodities from around the world to Chinese customers. Compared to Tmall which focuses more on high-end, well-established brands with difficult entry requirements, Kaola is more “Brand-Friendly” as it welcomes more ordinary brands.

 

 

Kaola currently cooperates with more than 5,000 brands from 80 countries covering maternity and infant care, personal care, health care, household appliances and other categories. As of 2018, the platform’s net income was 19.2 billion yuan, an increase of nearly 64% compared to 2017. In 2019, Kaola has been vigorously expanding into the field of Women’s Fashion, Men’s Fashion and Sports & Outdoors products.

 

 

Example of partner brands of Kaola | Dragon Social

Example of partner brands of Kaola

 

 

So how does Kaola stand out from other big competitors like JD and Tmall? The first differentiator is its focus on authenticity and quality assurance. Kaola works under a direct procurement model, meaning the company has established overseas offices in countries like the US, Japan, and Australia, to ensure it gets its products straight from the source!  It helps to bypass intermediaries and minimize the risk of selling counterfeit goods, as well as lowering the cost and thus the selling price. Customers can even trace the supply chain back to where the product comes from through a QR code placed on the product. Kaola is so confident in its model that it offers anyone who receives a counterfeit 10 times the value of their reimbursement.  Also, you can choose to return and get refunded within 30 days after purchase.

 

 

Apart from that, Kaola holds a “Cheaper than Abroad” promise that it operates with preferential policy for postage and tax, such as having warehouses in free-trade zones. Besides, it offers various promotions including daily deals, membership deals, special coupons and more, which attracts a lot of Chinese consumers looking for affordable foreign goods.

 

 

To accommodate such a large number of commodities, Kaola has more than 150,000 square meters of bonded warehouses in Hangzhou, Zhengzhou, Ningbo, and Chongqing, ranking first in the industry. In the future, Koala will open bonded logistics centers in South China, North China, and Southwest China.

 

 

On top of that, Kaola has also gotten in on the trend of social e-commerce by having an online community called  “种草社区” (Zhǒng cǎo shèqū). This community enables users to leave comments or get advice about different products. Articles cover topics including fitness, tourism, food, lifestyle, fashion and so on. As Chinese people rely a lot on peer-to-peer advice, it is beneficial for e-commerce platforms to build an online community to increase conversion rates.

 

 

User interface of Kaola's online community | Dragon Social

User interface of Kaola’s online community

 

 

To get your products sold on Kaola, merchants must possess legitimate corporate entities, valid brand authorizations, and good credit standing and operating status. There are mainly three modes for entry, namely “POP Merchant”, “Proprietary Supplier” and “Factory Shop” cooperation process.

 

 

The POP Merchant model means setting up a 3rd party store on Kaola. With this model, merchants can make use of Kaola’s website and sell directly to Chinese consumers. The “Proprietary Supplier” and “Factory Shop” cooperation process work as a direct procurement model. Kaola would purchase products in bulk from merchants directly and help with brand marketing, packaging and operation (unified customer service and after-sales service on the platform).

 

 

To learn more about how to get started on Kaola, visit Kaola’s merchant portal to understand the requirements for entry.

 

 

In view of Kaola’s great market share and growth potential. As of Sep 2019, Alibaba acquires NetEase Kaola in a deal worth $2 billion. Upon completion of the deal, NetEase Kaola has changed its official name to Kaola Haigou. The platform will be integrated into the Tmall Import and Export Business Department, but the Kaola brand will remain separate and be run independently. Still, the merger of the two biggest players in the industry has resulted in the creation of the largest cross-border e-commerce platform in the China market.

 

 

#3: XiaoHongShu: Content-driven Ecommerce Platform for Beauty Lovers

 

XiaoHongShu's logo | Dragon Social

XiaoHongShu’s logo

 

 

Launched in 2013 by Miranda Qu and Charlwin Mao, XiaoHongShu, literally the “Little Red Book”, is a social e-commerce app with over 250 million registered users as of 2019. With a focus on beauty and fashion, it acts as a platform for people to post and share shopping tips, product reviews, and lifestyle stories. With the aim of authentic information sharing, the platform has successfully developed into a trusted source of advice and recommendations for its mainly female users.

 

 

Noticing users’ demand for buying foreign goods, XiaoHongShu launched its own China cross-border e-commerce platform, the “RED store” in 2014. It connects Chinese consumers with global brands by enabling users to buy overseas products directly through the app. Since then, XiaoHongShu has formed strategic partnerships with many overseas brands including Lancôme, Swisse, and Innisfree (Brands can open a brand account/digital store on XiaoHongShu). As of 2017, the platform had reached 6.5 billion yuan sales.

 

 

L'Oréal's brand account and digital store on XiaoHongShu | Dragon Social

L’Oréal’s brand account and digital store on XiaoHongShu

 

 

XiaoHongShu has been very successful in building a community of user-generated content (UGC). It has created a shopping cycle on the platform, which users

 

  1. Read shopping guides/product reviews from other users
  2. Make a purchase through the app
  3. Publish product reviews about the product
  4. Communicate with other users about their shopping experience

 

 

With the slogan “the world’s best lifestyle at your fingertips”. XiaoHongShu ensured a high conversion rate by seamlessly integrating its online community with its e-commerce business. To expand the business and attract more partners, XiaoHongShu launched several marketing initiatives by providing traditional display advertisements and introducing an influencer marketing platform to boost KOL marketing.

 

 

To open a store on XiaoHongShu, businesses can choose from two operating models – to open a 3rd party brand store or to be a self-supplier. The former is further categorized as a flagship store, specialty store and brand collection store. Acting as a self-supplier works a lot like being a wholesaler for XiaoHongShu, in that the platform would pre-purchase products from you and sell them through their own e-commerce store.

 

 

XiaoHongShu's self-operating store “FuLiShe” (福利社) | Dragon Social

XiaoHongShu’s self-operating store “FuLiShe” (福利社)

 

 

XiaoHongShu provides customer service and full logistics support for partner brands. It has developed an extensive logistics network of 7 global fulfillment centers, 10 transportation hubs and 9 import clearance centers across 29 countries. For more details about how to market and sell on XiaoHongShu, read our article The Best Guide To XiaoHongShu Marketing: How To Sell to Gen-Z & Millenials.

 

 

Having achieved great success that quickly, XiaoHongShu also faced some major setbacks that have to be tackled to secure future growth. As of July 2019, the app was removed from the Android App Store due to government intervention. It was accused of facilitating the sale of restricted, forbidden and fake products, which included tobacco, electronic cigarettes and medicinal products such as skin-injection skits. In another incident, the platform was accused of hosting huge amounts of fake content. According to Baidu, there were over 95,000 articles related to keywords “Cigarettes”, “Smoke”, “Tobacco” etc. on XiaoHongShu. All the related content has been removed upon the outbreak of the scandal.

 

 

The incident reveals the difficulty of monitoring a large volume of content for a social platform. According to reports released in the second quarter of 2019, to rebuild people’s trust towards the platform, XiaoHongShu is actively participating in web cleanup campaign to get rid of spam, or any type of inappropriate content. However, the platform likely faces an uphill battle going forward.

 

 

Conclusion

 

 

China Cross-border e-commerce platforms have been expanding rapidly and have gradually been replacing the traditional models such as haitao or daigou (people buying a product tax-free overseas and then re-selling it in the local market). It sets lower entry standards for overseas brands to benefit from the Chinese market, as the platforms help them to develop marketing strategies,  sales channels, and product mix based on their better understanding of Chinese consumers. All of this serves to reduce the trial-and-error cost and make it easier for brands to enter the market.

 

 

However, though operation hurdles seem to be removed through outsourcing to e-commerce platforms. It is still necessary to learn about how to choose a suitable China cross-border e-commerce platform for your business, as well as understanding local laws and regulations, product and marketing issues, payment conditions and logistics limitations to make wise decisions. If you’re interested in selling your products in China and are looking for some help, shoot us an email and we’d be happy to discuss with you!

 

 

Dragon Social is a China Digital Marketing Agency dedicated to providing expert solutions to businesses around the world! Our team of professionals will take a deep dive into your business and determine the optimal channels and strategies for promoting your business in China, so be sure to contact us for a free consultation!

 

 

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Vanessa Wan

A girl from Hong Kong specializing in marketing and studying at HKUST. She loves yoga, drama and literature. Currently working with Dragon Social's content marketing team.

3 Comments
  • مهرجانات
    Reply
    Posted at 7:37 am, November 2, 2017

    Hello,I read your blog on a regular basis.Your writing style is awesome, keep it up! مهرجانات.

  • Kevin Khuu Yau
    Reply
    Posted at 12:54 am, October 25, 2019

    Vanessa, it very informative and thank you for sharing

  • anica
    Reply
    Posted at 5:15 pm, November 1, 2019

    wow a good strategy u have…thanks for sharing..Keep up the good work and keep sharing awesome article like this.

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