China’s overseas shopping movement is set to take off – but online payment options for Chinese shoppers remains the biggest obstacle.
Chinese shoppers are rushing online to buy products from overseas – a trend called “Hai Tao” (roughly translated as “Ocean Search”).
This is a significant movement, with sales from global e-commerce sites direct to China estimated to be US $300 billion by 2018, according to Alibaba.
Products from overseas have been filtering into China through a broad network of merchants and shoppers for decades, through the “Dai Gou” system, loosely translated as “buying on behalf of” – these typically hand-carried products, bought from overseas, are then sold on Taobao for the domestic Chinese market.
But now consumers in China are going directly to e-commerce sites in the U.S., the EU, and the rest of the world to find and buy products closer to the source.
The motivations are:
- to get the genuine article
- to get the best possible price
- to explore new and more novel products from a world that is opening up
China Opens Up Online
There have been a series of moves in the past few years that are propelling the growth of overseas online shopping from China. The moves are supported in large part by a government aim to increase domestic consumption. The Shanghai Free Trade Zone is the most apparent symbol of this opening up strategy, but there are several other factors supporting the “Hai Tao” movement, including the overall maturity of e-commerce in China, the growth of payment solutions (including, Alibaba’s ePass), and a growing curiosity for what the outside world holds.
The general level of development for e-commerce in China is very high and there is a comfort level and understanding for the process that has encouraged many to become more adventurous. In a recent survey by Nielsen, 32 percent of Chinese respondents said they had experience purchasing overseas goods online. A PayPal survey of six markets, including China, found cross-border shopping will grow to 130 million consumers by 2018, including 36 million from China.
Taobao’s Hold Over E-Commerce in China
Given the overwhelming dominance of Taobao (which includes Tmall) in China – and a relative lack of direct merchant sites – there is likely to also be a bit of a pent up curiosity for variety. Most brands entering the e-commerce market in China prioritize the setup of a Tmall shop over a direct, branded “.cn” site, knowing that a large percentage of e-commerce sales will move through Taobao.
Taobao is proving to be a step ahead as usual, having launched a payments and logistics solution for international e-commerce sites, called ePass, which allows Chinese consumers to pay through their Alipay accounts.
Payment solutions, or the lack of them, have been the most significant factor supporting/limiting the growth of overseas e-commerce from China. A savvy online shopper from China can navigate to find e-commerce shops online from around the world even if they do not understand the language, but it is payment methods that are becoming the defining obstacles.
The proliferation of online payment options – Alipay, China UnionPay, and Tenpay, among others – has grown steadily over the past 10 years. A 2012 Bain & Co. report found 85 percent of all shoppers in Chinause online payment methods.
The number of international credit cards held by Chinese shoppers has been slowly increasing, but should speed up as the PRC government has recently announced eased restrictions on Visa and MasterCard. While the total penetration rate of international credit cards in China is still very low, the younger, more affluent shoppers with Visa and or MasterCard are influential. These holders of international credit cards represent the first wave of Hai Tao shoppers. Much like the practice of Dai Gou before it, though, a large number of these overseas shoppers are in fact middlemen (with shops on Taobao for instance).
Strategies for Selling Into China
There are a number of global e-commerce players who have been leading the way in selling direct to China, including iHerb, Revolve, COSME-DE.COM, Shopbop, and Ashford. These sites have added a few key elements, which make them accessible and appealing:
- Chinese language interfaces
- Chinese-International payment systems (Alipay, Tenpay, China UnionPay)
- Optimized deliveries for China (for drop shipping and/or local deliveries)
That still leaves a big gap in building awareness and trust in China, which needs to be solved through marketing and communications.
The gap between the Chinese digital ecosystem and the ecosystem outside is formidable. There just isn’t much carry-over for marketing and advertising done at a local, regional, or global level. Even very large e-commerce merchants have little-to-no awareness in China, except with resellers.
It is interesting to note that a few informational sites have been popping up in China to better facilitate cross border shopping. Sites like SMZDM.COM and 123HAITAO.com provide listings of international websites and tips on how to shop and pay for products overseas. These sites are helping to solve a basic problem of awareness for global merchants but the marketing needs are much more extensive, requiring an approach which resonates locally and ultimately creates a sense of closer engagement.
Without some engagement of marketing efforts, it’s likely that the average online shopper in China is going to be left feeling a bit cold by the whole experience.
Overall, it appears that we are at the very early stages of a longer-term trend, which will see a growing number of Chinese venturing further from China (and further from Taobao), to shop. The question is, are global sites are ready to handle this movement?
As published in ClickZ