As the world continues to digitalize e-commerce is booming in every market and region, to the extent that it has become a key driver of global economic growth. According to data from the World Economic Forum (WEF), the proportion of China’s e-commerce transactions in global e-commerce has increased from 1% to more than 40% over the past decade. China has rapidly becoming a leader in e-commerce. More and more overseas brands have entered the Chinese market, and e-commerce provides a relatively simple and low-risk entry to a major consumer market. Choosing an appropriate channel to distribute products to Chinese consumers is key to making full use of capital and maximizing revenue.
As a leading e-commerce corporation in China, Alibaba Group provides comprehensive market solutions. Alibaba’s TMALL is China’s largest open B2C platform which allows enterprises from all countries to enter this huge and rapidly growing consumer market. Alibaba’s Taobao mainly provides a C2C platform for the market. In addition to Tmall and Taobao, Alibaba Group also has other platforms, such as Alibaba.com (a B2B website), AliExpress (a retail website) and Alipay (an e-payment system which constitutes about half of China’s online payment market).
JD, the second largest e-commerce corporation in China, has been developing rapidly over the past few years. It is one of the leading B2C e-commerce companies in China. In addition to providing a strong B2C platform, the company also directly purchases goods from various global brands, and maintaining its own logistics team to ensure fast and efficient delivery. A large number of uniformed delivery staff is deployed all over China to deliver merchandise purchased by their customers on the platform.
Pinduoduo, the 3rd largest online platform in China provides an e-commerce platform that is quite different from Alibaba and JD by pioneering a new social e-commerce paradigm. It is based on consumer psychology by displaying lower prices and encouraging further savings through group purchases. Users share product information on social media and form groups to purchase products in bulk at the lowest possible prices before the deals expire. This kind of interactive shopping experience with relatively low pricing makes Pinduoduo a runaway success in China. Its sales revenue is second only to Alibaba and JD, and far exceeds any other China e-commerce platform.
Companies from any country can enter the Chinese e-commerce market and promote their products through online marketing platforms to local consumers. There are two basic requirements designated by the Chinese government for operating on online marketing platforms: (1) incorporate and operate under a company in China (generally a Wholly Foreign-Owned Enterprise); (2) obtain an ICP (Internet Content Provider) license.
(1) Establishment of a foreign-owned enterprise
In order to protect the intellectual property rights in the e-commerce market, from January 1, 2019, the State Administration for Industry and Commerce of the People’s Republic of China requires that all foreign companies operating on China’s e-commerce platforms must have a valid Chinese business license, which can only be obtained by registering a foreign-owned enterprise in China. Click here to learn more about registering a foreign-owned enterprise.
(2) Obtaining an ICP license
Enterprises must apply to the Ministry of Industry and Information Technology of the People’s Republic of China for ICP license before setting up a e-commerce business. This license is necessary for the establishment of a Chinese website for any purpose. The application for ICP license must be submitted through a company registered in China, and not directly through an overseas company.
The choice of marketing platform depends on the industry, the products to be sold and demographic of the target consumer.
China’s cross-border e-commerce is developing rapidly, and is gradually replacing traditional consumer behavior such as overseas shopping trips or 3rd party procurement services. Overseas companies should weigh the costs and benefits when choosing a marketing channel to enter the Chinese market. No matter which platform you choose to sell your products, you must first meet the relevant legal requirements, for example, to set up a foreign-owned enterprise in China in order to be recognized as a legal entity. We have specialized in China business setup and advisory services in for decades, and we would be happy to provide assistance along the journey as your company enter the exciting, expanding digitalize China market place.
About the Author:
Mr. Philip Yu
Mr. Yu holds a Bachelor of Commerce (Hon.) from the University of Toronto and L.L.B. (Hon.) from the University of London, and is a member of the American Institute of Certified Public Accountants, Certified Public Accountants of Australia and the Hong Kong Institute of Certified Public Accountants. Philip is experienced in handling cross border taxation issues, corporate restructuring and other cross border business solutions. He undertakes additional posts as Company Secretary, Authorized Representative and Independent Non-Executive Director for several listed companies on the Hong Kong Stock Exchange. He joined our firm in 2001 and currently the Managing Partner of the firm.
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