You’ve spent thirty years doing the gruelling work as an American building an import business in China, that is to say a wholly owned subsidiary that follows the rules, pays the taxes and distributes in China.
I told you not to do that. For forty years I told you!
With the Shanghai “Free Trade Zone” anyone in USA can sell your product from USA direct to your customers in China, and not worry about the VAT, import tax limited to 10% max, and Chinese labelling, nutrition fact slabelling, Chinese standards for ingredients and additives waived, no certification on orgainic and such, nor claims qualifications on food and biodynmaics. All is waived.
If someone is not going around you with your products, then your competitors have a fast lane to your customers with theirs.
I told you, don’t do it. Just get a Chinese importer as a customer, and forget trying to set up a biz in China yourself.
I learned of the Shanghai Free Trade Zone (FTZ) innovation in logistics at a conference on selling into China last week, and the various companies which are concentrating on this effort. Of course many Alibaba (with which you ought NEVER do business or use) units are in on it, as well as Walmart, Amazon and Costco.
So here is the offer: easy access to vast Chinese markets, throw rules and regs out the window, and do it your way: sell direct from USA, warehouse in Shanghai and sell direct out of your China-based stock, or sell to Chinese company that retails your product. You name it, they will facilitate it. Have it your way. And finally, you can control your product, eliminate the problem of trade mark violation. Buyers know via the Shanghai FTZ they are buying the real McCoy.
Now, there are some set up fees, transaction fees, some initial permissions, but after that, it is clear sailing into the China market, for any and all comers.
The conference was loaded with solid info, but there were two data points conspicuously missing (but always missing in eCommerce conversation in USA as well):
1. Per cent of China retail market that is online?
2. Cost of customer acquisition for online sales?
What do you think the percent of retail sales are in the USA that take place on the internet? 40% 18%?
It is about 6 percent. No more. In China it is 5%. This means in usa 94% of retail sales take place off the internet, meaning to do a eCommerce pure play is to miss 94% of the USA market. And in China, you'll miss 95% of the market. My research said six, but I’ll take their word for it. Less than USA
I pointed the missing market to one of the presenters in the private meeting, and she replied "Brick and mortar has its charms." Splendid!
Now, there are some set up fees, transaction fees, some initial permissions, but after that, it is clear sailing into the China market, for any and all comers.
The conference was loaded with solid info, but there were two data points conspicuously missing (but always missing in eCommerce conversation in USA as well):
1. Per cent of China retail market that is online?
2. Cost of customer acquisition for online sales?
What do you think the percent of retail sales are in the USA that take place on the internet? 40% 18%?
It is about 6 percent. No more. In China it is 5%. This means in usa 94% of retail sales take place off the internet, meaning to do a eCommerce pure play is to miss 94% of the USA market. And in China, you'll miss 95% of the market. My research said six, but I’ll take their word for it. Less than USA
I pointed the missing market to one of the presenters in the private meeting, and she replied "Brick and mortar has its charms." Splendid!
I asked cost of acquisition, I was prepared to explain what this means, but they were hip. Starts at 10%, and rises form there, depending on the product. Naturellement.
When Chinese have a certain accent, are fully informed, and no nonsense, I think they are party members. I first met them back in the 1970s, they have a certain look and feel. One kept asking me: why are you here? What did you come here for? “Just the facts, m'am.”
So note how, for only 5% of the market share, how much heavy firepower (Alibaba, Amazon, Costco, Walmart) is concentrated on that narrow 5% market. And the cost of acquisition is quite expensive. These heavy hitters are willing to lose money for a while in hopes of carving out market share.
The talk was of massive ramp-up of SKUs. This means cost of acquisition will rise as you try to crowd in on the big boys presentation of product to the extremely few buyers available. One of these heavy hitters noted they are putting up posters on walls in train stations so people can scan with their smart phones and order right then. How Qing Dynasty, 220 BC! Big poster ads in the transport hub!
Current info is Amazon is getting about 3000 orders a day out of this arrangement and Costco with its Kirkland Brand about 100 order a day. Given their fantastic resources, reflect on those numbers. They are getting the above, and with your resources what will you get for your overwhelmed effort to find market by these means? What will be your cost of acquisition? How much time will it take to maintain?
The reason I attend these things is if there comes a better way to do small business international trade, I want to see it first and use it. This effort and innovation changes nothing for those at the small biz int'l trade. MOQ FOB to Chinese importers (not to your own subsidiary in China), targeting the 95% of the market, is still the best way to go. In fact, with the big brands smashing each other over 5% of the market means they are not competing against us in the 95%. And remember, in most of China, no one knows the difference between your canned soup and Campbell's. You start on equal footing.
That last benefit, the proof the product is the real McCoy does not really work. The copyists will still do a brisk trade, for the fine point that Kirkland can only be had via the FTZ is not going to stop people from buying Kirkland outside the FTZ channel. The only sure-fire control is traceability, so those working the FTZ angle will be at a disadvantage to we who use traceability working in the 95% brick and mortar markets.
Nothing has changed, except the big boys have left the field.
Feel free to forward this by email to three of your friends.
The talk was of massive ramp-up of SKUs. This means cost of acquisition will rise as you try to crowd in on the big boys presentation of product to the extremely few buyers available. One of these heavy hitters noted they are putting up posters on walls in train stations so people can scan with their smart phones and order right then. How Qing Dynasty, 220 BC! Big poster ads in the transport hub!
Current info is Amazon is getting about 3000 orders a day out of this arrangement and Costco with its Kirkland Brand about 100 order a day. Given their fantastic resources, reflect on those numbers. They are getting the above, and with your resources what will you get for your overwhelmed effort to find market by these means? What will be your cost of acquisition? How much time will it take to maintain?
The reason I attend these things is if there comes a better way to do small business international trade, I want to see it first and use it. This effort and innovation changes nothing for those at the small biz int'l trade. MOQ FOB to Chinese importers (not to your own subsidiary in China), targeting the 95% of the market, is still the best way to go. In fact, with the big brands smashing each other over 5% of the market means they are not competing against us in the 95%. And remember, in most of China, no one knows the difference between your canned soup and Campbell's. You start on equal footing.
That last benefit, the proof the product is the real McCoy does not really work. The copyists will still do a brisk trade, for the fine point that Kirkland can only be had via the FTZ is not going to stop people from buying Kirkland outside the FTZ channel. The only sure-fire control is traceability, so those working the FTZ angle will be at a disadvantage to we who use traceability working in the 95% brick and mortar markets.
Nothing has changed, except the big boys have left the field.
Feel free to forward this by email to three of your friends.
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