Costs Associated With Setting Up A Chinese Ecommerce Business

As the business world becomes increasingly globalised, more and more SMEs are eyeing expansions into new territories. One of the most popular locations is China, a market that we think represents unlimited potential for UK businesses. In 2019, Chinese total cross border ecommerce reached an incredible £70.7 billion (source: MarketToChina), and UK exports to China reached £22.6 billion, according to insights from the House of Commons Library.

One of the most exciting things about China is that the market is dominated by ecommerce marketplaces, with Tmall, JD, Yihaodian, and Taobao four of the most popular. Combined, these platforms will generate $1.8 trillion in revenue by 2022. As a UK entrepreneur, tapping into the market could change the fortunes of your business overnight, when done correctly.

But expanding into China isn’t just about pressing “upload” on your product list; there are major costs to take into consideration. Below, we’ve rounded those up for you to review…

Market research

The most immediate upfront cost when considering an expansion into the country is market research. Though you might be considering simply exporting your product into China as-is and copying and pasting your existing strategy, the truth is that it won’t be so easy. You will need to make changes to your packaging and business strategy in order to successfully win over customers and ensure you stand out in one of the world’s most competitive economies.

First of all, analyse the steps that your audience would need to take to buy your products, and look for ways to improve the process. For example, how will you reach those customers and how will you communicate with them? What payment methods will you accept, and have you considered the rise of cashless options in China such as AliPay and WeChat Pay?

You’ll also want to translate content - not just the language, but the culture of your marketing messages and brand voice. Your tone may also need to be adapted to properly identify with your audience. These changes can add up and encourage a whole rebrand of your business before you even step foot into the country. But getting it right first time makes sense.

Store set-up and maintenance

Once you’re happy that your products and branding are relevant to your new Chinese audience, you’ll need to think about store set-up and maintenance. As well as appearing on all of the big marketplaces, you should consider your own ecommerce store where you can control the entire experience. A companion smartphone app should also be considered, as Chinese consumers spend upwards of six hours on their phones every day inside of apps.

Another ecommerce experience to consider is inside of social networking apps like WeChat through Mini Programs. According to the McKinsey China Digital Consumer Trends 2019 report, 48% of Chinese consumers have expressed interest in purchasing directly from social networking apps and 25% actually do, with the most popular categories being apparel, beauty and packaged food. Integrating your ecommerce platform into these apps may be costly, but when marketed correctly, can pay off and help you win over new customers.

Transaction fees

Unfortunately, listing your products on Chinese marketplaces isn’t as straightforward as you might think. Not only do you need to have a business physically registered in the country, but you’ll need to pay both one-off deposits and annual fees to trade on each platform. Tmall, for example, charges a one-off security deposit of US$25,000, and in addition, requires vendors to pay an annual fee of US$5,000 on top of a commission fee ranging from 0.5% to 5%. JD.com, on the other hand, charges an initial deposit of $15,000, as well as an annual fee of $1,000 per store and a 2-8% commission fee based on product category and order value.

Utilising popular payment methods like WeChat Pay and AliPay also means fees, but these are much smaller at just 0.1% per transaction. Calculating these fees and deposits before you start your ecommerce expansion will help you determine the most cost-effective platform for your products. Though they may seem prohibitive, remember that third-party platforms offer significant benefits; access to billions of shoppers and innovative distribution networks.

Marketing budget

You’ll struggle to make much of an impact in China without marketing your products to local consumers. From social media sites like WeChat and Weibo to search engine optimisation on Baidu, China’s answer to Google, marketing is everything in China, and the more you do, the more you’ll get back. Without an online public relations campaign, you’ll struggle to build trust with potential customers - shoppers place an emphasis on reviews and brand mentions.

Another marketing strategy to consider in China is influencer marketing. Asking social media stars to promote your products to their followers can be a great way to build an audience and drive sales, but it doesn’t come cheap. Although there’s no industry standard, and it’s cheaper to work with micro-influencers who have smaller, more concentrated audiences, you can expect to pay anywhere from $500 to up to $500,000 for a sponsored post on WeChat.

Logistics and fulfilment

Although some brands keep their inventory in the UK and ship products to China as and when required, this can be incredibly costly. Working with a fulfilment centre in Mainland China can help to cut distribution costs and ensure Chinese customers are satisfied with their wait times. Last-mile delivery startups have helped to ensure products are shipped to consumers within 24 hours - and some brands offer same-day delivery like Amazon Now.

The most popular centres in the country include ZhenHub, Easyship, Floship, EXchain, DHL Hong Kong, Shipwire, V Logic, Send From China, and ChinaDivision, each offering storage, pick and packing, shipping, and returns, and costs can range anywhere from $0.10 to $100 per product packed and shipped. You’ll need to take into account customs when shipping your stock from your manufacturer, and think about your average product lifecycle to ensure stock isn’t sitting in a warehouse collecting dust (and costing you money). Working with a fulfilment specialist - or handing over the responsibility to an Alibaba-owned ecommerce platform - could be the most cost-effective option, but weigh up the pros and cons of both.

There are, of course, many more costs associated with setting up your own Chinese ecommerce business, but you shouldn’t let these put you off. If you’re considering selling your products in the country, let the experts at Zudu China guide you towards the right paths.

Give us a call on 01382 690080 to find out more or click here to send us a WeChat message.


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