Tapping into China

Comparing Chinese ecommerce trends

and opportunities with the West

Author:
Keira McDermott | Payvision BV

PAYVISION
Global Card Processing
Tapping into China

Contents
1. Executive summary 3
2. Introduction 5
3. China – The Next Opportunity 7
4. West versus East 9
4.1 Culture 9
4.2 Ecommerce market 11
4.3 The Customer Journey 13
4.4 Alibaba versus Amazon 17
4.5 Social commerce 18
4.6 Payments 22
4.7 Online Shopping Trends 28
4.8 Logistics 32
4.9 Cross-border ecommerce 36
5. conclusion 44
5.1 WHAT NOW AND WHAT NEXT 44
5.1.1 PROMOTE western brands 45
5.1.2 engage in LOCAL PARTNERSHIPS 45
5.1.3 BE MOBILE 45
5.1.4 BE sensitive to CULTURAL differences 46
6. About the Publishers and Editors 47
6.1 About Payvision 47
6.2 About the Author 47
6.3 About the Editor 48

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 Tapping into China

1. Executive summary
China’s cross-border ecommerce landscape is
the next big bang.

CHina

Last year, China surpassed the US in total
ecommerce sales, giving rise to a new online
global super-power. Driven by vast levels of
mobile penetration, it marks the dawn of an
exciting era for Asian online business.
But it is only the tip of the iceberg. Other
factors, both organic and deliberate, have
created perfect conditions for a cross-border
ecommerce explosion. The Chinese ecommerce
industry is running to keep up, exposing large
gaps in a skilled ecommerce workforce.
China’s boom in online sales comes at a time
when established ecommerce markets in
the West are struggling to maintain growth.

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 Tapping into China

Concerned merchants in Europe and the US Yet an overall lack of knowledge

1 are looking across borders to expand their

footprint. This expansion has been confined to
other established markets, intimidated by doing
business in Asia.
about opportunities in China means
lower competition. Western
merchants are still skeptical of
Chinese expansion.

Chinese consumers, in the Those entering the market are not always
wake of a social and mobile sensitive to Chinese cultural nuances.
Merchants are frequently applying aggressive
Internet revolution, are Western business tactics, generating a fear of
shopping online more colonization and creating road blocks to success.
and more frequently.
In short, the international playing field in China
Thanks to the comforting is still wide open.
anonymity of the web, the
bulk of online consumers This paper compares Western and Chinese
cultures, trends and customer journeys.
in China are liberated Harnessing these differences, the latest govern-
female shoppers. An ment opportunities and the organic energy for
inherent cultural need for cross-border ecommerce, paves the way for a
successful and rewarding international venture.
trust, in combination with
concern about counterfeit This is how to tap into China.
domestic products, has
pushed consumers to
look across borders for
trusted Western brands
of baby food, skin care and
cosmetics.

A rise in alternative payments, along with the

desire to shop across borders, has minimized
the cash-economy. This fuelled trust in credit
spending, a disrespected and mistrusted
payment method in the past. Chinese
consumers can now access international
markets more easily, thanks to this inclination.

The Chinese government, in turn, now facil-

itates favorable economic trade conditions
for international merchants. Traditional trade
means complex taxation and customs clearance,
discouraging Western merchants in the past.
But recent government initiatives absolve these
barriers entirely.

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 Tapping into China

2. Introduction
CHINESE CONSUMER SPENDING WILL TRIPLE BY 2020.
Recently, all eyes have been on the Chinese
consumer market. And for very good reason;
figures indicate that Chinese consumer
spending is projected to rise from USD 2.03
1. trillion in 2010 to USD 6.18 trillion annually in
Boston Consulting
Group 2020 1.
fuel this trend; cultural similarities, minimal
language and legislative barriers, common
payment preferences, and an overall greater
understanding their overseas customer. 3 And
so far this has proven to be profitable for the
right merchants.

3. But if growth is slowing in both the UK and

Payvision – Key
Business Drivers in Moreover, China’s cross- the US – the greatest channel for cross-border
Cross-border
Ecommerce, 2013
border ecommerce trade ecommerce today – cross-border ecommerce
can only grow so far.
is projected to reach USD
2.
iResearch - China Cross
1.1 trillion by 2016 2 British online merchants are already jostling
Border eCommerce for space in a crowded American market where
Report, 2013 Indeed, online retailers across Asia are consumers have almost everything they need
witnessing phenomenal growth. Driven by on their doorstep. Where does that leave the
increased mobile connectivity, greater use of small and medium businesses with less brand
credit cards online and an active social commu- recognition and status?
nity, China stands to dominate the ecommerce
landscape in years to come.
When the Western
Meanwhile, established markets in the West cross-border ecommerce
such as the US and Western Europe are
witnessing a downturn in growth. With a large
market becomes
percentage of the population already buying saturated, what next?
online, saturation points are gradually being
reached, causing future concern for growth in
their domestic markets.

Merchants in the West are now turning to

cross-border ecommerce to drive their business
growth. Indeed, more opportunities are opening
for merchants to sell their products to foreign
customers who are searching the web for
cheaper or different products overseas.

While cross-border ecommerce is now more

frequently pursued by online merchants in the
West, they are mostly seeking growth within the
safety of other established markets. Key drivers

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Tapping into China

China may have now

exceeded the US in
ecommerce sales, but
with only 14 percent
of the population
buying online, China
is exceptional not
only for the value it
has driven today, but
the potential it
holds for tomorrow.

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 Tapping into China

3. China – The Next

Opportunity
CHINA BY NUMBERS

CIGARETTES CONSUMED

50,000 PER
CHINA’S RAILWAY
LINES COULD
TOYS
80% MADE BY 2025
CHINA WILL HAVE
LOOP AROUND IN CHINA
SECOND EARTH
BUILT ENOUGH
SKYSCRAPERS TO

TWICE FILL A NEW YORK

SIZED CITY
10
TIMES.

CHINA’S CONSUMER CHINA’S RICHEST ARTIFICIAL CHINA PRODUCED IN

SPENDING WILL HAVE A CHRISTMAS TREES
85% MADE 2 YEARS
TRIPLE BY COMBINED
NET WORTH IN CHINA MORE CEMENT
2020 THAN THE US DID IN
OF
USD 145.1 THE 20TH
CENTURY
BILLION
A VALUE LARGER THAN HUNGARY’S GDP

On the other side of the globe, Chinese consumers are

waking up to ecommerce.

Online sales in China reached USD 296
billion in 2013, and for the first time
were higher than in the US. And it
doesn’t stop there; unlike the US,
China still has a huge potential for
growth.
Young, tech-savvy Chinese consumers are
appreciating the convenience of shopping
online, largely driven by increased mobile
connectivity and market transparency.
Although in the West more and more Internet
users access the web through their mobile
device, in China, an overwhelming majority
already does.

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 Tapping into China

Of the 618 million Internet users in China, forward-thinking Western merchants in

3 a mobile device is the primary vehicle to the

web for 500 million. That’s over 80 percent of
Internet users.
this region.

4. Government backing
Recent government initiatives such as
China may have now exceeded the US in ecom- the Shanghai Free Trade Zone (FTZ) are
merce sales value, but with only 14 percent of actively seeking foreign ecommerce players
the Chinese population currently buying online, to enter the Chinese market. The pilot cities
China is exceptional not only for the take care of website localization and import
value it has driven today, but the complexities, all with a focus on exceptional
potential it holds for tomorrow. Chinese customer service.

Four key insights indicate that China is an
advantageous choice for cross-border expan-
sion for Western merchants, instead of other
established Western markets.
1. Use of credit cards
Credit card today remains the univer-
sally preferred online payment method,
gluing together the Western cross-border
markets. Until recently, Chinese consumers
were skeptical of purchasing on credit,
preferring cash or local alternative payment
methods. But with the success of China
UnionPay credit cards, and an emerging
desire to shop cross-border, purchasing on
credit has become more popular in China.
2. Trust in Western products
Chinese online consumers, most of which
are women, are driven towards overseas
brands due to of mistrust in counterfeit
domestic products. Products in which
trust is paramount, such as baby formulas
and skin care, are especially popular with
Chinese cross-border online shoppers.
Yet, despite the opportunities, there is still
a lack of understanding about cross-border
ecommerce trade to and from China.
Merchants in the West are largely unaware of
the business potential opening up in the region.
They lack insight on how to tackle the Chinese
market and best explore these opportunities.
Moreover, Chinese businesses lack insight on
how the Western markets differs to their own,
and how the businesses in the West perceive
the Eastern ecommerce market.
This white paper tackles
the knowledge gap head
on, providing side-by-
side comparisons of
these diverse consumer
markets.

3. Lack of competition
Despite the growth downturn in Western
markets, online merchants are unprepared
to tackle the complexities of the East.
Language and culture is a deterrent, as
well as logistical barriers and perceived
legislative road blocks. With a more open
playing field, there is ample space for the

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 Tapping into China

4. West versus East

4.1 Culture
Chinese culture is collectivist – vaLue is placed on
cooperation and modesty, unlike western society in
which being individual and self-expressive is respected.
The below chart gives an overview of how
Chinese culture varies from Western culture.

Social
Self Time relationships Friendship
Collectivist: value placed More attention to the Formal, hierarchical. Small number of close,
on group cooperation past and to the lifelong friends. 
Chinese and individual modesty. longer-term future.

culture Individualist: value Less interested in the Informal, egalitarian. Large collection of less
placed on self-reliance. past, eye on near-term intimate friends and
Self-promotion is future. acquaintances. 
accepted. High value
Western placed on freedom from
externally imposed
culture constraints.

Law and
Obligation Work attitude Disagreement regulation Status
Relationships with other Relationship-oriented:  Avoidance of direct More faith in personal Status in society based
people involve mutual Maintaining a confrontation, open relationships and on inherited
obligations. harmonious relationship criticism, and opinions than in written characteristics such as
has priority over controversial topics.   rules and procedures. age, gender, and family.
Avoidance of accomplishing tasks.
interdependent Willing to confront Assumption that written Status is based on own
relationships and Task-oriented: directly, criticize, discuss rules apply to everyone achievements, including
situations that might Relationships are less controversial topics and and produce fair, education obtained, and
entail long-term important than getting press personal opinions reasonable procedures level of success realized
obligations. work done. about what they and decisions. in their line of work.
consider the truth.

Understanding how these basic cultural

subtleties fit into business and consumer
attitudes provides a launch pad to consider
how a Western business can successfully
expand into China.

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Tapping into China

Of the 618 million

Internet users in
China, a mobile
device is the
primary vehicle to
the web for 500
million.

That’s over 80
percent of Internet
users.

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 Tapping into China

4.2 Ecommerce market

Total Global ecommerce sales reached USD 1.25 trillion
in 2013.

Across the globe, ecommerce as an industry ecommerce value is expected to reach over
continues to boom. Indeed, by 2017 the global USD 2.3 trillion.

ECOMMERCE SALES WORLDWIDE, 2013 TO 2017

IN USD TRILLIONS

2017

2016

2015

2014

2013

0,0 0,5 1,0 1,5 2,0 2,5

But 2014 is the first year in ecommerce history regional ecommerce market in the world. By
that the Asia Pacific region will drive the largest 2017 is it predicted that Asia Pacific will drive
4. proportion of growth, and become the biggest 40 percent more than North America. 4
eMarketer.com

ECOMMERCE
11 SALES WORLDWIDE BY REGION 2017
IN USD BILLIONS 2015
2013

ASIA PACIFIC

NORTH AMERICA

WESTERN EUROPE

CENTRAL AND EASTERN EUROPE

LATIN AMERICA

MIDDLE EAST AND AFRICA

0 200 400 600 800 1000 1200

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 Tapping into China
4.2
The American and Chinese ecommerce markets
have finally crossed paths; China has seen
explosive growth where the US has seen a
gradual slow-down. China has now surpassed
the US in total ecommerce sales; USD 296
5. billion and USD 263 billion respectively.5 And
China Ministry of
Commerce, 2014 the gap is only expected to grow.
Western merchants with cross-border aspi-
rations often dismiss the Asia region as a
potential business destination, deeming it too
complex and unwelcoming to foreign players.
Merchants prefer to focus on regions with
cultural similarities and preferences.
But Chinese authorities have begun to under-
stand the potential value of cross-border ecom-
merce. And not just export, historically making
up the lion’s share of all cross-border business,
but also cross-border import. China is now
welcoming foreign players with open arms. The
landscape is getting ready to explode.
A skilled workforce deficit
With the dawn of a new digital era in China,
and a boom in ecommerce, a larger problem
looms. Such fast growth has revealed a
worrying lack of overall skill in the workforce.
Online retail requires high-skilled
6. labor to be fully successful, and it
McKinsey & Company
– China’s e-tail is predicted that by 2020 there will
revolution: Online be a gap as large as 23 million skilled
shopping as a catalyst
for growth, 2013
workers in this industry.6
Rolf Visser, Chairman and Co-founder of the
Cross-border Ecommerce Community (CBEC)
comments on this imminent issue.
“ Across China, as well as in the
Western world, I hear government
officials, service providers and
merchants say ‘there is a distinct
lack of talented workers in the
ecommerce industry, hampering
cross-border ecommerce.’
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“ The CBEC and its partners constantly
invest in research and share
information through reports
and educational platforms. This
tackles the knowledge gap in the
market and hopefully lowers the
barriers to boosting global cross-
border ecommerce.” Rolf Visser,
Chairman and Co-founder of the CBEC
On top of this, there is still a wider lack of
understanding in the West about how to do
business in China.
Fear of Colonization
Although the Chinese market has now begun
actively welcoming foreign players, there is an
underlying fear that the West is attempting to
colonize, telling Chinese businesses how they
should be operating.
Some businesses are entering China with
aggressive sales techniques, a brash business
ethos and an impersonal, email-based work
ethic; not uncommon principals in the West, but
a stark contrast to how the Chinese value busi-
ness operations. In China, doing business takes
time and trust should be earned gradually.
As a result of the colonization fear, China is
already wary of Western businesses entering
the market. In some industries there is a risk
that the wide-open doors are already starting
to draw back.
Businesses with aspirations for expanding to
China should be sensitive to the cultural differ-
ences. In China, a more personal way of doing
business takes precedence.
Engaging a local partnership is the ultimate
way to enter the market; giving space for local
knowledge and business cultural sensitivity.
12
 Tapping into China
4.3 The Customer Journey
The customer journey for European, American and Asian
consumers starts at the same point – a need or desire
for something.
Whether inspired through conversations
with friends, something whimsical, practical
or impulsive, the beginning of the customer
journey is the same across Western and
Eastern cultures; ultimately the idea to buy.
In Europe or the US, the next steps for the
consumer may include booting up their
computer or reaching for their mobile device.
They will probably open Google and search
broadly for the item in question, looking for
various retailers, merchants or suppliers of their
desired product or service, in order to compare,
read reviews and make a purchasing decision.
In light of this, most Western
merchants place Search Engine
Optimization (SEO), A/B page
conversion testing and Search
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Engine Advertising (SEA) high up
in their marketing strategy for
exposure to potential buyers.
A number of Western online merchants make
use of shopping cart platforms and content
management systems for a ready-to-go ecom-
merce presence in the market. This is particu-
larly useful for Small and Medium Enterprises
(SMEs) for whom setting up a shopping cart
function can be complex.
The largest of such platforms are Shopify, with
some 100,000 merchants largely in the US,
and Magento with over 150,000 merchants
mostly in Europe.
There are also a number of cost-free, open
source options in the market. VirtueMart and
13
 Tapping into China

4.3
Zen Cart, as well as Prestashop, osCommerce
and OpenCart all offer a free, low-risk ecom-
merce solutions for online merchants. The
existence of these accessible platforms creates a
varied, and more open ecommerce playing field
in the Western markets.
Unlike their Western counterparts, Chinese
consumers will not turn to Google. Google is
blocked in China under the Chinese govern-
ment’s Internet censorship policy. They will not
even turn to Baidu, the most popular Chinese
search engine.

In China, however, the customer journey takes a But why?

different path.
China is an ecommerce market dominated
Unlike previous years, Chinese consumers will by the Alibaba group, a collection of ecom-
probably reach for their mobile device or turn merce businesses and shopping cart platforms,
on their computer when they have an idea to including Taobao, Tmall, AliExpress, as well
buy something. as an online payment service – Alipay. The
company’s websites account for 80 percent of
7. all online commerce in China.7
businessinsider.com

MAJOR ONLINE RETAILERS IN CHINA

UNIQUE VISITORS PER MONTH

ALIBABA

JD.COM

51BUY.COM

AMAZON

YIHAODIAN.COM

DANGDANG.COM

SUNING.COM

VIP.COM

JUMEI.COM

0 50 100 150 200 250

13
Taobao is often the first port of call for Chinese In Europe and the US, shopping
shoppers. In fact, the Taobao mobile app is carts such as Magento or
the most popular commerce app in China by Shopify are an ‘invisible
downloads, downloaded over six times more partner’. They give little away
frequently than that of rival JD.com. to the consumer about the
merchant’s cart process. The
The shopping cart platforms in China operate cart platforms are purely
differently to in the West. Unlike China, the technical, functional and
shopping cart landscape in the West is varied, integrated within the
and offers multiple cost levels and degrees of merchants brand identity, they
customization for merchants. are not consumer facing.

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 Tapping into China

4.3
In China, however, the shopping cart – whether
it is TaoBao, Tmall, or AliExpress – is the
umbrella ecommerce brand and fully exposed to
consumers. In fact, consumers in China choose
their shopping cart platform, then browse the
online merchants within that platform. The cart
– quite literally – comes before the horse.
Alibaba, as part of their
strategy, has not allowed
Other platforms exist in the Chinese market.
JD.com, also known as Jindong Mall, is one
such player managing to compete with the
Alibaba giant.
With a successful IPO of USD 1.8 billion in May
of 2014, JD.com has nearly 40,000 registered
suppliers and vendors on the site, including
nearly 30,000 merchants that sell on Paipai,
the JD.com marketplace platform.

Baidu to index their In 2013 JD.com reported profitability, after 9

ecommerce platforms since years of losses since first going live in 2004.
2008. Chinese consumers
Until now, JD.com has been focused purely
cannot, therefore, search on domestic sales, but plans to expand to
for their desired product neighboring Asian countries where there are
on Baidu, they are forced Chinese residents. JD.com does not yet plan to
enter Europe or the US, but will ship to those
to go straight to their areas if there is demand from Chinese expat
chosen shopping cart communities.
to begin their search,
LightInTheBox.com, on the other hand, is an
eliminating retailer,
ecommerce platform in China that focuses
merchant and supplier purely on the ecommerce export market.
side-by-side comparisons Fuelled by the West’s interest in purchasing
at a search engine level. cheaper goods from China, LightInTheBox.com
provides direct access to Chinese merchants in
Only within the Alibaba portal may they begin a ‘Westernized’ look and feel, and worldwide
their comparisons. delivery options. Read more about LightIn-
TheBox.com in the cross-border ecommerce
Over 50 percent of visitors to Tmall, the section 4.9.
premium B2C platform of Alibaba, come via
Taobao. These numbers reinforce the mutual
relationship between the two most visited
8. ecommerce sites in China.8
Forbes.com

The Alibaba Group went public in September

2014, resulting in the world’s largest ever stock
flotation. Read more about Alibaba’s IPO in the
Alibaba v Amazon section 4.4.

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Tapping into China

Online retail
requires high-
skilled labor to be
fully successful,
and it is predicted
that by 2020 there
will be a gap as
large as 23 million
skilled workers in
this industry.

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 Tapping into China
4.4 Alibaba versus Amazon
WHERE THE CUSTOMER JOURNEYs DIVERGE, it is worth
looking more closely at the two biggest ecommerce
players; Amazon and Alibaba.
Founded in 1999 by former English Teacher
Jack Ma, Alibaba is often dubbed the ‘Amazon
of China’.
While both companies are certainly ecommerce
giants, dominating the online retail scene in
9. their respective countries, to directly compare
The Wall Street Journal
the two is ultimately misleading.
ALIBABA VERSUS AMAZON AND EBAY
VOLUME OF MERCHANDISE [IN USD BILLIONS]
0 50 100
Alibaba made its Initial Public Offering (IPO) at
USD 21.8 billion on September 19th of this year,
resulting in the world’s largest ever stock flota-
tion. Alibaba shares reached USD 99 per share,
up more than 45 percent from its IPO price.
Although share prices have slipped back after
the initial offering, the market still believes the
company is more valuable than Facebook, or
Amazon 14and eBay combined, as it stands today.
Amazon, founded in 1994 by Jeff Bezo in
Washington, went public in 1997 at a valuation
of USD 438 million. In 2013 Amazon earned
USD 74.45 billion in revenue, more than 10
10. times than of Alibaba.10
The Wall Street Journal,
2013
Unlike Amazon who owns distribution centers,
sells products directly, and even manufacturers
its own brands of consumer electronics, Alibaba
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In 2013, the combined total volume of
merchandise handled by Taobao – the Alibaba
market place platform – and Tmall – the
platform for premium brands and retailers –
surpassed USD 160 billion, according to Alibaba.
That figure was larger than Amazon’s USD 86
billion and eBay’s USD 67.8 billion combined.9
ALIBABA
AMAZON
EBAY
150 200
does not store or ship products. It serves purely
as a platform for buyers to connect to sellers.
The result of which is lower revenue, but far
higher profit margins.
Alibaba, as previously discussed, operates in the
most part as a search engine. By disallowing
search engine indexing, Alibaba has eclipsed
Baidu from an ecommerce perspective. While
Baidu does not perform an ecommerce function
like search engines in the West, it is a respected
repository for data and information, comparable
to Wikipedia.
As the online customer journey takes a different
course in China, Alibaba could arguably be
seen as not only the ‘Amazon of China’, but the
‘Google of China’ too.
17
 Tapping into China

4.4
To be successful in China, a Western merchant
should put aside what they know about SEO,
A/B testing and SEA as the primary methods of
“ On top of this, although social
channels like WeChat are not sales
channels, they generate
consumer exposure. A competitive presence on communication around your
the appropriate Alibaba platforms is paramount. brand, driving trust.” Kevin Zhang,
Director of Technology and Operation,
This is corroborated by Kevin Zhang at Beijing Beijing Bay Line Ecommerce Co.
Bay Line Ecommerce Co.

“ In China, having your own branded

website will simply not convert
sales. It is essential to plug in
Indeed, social commerce – and the popular
social network WeChat in particular – is the next
consideration for merchants looking for brand
to the marketplace platforms to exposure in the Chinese market.
reach customers and make sales.

4.5 Social commerce

Social commerce is a subset of ecommerce that involves
using social media – online media that supports social
interaction – and user contributions to assist in the
11.
digitalintelligencetoday. online buying and selling of products and services.11
com

PAYVISION 18
 Tapping into China
4.5
Social media plays a fundamental role in online
communication, both in the West and in China.
Social platforms in the Western world, however,
generally focus on a single functionality –
micro-blogging, photo sharing, group chatting –
whereas Chinese social mediums overlap. They
integrate multiple formats and functions.
Moreover, the impact social media has on
ecommerce is quite remarkable in China,
compared to the Western nations.
Facebook, founded by Harvard student Mark
Zuckerberg in 2004, is by far the biggest social
network in North America and Europe, with
12. 1.23 billion users.
eMarketer.com
Perhaps to mirror the multifaceted approach
of Chinese social media, Facebook has recently
completed the USD 22 billion acquisition of
WhatsApp, a popular mobile messaging app.
Facebook also purchased Instagram – a photo
SOCIAL COMMERCE AVERAGE ORDER VALUE
IN USD
0 10 20 30 40 50
15
Social commerce in the West, while it certainly
exists, lags behind the Chinese market, particu-
larly from an organic point of view.
PAYVISION
sharing app – in 2012 for USD 1 billion. More
recently, it has been announced that Facebook
is in the process of incorporating a mobile
payments system into their messenger app, in
an attempt to pull together the full social and
mobile commerce ecosystem.
Twitter is another popular social network in
the West, a microblogging site created in 2006
with almost 200 million monthly users. But
as many as 40% of the users are passive, and
visit purely to digest content from authorities,
celebrities and news sites.
According to Shopify, Facebook drove the
highest volume of visits to ecommerce sites, but
generated a lower average order value.12
Polyvore, a social network dedicated to
styling and retail, drove the highest value. Orig-
inating in the US in 2007, by 2009 Polyvore
had reached four million unique visitors and
150 million pageviews a month.
POLYVORE
INSTAGRAM
PINTEREST
FACEBOOK
REDDIT
VIMEO
TWITTER
LINKEDIN
GOOGLE+
YOUTUBE
60 70 80
This lag stems from a key difference in the
culture of social media use in both regions;
Chinese Internet users are content creators,
unlike their Western counterparts who are
largely content consumers.
19
Tapping into China

Alibaba could arguably

be seen as not only
the ‘Amazon of China’,
but the ‘Google of
China’ too.

To be successful in
China, a Western
merchant should put
aside what they know
about SEO, A/B testing
and SEA as the primary
methods of consumer
exposure. A
competitive presence
on the appropriate
Alibaba platforms is
paramount.

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 Tapping into China

4.5
In the West, of every 100 people, one
person creates genuine content, nine
people retweet, comment, and curate
the content, and 90 people are just
spectators. In China, 30 people are
genuine content creators, 50 people
are curators, and only 20 people are
13. passive spectators.13
Razor Fish
Unlike Western users, Chinese social media
users prefer anonymity, often hiding behind
avatars and pseudonyms. Social networks in
China are less about keeping up with friends
and sharing photos of their pets or children,
and more about sharing practical information
and discussing their views.
14. Moreover, over 70 percent of Chinese Internet
TechCrunch.com
users post online ratings and reviews for the
benefit of their peers; less than 20 percent do
so in the US.
Chinese brands are tuned into the value of
15. this user-generated content, and are actively
statista.com
encouraging social interaction. Every product
detail page on JD.com has a forum where
people can ask questions, raise discussion topics
and even post pictures of the product they
bought.
Moreover, excellent customer care is vital in a
16. landscape where opinions and experiences are
Percolate – Beyond 1.3
Billion: Understanding valued and readily shared. To ensure trust in
China and Social Media, your brand, and sales conversion, merchants
2014
must invest in this channel.
In China, the government has blocked a number
of the Western social sites including Facebook
and Twitter. In response, China has generated
its own social ecosystem, under careful govern-
ment control and censorship.
Weibo, launched in 2009, was long considered
the social network of China. A microblogging
site similar to Twitter; Weibo had over 300
million users at the start of 2013, but over the
course of the following 12 months, 28 million
people left the platform. This is because the
government asked Weibo users to register with
real names, removing their anonymity.
Although Weibo made revenues of USD 188.3
million in 2013, they were lacking profit –
recording a USD 38.1 million net loss.14
WeChat, however, is China’s answer to
WhatsApp and is the product of Tencent, the
largest Chinese Internet Service Provider (ISP).
While WeChat has nearly 440 million monthly
active users15, compared to Whatsapp’s 500
million, WeChat is most noteworthy for its
growth.
WeChat doubled its user base in under a year.
In just three years since Tencent debuted the
service, it has become one of the largest social
networks in China, occupying over 80 percent
market share.16

“ In China we consider the customer

service team a key part of the sales
conversion activities, while in
Western ecommerce it seems
like an administrative cost to
be minimized. If your customer
services do not respond immediately
here, the consumer is lost. You
could say consumers are a bit
spoiled here, in that way.” Shanshan
Li, CEO Wiseline Corporation Limited

PAYVISION 21
 Tapping into China

4.5 WECHAT MONTHLY ACTIVE USERS

IN USD MILLIONS

2014

2013

2012

2011

0 100 200 300 400 500

WeChat and Weibo are similar in that they both
allow users to group friends and share infor-
mation and stories. But the scope of WeChat
is different; as a mobile app it takes advantage
of unique functionality and mobile payment
opportunities.
16
Not only allowing users to take advantage of
mobile messaging, WeChat also offers mobile
gaming, video and photo posting, taxi hailing
services and online payments. WeChat even
helps users meet new people; a ‘shake’ function
allows users within a certain radius to find each
other by jiggling their cellphones, or to identify
and listen to a song playing in a bar or shop.
International merchants entering China should
be fully in tune to the importance of social
commerce, and the value of genuine, user-gen-
erated content.
Furthermore, managing online reputation is of
even greater importance than in the Western
world, far more consumers write reviews and
describe experiences to peers.

4.6 Payments
In a global digital age, there is a sharp rise in alternative
payment solutions such as eWallets, mobile and cloud-
based payments.
Despite this, in North America and Europe, were polled on their experience of cross-border
credit cards dominate the landscape, facilitating ecommerce. 64.5% of survey respondents
the seamless flow of cross-border ecommerce confirmed this existing credit card trend.
in Western markets.

A survey was circulated in August 2014 for

the white paper Key Business Drivers and
Opportunities in Cross-border Ecommerce by
Payvision and CardNotPresent.com. Merchants

PAYVISION 22
 Tapping into China

4.6
WHILE ALTERNATIVE PAYMENTS HAVE BECOME POPULAR, CREDIT
CARDS PREVAIL AS THE DOMINANT PAYMENT METHOD WORLDWIDE
FOR SELLING CROSS-BORDER
10.9%
N/A
15% 64.5%
NEUTRAL
YES
9.6%
NO
Credit cards have been in
the Western consumer
domain since the 1920s,
originating in the US. The
first universal credit card
to be accepted at a variety
of establishments was
introduced by the Diners’
Club Inc. in 1950.
Later in the 50s the bank credit system
came into effect. The first national plan was
BankAmericard, beginning on a statewide basis
by the Bank of America in California in 1958,
licensed in other states in 1966, and renamed
VISA in 1976–77. This soon spread to other
parts of the world, as major banks became
issuers of personal credit cards.
In the US and Western Europe, therefore,
purchasing on credit has been ingrained into
society for generations. When consumer trends
shifted from face-to-face retail to online, the
Western world preferred their trusted credit
cards.
As online merchants seek to do more business
internationally, targeting markets with comfort-
able use of credit cards has frequently been
a key driver to success. The greatest flow of
cross-border ecommerce today occurs between
the US and the UK, thanks to their mutual
comfort with credit cards, as well as common
language.
In the West, payment processing – the proce-
dure by which merchants in Europe and the US
can accept their customer’s online payments
– is based on the Payment Service Provider
(PSP) and Independent Sales Organization
(ISO) model. These independent payment
companies have connections to acquiring
banks and payment networks, often in multiple
countries. They offer merchants the ability to
accept multiple payment options without the
complexity of dealing directly with the financial
institutions.
There are multiple businesses in the West
offering solely this service to online merchants,
allowing online businesses access to multiple
markets.
More in depth information about the PSP
landscape can be found in our white paper,
How to Reduce the Complexity Payment Service
Providers Face in a Global Ecommerce Market.
In China, AliPay dominates the payment land-
scape, holding almost 50 percent share of the
market. Other service providers in China include
AsiaPay, BPH, PayEase and ChinaPay.
Similarly to China’s multifaceted approach to
social media, payment platforms in China are
often part of an end-to-end service. Unlike the
West, they are rarely independent businesses
offering solely a payments service. Payment
processing is simply a commodity for businesses
operating in the entire ecommerce chain.
China’s payment was historically cash-based.
Still today, it is not uncommon for large, face-
to-face purchases to be made in cash; cars,
down payments on property and flights.

PAYVISION 23
Tapping into China

In the West, of every 100

people, one person
creates genuine content,
nine people curate the
content, and 90 people
spectate. In China,
30 people are creators,
50 people are curators,
and only 20 people are
passive spectators.

In China, over 70 percent

of Internet users post
reviews for the benefit
of their peers; less than
20 percent do in the US.

PAYVISION 24
 Tapping into China

4.6
Wary of purchasing on credit, Chinese
consumers have an inherent cultural need for
trust and for conforming to society. A distinct
lack of trust in the credit system, both between
banks and consumers, is prevalent. If you lose
your credit card in China, and someone else
uses it, the bank will hold you responsible for
those charges.
But the times are changing. Increased Internet
connectivity and cross-border spending,
driven largely by mobile, has pushed Chinese
consumers into a less cash-based society.
Recent figures from the People’s Bank of China
indicate that non-cash payments are witnessing
a sharp increase, now accounting for 56% of
consumer payments.

NON-CASH PAYMENTS
AS % OF CONSUMER PAYMENTS

US

GERMANY

SOUTH KOREA

CHINA

ITALY

THAILAND

INDIA

0 10 20 30 40 50 60 70 80

There18 are an overwhelming 4.2 billion cards in DOMESTIC CARD SCHEMES IN CHINA

circulation in China. Credit card issuing rose by

19 percent in 2013, and Euromonitor predicts 3.2%
credit card usage in China will grow faster than OTHER

17. that of other cards over the next five years.17 17.7% 54.1%
Financial Times, 2014 MASTERCARD
Cash on delivery accounts for 10 percent of CHINA UNIONPAY

all online payments, whereas credit and debit

18. cards are now almost 30 percent.18
www.
datamonitorfinancial. 25%
com This is a trend led by the affluent and tech- VISA

savvy. A recent survey found 71 percent of

shoppers in China’s top tier cities prefer bank With over 3.5 billion cards issued, China
cards over cash, compared to an average of 50 UnionPay is now one of the world’s leading
19. percent in other countries surveyed.19 Moreover, payment card brands. Founded in March 2002,
Nielsen
51 percent of credit cards in China are issued UnionPay provides a payment method called
20. by China UnionPay.20 UnionPay
19 Online Payments (UPOP) to use when
China UnionPay, 2014
making online purchases.

PAYVISION 25
 Tapping into China

Mobile Payments
4.6
The sharp rise of alternative payments in China,
however, has had an impact on the traditional

“ Today there are over 200 alternative

payment methods in domestic
markets. But by 2020, the entire
alternative payment landscape
will evaporate, and almost all
payments will be mobile.
banking institutions. Now in direct competition
with the alternative online solutions, banks
must compete for customers, as well as funds.
Some banks are responding by creating their
own alternative solution.

“ Credit cards will still exist in the

payments sphere, particularly for
“ There is a huge clash of culture—
cross-border spending but
mobile payments and m-commerce
are absolutely the future.”
Rudolf Booker, CEO at Payvision
Chinese online consumers are keen on alterna-
22. tive payments, in particular mobile payments,
banks are risk-averse, conservative
and slow. A digital firm or an Internet
firm is just the opposite. It’s very
difficult to ask a banker to act and
think like someone in an Internet
firm, but if you want to compete
in that space with those Internet
firms, you’ve got to understand
that culture.” Zhang Yue, Project
Leader at Boston Consulting Group 22

CKGSB Knowledge,
2014 largely due to the high level of mobile Internet
penetration. The top three online payment
providers are Alipay, Tenpay and Unionpay by Users of mobile payments make up a far larger
total mobile transactions, together representing number in the Asia Pacific than Europe or North
21. over 80 percent of the total market.21 America, 120.8 million versus 44.6 and 60.9
China Internet Watch
million respectively.23
23. The broad appeal and accessibility of these
Statista - Number of
mobile payment users alternative payment products have tapped into
from 2009 to 2016, a broader market in China, and in turn have
2014
generated new business opportunities for tech-
nology companies.

Joseph Chan, CEO at AsiaPay explains the

developing trend in mobile payments, and how
the future looks in China.

“ There will be more shopping

experience than now, and following
the development of technology,
payments will be more convenient.
Mobile payment will become more
popular. To ensure information
security, more government
regulation will be released.”
Joseph Chan, CEO at AsiaPay

PAYVISION 26
 Tapping into China

NUMBER OF MOBILE PAYMENT USERS FROM 2010 TO 2014

4.6 BY REGION (IN MILLIONS) 2014
2012
2010

EUROPE

NORTH AMERICA

ASIA PACIFIC

MIDDLE EAST

AFRICA

LATIN AMERICA

0 30 60 90 120 150

11
In China, the leading alternative solution is PREFERRED THIRD PARTY PAYMENT COMPANIES IN CHINA

AliPay, a third-party online payment platform

with no transaction fees, launched by the 2.7%
3.2% HUANXUN IPS
Alibaba Group in 2004. YEEPAY
5.3% 2%
Tenpay is an integrated payment platform CHINA PNR OTHERS

launched by Tencent, the founders of WeChat, 6.8%

which allows merchants to accept customers’ 99BILL
48.8%
money via Tenpay. 11.4% ALIPAY

UNION PAY

Alipay and Tenpay have mobile payment market

shares of 48.8% and 19.8%, respectively. They 19.8%
dominate by leveraging the large user bases TENPAY

and strong online retail businesses of their

parent companies Alibaba and Tencent. China
21 is becoming an increasingly penetrable
ecommerce market, thanks to the rise of credit
spending and mobile payment technology.

The cash-based society of yesterday

is giving way to an affluent, tech-led
landscape, posing opportunities for
merchant with cross-border
aspirations.

PAYVISION 27
 Tapping into China
4.7 Online Shopping Trends
Despite sky-rocketing ecommerce and an emerging
preference for Western products, the fundamentals of
Chinese culture remains the same.
In a society where individualism does not exist
in the same way as in Western culture, Chinese
consumers are driven by a conflicting sense of
fitting in and standing out, by being successful
but within the confines of the ‘system’.
For consumers in particular, there is a tension
between self-protection within society and
displaying status. Self-expression is generally
frowned upon, and reassurance from peers –
thus being accepted by society – is important for
a sense of success.
A need for reassurance has tipped into the
digital world. Unlike Western consumers
who are happy to be different and take risks,
Chinese consumers like the comfort of knowing
that processes, transactions and products are
PAYVISION
NEW
trusted, safe and secure, explaining the long-
held suspicion of buying on credit.
On top, a successful product positioning in
China addresses the cultural societal conflicts;
standing out while fitting in. Consumers want
both elegance and acceptance, opting for more
conventionally hip brands such as Converse, or
conservative premium cars such as Audi, over
the overtly flashy or ostentatious.
The she-economy
In the Western world there is a minimal gender
gap in ecommerce habits – both men and
women make purchases online with women
purchasing marginally more frequently, but men
spending slightly more.
28
 Tapping into China
4.7
In China, however, the ecommerce boom is
largely attributed to women, particularly over-
seas shopping for Western products. Known as
China’s ‘she-economy’, women are responsible
for more than 60% of online shopping and a
higher spend value, despite making up the
lesser share of Internet users; 44%.
Baby formulas, beauty products and health
supplements are among the top selling online
items, a trend that has been attributed to the
liberation of women with the anonymity of the
24. Internet.24
Want China Times,
2014
Singles Day – an overnight
success
In an increasingly commercial age, retailers
and ecommerce businesses have noted strong
trends for popular shopping days. The acceler-
ated success of a well-timed promotion around
these trends is phenomenal. Retailers offer
big discounts and special offers to shoppers, to
drive further traffic volume and sales conver-
sion in a condensed period.
The most well-known in the Western world is
Cyber Monday, a huge online shopping day in
the US, and more recently the UK and other
25. parts of the world. Yet little is known in the
Cleverbridge – Business
Without Borders, 2014 West about the mammoth online shopping day
and PFSweb in China; Singles Day.
12
ONLINE PROMOTIONAL HOLIDAYS
0 1 2 3
PAYVISION
The Western holiday season, namely the start
of November through to Christmas at the end
of December, is known for high levels of online
shopping and gift buying.
Marking the start of the shopping season, the
day after Thanksgiving in the US was named
Black Friday in the 1960S, to playfully
reflect the day businesses would turn a profit,
or go from being ‘in the red’ to ‘in the black’.
Traditional brick-and-mortar stores would open
early and offer discounts to shoppers.
Cyber Monday, the younger cousin of Black
Friday, emerged in response to remarkably high
volumes of online sales on the Monday after
Thanksgiving. While the trend already existed,
the term Cyber Monday was coined in 2005
by the National Retail Federation. Today, Cyber
Monday exists as the biggest day for ecom-
merce in the US, and is fast gaining popularity
in other counties such as the UK, Canada and
parts of Europe.
More recently Green Monday has emerged
– the second Monday in December – for last
minute holiday shoppers.
In 2013, Cyber Monday generated USD 1.7
billion in online sales25, compared to USD 1.1
billion on Black Friday. Certainly impressive
numbers, but this is meager when compared to
the sales generated by Singles Day in China.
SINGLES DAY
CYBER MONDAY
BLACK FRIDAY
GREEN MONDAY
THANKSGIVING
4 5 6
29
Tapping into China

Credit card
issuing rose by 19
percent in 2013,
and usage in
China will grow
faster than that
of other cards
over the next
five years.

PAYVISION 30
 Tapping into China

4.7
Singles Day in China is a more recent
phenomenon.
November 11th, or 11.11, was originally to facil-
itate single people connecting and celebrating
with other singles. Over the years, and partic-
ularly on 11th November 2011, the celebration
was taken to another level, seeing widespread
Internet promotions and online sales. Singles
day became the Chinese equivalent of Cyber
Monday.
13
SINGLES DAY VERSUS CYBER MONDAY
IN USD BILLIONS
Singles Day today has become a reason for
Chinese consumers (single or otherwise) to
purchase items online for themselves and
others. The ecommerce aspect of Singles Day
was kicked off by Alibaba in 2008 from their
Tmall platform.
Singles Day should be firmly on the calendar of
any prospective international merchants looking
to enter China. The growth has been remark-
able. In only 5 years, Singles Day has
grown to generate more than double
that of Cyber Monday in the US.
SINGLES DAY (CHINA)
CYBER MONDAY (THE US)

2013

2012

2011

2010

2009

0 1 2 3 4 5 6

PAYVISION 31
 Tapping into China
4.8 Logistics
a number of trends generate online sales, both in the
West and the East, but the post-purchase experience is
equally significant in the customer journey.
It is not enough to consider a deal closed
simply because the consumer has handed over
payment for a product or service. The steps that
follow – order tracking, smooth delivery and
easy returns – are as important to secure brand
equity.
In China in particular, considering the emphasis
on user-generated content and peer-based
review sharing, carefully considered after-pur-
chase customer care is vital, to ensure positive
experiences are shared.
PAYVISION
NEW
A large part of this consideration is the logistical
aspects of ecommerce; how long the goods will
take to be delivered, how much delivery will
cost the consumer, and how easily they can be
returned if the product is unsatisfactory.
In Europe and the US, the logistics market is
dominated by some large, well-known players.
DHL Express, a logistics division of Deutsche
Post DHL, is one of the biggest in the West, and
has recently expanded their rail services into
China. The expansion will mean faster delivery
times from the West into China.
32
Tapping into China

It is not enough to
consider a deal
closed simply because
the consumer has
handed over payment
for a product or
service. The steps
that follow – order
tracking, smooth
delivery and easy
returns – are as
important to secure
brand equity.

PAYVISION 33
 Tapping into China
4.8
DHL Express is often considered very expensive
in China, but still has a significant footprint
thanks to a unique offer of direct business to
merchants. DHL generates contracts for online
businesses, and has added value on top of their
premium logistics services.
Other European players include Dynamic
Parcel Distribution (DPD), a subsidiary
of GeoPost, operating a worldwide service and
WNDirect, a fast-growing UK based logistics
business focused specifically on the growing
ecommerce market.
United Parcel Service (UPS), and FedEx
are both American logistics and courier
businesses with considerable market share,
delivering worldwide. Both businesses have
increased potential for operating within China,
thanks to the Chinese government recent
initiatives to open up the international logistics
playing field. Similarly to DHL, however, costs
of such international services are a concern for
consumers.
Consumers in China have
high expectations for
delivery. Once a purchase
has been made, they expect
their goods at the soonest
possible opportunity. Many
domestic businesses offer
same day delivery, and this
has now become a common
expectation.
Within the Chinese market there are a small
number of leading logistics businesses. The
largest of these is SF Express, a domestic and
international logistics company embracing the
ecommerce boom head on.
PAYVISION
Not only providing courier services, SF Express
has recently opened 500 Heike, or small
outlet stores, bringing together an omni-
channel shopping experience. The Heike allow
customers to mail and collect packages, try
products and place orders online. SF Express
plans to expand its ecommerce presence
further in the future.
EMS is a state-owned express delivery service
within China. EMS was set up by China Post
Group, the official postal service of China,
allowing customers to pay a surcharge on their
normal postal costs, for faster delivery. Covering
domestic and international delivery, EMS
operates with higher and lower cost options,
dependent on delivery speed. EMS was the first
logistics business to provide online tracking, a
service they initiated in 1994.
While the aforementioned international and
domestic operators are facilitating a smoother
customer journey to, from and within China, the
final link in the chain is the facility to return an
unwanted product.
In both Europe and China, new legislation was
introduced to protect consumers with regards
to cancelations and returns.
In Europe, the EU Directive on Consumer
Rights came into force in June 2014.
Consumers now have the right to cancel and
return their order, whatever the reason. As part
of the new directive, the cancelation period –
known as the ‘cooling off period’ – was extended
to 14 working days.
In addition, merchants in Europe will give
refunds within 14 days of receiving the goods,
including the basic cost of delivery.
In China, a similar reform of consumer rights
legislation came into force this year. On China’s
Consumer Protection Day of 2014 (March 15)
the Revision to the Consumer Rights
34
 Tapping into China

4.8
Protection Law of the People’s
Republic of China became effective.
On top of reforms protecting personal data, the
law ensures a statutory seven day return policy
for both physical and online stores. Consumers
no longer need to specify a reason for said
return, but expenses for the return will fall to
the consumer.
“ Considering the constant rise in
global cross-border online
spending, coupled with the latest
consumer legislation in Europe and
China, international reverse logistics
is likely to grow even further in the
coming years, becoming an integral
link in the ecommerce chain.

In the US, however, merchants are still not

obliged to offer a full refund for goods, unless
“ You can even boost international
growth through enhanced returns
management.” Ernst Hoestra, CEO at Cycleon
they are damaged or defective. While many
merchants do indeed offer this service to their
customers, they are not required to by law.

State law in the US provides some variations on

the general consumer legislation.

In California, merchants are required to clearly

post their refund policy unless they offer full
cash refund, exchange, or store credit within
seven days of the purchase date. Failing this,
customers may return goods for a full refund
within 30 days of the purchase.

Consumers in Illinois may cancel consumer

transactions (and get a full refund) within three
business days for very specific sales, but this
does not cover online. These sales types include
door-to-door, campground memberships, and
gym memberships.

European logistics company Cycleon is

focused purely on reverse logistics and
returns management. As part of the global
Reverse Logistics Group, Cycleon provides
an end-to-end process, helping merchants
manage this important concluding chapter to
the customer journey.

PAYVISION 35
 Tapping into China

4.9 Cross-border ecommerce

Although ecommerce as an industry has existed for two
decades, spending was largely domestic.

NEW

Cross-border ecommerce was first fuelled in
small levels by communities of expatriates
looking for unavailable goods from home.
But complexities over payments, legislation
and logistics made this a tricky business for
merchants and a disappointing experience for
consumers.
acquirers and PSP were polled about their
cross-border experiences.
In 2013; only 50% of our global respondents
confirmed they engaged in cross-border ecom-
merce. In 2014, however, the result was over
80%.

Nowadays, cross-border ecommerce is certainly

a more common landscape for merchants. This
26. was confirmed in our annual white paper Key
Payvision – Key
Business Driver and Business Drivers & Opportunities in Cross-
Opportunities in Cross- border Ecommerce 26 in which merchants,
border Ecommerce,
2014

PAYVISION 36
 Tapping into China
14
MERCHANTS ENGAGING IN CROSS BORDER ECOMMERCE
4.9
0 20 40
The boom in online shopping, and the emer-
gence of cross-border ecommerce, was fuelled
in part by the global financial crisis. Consumers
browsed the Internet for the best deals and
painstakingly compared prices. In less estab-
lished markets consumers noticed that better,
cheaper products were available overseas.
A more recent driver for cross-border online
shopping is increased connectivity and ecom-
merce penetration, thanks to mobile Internet
and m-commerce in emerging markets. This
gave previously disconnected communities
more cross-border transparency. Consumers
became more in tune to what they were
missing at home.
In turn, merchants gradually found more effec-
tive ways to tap into this growing trend, making
customer experiences more fulfilling. Cross-
border ecommerce went from an intimidating
27. concept to a ‘nice to have’ strategy to drive
PayPal – The Modern
Spice Routes, 2013 additional profit.
But now growth rates are starting to tail off in
the strong, established markets, particularly
17
CROSS-BORDER ECOMMERCE IMPORTS IN THE US
IN % US BUYING FROM
0 10 20
PAYVISION
2014
2013
60 80 100
in the US and Western Europe. Cross-border
ecommerce has become a means for merchants
in the West to maintain growth.
The greatest flow of cross-border ecommerce
today occurs between the UK and the US. Both
British and American consumers are confident
cross-border shoppers, with shared cultures,
language and a preference for credit cards. But
as consumers in the East are growing more
comfortable with cross-border shopping, and
government initiatives open up the Chinese
market to foreign players, this will change in the
coming years.
The US is currently the largest market world-
wide for cross-border ecommerce, both import
and export.
In the US alone there are 34.1 million cross-
border shoppers, who spent USD 40.6 billion in
2013.27 They mostly purchase from the UK and
China, often buying fashion or electronic items
that are cheaper or simply unavailable to them
domestically.
THE UK
CHINA
CANADA
HONG KONG
AUSTRALIA
30 40 50
37
 Tapping into China

4.9
The US is also a global leader for export, being China with an 84% share of cross-border
a top choice for cross-border shopping from the purchases from that region.
majority of countries across the globe, including
18
CROSS-BORDER ECOMMERCE EXPORTS FROM THE US
IN % US SELLING TO

CHINA

THE UK

AUSTRALIA

GERMANY

CANADA

THE NORDICS

FRANCE

SPAIN

0 20 40 60 80 100

28
In Europe, the UK is the leading country for one of the largest export markets in the world,
cross-border ecommerce, although export the highest proportion going to the US and
28. significantly outweighs import. The UK is in fact China.28
PayPal - The Modern
Spice Routes, 2013 15
CROSS-BORDER ECOMMERCE IMPORTS IN THE UK
IN % UK BUYING FROM

THE US

CHINA

HONG KONG

GERMANY

IRELAND

0 10 20 30 40 50 60 70 80

29. British consumers also purchase overseas mostly buying cheaper clothes, accessories and
yStats.com GmbH & Co.
KG – Global Cross- on a smaller scale. The top destination by consumer electronics.
Border B2C British online consumers are USA and China29,
Ecommerce, 2014

05

PAYVISION 38
 Tapping into China
16
4.9 CROSS-BORDER ECOMMERCE EXPORTS FROM THE UK
IN % UK SELLING TO
0 10 20
In China, cross-border ecommerce import
is a more recent phenomenon. Although
China’s export market has existed for some
time, Chinese manufactures frequently supply
cheaper items – mostly clothes, electronics and
toys – 06
to the West.
Export made up the vast
majority of China’s cross-
border activity, and still
today Western online
consumers often purchase
from China, thanks to
favorable prices.
LightInTheBox.com facilitates the purchase of
Chinese products by Western consumers. By
offering thousands of products at wholesale
prices in a localized ‘Western’ look and feel,
LightInTheBox.com provides a one-top platform
with local prices, offering delivery around the
world, and tailored customer service assistance.
Consumers had mixed experiences with
the platform, however, with narrow returns
windows and restocking fees for out-of-stock
items.
Cross-border import in China historically
suffered legislative and logistical problems.
More recently, however, Chinese consumers
PAYVISION
THE US
CHINA
AUSTRALIA
BRAZIL
30 40 50
have been shopping more seriously online from
other countries; the culmination of coinciding
consumer culture, trends and government
initiatives.
Chinese consumers, due to inherent cultural
influences, look for reassurance from the prod-
ucts they buy. They want to know the brands
they are buying are trustworthy and safe,
particularly from products where emphasis is
placed on quality and trust.
Thanks to the Chinese online ‘she-economy’
trend, a majority of online shoppers in China
are women, purchasing products such as
cosmetics, skin care, health supplements,
maternity products and baby formulas.
After a scare in the domestic market
surrounding the safety of a Chinese baby
formula brand, female Chinese shoppers are
more frequently browsing the Internet and
shopping across borders for products they can
trust. These consumers, thanks to increased
credit card confidence in China, end up
searching for and buying Western products to
fulfil this need for reassurance.
Online shoppers, in a process known as ‘hai tao’
– or ‘ocean search’ – spent USD 12.5 billion in
2013 according to China Ecommerce Research
Center. This is up from USD 2 billion in 2010,
39
 Tapping into China

4.9
and spending is expected to reach USD 22.68 bulk of which are baby care products,
billion by the end of 2014. health and beauty products, and
fashion.
The majority of products are purchased
from the Western Europe and the US, the
19
MOST POPULAR CROSS-BORDER PURCHASES
IN %

DIAPERS

BABY FOOD

BABY MILK FORMULA

TOYS AND MATERNITY

PRODUCTS
BABY CLOTHING

COSMETICS

SKIN CARE

COSMECEUTICALS

PERFUME

HATS

WOMENS CLOTHES

HANDBAGS

SHOES

MENS CLOTHES

0 20 40 60 80 100

On top of these organic consumer trends
pushing online shoppers to spend overseas,
there have been deliberate government
initiatives serving as a catalyst for increased
cross-border ecommerce and the seamless flow
of products entering China.
The Shanghai Pilot Free Trade Zone (FTZ) is
the latest government driver to facilitate the
purchasing of foreign products in China. Coming
30. into existence in 2013, the FTZ aims to open
China Briefing,
Shanghai – Choosing an up China to foreign players, thus to drive the
Office Location in emerging trend for Western products.
Shanghai, 2014.
The FTZ lowers a number of financial barriers
and approval procedures for setting up business
in China, allowing foreign players to compete
in the domestic market. The 29-square-km
area in the Chinese financial hub promises
free trade, greater financial opening and fewer
government controls in business activities.
According to the Shanghai Statistics Bureau,
close to 10,000 businesses had registered
within the FTZ as of June 2014—661 of which
were foreign-invested enterprises.30

PAYVISION 40
 Tapping into China
4.9
On top of this, the FTZ allows yuan conversion
and unrestricted currency exchange. Foreign
invested enterprises registered in the Zone may
now make foreign exchange capital account
settlements at their own discretion.
As part of the FTZ initiative, China has recently
launched six pilot cities —Zhengzhou, Shanghai,
Chongqing, Ningbo and two operating in Hang-
zhou— in which favorable economic and foreign
trade conditions exist. Clearance procedures
have been simplified; customs traditionally were
charged per item, but can be arranged in bulk
for a flat fee of RMB 300 within the Zone.
Previously prohibited items are now allowed
within the FTZ, such as game consoles. Under
these conditions, Sony have made their first
console launch in China since 2000. The Xbox
One was launched in the FTZ in September
2014, and will begin selling the PlayStation 4 in
December.
Outside of the FTZ in China, customs require
that personal postage items to or from overseas
must be limited to RMB 1000 (USD 160), or
they will be rejected. If an item exceeds RMB
31.
General Administration
500 (USD 80) in value, customs charges will
be applied.31 Such rules significantly restrict
cross-border ecommerce opportunities outside
of Customs China
the FTZ.
Outside of the FTZ in China, customs require
that personal postage items to or from over-
seas must be limited to RMB 1000 (USD 160),
or they will be rejected. If an item exceeds
RMB 500 (USD 80) in value, customs charges
will be applied. Such rules significantly restrict
cross-border ecommerce opportunities outside
the FTZ.
Marks Xin, Business Development (BD)
Director at Shanghai Baipinhui Ecommerce
Company (BPH), explains further how the pilot
cities help overseas merchants with these
unique trading conditions.
PAYVISION
“ Now, each person in China can
transfer USD 50,000 per year, which
means a normal Chinese family with
6 (himself, parents, wife and wife’s
parents) can spend up to USD 300,000
for international shopping. With
large popularity, it is a tremendous
business opportunity for oversea
merchants. Furthermore, under
the new trading police, merchants
only need to pay the personal
parcel tax which must be lower
compared with Value Added Tax (VAT)
and consumption tax. Brilliant
for international business.
“ For businesses operating within the
pilot cities, money can be
transferred overseas directly
without restriction. A customer pays
in RMB via their preferred payment
platform such as AliPay, and it is
automatically converted into USD,
GBP or EUR. As a result, they do not
need to pay extra charges during
the money exchanging operations.
“ Foreign businesses now can join
Chinese online market platforms
such as Tmall Global to promote
and sell their products. Also if
the tax is lower than RMB 50,
merchants even do not need to pay
this personal parcel tax (mentioned
above). Otherwise, they just pay
the personal parcel tax. Moreover,
the pilot city helps international
merchants achieve low logistics costs,
short delivery times and customs
clearance.” Marks Xin, BD Director of BPH
Q.City is one such pilot city, a ‘quality lifestyle
city’ funded by the Zhejiang Qiansheng Holding
Group. The city aims to attract international
merchants selling into China by providing a
41
 Tapping into China

4.9
one-stop-shop service for international busi- Thanks to emerging consumer trends, inherent
ness. shopping culture and deliberate government
initiatives to open up China to foreign players,
The city is focused on exceptional customer the cross-border ecommerce import market is
experience, a key driver for successful busi- ticking a time-bomb ready to explode.
ness in an increasingly social media-based,
content-creating society. As long as China can address the looming
skilled workforce deficit, ecommerce in China
Q.City sets up international merchants with will see ground breaking results in years to
translated and localized ecommerce platforms, come.
a process often deemed complex and thus
off-putting to Western merchants. Moreover, China’s cross-border ecommerce
the city manages stock levels, customs clear- value is projected to reach USD 1.1
32. ance, tax complications, reporting and even trillion by 2016. 32
iResearch - China Cross
Border eCommerce product promotion, all the historical barriers to
Report 2013 entry for international businesses. In an increasingly saturated Western ecom-
merce market, this figure is an enormous
On top of this, the end-to-end service scope ecommerce pie that international merchants
for merchants includes a beautiful showroom simply cannot afford not to take a piece of.
for consumers to touch and feel the products,
quality control to reject damaged or infe-
rior products, 24/7 security surveillance for
high-end items, and temperature controlled
storage for consumables, such as wine and
dairy.

And this is just one example of all the pilot cities

in China that run the same level of support
for international merchants. Q.City has been
incredibly successful in a short space of time,
already handling over 10,000 packages a day
within 3 months of being operational.

PAYVISION 42
Tapping into China

The FTZ allows foreign

players to compete in
the domestic market.
The 29-square-km area
promises free trade,
greater financial
openings and fewer
government controls
in business activities.

Close to 10,000
businesses had
registered within the
FTZ as of June 2014 —
661 of which were
foreign-invested
enterprises.

PAYVISION 43
 Tapping into China

5. conclusion

NEW

5.1 WHAT NOW AND WHAT NEXT

China’s cross-border ecommerce value is expected to
reach USD 1.1 trillion by 2016

A truly overwhelming figure, especially consid- But what steps should Western merchants
ering the global ecommerce value in 2013 take to enter the Chinese market, and be truly
was USD 1.25 trillion; by 2016 China could be successful?
driving that amount alone. But to claim a piece
of this cross-border pie, Western merchants
must overcome their fear of Asian markets.

PAYVISION 44
 Tapping into China
5.1.1 PROMOTE western brands
Chinese consumers of today, mostly females,
are actively searching the Internet for Western
brands, after safety concerns of local brands in
the domestic market. A large number of these
female consumers are looking for products they
can trust, such as baby food, cosmetics and skin
care.
5.1.2 engage in LOCAL PARTNERSHIPS
Following government initiatives to open China
to the cross-border ecommerce import market,
now is the perfect time to capitalize on local
partnerships. The Shanghai Free Trade Zone,
and the pilot city schemes create an ideal trade
environment for Western merchants, conditions
unavailable outside the FTZ.
Join a pilot city scheme to minimize
complications over taxes, customs clearance,
localization and logistics. The pilot cities, as part
of an end-to-end service, will ensure presence
5.1.3 BE MOBILE
M-commerce and mobile payments are
increasing in popularity all over the globe, more
people rely on their handheld devices every day.
It is predicted that by 2020 almost all payments
will be made via a mobile device.
Unlike the Western world, mobile is the primary
vehicle to the Internet for 80% of users and
a large proportion of online consumers are
already making payments via this method.
PAYVISION
Embrace this key selling point; Western
brands are trusted and valued in China for
reliability. Harness the energy for international
products in China.
on the correct ecommerce platforms, social
networks as well as providing perfect customer
service, all incredibly important drivers for being
seen and trusted by Chinese consumers.
On top, partner with a global acquiring
network to gain access to local financial
institutions within the market. A local network
will lower barriers and complexities for overseas
merchants entering China.
Mobile commerce in China is integrated with
social media, a huge sales driver in a market
where consumers create and curate valuable
content on a far higher scale that in the West.
Be mobile-ready and prepared to accept
payments via mobile devices to ensure success
in this market.
45
 Tapping into China
5.1.4 BE sensitive to CULTURAL differences
Chinese consumers are becoming more digital,
tech-savvy and less cash-based. Thanks to
a desire to shop online overseas, Chinese
consumers have embraced spending on credit,
a payment method previously disrespected and
mistrusted in society. As a result, they are able
to access other international markets; credit
cards are a key driver for cross-border ecom-
merce.
Chinese consumers are not, however, becoming
‘Westernized’. Chinese culture remains as
important in society and in business as ever.
Merchants entering China from the West are
experiencing barriers to doing business by
executing Western business tactics and aggres-
sive sales techniques. There is an underlying
PAYVISION
fear in China that businesses from the West are
attempting to colonize China, which in turn is
drawing back the open doors for international
business.
Be familiar and comfortable with
Chinese business culture. To be
successful in this market, business takes longer,
trust must be earned and personal relationships
are of highest importance. Working with China
with a Western business attitude will be met
with skepticism and mistrust.
For Western merchants to realize
true cross-border ecommerce
growth, now is the time to tap into
China.
46
 Tapping into China
6. About the Publishers
and Editors
6.1 About Payvision
Payvision is a fast growing, independent
Payment Solution Provider specialized in Global
Card Payments for the ecommerce market.
Payvision offers acquiring banks, agents,
Payment Service Providers, ISOs, MSPs and
their merchants a secure PCI DSS compliant,
PSD Licensed international payment processing
network enhanced with innovative technology.
Over the past decade, Payvision has consistently
expanded its geographical footprint across the
continents, resulting in vast knowledge and
insight in the complexity of Card Payments and
ecommerce in a global market subject to great
challenges such as unprecedented technological
6.2 About the Author
Keira McDermott
Keira McDermott is a B2B Content Writer for
Payvision. Prior to becoming a part of the
Payvision marketing department, she worked
for Belkin as an Online Marketing Specialist.
PAYVISION
innovation, changing business needs and an
increasingly demanding regulatory landscape.
Payvision’s experience in the different interna-
tional regions has resulted in a global network
of global acquiring banks, connecting over
300 trusted business partners with more than
5000 web merchants worldwide, for which we
process over 100 million transactions a year.
PAYVISION
Global Card Processing
Keira is a graduate in English from Oxford
Brookes University. She is the author of the Key
Business Drivers and Opportunities in Cross-
border Ecommerce white paper, as well as the
Payvision infographics, available for download
on the Payvision website.
47
 Tapping into China

6.3 About the Editor

Rolf Visser

Rolf Visser is the Vice President of Global

Marketing at Payvision, an independent global
card processor for the ecommerce industry. In
an expanding cross-border ecommerce market,
Payvision is one of the fastest-growing global
acquiring networks, connecting Acquiring Banks,
PSPs, ISOs and their merchants to ONE Global
Acquiring Platform, based on a non-competitive
partnership model.

Rolf is also the Chairman and Co-founder of the

CBEC (Cross-Border Ecommerce Community),
a strategic global cross-border knowledge hub
for the ecommerce industry. The CBEC focuses
on sharing research and knowledge, thus
educating the ecommerce market in a variety of
disciplines and industries.

Rolf is a graduate in Digital Internet Marketing

with Highest Honors from Beeckestijn Business
School at VU University of Amsterdam, with
12 years’ experience in the retail POS industry
prior to 12 further years’ experience in interna-
tional marketing. The last six years of his work
have been in ecommerce and the payment
industry.

Rolf has a forward thinking marketing vision,

introducing multichannel, inbound marketing
techniques and an award-winning business
model, helping transform and elevate busi-
nesses through brand equity. (http://nl.linkedin.
com/pub/rolf-visser/0/473/ab6)

PAYVISION 48
Tapping into China

Payvision, an independent global card

O
processor, offers international payment
service providers and ISOs unprecedented
business opportunities by connecting them to

NE acquiring banks in our global card payment

network. Payvision has the in-house expertise
to offer global domestic acquiring for cross-
border ecommerce. Payvision provides its
customers with:

One payment platform for

global card processing
• Global domestic acquiring • One internationally
with the same quality in approved risk and under-
each region writing protocol
• 150+ transaction currencies • Cost reduction and optimiza-
and regional card settle- tion for profitable cross-
ment currencies border ecommerce
• Risk and fraud management • 24/7 support
solutions
• One single high-end
reporting interface for
worldwide transactions

For more information visit www.payvision.com

PAYVISION 49
 Tapping into China

Connecting the Dots

One Full service Payment Platform For all your
transactions. Global domestic Aquiring with the same
quality in each region.

GLOBAL CARD
PROCESSING

INNOVATIVE
PAYMENTS
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Tapping into China

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