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Are cross-border sales in China at a tipping point?

Chinese cross-border e-commerce has reached a turning point, according to new research from Oliver Wyman.

Online spending offshore by Mainland Chinese reached RMB 120 billion (US$17.963 billion) in 2015 according to iResearch, and is expected to grow more than 60 per cent, reaching 7 per cent of total Chinese e-commerce value by 2018.

However, Oliver Wyman warns increasing regulation may mean the industry has now reached an inflection point.

“Chinese consumers are probably the most informed and digitalised in the world,” said Wai-Chan Chan, Oliver Wyman partner and author of the report. “As Chinese consumers travel abroad, they are increasingly aware of offline prices around the world.

“Cross-border e-commerce provides Chinese consumers with access to the best products at the best prices without leaving home. At the same time, companies entering or currently in the market need to consider their positions.”

The report, titled Shopping Without Boundaries found that one in five online Chinese shoppers made a purchase on cross-border e-commerce platforms in 2015, double the proportion in 2014. This represents more than three per cent of total e-commerce transactions in China including both B2C and C2C.

Today’s cross-border e-commerce businesses expanded out of the Daigou model which involved small businesses abroad who brought or sent products back to China. In 2013, the Chinese government established experimental zones of cross-border e-commerce for better regulation. Shanghai was the first to be selected, followed by 11 further cities by June 2016.

International brand owners and retailers are taking advantage of the new channels through different models. The most common are platform providers such as Tmall International and self-operated players such as Jumei. JD Worldwide operates across both models. Vertical specialists have also emerged, including the rapidly-growing Xiao Hong Shu (Little Red Book) that has established itself as a challenger.

After a strong boom, the report finds that cross-border e-commerce has arrived at a tipping point.

“The future now seems unclear to many players due to a series of government regulations,” concluded the report. “Covering a wide range of topics such as tax, product safety, manufacturing standards and logistics, these regulations have not been fully defined and leave room for speculation.”

“While cross-border e-commerce still presents great opportunities, companies may want to have a Plan B in case the market dynamics change completely due to the new regulations,” added Chan.

The full report details how both incumbents and new brands should review and adapt their strategic approach to China’s cross-border e-commerce market. For example, incumbents need to define what role cross border e-commerce should play in their overall Chinese business while ensuring global price harmonisation.  New entrants need to select a product that appeals to online shoppers in China.

This story first appeared on sister site Inside Retail Asia.

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