In the past weeks we have elaborately explored cross-border e-commerce initiatives from China. The sales of Chinese factories and merchants selling directly to western consumers through platforms like AliExpress, Amazon, Shein and TikTok have grown rapidly in recent years. Among their reasons for a stronger focus on foreign markets are saturation in the Chinese domestic market and a lagging economic growth. On top of this, the Chinese government has asked Chinese internet companies to play a supporting role in helping manufacturers sell abroad and is handing out subsidies to make this happen. But the many initiatives are also facing challenges.
What works at home might not work abroad
In the previous article in this series we saw how TikTok is struggling with disappointing e-commerce sales in the UK, especially when compared to the company’s unrealistic goals for global GMV (Gross Merchandise Value). One problem seems to be that TikTok takes a strategy from China and expects it to work abroad as well. But rolling out the highly successful tactic of live commerce in China has not brought the expected results in the UK.
One of the success factors for live commerce in China is the ability of a popular host to negotiate substantial discounts from manufacturers and brands because they reach millions of consumers and can thereby guarantee a certain sales volume. European brands on the other hand are uncomfortable with the levels of discounting TikTok is asking for. As LatePost (link in Chinese) mentioned: “Brands will not disrupt their price system for a new channel with limited sales and uncertain future.”
In February 2022, William August, the founder of a marketing company for live commerce, published an explainer video on TikTok shopping on YouTube. He was – obviously – very enthusiastic about the prospects of live commerce. But watching his video I couldn’t help but notice the numbers in the right top corner of the examples of livestreams he was showing. These numbers represent the number of people watching the concerned stream. In his video they range from 4 to 54, with one exception of 166. They might not be representative, but do you think that’s enough to get the amazing discounts the maker of the video is talking about?
Another reason for the lack of success of live commerce that gets mentioned is that influencers would rather make well-paid short videos for a brand than spend tiresome hours livestreaming with little potential pay, even if TikTok offers them a flat fee compensation.
Personally, I think a lot of the context that makes live commerce a success in China is absent in western markets where TikTok is trying to make it successful. In China live commerce is extremely popular among citizens in smaller cities and rural areas where retail infrastructure is often limited. These circumstances have been one of the main drivers for the success of e-commerce in China and live commerce is simply an advanced form of e-commerce. The concerned online shoppers from these markets have more time and less disposable income compared to those in bigger cities (according to data by Fastdata, 75% of buyers on live commerce earned less than RMB 5.000, or €700 per month). Hence, they are always keen on grabbing a discounted product that has been preselected by the livestream hosts’ teams and is thereby guaranteed to be of high quality. Add seamless integration of e-commerce in Chinese apps, skilful hosts that know how to sell and a ‘fear of missing out’ on good deals and you have all the ingredients for successful live commerce in China (as I describe in more detail in a keynote). Not only is this cultural context missing in the west, but we are also still more used targeted searching and buying on websites than making impulsive purchases while watching long livestreams.
When Chinese merchants do decide to promote their products through livestreams, they have three options: use their own staff, hired Chinese that can speak fluent English to make content or use locals in their target markets. As we’ve seen in the previous article, this last option can be prohibitively expensive considering the higher wages in the target market. On the other hand, language skills of Chinese often leave much to be desired. A host with bad communication does not help trust in purchasing from the concerned merchants. Besides, it puts more emphasis on its often-considered controversial origins.
Sixth Tone recently reported on an interesting trend in which Chinese teachers of the English language that have become jobless after the Chinese government banned after-school tutoring in the summer of 2021 are now working as livestream hosts. Their language skills are a clear advantage, although many will lack good sales skills or be as passionate about selling to an invisible audience as they were about teaching a foreign language to kids. The documentary that Sixth Tone made is well worth watching.
Level playing field
Another challenge for cross-border e-commerce from China are the changing policies in western markets that want to create a more level playing field. More and more often Chinese platforms are being subjected to the same regulations as those for domestic players in Europe and America. AliExpress’ sales in Europe have come under pressure since the EU scrapped the maximum value of €22 at which packages from outside the EU were exempt from value-added-tax. Previously this meant that most of the low-cost goods from China could be sold through cross-border e-commerce without paying tax. Now value-added tax and possibly also customs clearance fees will be added to the price of purchases from China. A purchase that would previously cost €10 on a Chinese platform might now be double the costs.
Chinese cross-border merchants are also facing increased postage costs in the coming years. Under the 1969 system of ‘terminal dues’ of the Universal Postal Union (UPU), China was considered a ‘group III’ developing country and therefore paid lower international postal fees. This has made it ridiculously cheap for Chinese merchants to send postage packages around the world. When in the past decade the amount of cross-border e-commerce sent by mail from China increased, the US started to run a net deficit in international mail. In Europe and the US e-Commerce companies complained that it’s more expensive for them to ship in their own country than it is for Chinese companies to deliver from the other side of the world.
The US threatened to pull out of the UPU, which compromised by allowing postage fees to increase by 164% between 2020 and 2025. This will either hurt the margin of the e-commerce merchants or result in higher prices for consumers.
Chinese platforms like AliExpress are also being forced to make their terms and conditions compliant with those that apply on the European market, like the right to return products within 14 days of receipt. Europeans can now file a dispute with a court in their home country instead of in Hong Kong, as AliExpress previously required.
And then there’s the issue mentioned in a previous article in this series as one of the problems Amazon ran into: trademark counterfeits and copyright pirates. AliExpress was placed on the ‘notorious markets’ list by the US government in 2022. Another blow to Alibaba’s reputation, even though inclusion on the list does not come with actual penalties. Meanwhile, Wish has been removed from Google search results and its app store in France because items sold on the platform did not comply with European regulations.
In the meantime, consumer rights organisations continue to warn about inferior quality and unsafe products sold on Chinese platforms. A recent consumer survey (link in Dutch) by a Dutch consumer rights organisation found that almost one third of respondents said they had bought products that did not meet expectations on webshops outside the EU. Drop shipment platform Wish was often mentioned by those respondents.
Sesame won’t always open
Chinese internet companies are finding that being the market leader at home does not guarantee success abroad. Even if those markets are close to home. In July Alibaba announced that it will be shutting down its TMall Hong Kong after October 2022, less than one and a half year after its launch. Compared to local market leader HKTVmall, Alibaba lacked understanding of Hong Kong consumers. Tmall Hong Kong also depended on third parties for logistics and therefore could not provide delivery on par with well-established local player HKTVmall. Alibaba said it would continue to serve the Hong Kong market through its mainland Taobao platform.
Although probably one of the most well-known cross-border e-com platforms, Alibaba’s AliExpress has never been as successful as it should have been, considering how well-connected Alibaba is to Chinese manufacturers. When AliExpress was launched in 2010 it clearly wasn’t a high priority for Alibaba, which was still growing strongly in the domestic market. Later, it had to deal with competitors like JD.com, Pinduoduo and more recently Douyin and Kuaishou that have been chipping away at its market share.
LatePost (link in Chinese) reported that it wasn’t always easy to sell domestic products on the global market: different standards for plugs and voltages, different clothing sizes, etc. Eventually, former Taobao staff tried to copy successful strategies from Taobao to AliExpress. But as a result, AliExpress lacked optimisation for local consumer experiences. Some countries are not used to in-app coupons that are common in China and when discounts were not converted to local currencies this sometimes resulted in culturally unconventional or even unlucky numbers. Images rarely showed black people or Muslims when selling to regions where they were the majority. The repurchase rate at AliExpress was only a fraction of that of Taobao.
For logistics, AliExpress had to rely on Cainiao, a joint-venture between Alibaba and a number of logistical service providers. But Cainiao also must consider the interests of other group members. The standardised shipping options of 20-, 10- and 5-day delivery that Cainiao offered at respectively $2, $5 and $10 were far from optimal for AliExpress. Not enough to compete with fast and low-cost delivery of competitor Shein, which has been extraordinarily successful in western markets.
Although AliExpress covers 200 countries and Alibaba’s Lazada only 6 in Southeast Asia, the GMV of AliExpress is only slightly higher. In a recent reorganisation the European AliExpress team has been transferred to Alibaba’s Lazada division and the former head of domestic platforms Tmall and Taobao has been made head of Alibaba’s overseas business. It remains to be seen if this will be enough to make the platform gain traction in a global market that is more hostile and has more competitors than when AliExpress was launched. And the number of competitors will most likely only increase. According to LatePost (link in Chinese) Pinduoduo is also working on cross-border initiatives…
In the meantime, SCMP reports that Alibaba is scaling up cross-border e-commerce activities in cooperation with the government of its hometown Hangzhou. Hangzhou hosts one of the 132 cross-border e-commerce pilot sites in the country and has recently set up a special support fund worth 5 billion yuan (€725 million) for help in finance, talent and logistics. Alibaba will support “a number of cross-border e-commerce brands and key enterprises”. The initiative is supposed to counter competition from Vietnam and other emerging markets.
Despite all these challenges you can rest assured that Chinese platforms and merchants will find new ways to reach western consumers. Take for instance the surprising turn of events when Shein, despite breakneck growth of its own platform in the past years, opened stores on Amazon US, UK, France and Germany in July. Which brings us full-circle to where this series on cross-border commerce from China began: with Chinese merchants selling on Amazon.