During the Spring Festival and the start of the Year of the Monkey, a news item regarding Chinese e-commerce suppliers became a talking point in Australia’s business community.
The news story ‘Tragedy! Classic Australian brand opens store on Tmall and loses 25,000 Australian dollars!’ shocked readers:
C Stuart is a classic Australian brand of no small size. For the last few decades it has concentrated on retail baby products. Among its well-known brands are Merino Baby, Big Softies and Snugtime.
At the beginning of 2014, C Stuart partnered with a Chinese supplier to sell Merino Baby products on Tmall. Although sales for the initial period did not meet expectations, the response from consumers was very positive.
Disaster struck at the end of 2015. C Stuart’s Chinese partner found that several hundred fake orders had suddenly appeared in the store, which after confirmation would then be cancelled within a few minutes. Reasons for the cancellation of the orders included insufficient stock or that the products could not be delivered on time. However, the CEO of C Stuart, Paul, declared that plenty of stock was available. He believes that this was a deliberately planned attack and that the attackers had a deep understanding of Tmall’s system.
Before opening a store, according to Tmall’s requirements, C Stuart had to pay Tmall a 100,000 RMB security deposit – valued at the time at $25,000 Australian dollars – to serve as compensation where customers possibly might have their orders cancelled due to the seller having insufficient stock. After several hundred orders had been cancelled, C Stuart’s bond was ‘appropriated’ by Tmall.
The investigation into the incident is still ongoing, but Tmall’s response to the issue has been relatively muted. Paul has already made the decision to close their Tmall store, with the $25,000 Australian deposit never to be seen again.
Paul has the following recommendation for other Australian companies currently considering whether to sell their goods to the Chinese market through a third party e-commerce platform: ‘Unless there is research showing they will be able to sell the products into the Chinese market, do not go into the Chinese market. And if you are thinking of providing Tmall with a security deposit, think about our experience, and judge whether the risk is worth it.’
A modern and successful business tested the waters on the world’s largest e-commerce platform in a huge 1.4 billion consumer market, with the result that it was sent home packing. This provides fellow businesses with a cautionary lesson.
We feel very sad for C Stuart about their experience in China. But Paul’s comments should not be considered as the final word on the matter!
In the last few years, e-commerce has taken over China. In 2009 Alibaba launched its first ‘Singles’ Day’ event and the amount traded on that single day for today’s Tmall, (formerly Taobao Mall), was 52 million Yuan; in 2010 this jumped to 936 million; in 2011, Taobao Mall and Taobao launched a joint promotion with transactions reaching 5.2 billion; in 2012, the total amount for all Tmall and Taobao transactions broke through 19.1 billion; in 2013 it was 36.2 billion; in 2014 it was 57.1 billion; in 2015 Singles’ Day – and only for Alibaba’s platform Tmall – reached 91.217 billion Yuan.
All this in only 7 years.
It’s a fairytale! A fairytale that happened in China!
The visage of the main architect of this fairytale and the boss of Alibaba, Ma Yun, has already come to represent the image of a God of Wealth and master businessman – one who is held in awe and respected by e-commerce suppliers.
In 2015, there were over 300 million consumers in China participating in internet shopping; total shopping expenditure reached 500 billion Australian dollars with a 50% increase year-on-year.
This year, China will come to have the first e-commerce retail market valued at 1 trillion US dollars.
By 2018 at the latest, the Chinese e-commerce domain will have become the largest online goods importing market in the world.
It seems to really validate the saying: do e-commerce or don’t do business at all!
But there have certainly also been those who have had a less than supercharged e-commerce experience – C Stuart, for example.
Accompanying this news is the fact that Australian products have a huge and extremely enviable market in China; countless Australian purchasing agents are throwing themselves into the buying process on a grand scale; with one masterstroke after another by large e-commerce suppliers and brands in Australia and China are jumping on board too.
A Massive Market
The Melamine Incident was a key turning point. Beginning with baby infant formula, infant products, and functional natural healthcare products, cosmetics, even to meat, crayfish, abalone, eggs, and seasonal fruits, the enthusiasm the Chinese consumers now have towards Australian products has become a genie that cannot be put back in its bottle.
One of Melbourne’s freight companies has revealed that the amount of Australian baby infant formula transported every week to China in 2015 was almost always at least 20 tonnes. This quickly created an Australian ‘infant formula famine’, and after inciting complaints from many Australian mothers, in the year just passed, Chinese consumers and their purchasing agents in Australia have now cast their eyes towards Australian fresh food products. A few rounds later and Australians now find themselves unable to buy Tasmanian cherries. Even branded biscuits one day may be available to all Australians but might be out of stock on the next. And, of course, there’s Blackmores and ships-worth of Penfolds currently arriving on Chinese shores.
In 2013, the total value of agricultural products exported from Australia to China was around 9 billion Australian dollars, more than that of any other country, and this has continued to grow in the following two years. The Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) has forecast that the proportion of global growth attributable to China in demand for agricultural products will get to 43% in 2050. At that time, half of all increased demand for Australian agricultural products will come from China.
But there is something else that has got Australian companies even more excited – over 80% of China’s customers for Australian products were born in or after the 1980s. That means that for the Australian products now making their mark in China, their attributes and characteristics have had a decisive impact on their main body of consumers, and this is the very same body of consumers that today, and also tomorrow, constitutes the backbone of China’s population and those with the greatest purchasing power!
Observers in this space have seen the business opportunities available. Hence there is a constant dance of investment and acquisition now unfolding between China and Australia focused around popular Australian products. Dominating the field is Biostime International Holdings Limited, a Hong Kong stock exchange listed company valued at 1.67 billion, that bought well-known Australian healthcare brand Swisse. They did not become shareholders, they did not form a partnership – they bought it outright!
The Amazing Purchasing Agents
‘daigou’ is not a word officially used in the English lexicon, nonetheless the Australian public is very familiar with the concept.
The vastness of the Chinese consumer landscape begins with individual purchasing agents – ‘daigou’. This kind of business model can not only enable Chinese-based consumers to buy top quality products at relatively low prices, they can also provide purchasing agent companies with quite ample returns, and once it emerged, this model took off in an extremely short period of time, and even today it is still the only pathway by which most Chinese consumers purchase their loved Australian products. In the last ten years, mass purchasing by daigou has become significant in Australia. The buyers have also become honoured customers of many Australian businesses as well as a thorn in the flesh of many an Australian housewife.
Blackmores has revealed that local purchasing agents have increased their yearly turnover by about 65 million dollars. Bellamy’s also estimates that as much as 40% of their baby infant formula last year was sold to China. During this time, total retail sales from third party e-commerce platforms reached 27 million dollars in six months, being nearly twice the figure for infant formula exported to and retailed in China through official company channels. Bellamy’s has already opened its own flagship store on Tmall.
In 2015, the scale of transactions in the Chinese overseas daigou market reached close to 300 billion RMB. On Taobao there are over 420,000 stores engaging in daigou operations, but it is more in people’s WeChat friendship circles that one can find vast numbers of daigou. There are 4,670 Australian agent businesses promoting Australian products on Chinese websites. On Taobao, there are nearly 900,000 Australian products listed for sale.
The first Australian daigou general meeting took place in Melbourne in 2015 and some migrant investors from China started to get involved in the purchasing agent scene. It would be impossible not to say that the blueprint of the daigou industry on display via that meeting was not impressive.
There are organizations forecasting that, with the exception of some terrible event, it is a foregone conclusion that the scale of the Chinese overseas daigou market will break through the 1 trillion Yuan barrier in 2018.
China has already unveiled a cross-border e-commerce ‘test city’ policy. Internet giants have followed, with cross border e-commerce platforms based in free trade zones or low-tax zones such as Tmall International, JD Overseas Shopping, NetEase KaoLa Shopping, Suning Overseas Shopping and so on emerging around these opportunities. Vast hoards of daigou have already laid the way for the realisation and development of cross-border e-commerce.
The Big Fish in the Pool
On 17 November 2014, China and Australia signed a free trade agreement and in the next four to eight years the vast majority of products exported to China from Australia will eventually be entirely tariff free. This is an extremely advantageous situation for Chinese-Australian cross-border e-commerce suppliers.
Sensing opportunity, Alibaba quickly announced on the following day, with its more than 800 million registered users and its subsidiary company Alipay Australia set up in Sydney doing an average of 80 million transactions every day, that it is going to be working with local companies promoting development of its operations in Australia locally, providing tailored cross border e-commerce solutions to grow the Chinese market and promote cross-border e-commerce between the two countries. At the same time, Alipay Australia began partnering with Australia Post selling, distributing and promoting Alipay Purchase Cards at 4,400 retailers for Australian consumers to use online at Tmall and Taobao. Soon after, the Taobao Australia Pavilion was released, providing a one-stop shop for e-commerce services ranging from product selection, to logistics, from customs to marketing and receivables, providing Australian food products and agricultural byproducts to Chinese consumers.
It was 2015 that exemplified the numbers and dominant position of cross border e-commerce suppliers. The big fish from each industry started to gradually take control of the Australian scene.
On 15 April 2015, JD Global Shopping formally went online, where consumers could select and buy high-quality imported and genuine products from countries like Australia at discounted prices and through quick and flexible channels, receive a high quality, one-stop shop, overseas purchasing experience.
On 29 June, JD Mall held an opening ceremony in Melbourne for its ‘JD Worldwide Australian Business Forum’ and ‘JD Worldwide Shopping Australia Mall’. At the meeting, JD announced three important points of cooperation: firstly, that they had concluded a strategic partnership with Australia Post in the areas of e-commerce and logistics, that both parties would offer product delivery and retrieval services in Australia and in China, and they unveiled strategic partnerships in many areas such as Australian and overseas storage, sea and air transportation, all-region direct postage for small parcels from Australia to China; secondly, that they had concluded a strategic partnership with Treasury Wine Estates, taking hold of a famous Australian wine brand in their palm in one stroke, and this implies that more than 80 famous wine brands under the Treasury Wine Estates banner will be relying on JD to enter the Chinese market; thirdly, that they have initiated a Chinese-Australian era of e-commerce together with Austrade, Australian Chamber of Commerce and Industry and Australia Post.
In July, JD spent 20 million Australian dollars to become Devondale and its milk powder’s sixth largest shareholder!
On 24 June, Alibaba’s Juhuasuan.com and Tmall International started a joint ‘global village’ format. Juhuasuan announced that it had initiated a comprehensive partnership process with the embassies of 20 countries, and it is hoped that more special overseas products might be sold on Juhuasuan for the first time.
Industry insiders predict that China’s two Internet purchasing giants, Alibaba and JD, will enter the Australian market in 2016 with real shopfronts supported by Internet stores. This will change the way Australians make purchases, and even their lifestyles.
Australia in Motion
It takes two to tango.
Many of Australia’s well-known brands are focused on retailing to their own Australian market and enormous interest from the Chinese market has caused an explosion in sales leaving some brands at a loss about what to do. Frequent problems such as stock shortages and insufficient capital, management, production capacity and productivity and so on have followed.
But some have responded very fast
As recently as the beginning of the year, one of Australia’s largest e-commerce pharmacy suppliers – Pharmacy Online – had already started entering the Chinese market, initiating direct-to-China postage services with their Chinese website being formally launched on 2 February! Chinese consumers could cross language, region, payment and other such barriers to easily purchase natural organic nutritional and healthcare products, skincare products, and mother and infant products from Australia.
In June, former Australian Prime Minister Kevin Rudd’s daughter, Jessica, entered the ‘Tmart Mall’, exclusively selling local Australian products. In October, she moved to JD where she opened a flagship store, mainly focusing on selling Australian infant and children products. Business boomed over the next several months. With plenty to be exuberant about, Jessica Rudd recommends that Australian companies ought to take hold of this business opportunity.
In September, Australia’s largest discount pharmacy chain, dubbed ‘heaven for Australian purchasing agents’ – Chemist Warehouse – signed an exclusive strategic cooperative agreement with Tmall International. In November they entered Tmall selling Australian healthcare, skincare and pharmaceutical products to Chinese consumers at discounted prices.
Before this, retail chain Metcash had also registered on a Chinese e-commerce platform.
Over the last year, Australia’s number one healthcare products company, Blackmores, saw their sales volumes on China’s e-commerce platforms increase exponentially, and they have been entering into partnerships with China’s main e-commerce suppliers. Due to their exceptional performance in the Chinese market, Blackmores’ Australian share price jumped to 100 Australian dollars per share.
PharmaCare’s e-commerce sales in China have already developed from their previous daigou method to a team-orientated company business model; they participated in both Singles’ Day (Double 11) and ‘Double 12’ events in China.
In November 2015, the RMB joined the SDR, which has been extremely advantageous for the Chinese-Australian e-commerce trade. To have cross-border e-commerce transactions calculated in RMB has reduced foreign exchange risks and costs, raised confidence between Australian companies and China towards trade, and is certain to increase significantly the volume of transactions.
On 23 December 2015, Australian supermarket chain Woolworths entered a partnership with e-commerce supplier eCargo, setting up an overseas flagship store in Tmall International with four special domains focusing on healthcare products, food, infants and skincare. The main focus is on products like milk powder, collagen, fish oils, cereals and skincare products, covering more than 80 varieties of products from many brands including Swisse, Blackmores, Red Wing, G&M, Kids Smart and so on. In terms of logistics and post-sale services, Woolworths has adopted a direct postage model, sending out goods directly from its Australian warehouses and has also partnered with Everfast Worldwide Express.
At the start of 2016, Australia Post formally unveiled the ‘Australian Pavilion’ with Alibaba’s 1688, providing an online platform for Australian companies selling large quantities of products to China and attracting Chinese importers to buy Australian products at discounted prices. At the moment, there are more than 100 million registered users on this platform. Australia Post’s Managing Director and CEO Ahmed Fahour has stated that China and Australia have entered a free trade era constituting a historical milestone, and this is an optimal time for Australian companies to enter China’s flourishing e-commerce area.
E-commerce suppliers have said that the last ten years have been a ‘golden decade’ for the development of China’s domestic e-commerce trade. They believe that the next ten years will be the ‘diamond decade’ for cross-border e-commerce.
China’s Singles’ Day and e-commerce explosion has informed us that today’s Chinese people have incredible purchasing power. But if we only look to China’s purchasing power and hastily enter the field – particularly in joining third party e-commerce platforms – from being in a foreign market, being completely unable to control sales, or by being forced to accept one-sided rules or even ridiculous and overreaching clauses on foreign platforms, to which is added a deficit in understanding for the habits and psychology of consumers in a foreign country and society’s general trust level, one may possibly endure a harsh baptism of fire as an inevitable outcome.
The fate of C Stuart in China should also cause some reflection on the part of China’s e-commerce suppliers. Being e-commerce suppliers who control the world’s largest e-commerce market, they should be particularly observant of fundamental business norms. Improvements in business standards grounded on win-win principles guarantees the quality of products based on a foundation of genuineness and on the integrity of the platform, and this is essential for protecting the healthy development of China’s e-commerce industry. Should consumer disputes continue to skyrocket; should ‘counterfeit goods’, fake sales reports, ‘negative feedback’, ‘unfair refund charges’, and such other key words jumbled about in Chinese e-commerce circles continue to exist; should hidden rules and ‘mysterious practices’ continue to run rife; should the ‘return my money QQ hoards’ continue to grow; should the platform staff ‘honchos’ continue to be unreasonable, dominating, and capricious, then even if your platform were to grow and your logistics services become more advanced, it will still be hard to avoid being shunned overseas brands or even outright rejection. The world is flat. And the idea of using asymmetric information and such other factors to gain an advantage belongs to a historical era that is soon coming to a close!
As a completely new business ecosystem of the Internet age, the revolution in cross-national commerce and operational models has arrived. Irrespective of whether you proceed through a distributor or wait for purchasing agents to clear the shelves; irrespective of whether you’re relying on the help of a third party platform or wanting to enter directly as a brand, when it comes to China and Australia do e-commerce or don’t do business at all! ‘Be there or be square’. No one can stop it no one can resist!
The Chinese-Australian e-commerce era has arrived. Apart from embracing it, there’s nothing you can do!