Introduction China’s booming economy and increasingly affluent younger generation presents huge opportunities for Western brands, but tapping into that potential can be daunting. There is already fierce competition, there are language and cultural barriers, differences in business culture and an opaque regulatory environment. In many cases, international brands and retailers turn to advisors with expertise in China for advice on how to approach the market and to established providers for operational support: China’s consumer market is so different that it’s unlikely companies will succeed by simply replicating what they do at home or in other export markets. This guide aims to provide introductory information on how Western retailers can tap into the power of China’s online marketplaces to enter and expand in the fast-growing market. In particular, this guide provides an overview of e-commerce giant Alibaba’s platforms under the Tmall brand. Enter and Expand into China Through Marketplaces Online marketplaces that feature imported goods and international sellers are popular among consumers in China. Alibaba’s cross-border platform Tmall Global was cited as the most popular channel for buying imported products by 58.2% of the 2,253 people who responded to an iiMedia Research survey. China’s e-commerce is also highly concentrated: Top players Tmall and JD.com accounted for 60% and 26%, respectively, of GMV in the online retail B2C market in China in the third quarter of 2018, according to insight providers China Internet Watch and Analysis. That leaves only a 14% market share split among the smaller players. This makes online marketplaces a valuable channel for international brands and retailers looking to expand into China – and the dominance of a couple of players means that working with one partner can deliver considerable market reach. Why Alibaba? Alibaba is the world’s largest online and mobile commerce company, with some 700 million monthly active users as of December 2018, according to the company. Alibaba offers international brands and retailers looking to expand into China an umbrella of platforms and support services. According to the company, the biggest advantages of Alibaba include:

• Choosing from a variety of Tmall platforms, based on strategic priorities.
• Access to the huge pool of active users.
• Access to support through Alibaba’s divisions, including payments (Alipay), marketing solutions (Alimama) and logistics (Cainiao).
• Teams in the US and in China that can advise on operational aspects of cross-border e-commerce and selling into China.

Alibaba aims to provide support and flexibility to help companies new to China to test the waters first, then create a more established presence once the brand has gained traction with consumers. Tmall vs. Tmall Global International brands and retailers already in China can use Tmall or Tmall Global. Tmall is China’s largest B2C marketplace for brands and retailers. Tmall carries both domestic and Western brands, but they must already have a business license and local operations in China. Over 180,000 brands have storefronts on Tmall – including Starbucks, Nike, Uniqlo, Zara, Victoria’s Secret, Apple, Estée Lauder and Lancôme. [caption id="attachment_84629" align="aligncenter" width="720"] International brands on Tmall.com
Source: Tmall.com [/caption]   Tmall handles billions of transactions every month, including online shopping, digital payments, order fulfillment and a variety of daily services. This combination delivers significant insight into consumer behavior and trends in China. Tmall Global (tmall.hk) is a dedicated channel for cross-border e-commerce — i.e., it sells imported products. Tmall Global enables medium- to larger-sized international brands and retailers with existing brand awareness in China but no local operations to build virtual storefronts to sell and ship products into China. [caption id="attachment_84630" align="aligncenter" width="720"] International brands on Tmall.hk
Source: Tmall.hk [/caption]   Launched in 2014, Tmall Global has grown into one of the largest and most comprehensive cross-border B2C online marketplaces targeting the China market. The platform carries more than 18,000 brands and 3,900 categories of imported goods from 75 countries and regions, according to the company. [caption id="attachment_84631" align="aligncenter" width="720"] Source: Alibaba/Coresight Research[/caption]   The advantages for international firms selling on Tmall Global include:

• Selling into China without the need to set up a Chinese entity.
• Quickly reach the massive Tmall customer base.
• International shipments are simplified as Tmall fulfills orders to China internationally (from warehouses outside China).
• Alibaba’s logistics network, which cuts fulfillment time.
• Alibaba’s payment methods (Alipay) – one of the most popular payment methods in China.
• No need to set up a local bank account, enabling the vendor to get paid in the preferred currency into a bank account outside China (e.g. in USD in a US bank account).

Having a presence on Tmall “classic” requires a stronger commitment to the market but gives greater visibility as shoppers can find products on the regular Tmall portal without specifically looking for imported products on Tmall Global. Alibaba’s Platform for Brands Newer to China In addition to Tmall and Tmall Global — which are aimed at more established companies with some presence in China — Alibaba provides support to smaller and medium-size brands that are newer to China to test the market through one of two dedicated platforms:

• Tmall Overseas Fulfillment (TOF): Enables brands to enter China without committing to a large initial investment. With TOF, Alibaba handles operations such as marketing and fulfillment, while products are stored in overseas warehouses by the brand. Products listed through TOF are displayed on a multi-brand store on Tmall Global and operated by Tmall itself.
• Tmall Direct Imports (TDI): A direct sales channel under Tmall Global which enables brands with a level of recognition in China — but not established in the market enough to feature directly on Tmall Global — to list products on a Tmall Global Direct Import storefront on Tmall Global marketplace.

Smaller and medium-sized brands can use TOF and TDI to test the market and gain a better understanding of China’s consumers to inform an overall strategy for China. Keys to Success One example of an international brand that successfully expanded into China through Alibaba’s platforms is Evereden, a US baby skincare brand. Evereden implemented a China-specific marketing strategy based on celebrity endorsement and live streaming to increase brand recognition. The company accessed the market via TOF during the test stage, to identify the right product mix for the Chinese consumer base, and after only three months the brand opened a flagship store on Tmall Global, achieving a visit-to-purchase conversion rate of 15-20% during its first month on the platform, according to Alibaba. Evereden’s example shows how international brands and retailers can gain valuable insight into the Chinese consumer to understand the best way to approach the market, what is the most effective marketing strategy to build brand recognition and what is the likely reception of the product mix. International brands and retailers looking to succeed in China need to be aware of the dynamics that make this market different, and why tools such as mobile, short video apps, and online-offline integration are particularly important to success, as we outline in our report 10 Trends for China E-Commerce 2019. Companies need support from advisory firms with deep knowledge of the market and connections in China to provide advice, from market entry strategy to expanding, and which can direct them to support services offered by platforms providers such as Alibaba. China Cross-Border E-Commerce: Context and Opportunities China continues to be a large and fast-growing e-commerce market with significant opportunity for international brands and retailers willing to commit the resources to succeed. China is significantly outpacing other large markets in terms of retail sales growth. In January 2019 (latest), China’s retail sales grew 8.2% year over year, versus 2.3% and 2.2% growth in the US and the EU respectively, according to the National Bureau of Statistics of China, the US Census Bureau and Eurostat. By 2022, the value of China’s retail market is expected to exceed the US by some $700 billion, according to eMarketer. As we have seen, e-commerce is a key channel to reach Chinese consumers. Some 30% of total retail sales in China were online in 2018, according to eMarketer. China e-commerce is expected to grow by a 15% CAGR in the five years through 2023, to reach $1.2 trillion, according to Euromonitor International. [caption id="attachment_84632" align="aligncenter" width="720"] Source: Euromonitor International [/caption]   Chinese demand for imported international brands has created a huge, high-growth market for imports sold online. eMarketer estimates the market grew by 27.6% in 2017 (latest) and forecasts a 15.3% year-over-year rise in cross-border e-commerce sales for 2018. A number of factors are boosting consumer demand for imported goods, including:

• Government initiatives, including cross-border e-commerce pilot zones in cities such as Hangzhou and Shanghai.
• Often lower prices for Western brands online.
• Increasing disposable incomes and lrising iving standards in China.
• The perception of overseas brands being higher quality.

In addition, China’s new e-commerce law, which came into effect on January 1, 2019, raised the tax exempt limit for cross-border e-commerce purchases. As a result, we expect to see greater demand for imported goods through online channels, especially for luxury brands and big-ticket items, as consumers take advantage of the higher purchase limits. There is particular demand for groceries and other consumer packaged goods (CPGs), including beauty and personal care products, mother and baby items, and food and healthcare products – product categories in which quality and safety standards are particularly important. [caption id="attachment_84633" align="aligncenter" width="604"] Base: 1,596 Chinese Internet users, surveyed in 2016.
Source: iResearch [/caption]   Conclusion Tmall platforms offer Western companies a valuable channel to access consumers in China, with different options depending on level of presence in the market, such as Tmall or Tmall Global (depending on whether they have operations in China or not), and to smaller firms through TOF and TDI. China is a large, fast growing and fast-changing consumer market that largely works with unique dynamics compared to other markets. International brands and retailers looking to succeed in this complex environment can benefit from partnering with an established player with deep knowledge of the local market and extensive local operational capabilities.