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How Can US Investors Access China’s E-Commerce Market?

November 25, 2016

U.S. Companies wishing to enter China’s e-commerce market can choose between a variety of investment models, each with their own advantages and disadvantages.

There are several methods a U.S. investor can use to access China’s e-commerce market. Investors can choose direct selling, selling through a third party, and cross border pilot programs. It all depends on how new the investor is to the market.

Model 1: Selling directly from a website hosted outside of China

This model appears the simplest for US investors new to the Chinese market, but it will be difficult to reach Chinese consumers who will have trouble finding the website, even if there is a Chinese language version. Shipping and import fees may delay delivery time and increase costs.

Model 2: Selling via a self-owned website in China

This method has all of the advantages of selling via a website outside China, but avoids delivery and customer support issues. However, it requires a local company registration and ICP filing, which can be taxing. Moreover, continuous investment in digital marketing and Search Engine Optimization (SEO) are required to attract customers to visit the website.

Model 3: Selling through a third party B2C platform within China

Using an established e-commerce platform such as Tmall or JD gives access to millions of Chinese shoppers, though at the cost of relinquishing complete autonomy over storefront management and marketing. The cost of using such platforms can also be high: platforms collect service fees and commissions, and sometimes require enlisting a third-party agency (TP), which demands additional fees.

Model 4: Selling through cross border pilot programs

Benefiting from preferential policies introduced by the Chinese government, this is a new model that sellers can enter a Chinese cross-border e-commerce platform and ship directly from overseas or fulfill orders through a bonded warehouse located in a special Chinese e-commerce pilot zone rather than set up a physical entity in China.

In summary, there are many different methods a US investor can use to penetrate the Chinese market. In order to be successful, it is crucial US businesses choose the correct model for their business needs.

Stay tuned for more on the state of China’s economy and tips for Doing Business in China. Contact our Global Tax Services Practice for more information.

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