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As the world’s largest e-commerce retail market, China is a beacon for foreign brands. For companies looking to get online in China, there also is a lot to do offline. Sarah Morgan reports.
China’s online retail sales were due to surpass the combined retail sales of the 10 next-largest markets in the world in 2019, according to the “China digital consumer trends 2019” report published by McKinsey & Company (US), the consulting firm.
“It’s only natural that when people hear about the size of this online market, they want a part of it,” opined George Chan, Head of the Simmons & Simmons (Beijing) Intellectual Property Agency Company (China), and moderator of yesterday’s panel session Bringing Your Business Online in China.
He explained that many brand owners receive advice such as, “Bring your product to China, it will sell.” “Just get it online, there’ll be buyers lining up.” “The process is easy and straightforward.”
“This is all terrible advice,” Mr. Chan declared—and the panel went on to explain why. The discussion explored both the online and the offline markets in China.
“If you’re manufacturing in China, register in China as well, otherwise someone is going to see that brand and it will be counterfeited.” - Donna Short, Addisons
Back to Basics
Beginning from a legal perspective, Donna Short, Partner at Addisons (Australia), said: “China is a massive market and every six months around a million trademarks are registered, so don’t be surprised if your client’s trademark is not available; it is also likely to be blocked by another mark.”
As China is a first-to-file country, it is essential that companies register their trademarks before launching their brands in the country. Applicants may choose to either file nationally in China or internationally through the Madrid System, designating China.
However, Ms. Short noted, it is sometimes better to file nationally, because the country has its own subclassification system.
“If you’re manufacturing in China, register in China as well, otherwise someone is going to see that brand and it will be counterfeited. If you’ve filed your trademark registration with Chinese Customs, they can stop the export of counterfeits,” she said.
Tim Brown, Chief Business Officer of Health More (Australia), added his own “horror story” to illustrate the point, citing the case of a New Zealand-based skincare brand that gained sudden popularity in China and had to boost its manufacturing. Within six months, a squatter registered the brand’s trademark, effectively cutting off all its online sales in the country.
“If they had put proper protections in place, they could have grown to become one of the most successful skincare brands in the region,” he stated.
“No matter where the customer hears about your product, they’re typically going to go to an Alibaba site to look for your products. If you’re not there, you’re likely to miss a huge amount of traffic.” - Elijah Whaley, PARKLU, KOL Relationship Management & Analytics
A Clear Strategy
Aside from ensuring trademarks are registered, brands looking to access the online market in China must consider where they will distribute their products.
Elijah Whaley, Chief Marketing Officer, PARKLU, KOL Relationship Management & Analytics (China), said: “Increasingly, there are a number of e-commerce and social commerce ways of delivering your products online to customers. The number one thing is not to be fooled—Alibaba owns nearly 60 percent of the e-commerce market in China.
“No matter where the customer hears about your product, they’re typically going to go to an Alibaba site to look for your products. If you’re not there, you’re likely to miss a huge amount of traffic.”
The panel discussed three distribution options: domestic platforms, international platforms, and daigou—this is the term for a person who buys goods on behalf of someone living in mainland China. Literally translated, it means “professional buyers.”
“There are advantages in using daigou as their goods get into the market, and it also increases demand as more and more consumers see them. The downside is that you’ve got no control over the sales,” said Ms. Short.
“It’s only natural that when people hear about the size of this online market, they want a part of it.” - George Chan, Simmons & Simmons IP Agency Company
Free trade zones can help facilitate companies’ entry into the market. They are designated areas in China where foreign companies can engage in economic activities that are generally not accepted in other parts of the country. Products are shipped in bulk to warehouses, managed by the Chinese government or private entities, in these zones and temporarily stored under the supervision of Customs, before being sold in the country.
Health More, which distributes and sells health, wellness, beauty, and other products, operates from three different free trade zones in China. Mr. Brown explained that it was an “obvious workaround” to registering and selling products for general trade, as it doesn’t involve issues such as labeling.
“Using a free trade zone sounds great, but the reality is that there are many little rules and it is complex. You really do need a local partner,” said Mr. Brown.
On domestic platforms, he noted, the difficulty of registering for general trade is very category-specific. For example, skincare and beauty products must be tested on animals before they can be sold in the domestic market.
In sum, brands must have a clear online strategy, according to Ms. Short. They can either set up their own company in China, sign an agreement with a Chinese partner, or enter a joint venture with a Chinese company.
She underscored the importance of having contracts in both English and Chinese languages and of localizing agreements, so that if something goes wrong, brands can enforce them in China.
“You can’t be everywhere, but you need a plan to be somewhere. If you develop that plan with experienced partners, you have a higher chance of being successful.” - Tim Brown, Health More
Influencers and the Internet
The journey doesn’t stop there. After entering the online market, brands must figure out their marketing strategy. Influencers such as key opinion consumers (KOCs) and key opinion leaders (KOLs) can play a particularly important role in the marketing mix.
“It is a very dynamic time right now in China,” said Mr. Whaley, explaining that brands are trying to “identify customers who not only love their brand but have influence.”
He added that while brands have always had advocates and have talked about advocacy as being a very important strategy, “the advent of the Internet and social media has allowed brands to turn their customers into sales and marketing channels.”
Brands that choose to engage with KOCs and KOLs must be careful to ensure that contracts are in place and, according to Mr. Whaley, should work with professionals who know how to manage them.
Aside from influencers, Mr. Brown encouraged brands to speak with others already in the market to help develop their own marketing strategies.
“You can’t be everywhere, but you need a plan to be somewhere,” he said. “If you develop that plan with experienced partners, you have a higher chance of being successful.”
When asked for advice he would give others entering the market, Mr. Brown said: “We will never understand all the depths of the Chinese market, but a shallow understanding will help with your journey as a brand to be successful there.”
He added: “Shrink your mouth and grow your ears.”
INTA 2020, e-commerce, McKinsey & Company, trademark registration, Madrid System, brand, Alibaba, free trade zones, online market