Build, Operate, and Profit from a Cross-Border WeChat Shop in China June 20 th 2018, Portugal. A project financed by the European Union

Transcription

1 Build, Operate, and Profit from a Cross-Border WeChat Shop in China June 20 th 2018, Portugal A project financed by the European Union

2 Get Ready for China! The EU SME Centre is an EU Commission funded project which helps EU SMEs prepare to do business in China by providing them with a range of information, advice, training and support services. The Centre is implemented by a consortium of six partners and was established in October It successfully completed its first phase in July 2014 and has now entered its second phase which will run until July

3 About the Speaker Rafael Jimenez September 2017 Rafael Jimenez, MSc Physics. In China since Fields of experience: software development, food industry, international trade. Spanish. Three sons 3

4 Cross-Border WeChat Shop A proven way to sell directly to Chinese consumers

5 Agenda Setting up a cross-border shop in WeChat 1. Background 2. Advantages for EU SMEs 3. Real examples to get familiar with the concept 4. How does it work? 5. The blocks you need 6. The pros and cons 7. The Missing Link: Digital Marketing 8. Financials

6 Background 6/20/201830/11/10

7 Background Market Key Factors CBEC is booming Policy Key Factors Pilot Free-Trade Zones WeChat s unparalleled success in China Consumption as the lever to lift China s economy A more discerning middle class Reaction to the effects of inefficient General Trade 6/20/201830/11/10

8 Background Market Key Factors Little variety of foreign assortment on sale Policy Key Factors Making China s CIQ part of the solution Foreign products are expensive Daigou impacts Chinese government tax collection Cashless is king Laisser-faire, little (initial) regulations 6/20/201830/11/10

9 Background Market Key Factors Smartphone quick adoption 4G/5G Policy Key Factors 6/20/201830/11/10

10 10 A more discerning Chinese consumer interacts with the world through the cell phone and a unique home screen, WeChat 6/20/201830/11/10

11 Agenda Setting up a cross-border shop in WeChat Background 1. Advantages for EU SMEs 2. Real examples to get familiar with the concept 3. How does it work? 4. The blocks you need 5. The pros and cons 6. The Missing Link: Digital Marketing 7. Financials

12 The Advantages Cross-Border over General Trade Cross-Border Trade No need of an importer in China or setting up a legal entity Quick process to authorize the imports of the product Brand s gross margin is much higher [= Shelf Price Taxes CIF Cost] Consumer s data in the hands of the brand, who is purchasing, when, what, why General Trade It needs an importer in China (long, costly scouting process) Cumbersome process, to test your product category isn t easy Brand s gross margin is much lower [= EXW Price Product Cost] Consumer s data is the hands of importer, distributor, or Chinese e-commerce platform There are more. 6/20/201830/11/10

13 Cross-Border Trade The brand can step down the process any time The brand controls and decides over the cost of promotion and knows it beforehand And it can actually measure the return on investment (ROI) almost in real-time It can be deployed China-wide General Trade The brand is bound by the time agreement with the importer Importers use to claim upfront from the brand ludicrous promotional expenses Importers feedback on promotional expenses ROI uses to be poor or non-existent Only the area of influence of importer or its network Still more advantages, 6/20/201830/11/10

14 The Advantages Cross-Border over General Trade Cross-Border Trade It can be integrated with O2O operations, your brand displayed and sold in brick-and-mortar stores It provides your company with real consumers data and channel knowledge, a priceless asset, very costly to achieve by other means Once you operate cross-border is much easier to find an importer to import via General Trade. You have a proof that your brand is selling in China General Trade Having your brand in an off-line store is expensive, requires paying listing fees, and inherent difficult negotiations Consumer s data and sales channels performance is in the hands of the importer. It is not unusual the EU brand ignores where the brand is sold General Trade importers have little interest in developing the market for the brand. They demand a proof that the market demands the brand

15 Agenda Setting up a cross-border shop in WeChat Background Advantages for EU SMEs 1. Real examples to get familiar with the concept 2. How does it work? 3. The blocks you need 4. The pros and cons 5. The Missing Link: Digital Marketing 6. Financials

16 A couple of examples to get familiar with the concept

17 Two Real Cases Cross-border E-commerce WeChat Shop Emerald Green Baby (Ireland) Nihao Hygge (Denmark)

18 Two Real Cases Cross-border E-commerce WeChat Shop Emerald Green Baby (Ireland) Nihao Hygge (Denmark)

19 Two Real Cases Cross-border E-commerce WeChat Shop Emerald Green Baby (Ireland) Nihao Hygge (Denmark) Emerald Green is in the business of mother-care, infant formula, and babycare. With products stored in an off-shore warehouse at a Free Trade Zone, the company sells online China-wide through its WeChat shop. It also sells O2O via agreements with regional chains of O2O stores. It plans to move to offline shops importing via general trade in the future. It uses all sort of digital marketing techniques, such as influencers (KOL), live streaming, or broadcasting from Ireland Nihao Hygge sells the Nordic concept of hygge. Products that transmit a quality of cosiness and comfortable conviviality engendering a feeling of contentment or well-being. The Nordic design is present in each of products of assortment. Nihao Hygge is currently selling cross-border via its WeChat shop shipping directly from Denmark. The company is exploring to shorten the delivery time by using a bonded warehouse at a Free Trade Zone

20 Two Real Cases Cross-border E-commerce WeChat Shop Emerald Green Baby (Ireland) Please, scan the QR-Code

21 Agenda Setting up a cross-border shop in WeChat Background Advantages for EU SMEs Real examples to get familiar with the concept 1. How does it work? 2. The blocks you need 3. The pros and cons 4. The Missing Link: Digital Marketing 5. Financials

22 How Does it Work?

23 The Upstream Flow of Goods

24 The Upstream Flow of Goods

25 The Downstream Flow of Payments [or directly to gateway]

26 Agenda Setting up a cross-border shop in WeChat Background Advantages for EU SMEs Real examples to get familiar with the concept How does it work? 1. The blocks you need 2. The pros and cons 3. The Missing Link: Digital Marketing 4. Financials

27 The Blocks You Need

28 The Blocks You Need 1 Register your Trademark You need to demonstrate you have the rights over the trademark. Also the products at store. Selling in China without having registered the trademark is a huge mistake business wise E.g

29 The Blocks You Need 2 WeChat Account Set Up An Official Account (OA) is mandatory. This is how Tencent owner of WeChat identifies and registers the bona fide data of an account owner

30 The Blocks You Need 3 WeChat SHOP Set Up The mobile website the shop itself, fully built within WeChat is associated with the WeChat OA. Your potential client can use the smartphone to browse products in your WeChat store. Once there, they are only a click away from making a purchase

31 The Blocks You Need 4 Products entering China require CIQ approval. Registering at CIQ in the Free Trade Zone is necessary before start operations Register Your Products China Inspection and Quarantine CIQ Free Trade Zone Inspection & Quarantine CIQ

32 The Blocks You Need 5 Select a Logistics Operator Integrate the Shop with Logistics Products entering China require CIQ approval. Registering at CIQ in the Free Trade Zone is necessary before start operations Free Trade Zone

33 The Blocks You Need 6 Integrate a Payment Method WeChat Pay/Union Pay WeChat Pay is the preferred mobile payment method within WeChat. The Chinese consumers take for granted they can pay via WePay

34 The Blocks You Need 7 Open a Bank Account in China A bank account may be needed to receive consumer payments, exchange currency, and wire money to the EU. Not strictly needed if the WeChat Shop payment method (WePay) is directly connected to a Payment Gateway

35 The Blocks You Need 8 Integrate with the Payment Gateway To do the clearing or Renminbi into EURO and receive the payment into your bank account in Europe

36 The Blocks You Need It s DONE

37 Short Summary 6/20/201830/11/10

38 Agenda Setting up a cross-border shop in WeChat Background Advantages for EU SMEs Real examples to get familiar with the concept How does it work? The blocks you need 1. The pros and cons 2. The Missing Link: Digital Marketing 3. Financials

39 The Pros and Cons

40 The pros and cons Pros Easier access to the market Easier withdrawal from the market Costs control Real operational test with Chinese consumers Precious data collection The brand owns all the supply chain up to the consumer The brand has a real say in pricing The brand owns image and promotion It helps to enter off-line/general Trade Cons The Free Trade Zone is a trial project subject to change The list of products that can be traded via CBEC is not universal It is only Business-to-Consumer There is an upper limit to the money a consumer can spend, per year, per single item Brand needs commitment and budget to develop a digital marketing strategy CBEC regulations have ups and downs 6/20/201830/11/10

41 Agenda Setting up a cross-border shop in WeChat Background Advantages for EU SMEs Real examples to get familiar with the concept How does it work? The blocks you need The pros and cons 1. The Missing Link: Digital Marketing 2. Financials

42 The Missing Link Digital Marketing

43 Digital Marketing Reportt Online Trainingt t

44 Digital Marketing Terms of Reference

45 Digital Marketing Terms of Reference

46 Digital Marketing

47 Digital Marketing

48 Financials

49 But first, a bonus, potential positive effects of CBEC WeChat shop 49 CBEC O2O Taiyuan (3 rd tier) Mother Care Stores 195 stores Cross-Border Aisles 10,000 DAU (daily active users) First O2O promotion in Women s Day launched in 28 stores Store Chain live-stream once a week (internal live stream channel) 2 million viewers Regional reach (Shanxi) Test Women s Day in 28 stores, near 1,000 orders in 24 hours July 2018, launch for all 195 stores 6/20/201830/11/10

50 But first, a bonus, potential positive effects of CBEC WeChat shop 50 CBEC O2O Taiyuan (3 rd tier) Mother Care Stores 195 stores Cross-Border Aisles 10,000 DAU First O2O promotion in Women s Day launched in 28 stores Store Chain live-stream once a week (internal live stream channel) 2 million viewers Regional reach (Shanxi) Test Women s Day in 28 stores, near 1,000 orders in 24 hours (equivalent to 100,000 year) July 2018, launch for all 195 stores 6/20/201830/11/10

51 There s more, potential positive effects on General Trade E-Commerce General Trade E-Commerce 小红书 XiaoHongshu 70 million registered users DAU 6 million 80% of users females, born /20/201830/11/10

52 Financials Category Toddlers toys Brand registered B2C Price < 2,000 CNY CBEC allowed High demand foreign Low-end domestic Price Europe 24 Price China 32 (CNY 249) Very good package, I even keep the box; very cute bunny I like it very much; at beginning my baby didn t get used to hold it, but after few times hope she will gradually love it. Uplift +33% ( 25% cheaper in EU)

53 Financials (CNY 249) Fits within average of value per order. Item falls under unplanned decision category. Purchase is triggered by a well crafted promotional message

54 Financials Price Europe 24 Margin* at Retail 40% 9.6 Profit* Toy Ind. 6% 1.5 Production Cost = 50% Sales month cost of a WeChat Shop including all, also KOLs: EUR 5,000/month = 60,000 Breakeven 12-month (0% Profit) Sales Production Cost -60,000 EUR = 0 Sales 0.5*Sales 60,000 EUR = 0 Sales = 120, 000 EUR = 900,000 CNY Average Purchase = 600 CNY Breakeven Units = 1,500/year or 30/week (China Wide) * EU Toy Industry Stats

55 Agenda Setting up a cross-border shop in WeChat Background Advantages for EU SMEs Real examples to get familiar with the concept How does it work? The blocks you need The pros and cons The Missing Link: Digital Marketing Financials

56 Contact To have a turnkey solution for your Cross-Border WeChat Shop, including all blocks 1 to 8, please contact the EU SME Centre in Beijing Write to WeChatShop@eusmecentre.org.cn