Scalable China B2B for SMEs
- September 16th, 2015
- in Best Practice
A very common question from SMEs is, “Why can’t I just find a Chinese distributor to buy my products and take it from there?”
A fair question, to be sure. Logical, too. Of the estimated $1.6 trillion in China’s online transactions for 2014, more than 70% were B2B.
China’s Changing B2B Scene
China’s online boom is inaccurately portrayed as one driven by high income consumers buying designer handbags and trips to Paris. But one key factor driving 50% YOY growth is the dearth of physical retail to satisfy China’s massive emerging middle class.
This middle class is growing fastest in China’s 135 cities with populations greater than Berlin’s, not in the three first tier cities where so many western companies focus their efforts, on 7% of China’s population.
These second and third tier cities are largely bereft of physical retail for the quality foreign goods they increasingly demand. Meanwhile, retailers and wholesalers of all stripe are searching online for foreign companies to supply their established distribution chains, both online and offline.
Meeting them at exhibitions, establishing guanxi with KTV and other pre-WTO best practice grows increasingly obsolete. Consider the case of Chinese entrepreneur Amy Guo. Amy built a thriving enterprise out of supplying tomato paste products from Xinjiang to the rest of China. She identified as early as anyone the growing demand for tomato paste from foreign countries, especially Italy.
A mother first and businesswoman second, Amy has little time or desire to hit agricultural expos, swap cards, and negotiate the long courtship process those cross-cultural books still insist is so crucial to doing business in China.
The Internet has changed the whole dynamic in ten short years.
The First House that Jack Built
Amy’s primary channel for finding and sourcing foreign food goods to sell to the Chinese market – Alibaba. Not the Alibaba B2C site Tmall, C2C site Taobao, or cross border site Tmall Global. Alibaba.com, Jack Ma’s original brainchild, back when China was for buying from, rather than selling to.
Today, Alibaba accounts for close to 50% of all China’s SME B2B business. Another eight account for an additional 20%; niche B2B sites split the rest.
Huge volume, a highly developed ecosystem for promotion & transactions, and verified gold-membership starting at $1899 per year.
Full disclosure: your author neither works for Alibaba nor owns shares of its wind-sucking stock. Your author will gladly launch into extended rants about the pitfalls of Tmall and Tmall Global for SMEs, with those who care to engage. Your author has been known to start hurling random objects when companies propose opening a Taobao store.
Why Alibaba is Scalable
But when it comes to an easy-entry, low risk, and most importantly scalable approach to China’s B2B market, Alibaba is clearly the go-to platform.
Is it easy to build a high-volume business of repeat B2B orders and low-maintenance buyers on Alibaba? Goodness, no! Especially in the beginning, and especially for products in restricted categories.
But opening a store for your products on Alibaba and getting leads is a straightforward affair akin to fishing: not much work to set up, and you can wait for bites, or wade into the stream and start fly fishing.
So you know, Alibaba rewards those who put on the hip waders and get out there – pitching to buyers, bolstering their stores with rich info, and responding quickly to inquiries. The reward is higher search rankings for your product keywords. Hence, Alibaba enables diligence to replace big ad budgets.
To encourage diligence, and the all-important activity that ensures the platform’s relevance, Alibaba introduces buyers, and prompts you to use all of your allowed 15 buyer contacts per day. Of the $1899 a company spends for viable membership (you can sign up for free to sniff around), $500 is held in escrow. Alibaba advertises your store across its vast network of partner sites. Only when someone clicks through and gets in touch, and after you’ve approved the contact as a qualified lead, does Alibaba subtract the cost of the lead: $12.
Assessing Alibaba’s Risks
“Alibaba is risky! I saw on Fox News how a guy tried to source T-shirts, and some Chinese guy tried to get his credit card number!”
Crossing the street is risky, if you’re not paying attention. You can meet disaster being a dupe on Craigslist, to boot. Alibaba as a whole has more than a hundred million registered members. Policing a community larger than all but a few countries is a task Jack Ma could be putting more effort into, but the allegations that he colludes in counterfeiting and defrauding brands is slanderous, to say the least.
So you may get unsolicited, shady Alibaba communiqués that quickly turn into requests for credit card numbers. Try not to panic. Delete them, as you would those emails inviting you to connect with hot singles close by.
When you get a serious lead, you’ll know because the inquiry will be in English, and will be using Incoterms. Alibaba does its part with company verification and other facilitation services.
The ins and outs of putting together a successful export deal with a Chinese buyer are beyond the scope of this guide. Export.gov has plentiful resources to help. The U.S. Commercial Service has a fantastic China team ready to assist in all steps.
Alibaba Store Implementation
Alibaba has English-speaking reps to guide you in building your store and getting leads, once you’re signed up. Again, though, heaven forfend that describing the ease of set up be taken as an implication that high ROI will also be easy. The difficulty, however, will be in making the deal and after-steps, not in trying to figure out the mystery that is (isn’t) China.
The set up and promotion of an Alibaba store can be outsourced to an enterprising Chinese associate. Get in touch if interested in connecting with potential candidates. The role of building and promoting a store is fairly straightforward. Closing then fulfilling a lead, of course, is not, and requires extended training, and most likely employment, at the very least a formal partnership with agreed incentivization.
Having said that, by unwritten law the onus is on the Chinese buyer to communicate in English. Any serious buyer will have the resources to do so. As Alibaba agent Kathy Hu recently put it in a Skype conversation, “If Chinese buyer, they want to import, how can they speak Chinese?”
Alibaba, of course, is a global platform. Who knows but that you may get leads from other countries, even if you’re focused on Chinese buyers?
Considering Niche B2B Sites
The aforementioned other eight platforms are largely Alibaba clones, only without the traffic or advertising ecosystem. For Alibaba alternatives, and for rounded understanding of B2B opportunities in China, it is more worthwhile to consider the focused B2B site.
With China’s jaw-dropping demand for foreign baby products in mind, let’s take a look at B2B site Baobei360 . Baby formula and milk powder is easily the biggest segment of this market, and there are no end of SME foreign brands promoting on the platform.
One such company is Belgium’s Taradon Laboratory, which produces infant formula brand Lait-Nacre, which has its own store page on Baobei360 here.
Important to note is that the information is in Mandarin, with plentiful Chinese contacts, most importantly a QQ number for getting in touch (pro-tip: email’s a dead end in China – use QQ.) There is also a link to Lait-Nacre’s Chinese website, albeit not prominently displayed.
Baobei360 offers an entry package similar to Alibaba’s – just under $2000 for a year. This includes the Mandarin store page, and some light advertising within the site. Rest assured that Lait-Nacre, with a front page banner, is paying considerably more than that.
Going with a niche B2B site is for SMEs that have a degree of exposure to and experience with the Chinese market, as well as the commitment to dedicating some Chinese resources on the ground.
Is the niche approach more lucrative or potentially higher ROI? Very difficult to say. What is known is that, with 50% of the China B2B market, and under the aegis of the world’s largest ecommerce company, beginning with Alibaba is the more scalable B2B approach.
Finally, however, an answer to the question at the beginning, namely why you can’t just find a Chinese buyer who takes it from there. For long term growth, you should have a plan for the development of content and its deployment to, at the very least, help the distributor build your brand. Expecting your buyer to be able to or even want to work at developing your brand in market is unrealistic, though.
Legal protection in the form of trademarks and other steps is also necessary, most prudently before you even venture in market.