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Shop Hopping

China’s cross-border online vendors are diversifying amid growing opportunities and uncertainties brought about by the pandemic, dominance of big e-commerce platforms and sluggish overseas demand

By Jiang Zhiyu , Xu Ming Updated Jul.1

An overseas warehouse for Cainiao, the logistics arm of Alibaba that provides cross-border transportation services for Chinese sellers, Guadalajara, Spain (Photo by Xinhua)

In her seven years in cross-border e-commerce, Luo Songming says the past two have been the most challenging.  

She used to easily make money on Amazon selling household items and vehicle accessories regardless of quality, and her sales overseas doubled during the Covid-19 pandemic as online shopping soared. Such demand lured more companies and capital to enter the game.  

However, 2021 brought challenges, including Amazon closing Chinese shops and EU’s Value-Added Tax (VAT) rule changes for imports of products valued up to 150 euros (US$164). Coupled with sluggish overseas demand, tightened privacy policies on social media platforms like Facebook and increased logistics costs, many e-commerce sellers were forced to shut down. “It’s like treading on thin ice,” Luo said.  

Luo’s sales dropped by 30 percent in 2022, and profit margins were at their lowest. Diversifying sales channels became crucial for Chinese sellers, and many started building their own platforms or selling on multiple platforms.  

“The industry has gone past the wild growth stage and is cooling down after a reshuffle,” said Zhang Liqing, a former seller on Amazon who pivoted to provide data processing support for cross-border e-commerce companies.  

Beyond North America and Europe, cross-border e-commerce platforms and sellers have also found new opportunities in emerging markets in Southeast Asia and Latin America over the past two years. 

Tough Times 
The value of imports and exports of cross-border products through e-commerce rose from 1 trillion yuan (US$144.4b) in 2018 to 2.1 trillion yuan (US$304.7b) in 2022, according to government data. In China, there are 165 pilot zones in 31 provinces and cities to support cross-border e-commerce, involving payment, logistics and customs clearance.  

In 2015, Amazon lured many vendors from Taobao to its cross-border services with incentives. Most replicated their Taobao strategies, which worked for a period. “You could put anything on the shelf and people would just buy it,” an interviewed vendor said.  

However, with the prime time for cross-border e-commerce gone, sellers face rising costs of opening shops on big platforms, customer acquisition and logistics.  

“As competition grows increasingly fiercer, the cost of getting foot traffic climbs too,” Luo said. 

Xie Enzhi, a pet supply seller, said he spent 100,000 yuan (US$14,443) on advertising in 2018, compared with two to three times that amount now, even though 60 percent of his business is repeat customers.  

In 2022, Amazon’s advertisement revenue reached US$37.7 billion, almost four times that in 2015.  

The cost of acquiring customers was further increased by tightened platform policies. In 2021, Apple introduced app tracking transparency on its iPhones, which filters data collection from third-parties like Facebook, a go-to ad platform for Chinese sellers.  

The pandemic added supply chain instability. As prices of raw materials and shipping surged, many sellers overstocked. According to a 2023 survey from cross-border e-commerce service provider Yuguo, 21 percent of 785 surveyed cross-border sellers said their greatest concern is clearing inventory.  

Another blow came from the EU’s new VAT rules in 2021, which ended VAT exemption for imports of items valued less than 22 euros (US$24.2) while those at 150 euros (US$165) or more are subject to VAT and customs duty.  

Since May 2021, Amazon launched a crackdown on sellers for bribing customers for reviews. But some industry insiders said the move targeted Chinese sellers. Data from Shenzhen Cross-border E-commerce Association (SCEA) shows that since May 2021, about 50,000 accounts were banned, over 95 percent of which were Chinese sellers, causing bankruptcies and layoffs at Chinese companies. Amazon denied the move was discriminatory.  

The crackdown subsided after 2019 following the industry’s rapid growth.  

Neo, founder of mergers and acquisitions (M&A) agency FBAFlipper, observed more prudent investment in cross-border e-commerce platforms since Q3 2022. The M&A threshold increased from projects worth under US$1 million in 2020 to those between US$3-5 million, while project valuations decreased.  

Duan Ruochang from Index Capital, an investment bank with headquarters in Beijing and Shanghai, reported that financing transactions normalized in 2022, resulting in a healthier, more rational market. Furthermore, services catering to sellers’ needs like online store management, product selection, marketing, data analysis and logistics garnered more attention from investors than product vendors in the past year, as the latter faced rising costs and shrinking profits, Duan said. 

Decreasing Reliance 
To decrease reliance on dominant platforms, Chinese sellers diversified channels and built their own brands, a 2023 report by Yuguo in February shows.  

Opening independent platforms like ultra-fast fashion outfit Shein and phone charging accessories brand Anker allowed for more autonomy and control of user data while saving on commission and advertisement fees. In the first half of 2022, Anker earned 215 million yuan (US$31m), a rise of 30 percent year on year.  

Yuguo’s February survey of 764 sellers showed that 37 percent of them created their own platforms. Among them is Luo Songming, who said attracting foot traffic independently from Google and Facebook proved costly and challenging.  

Li Daqian from electric massager brand Booster, which developed its own platform this year, said many independent platforms only sold trendy products, such as hand cream and massagers. Few had the vision to build their own brands, so many failed to cultivate loyal customers. After Apple’s app transparency function launched, many platforms had to close for lack of traffic. 
“Many merchants treat independent platforms as merely a marketing place. Building a brand actually requires multiple channels to reach users, including even offline contact. Only repeated exposure builds brand awareness and loyalty,” Duan Ruochang said.  

He added that as large platforms like Temu and Shein expand and buy traffic, customer acquisition costs soar for small- and medium-sized platforms.  

“Sellers realized they needed to develop competitive products and their own brands to enter the international market,” said Yu Xuehui, director of the Cixi E-commerce Association in Zhejiang Province.  

As big platforms like Amazon preferred supporting shops with high unit prices, many shifted from low-quality products at low prices to higher-quality offerings.  

“The higher the unit price, the more commission Amazon gets from sellers,” Luo said, who also turned to higher quality products.  

Wang Yiliang, strategic director at DHgate.com, a Chinese cross-border B2B platform, observed that Amazon’s measures and updated social media advertising rules are restricting sellers who prioritize quantity over quality. “These sellers typically lack inventory and struggle with customized products and cost efficiency,” Wang said. “Most cross-border platforms now favor brands and those with ODM (original design manufacturer) factories,” he added.  

Xie Enzhi told NewsChina that consumers are increasingly price sensitive and compare across platforms. “Sellers on e-commerce platforms need to build their own brands, engage in R&D and pay attention to patent protection,” Xie said.  

Shein and Anker are often cited as examples. Anker started with wholesale overseas but turned to developing its own products. Between January and September 2022, Anker invested 699 million yuan (US$101m) in R&D, an increase of 40.1 percent over the same period of 2021.  

The capital market is leading sellers to make changes too. In the past two years, Neo found that capital favored shops with long histories and high customer return rates, while shops that rely on cheap, low-quality products are basically excluded from the M&A market. 

Diversified Platforms
The rise of Chinese cross-border e-commerce platforms in overseas markets like TikTok Shop, Shein and Temu are providing sellers with more options.  

Shein, a ultra-fast fashion retailer founded in 2008, first relied on platforms like Amazon and eBay. Later, the company built its own mobile shopping app and gradually entered markets in North America, Europe, Russia, the Middle East and India. Using China’s strong supply chain, Shein undercuts the competition with daily updates of new and cheap products tailored to regional tastes. In May 2021, Shein overtook Amazon as the most downloaded shopping app. 
Not far behind is Temu, the overseas arm of leading Chinese online retailer Pinduoduo. In February 2023, Temu debuted in the US market through a 10 million yuan (US$1.4m) Super Bowl advertisement. The company soon topped US app download rankings in early April, according to US-based data analysts Sensor Tower. Temu has since launched in Australia, UK, Germany, the Netherlands, Italy, France and Spain.  

A report by Zheshang Securities shows that prices on Temu are 53-80 percent cheaper than Shein for the same categories of products, including clothing and accessories.  

Many Chinese e-commerce platforms have followed suit in Europe, the US and emerging Southeast Asian and Middle Eastern markets.  

Among the 836 cross-border sellers surveyed by Yuguo, 35 percent opened shops on Amazon and 12 percent have stores on TikTok Shop.  

“In recent years, new players are attracting customers with new marketing ideas and diverse competition tactics. But low prices remain their most obvious advantage,” Jiang Na, chief marketing officer of global e-commerce platform KJT, told NewsChina.  

Emerging platforms like Temu and TikTok Shop are new favorites for Chinese vendors. Though Shein promotes its own product lines, it is expected to open to third-party merchants in the US this year after piloting in Brazil and Mexico.  

KJT-owned Zaful, a women’s clothing brand with its own website and stores on Alibaba’s AliExpress and Amazon, opened on Temu at the end of 2022. “Now it has eight shops on Temu and gets about 1,500 orders a week, an obvious growth in sales,” Jiang Na said of Zaful, which focuses on the UK and EU markets.  

Booster, once catering to Amazon wholesalers, now sells directly to international customers on platforms like AliExpress, Shopee and local Latin American e-commerce sites. Li Daqian said he plans to expand into interest-based e-commerce (selling by engaging with entertaining videos and streaming like TikTok) and invest in TikTok Shop’s Southeast Asian platforms.  

In 2022, TikTok Shop’s cross-border e-commerce covered six markets, such as the UK and Southeast Asia, with a GMV (gross merchandise value) of US$4.4 billion in the latter region – over four times the previous year’s total.  

Platforms like Temu, which offers everyday items at very low prices, may draw Amazon customers seeking better deals, but may sell their own brands at higher prices in the future, Jiang Na said.  

Although Chinese e-commerce platforms lag behind Amazon, their impact is growing, says Wu Yihui, founder of Egainnews, an e-commerce services provider for cross-border sellers.  

Long-term shifts in market share could occur if Chinese sellers, who made up 26 percent of Amazon’s GMV in 2022, migrate to platforms like Temu, Wu said.  

Yuguo’s report suggests sellers are hoping to secure early positions in new platforms like Temu, expecting Pinduoduo’s domestic success to be replicated abroad. Wang Jian, a professor at Beijing-based University of International Business and Economics, noted at Yuguo’s annual summit in February that despite ongoing demand-supply turbulence across the world, diverse platforms offer chances for Chinese SMEs to enter the global market. 

Emerging markets 
Chinese sellers are shifting focus to emerging markets in Southeast Asia and Latin America, as growth in the US starts to slow down.  

In 2022, e-commerce sales in the US are expected to reach US$1.034 trillion, with a year-on-year increase of 7.7 percent, marking the lowest growth since 2009.  

Meanwhile, emerging markets are experiencing rapid growth, with countries from Latin America and Southeast Asia making up the majority of the top-10 fastest-growing e-commerce markets, according to New York-based market research company eMarketer.  

E-commerce platforms like TikTok Shop, Shein, Shopee, Lazada, Shopify, Amazon and eBay are competing in Southeast Asia, a region with promising cross-border e-commerce potential. However, challenges include weaker infrastructure, lower purchasing power, and already established European and US brands.  

Booster has seen increased monthly sales in 2022 after opening shops on popular sites in Southeast Asia like Alibaba’s Lazada and Shopee.  

“International policies and transfer of industries to Southeast Asia all help boost the economy in the region and improve the spending power of local consumers,” Li Daqian said.  

However, He Zhiyong from Yuguo said that despite growth potential, incubating Chinese brands in the region is challenging, particularly as European and US brands are already established.  

To target the region’s low purchasing power, Chinese sellers like Li Daqian are focusing on cost-effective products. Despite initial losses, he sees it as the cost of promoting brands and expects to profit soon.  

Latin America poses its own set of challenges such as difficult customs clearance and poor logistics. However, He Zhiyong said that markets in the southern hemisphere, where seasons are the opposite of those in China, provide sellers with great opportunities to clear out seasonal inventory.  

In Africa, Chinese sellers are finding success with consumer electronics like laptops and mobile phones with high gross profit margins due to product scarcity, according to Huang Qianyu.  

“They don’t care so much about brands,” said Huang, an operations officer at Kikuu, an online shopping app based in Hangzhou, Zhejiang Province and focused on African markets.  

With reduced transport costs and resumed production, Booster’s cross-border e-commerce sales reported 20 percent growth in the first two months of 2023 despite the slack season. “We hope to expand by 50 percent this year,” Li said.  

Overall, Chinese sellers remain optimistic about cross-border e-commerce growth in emerging markets and hope to expand significantly in the coming years.

People visit Amazon’s booth at the first China Cross-border E-commerce Expo, Xiamen, Fujian Province, June 11, 2021 (Photo by VCG)