In the previous two The Ultimate Guide to Cross-Border Ecommerce in China we’ve covered How to Choose Right Platform for Your Business and History and Scale. If you haven’t read these two articles yet, and you’re serious about selling to China using cross-border eCommerce then you should go read them now!
In this article, I want to cover some of the terms that you will encounter frequently when doing cross-border e-commerce in China. There are more terms, but these 12 are the most critical and important ones.
B2C
Business to Consumer is the most common type of eCommerce model that most believes is the only type of eCommerce model. In the down of eCommerce, most B2C model eCommerce platform is traditional retailers such as Amazon, Walmart that sells products directly to the end consumers. Later many large brands begin to adopt eCommerce as one of their channels and started to sell their own products direct only. In China, the biggest B2C eCommerce platforms include JD.com and TMall.com, however, there are many more niche specific B2C eCommerce brands that are raising such as mia.com, kaola.com, etc…
C2C
The idea of allowing Consumer to sell to other consumers using a bridge platform was technically popularized by eBay back in 1995 during the early days of the Dot Com bubble. Pierre Omidyar founded AuctionWeb just as a side hobby as an online venue for person to person auction for collectible items and later it was renamed to eBay because it grew so popular that.
In reality, the idea of C2C is probably the oldest form of human trade. C2C is how everyone traded ever since the dawn of civilization. I give you my goat in exchange for your cow. With the invent of the internet, eBay, Taobao in China, and mass improvement to shipping logistics, not easier than ever for anyone to trade their goods and products event crossed the borders.
DaiGou is another form of C2C eCommerce model in China that is extremely popular. DaiGou really begins as a way for the affluent Chinese consumers to buy foreign brands and products without having to pay the high government tariffs that are added on top of all imported goods in China.
Chinese consumers who had friends or families either reside abroad or kids who’re studying abroad to email back or bring back foreign products. DaiGou got so popular that nowadays you have are dedicated foreign residence who exclusive take orders from Chinese consumer and bring it back to them in China using WeChat as the primary main of communication.
M2C
M2C which stands for manufactory to consumers or factories to a consumer is actually most commonly found in China. This is of course largely due to the tremendous number of factories and manufactories available in China.
Whenever a manufacturer sells directly to a consumer it is almost always because that they believe that they have a price competitive advantage since they’re at the top of the supply channel. However, this model of eCommerce is still rare. Very few manufacture tries to sell directly to a consumer, they simply don’t have the brainpower and manpower to handle customer service and marketing nor do they really want to.
B2B2C
Because many brands and manufacture don’t really want to handle their own customer service and marketing they will often look for intermediate trade partners and this is where the B2B2C model comes into play.
Recently there has the idea of “Drop Shipping” has become extremely popular which is really a form of B2B2C. Small eCommerce shops and businesses will sell products they find on sites such as Aliexpress at a very low cost and arbitrage it a slightly higher price using Amazon Seller, or their own branded eCommerce sites.
Bonded Warehouse
The idea of Bonded Warehouse actually proposed by the first Prime Minister of Great Britain Robert Walpole back in 1733, but it wasn’t actually adopted until 1803. Prior to the establishment of bonded warehouses importer would have to pay the full duties during the arrival time of the goods.
The caused several problems.
- Most importers did not have the financial capabilities to paid of duties on the imported goods
- The extremely high capital requirement to import goods created a monopoly affect where only a few large corporations were able to dominate the market.
Bonded Warehouse solves all these problems by allowing importers to store, operate, and even undergo manufacturing operations without paying import duties up front. Upon unloading your goods into the bonded warehouse, the importer will enter into a liability bond with the warehouse owner which are usually state officials or government entities.
Free Trade Zone
Free Trade Zones are special geographic are or economic zone where goods may be imported store, handled, reconfigured, re-exported, or manufactured without being subjected to customs duty fees.
It worth mentioning that not all Bonded Warehouse will allow storage of imported goods without paying any upfront duties. Only Bonded Warehouses located in Free Trade Zones will be not be subjected to customs duties, however, must Bonded Warehouses are located in Free Trade Zone anyway.
Customs Duty and Tariff
Tariff or Customs Duties are forms of tax levied on imported goods and products from a foreign nation by the government. Most often the reason why governments impose tariffs or duties on foreign imported goods is to protect domestic products and industries again foreign competitors.
With a high imposed Tariff on imported goods, foreign competitors have no choice but to raise the cost of selling their product in the nation they’re trying to import into. This will usually give consumers an incentive to purchase domestic goods and services that are less expensive.
Direct Shipping or Direct Mailing
For marketers reading this don’t confuse the term direct mailing used in this article with the idea of direct mailing (sending snail mail promotions). Direct shipping, direct shipment, or direct mailing is alternative of sending your goods or products to the end consumer without relying on a bonded warehouse.
The challenge of using a bonded warehouse is it is extremely to actually forecasting or predicted demand. This means that you’ll often run into situations where you have plenty of unsold goods stacking up or being short on supply and losing out on potential sales due during a promotion.
With direct mailing or direct shipping, your products and goods will be shipped by express delivery services such as UPS and DHL.
Transshipment
Transshipping is when goods are shipped to one addition or multiple intermediate destinations before arriving at the final destination. The idea of transshipment is aim to create a more efficient way of transporting a large amount of good globally thus reducing the overhead cost of shipping.
Some of the reason why you may want to us transshipment may include; consolidating multiple small shipments into a large shipment, de-consolidating a large shipment into multi small shipments to different destinations, or perhaps as simple as changing the means of transportation from air to road to reduce shipping cost.
Drop Shipping
Drop shipping has recently become an extremely popular term in the west, but not so much in China. Drop shipping is when a retailer is it eCommerce or brick & motor do not physically stock up on the goods prior to selling the goods. Instead, once a customer places an order the retailer sends the customer shipping information and ask either the manufacturer or wholesaler to directly ship to the end consumer.
Most business who relies on drop shipping are eCommerce shops, this is because brick & motor must give the physical product to the customer when they’re making the purchase, where eCommerce can ship it to the customer later. In fact, the earliest example of Drop shipping would actually be Amazon.com.
When Jeff Bezos first started Amazon.com and decided to sell books, he did not physically stock up any books at all. He simply took the order from the end customer online and then order the book and shipped to the customer himself. While the supplier of these books did not actually ship the books to Amazon’s customer it is pretty close to the idea of Drop shipping today.
Distributors
Distributors could be other businesses, wholesalers, or even retails who are buying products, goods, or services from you and then redistributing (reselling) them to either the end consumer or other smaller retailers.
Often time a foreign brand or manufacturer may have a hard time to import goods or products into China due to IP, licensing or simply a lack of resources or infrastructure. In these kinds of situations, to reduce risk and overhead, the brand or manufacturer may look for multiple distributors or even a single exclusive distributor that is willing to provide manpower and logistical support.
Intellectual Property(IP)
Intellectual Property is when the creation of the intellect is assigned to a designated owner. Intellectual Property Rights (IPRs) are rights granted to the creator of the IP for protection. These rights can be trademarks, patents, designs, blueprints, music, literature, discoveries, inventions, trade secrets, or even codes and programming algorithms.
When trading, exporting or selling your products and goods across the border to a foreign country such as China, it is highly recommended that you apply for IPRs for your IPs in that nation’s governing laws.
