Klako_group_e-commerce_in_china–what_you_need_to_know

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Klako_group_e-commerce_in_china–what_you_need_to_know

  1. 1. E-Commerce in China What you need to know from a structure and business point of view Presentation by Klako Group Magento in Shanghai - November 2013
  2. 2. Consumer Profile & Behavior Chinese Online Shopper Profile: • 90% of online shoppers are between 10-39 years old • Over 70% are living in urban areas • Have a monthly income of under RMB 5,000 • E-Commerce market is likely to grow in size by more than 3 times • Shoppers in lower tier cities spend a higher amount of disposable income on online sales • wealth more concentrated with young generation (≠ developed countries)
  3. 3. E-Commerce Market bn USD 2012: China close US’ market size. China’s online market in 2012: approx. USD 200 bn. CAGR since 2003: 120% Sources: Forrester, Euromonitor, Japanese Ministry of EAI, Destatis, Centre for Retail Research
  4. 4. E-Commerce Market Reasons for fast evolving E-Commerce market: • Online prices • New product categories sold online • M-commerce increasing • Increasing internet users • Increasing confidence in online retailing • Traditional retailers tap into the e-commerce market (e.g. Suning) • Improving logistics infrastructre • Social Media as new Channel
  5. 5. Consumer Behavior Source: iResearch
  6. 6. China‘s Ecommerce Market Unique Characteristics in comparison to other markets: Online Retailing share distribution (transaction value) • Dominated by Marketplace • C2C share comparably big • Less developed retail landscape in lower tier cities – Ecommerce to boost consumption • Fast delivery essential • COD – payment Future Challenges in particular to China: • Underdeveloped infrastructure (critical development pillar for China) • Consumer demands evolve • Efficiency increases necessary – demand for service providers • Mobile commerce Source: iResearch
  7. 7. China‘s Ecommerce Market Source: iResearch 2012
  8. 8. China Single‘s Day Nov. 11th Sources: CNBC, Alibaba Group *) numbers are representing Alibaba Group’s Taobao & Tmall, which have a combined market share of more than 90%. USD 4,4 for every Chinese citizen
  9. 9. Business Models in China Marketplace strategy: Advantages • Outsourcing the complete IT aspect • High market penetration (Tmall & JD around 70%) • Chinese consumers are familiar with these platforms – have accounts already established and know the procedures • Tool for new consumer companies to create brand awareness • The platform handles the after-sales service as well as delivery of the products • Consumers use marketplaces for initial searches • No ICP License necessary Disadvantages • The platform has its own terms and conditions • Annual fees for utilizing the platform have been rising year on year • Generally requires a legal entity to be established in China in order to sign the service agreement • Tend to be price competitive & many competitors • Payment only in RMB • Limited brand building possibilities (store loyal ≠ brand loyal) • Low margin of B2C operators. Start to introduce private labels – potential competition?
  10. 10. Business Models in China Own Ecommerce platform: Outside of China Advantages • Easy to setup and minimal investment (e.g. translation) • Complete access to the system • Using Own Corporate Design • Familiar 3rd Party system easy to integrate • Acceptance of Chinese credit cards possible (discussion with bank necessary) • Alipay available for overseas payment assistance Disadvantages • Traffic generation difficult – high Marketing cost • Access time to website from China increased (Great Firewall, “3 Seconds Rule”) • Delivery issues (lead time & import duty) • After sales service difficult • No ICP license - risk of IP address being blocked • Most chin. 3rd Party payment providers require Business License • No VAT Invoice (Fa Piao) issuance possible
  11. 11. Business Models in China Own Ecommerce platform: Inside China Advantages • Complete access to the system • Using Own Corporate Design • Familiar 3rd Party system easy to integrate • Low access time • Easy integration of chin. 3rd party payment systems • Issuance of VAT Invoices (Fa Piao) possible Disadvantages • Business License necessary • High costs (setup & maintenance) • Traffic generation occasionally difficult • ICP License necessary?
  12. 12. Ecommerce Regulations Critical questions to be asked: Is my business defined as commercial in nature? • Yes: Commercial ICP License Chinese Company or JV to hold ICP License, capitalized with min. 10 Mio RMB, feasibility study, technical capabilities etc. • No: Non-Commercial ICP License / ICP Registration to be applied for online at MIIT .
  13. 13. Structure Case Study 1: Facilitating E-Commerce business through a Hong Kong company PO Your existing entity Overseas or Your suppliers overseas invoice payment Your Hong Kong company •Convenient & quick incorporation •Low tax (16,5 % CIT) •Pick & pack warehouse (no Import Duties) •Know-How base •Strategy Development •Supplier & Distributor liaison PO invoice Your Distributor’s Warehouse within China payment China Customs Direct shipping E-Commerce business solely out of Hong Kong? • Longer delivery lead time & import duty (exclusion criterion) • No VAT Invoice (Fa Piao) issuance possible • Chinese 3rd Party payment provider require CN Company • After sales service difficult • Hong Kong expensive location for big operations (rent, salaries, etc.)
  14. 14. Structure Case Study 2: Facilitating E-Commerce business through the Shanghai Pilot Free Trade Zone PO Your existing entity Overseas or Your suppliers overseas invoice payment shipment Your Shanghai FTZ Company allegedly •Simplified & quicker incorporation •Capitalization at the discretion of investor •Bonded warehouses •Reducing customs & import red tape PO invoice payment Your end client or Distributor within Mainland China shipment Second line E-Commerce business in the Free Trade Zone? • SH PFTZ Warehouse ≠ Mainland China Warehouse ↳ “second line” from PFTZ to Mainland China incl. VAT & consumption tax • Interconnection with PFTZ companies and Mainland not 100% clear at this point in time • Additional office space in Shanghai downtown • Ecommerce warehouses normally in less populated areas with good access to big part of consumers
  15. 15. Structure Case Study 3: Facilitating E-Commerce business through the China Trading Company PO Your existing entity overseas or SPV invoice payment shipment China Customs Your China LLC •Using full potential of CN market •Quick delivery possible •All functions necessary can be conducted within China •Most effective way to do business in China •Issuance of VAT Invoices •Tmall Stores available •Own online store available E-Commerce business from within Mainland China? • Mainland China has its own regulatory environment • Gatekeepers common (SAFE, MOFCOM, etc.) • Capitalization requirements (approx. USD 140,000) • Dealing with red tape cumbersome • Long establishment procedure PO invoice payment shipment Your end client or Distributor within Mainland China
  16. 16. Structure Case Study 3 (continued): Facilitating E-Commerce business through the China Trading Company Government bodies involved • Ministry of Commerce • Administration of Industry and Commerce (AIC) • Public Security Bureau • State Administration of Taxation • State Administration of Foreign Exchange • Customs Office • Quality and Technical Supervision Bureau • Statistics Bureau Nature of Tax Approximate timeline in weeks 2 4 2 Tax Rate Enterprise Income Tax 25% of profit Dividend Tax Normally 17% of turnover Business Tax 3% - 45% progressively • Business License (company legally established) 4 5 • Bank Account Opening, Capital Injection, Verification Report, updated Business License 5% of turnover Individual income tax • Approval Certificate • Company Chops, Enterprise Code Certificate, Tax Certificate, Statistics Certificate, Foreign Currency 5-10% Value Added Tax • Name Approval 5 • Finance Certificate & Customs Registration
  17. 17. Considerations for Ecommerce in China China’s Ecommerce market to grow up to USD 650 Mio by 2020 Start small – progressive approach Chinese consumers very pricesensitive. Business Model and Structure need to be carefully evaluated Customer Service must be “instantaneous”
  18. 18. Klako Group – Our Team Our founder, Mr. Klaus Koehler, has lived in Hong Kong since 1970. After many years of international trading activities with Hong Kong and China, he established Klako Group Holdings and its associated entities in 1979. Since then, Mr. Koehler has built up an experienced international team of accountants, legal and professional consultants (European, American, Chinese). The members of our team are multilingual and combine many years of expertise in accounting, tax, manufacturing, international trade, consulting, recruitment, etc. Our cultural and professional diversity gives us the flexibility and knowledge required to understand our clients' needs and offer integrated service packages. Sharing our understanding and knowledge of both the West and China is one of our major principles for success. Contact: China Headquarters - Shanghai Mr. Volker Englert Supervisor Sales & Customer Services 15/F Cross Tower 318 Fuzhou Road, Shanghai, 200001, China Tel: +86 21 6391 3188 Ext. 8007 Fax: +86 21 6391 2032 Email: info@klako.com
  19. 19. Klako Group – ChinaInvest.biz Magazine and Webinars Subscribe FREE today to Klako Group’s ChinaInvest.biz Magazine and Klako Group’s Webinars A Monthly Magazine and Webinars on Investment, Tax & Operational Issues for Foreign Companies in China www.chinainvest.biz

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