Cross-border e-commerce refers to the activity of selling to customers located in different country than the one you are established in and shipping from. At the opposite, domestic e-commerce consists of selling to customers in the same country directly. It is possible when the company has established a legal entity in the country it is selling to.
Each of these two models of e-commerce has its advantages and disadvantages and this is what we will decipher in this article.
There are many Chinese platforms, specialized either on cross-border or domestic e-commerce, through which brands can sell their products in the country: Taobao, Tmall, Tmall Global, JD.com, JD Worldwide, Pinduoduo, Kaola etc.
Choosing between cross-border and domestic involve mostly two things: the product category and the maturity and/or level of investment of the brand.
For some products, cross border e-commerce can be a good choice. It is the case for cosmetics, personal care products and baby products. For the former, product registration can take up much time and even more for vegan products. Animal tests used to be mandatory for any cosmetics products to be sold on Chinese soil but since May 2021, the legislation has lifted the restrictions on most of the products. Nevertheless, brands have to commit to share more legal documents to register their cosmetics products. Cross-border e-commerce requires none of those and is quicker to set-up.
Moreover, Chinese consumers tend to trust more international brands when it comes to quality control of the cosmetics and baby products. This distrust is due to previous scandals with local brands like the baby milk powder scandal. On cross-border e-commerce platforms, the Chinese consumer is reassured that he will receive products that are from well-known brands and manufactured overseas.
In addition, cross-border e-commerce has the advantage of minimizing the costs and risks for a brand. The cost to open and manage an e-store on those platforms is lower. Moreover, it doesn’t require a legal entity in China, eliminating the cost of a local team to bear for the company. China also created free trade zone. Companies are allowed to stock their products on the Chinese territory and then deliver their products directly. Delivery is now much faster on cross-border platforms.
However, one should not think that cross border e-commerce is cost-free.
On the other hand, the indisputable advantage of domestic e-commerce is the traffic and the sales volume. Domestic e-commerce platforms such as Tmall and JD.com gather much more traffic than cross-border e-commerce because they are more widely used by Chinese e-shoppers. They offer more features as well in terms of marketing levers and commercial activations, helping brands set-up their brand reputation faster.
In the vast majority, cross-border e-commerce is a temporary solution before switching to domestic. It is a good opportunity for a brand to test the waters before the big jump.
To determine if your brand should start with cross-border or domestic, it is best to do an audit with a China business expert company. They will help you figure out the investment and revenue for both models and support you to take the best decision for your brand.
In any case, neither of these two e-commerce models is better than the other. It really depends on the brand and the project behind it. The key is to find the strategy that best suits your business by carefully considering the advantages and disadvantages.
