Blog of the Month: China Realtime Report

June 3, 2010

The Wall Street Journal continues to produce excellent content in their China focused blog “China Realtime Report”, and May was particularly juicy. Read this post here or see below.

Your thoughts are welcome, as always!

John Lin, chief technology officer of eBay’s Asia Pacific operations, thinks eBay’s marketplace may yet make a comeback in China.

The company, which used to have a domestic Chinese consumer-to-consumer, or C2C, auction website, largely pulled out of the market in 2006 after Alibaba Group’s Taobao.com gobbled up its market share by undercutting its fees. Taobao executives say they plan to continue allowing merchants to sell without paying commissions, and Taobao still has the lion’s share of the online C2C market, but the rivalry between two companies has since taken a more friendly turn, with Alibaba Group’s wholesale platform AliExpress acceptingonline payments via eBay’s PayPal, and with executives on both sides saying cooperation and competition can go hand in hand.

EBay’s current operations in China remain small compared to Alibaba Group and other Chinese e-commerce companies like DHGate, but like PayPal, the company has refocused its energies on export-oriented merchants in China who want to reach overseas buyers on its international websites. In the years since giving Tom Online control of its Chinese marketplace, eBay has created a Chinese Web portal, ebay.cn, a customer support team and a suite of value-added services to acquire more of these types of customers.

Since refocusing eBay’s China business, “business has been growing pretty nicely,” Lin said in an interview at the company’s Shanghai office on Wednesday. He declined to say what percentage of eBay’s marketplace transaction volume came from Chinese merchants, but said that China makes up an increasing percentage of the company’s $60 billion overall transaction volume, with more than double-digit growth every year.

Like most other e-commerce companies in China, eBay’s approach to Chinese clients requires much more hand-holding than would be needed in other markets. Lin says the local customer support team, which consists of dozens of people, must constantly call and otherwise stay in contact with Chinese merchants to advise them on how to improve their global listings. The support team makes recommendations to customers about discontinuing the sales of products that infringe on intellectual property, and about creating free shipping policies, which are more attractive to U.S. buyers. EBay also negotiates with logistics operators and translation companies to provide better rates for merchants who want to use their services.

“In the domestic market today there is still no monetization” because the standard practice, set by Taobao.com, is not to charge merchants commission for listing, Lin said.

“EBay was very frustrated with the low margins in the domestic market in China. I hate to say this, but it’s not a public service,” he said. “We specialize in high margin business,” and cross border trade is “highly profitable.”

He added that eBay’s Chinese merchants, which are predominantly small to medium-sized businesses (in contrast with the high percentage of consumer sellers in the U.S. who aren’t full-time merchants), pay slightly higher rates than U.S. domestic sellers do.

While eBay clearly doesn’t buy into Taobao’s “free” strategy, however, the Chinese website has continued to grow at warp speed in terms of transaction volume, and is, in fact making revenue by other means including sales of keyword-advertising. Analysts estimate Taobao earned between $200 million and $250 million in revenue last year.

Lin and eBay Marketplace Development Director Dandan Cheng argue that price-cutting can lead to a never-ending vicious cycle, in which Chinese companies may never find a way to charge customers, especially if competitors are waiting to undercut their prices when they finally do. Lin says that by building its brand among export-oriented merchants, eBay is “well-positioned for future development in China,” in both the cross border and domestic markets.

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Silver Lining in Eurozone Financial Crisis

May 23, 2010

The European financial crisis has sent shockwaves through the global economy and has a number of ramifications for the international trading sector, especially sourcing product from China via ecommerce platforms. However, like in all things, there is a silver lining for many companies, particularly from the US, who can take advantage of the situation.

Back in March of this year I somewhat hesitantly predicted that there would be no significant movement in the value of the Chinese currency (RMB) as against its major trading currencies like the US dollar and the Euro in the short term. This is still a hot topic of discussion and contention for many international and Chinese clients of my company, www.dhgate.com, as it has a direct impact on the costs of sourcing products from China.

Currently, the Chinese RMB is informally ‘pegged’ to the US dollar at a rate of about 6.8 and this undervaluation was arguably causing trade imbalances between the US and China. The argument goes something like this: while it was good for US importers and Chinese exporters to have the RMB at an artificially low level, at the same time it made products imported from the US into China artificially high thereby hurting US companies

In the past few months it was thought that there was a consensus amongst Chinese policy makers that the peg would be broken and the Chinese RMB would be allowed to gradually rise about 3-5% thereby cushioning the impact on the Chinese export sector. This, of course, was on the basis that the world economy was steadily recovering from the Financial Crisis and there were no other major financial crises in the world.

Well what a difference a couple of months makes!

The dramatic European debt crisis as a result of the Greek bailout and the plunging value of the Euro has meant that any plans for a slight rise in the RMB as against the US dollar are now on hold…again.

The Euro has plunged to its lowest level against the RMB in almost a decade. It has fallen 14.5% in the past 4 months alone and the future is uncertain. The dramatic slump has prompted Chinese authorities to publically warn that China’s exports to Europe are threatened. Indeed, there are a number of anecdotal reports from clients of my company that European importers are cancelling or significantly reducing product orders. This appears to be by virtue of an inability of European companies to obtain normal trade finance because of the severity of the debt crisis together with heavily reduced purchasing power of the Euro.

A number of Chinese domestic economic issues also cloud the picture. The Chinese Stock Exchange has fallen sharply in recent times. This is mainly due to the Chinese government’s attempt to restrict the availability of credit in order to prevent the real estate property bubble from bursting.

All of these factors mean that there will be no short term revaluation of the RMB as against the US dollar. There are important trade and economic bilateral talks next week between the US and China and it appears that the revaluation issue, always a perennial topic in these trade talks, has been taken off the table. The US Government has recently stated that it intends to press China on other trade issues like market access for US companies and increasing the value of US exports to China. The US has announced that it wants to double US exports to China over the next decade.

What does all this mean for US SME importers of Chinese products? I believe that the situation presents great opportunities as the prices of Chinese products available for export will remain low for the foreseeable future and there appears now to be no likelihood of major costs increases as a result of exchange rate issues. From my discussions with my Chinese manufacturing clients, there is now a lot of opportunity to lock in these prices for the future.

More importantly, because of the problems in the European import market, many Chinese suppliers and manufacturers will now shift their focus to other markets, particularly the US. This means that there is the ability to achieve much lower prices from Chinese exporters because of the excess product available. It maybe that there has never been a better time for US SME companies to commence or increase sourcing product from China.

The European financial crisis has sent shockwaves through the global economy and has a number of ramifications for the international trading sector, especially souring product from China via ecommerce platforms. However, like in all things, there is a silver lining for many companies, particularly from the US, who can take advantage of the situation.

Back in March of this year I somewhat hesitantly predicted that there would be no significant movement in the value of the Chinese currency (RMB) as against its major trading currencies like the US dollar and the Euro in the short term. This is still a hot topic of discussion and contention for many international and Chinese clients of my company, www.dhgate.com, as it has a direct impact on the costs of sourcing products from China.

Currently, the Chinese RMB is informally ‘pegged’ to the US dollar at a rate of about 6.8 and this undervaluation was arguably causing trade imbalances between the US and China. The argument goes something like this: while it was good for US importers and Chinese exporters to have the RMB at an artificially low level, at the same time it made products imported from the US into China artificially high thereby hurting US companies

In the past few months it was thought that there was a consensus amongst Chinese policy makers that the peg would be broken and the Chinese RMB would be allowed to gradually rise about 3-5% thereby cushioning the impact on the Chinese export sector. This, of course, was on the basis that the world economy was steadily recovering from the Financial Crisis and there were no other major financial crises in the world.

Well what a difference a couple of months makes!

The dramatic European debt crisis as a result of the Greek bailout and the plunging value of the Euro has meant that any plans for a slight rise in the RMB as against the US dollar are now on hold…again.

The Euro has plunged to its lowest level against the RMB in almost a decade. It has fallen 14.5% in the past 4 months alone and the future is uncertain. The dramatic slump has prompted Chinese authorities to publically warn that China’s exports to Europe are threatened. Indeed, there are a number of anecdotal reports from clients of my company that European importers are cancelling or significantly reducing product orders. This appears to be by virtue of an inability of European companies to obtain normal trade finance because of the severity of the debt crisis together with heavily reduced purchasing power of the Euro.

A number of Chinese domestic economic issues also cloud the picture. The Chinese Stock Exchange has fallen sharply in recent times. This is mainly due to the Chinese government’s attempt to restrict the availability of credit in order to prevent the real estate property bubble from bursting.

All of these factors mean that there will be no short term revaluation of the RMB as against the US dollar. There are important trade and economic bilateral talks next week between the US and China and it appears that the revaluation issue, always a perennial topic in these trade talks, has been taken off the table. The US Government has recently stated that it intends to press China on other trade issues like market access for US companies and increasing the value of US exports to China. The US has announced that it wants to double US exports to China over the next decade.

What does all this mean for US SME importers of Chinese products? I believe that the situation presents great opportunities as the prices of Chinese products available for export will remain low for the foreseeable future and there appears now to be no likelihood of major costs increases as a result of exchange rate issues. From my discussions with my Chinese manufacturing clients, there is now a lot of opportunity to lock in these prices for the future.

More importantly, because of the problems in the European import market, many Chinese suppliers and manufacturers will now shift their focus to other markets, particularly the US. This means that there is the ability to achieve much lower prices from Chinese exporters because of the excess product available. It maybe that there has never been a better time for US SME companies to commence or increase sourcing product from China.

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Posted in: Business News, Events and Happenings, Know-How, Personal Insights – 2 Comments

Setting up your Business

May 17, 2010
Setting up your Business:
Structures and Regulations
Planning is critical to successfully starting and building a business. It is important to consider a variety of factors when choosing the best form of business ownership or structure. The choice you make can have an impact on multiple aspects of your business, including taxes, liability, ownership succession, and others.
Sole Proprietorship
A sole proprietorship is a simple and informal structure that is inexpensive to form. Usually owned by a single person or family members, the owner operates the business, is personally liable for all business debts, can freely transfer all or part of the business, and can report profit or loss on personal income tax returns.
Limited Liability Company (LLC)
An LLC combines the limited personal liability feature of a corporation with the tax advantages of a partnership and sole proprietorship. Profits and losses can be passed through the company to its members or the LLC can elect to be taxed like a corporation.
General Partnership
Partnerships are inexpensive to form, simply requiring an agreement between two or more individuals or entities to jointly own and operate a business. Profit, loss, and managerial duties are shared among the partners, and each partner is personally liable for partnership debts. Partnerships do not pay taxes, but must file an informational return; individual partners report their share of profits and losses on their personal return.
Resources
http://www.business.gov
The official business link to the US government, offering regulations state-by-state and tips on loans & grants, registering & finances, and a link to the small business community
http://www.business.gov/states
Choose your state of business to find links to State regulations and local governments
http://www.sba.gov
Small Business Administration site offering programs and services to help you start, grow and succeed including guidance for compliance and financing by locality
http://www.sba.gov/smallbusinessplanner/start/chooseastructure/index.html
SBA site helps you determine which company structure is right for you
http://smallbusiness.findlaw.com/business-laws-regulations/business-regulations
A directory of state and federal regulations, with links to more specific resource sites

Sometimes, when starting a new business, certain processes can be made to feel more complicated than they need to be. When it comes to getting the ball rolling, one of the first steps is finding out the particulars about company registration. I’ve included here an article from www.IntroducingSucess. com to bring a bit of clarity to the situation!

Structures and Regulations

Planning is critical to successfully starting and building a business. It is important to consider a variety of factors when choosing the best form of business ownership or structure. The choice you make can have an impact on multiple aspects of your business, including taxes, liability, ownership succession, and others.

Sole Proprietorship

A sole proprietorship is a simple and informal structure that is inexpensive to form. Usually owned by a single person or family members, the owner operates the business, is personally liable for all business debts, can freely transfer all or part of the business, and can report profit or loss on personal income tax returns.

Limited Liability Company (LLC)

An LLC combines the limited personal liability feature of a corporation with the tax advantages of a partnership and sole proprietorship. Profits and losses can be passed through the company to its members or the LLC can elect to be taxed like a corporation.

General Partnership

Partnerships are inexpensive to form, simply requiring an agreement between two or more individuals or entities to jointly own and operate a business. Profit, loss, and managerial duties are shared among the partners, and each partner is personally liable for partnership debts. Partnerships do not pay taxes, but must file an informational return; individual partners report their share of profits and losses on their personal return.

Resources

http://www.business.gov

The official business link to the US government, offering regulations state-by-state and tips on loans & grants, registering & finances, and a link to the small business community

http://www.business.gov/states

Choose your state of business to find links to State regulations and local governments

http://www.sba.gov

Small Business Administration site offering programs and services to help you start, grow and succeed including guidance for compliance and financing by locality

http://www.sba.gov/smallbusinessplanner/start/chooseastructure/index.html

SBA site helps you determine which company structure is right for you

http://smallbusiness.findlaw.com/business-laws-regulations/business-regulations

A directory of state and federal regulations, with links to more specific resource sites

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Posted in: Know-How – No Comments

Frictionless Ecommerce

May 12, 2010

Time magazine recently listed the 10 Tech Trends for 2010, that is, those issues and ideas that will shape the Web for this year and the immediate future. Amongst the references to cloud computing, the potential domination of the IPad and reliance on platforms rather than just websites, was the idea of ‘frictionless payments’. This is the ability of consumers or other web users to make money transfers immediately and at virtually no cost.

This is part of the latest ‘mantra’ of the ecommerce industry: ‘frictionless ecommerce’ which involves giving convenience, flexibility and options to a consumer.

The idea of moving money from one person to another, both quickly and cheaply is a relatively new concept. For decades, the banks had a stranglehold on the process. Checks took up to a week to clear, and transferring money from one bank account to another took days, and fees were levied at every step. The introduction of credit cards and EFTPOS made it easier and quicker but provided the credit card companies and banks more opportunities to deduct fees.

There’s no doubt that this will be one of the more interesting areas of development in the ecommerce industry in the future. However, I believe that a ‘frictionless ecommerce’ payments system is still a long way off.

In the current international product sourcing business world, the reliance on safe, cost-effective and seamless payment systems is still of prime importance to buyers particularly those who are sourcing goods from China.

As I discussed in my last post, although China is enjoying exponential growth in its ecommerce sector and the credit card industry is on the verge of major expansion over the next few years, the country is still a cash-based society. There is also a lingering distrust of anything that doesn’t involve cash.

This is particularly so in the millions of small to medium size businesses that power the Chinese private sector. Many SME’s do not have the ecommerce platforms or sophisticated banking systems to handle domestic cyber payments. The same is true for international transactions. A US buyer can’t simply send or wire money to a Chinese supplier if the supplier doesn’t have a foreign currency account held at a Chinese bank. Even if it does, the supplier requires approval from the Government to convert that payment into RMB that can be transferred to its local account. In many cases, such complexity and cost is beyond the reach of most Chinese suppliers.

Even in the area of direct sourcing of Chinese products, the available payment options like T/T or Letter of Credit become problematic because they are simply too expensive for smaller companies and purchase orders.

The ability to simplify the payment options and systems between Chinese suppliers and overseas buyers was one of the major driving forces of the establishment of the B2B intermediary websites like the one I established, www.dhgate.com. Rather than have to make a payment directly to a Chinese supplier which may have limited, unsafe and expensive payment options,( if any at all), sites like mine provide a range of payment options which bridge the gap between overseas and Chinese banking systems and make the process seamless, transparent, cost-effective and safe.

For example, www.dhgate.com currently provides the following payment options:

  1. Pay Pal, the world’s leading and most reliable online payments service. Pay Pal have recently announced a partnership with ChinaUnionPay, China’s biggest inter-bank payment and settlement system which will enable more and more Chinese companies to participate in international ecommerce transactions. This is the most popular and preferred method as you don’t need to use your credit card online, payments are traceable and Pay Pal offers its Buyer Protection service.
  2. Credits cards like American Express Visa, MasterCard and Discover card.
  3. Real time bank transfers.
  4. Offline payments like Western Union and other bank transfers.

The difference between my B2B site and others is that we recommend overseas buyers do not deal directly with a Chinese supplier but pay any amounts via the above options directly to www.dhgate.com. The site also offers overseas buyers an Escrow Service which is a licensed buyer protection service. Under this service, DHgate receives and holds the buyer’s payment until the transaction is successfully completed. Only after the buyer approves the products received will DHgate release the payment to the Chinese supplier.

This highly innovative service has been very successful with overseas buyers with numerous cases of money being returned to overseas buyers who were not completely satisfied with the quality or standard of what they had purchased. In fact, it has been so successful that it has now been copied by other B2B sourcing sites and has become the standard for Chinese product sourcing sites.

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Posted in: DHgate, Know-How, Personal Insights – No Comments

The Competitive Situation in China

April 22, 2010
In recent posts, I have been discussing payment systems in China. Before I continue on that in my next post, today, I would like to talk about Alibaba’s recently developed hacker-technology and how this relates to another important aspect of the business environment here: the competitive situation in China.
One of the key challenges facing China is moving away from low-quality imitation of products and services to more innovative, high-quality equivalents. In fact, this is a key area of investment for my company, DHgate, as we development support and education systems for Chinese manufacturers. Previously, Chinese businesses could create value by lowering production overheads; however, in the twenty-first century, being ‘cheap’ is not enough. I believe the goal should be for Chinese businesses to create value in a totally different way: by innovating beyond the competition.
In recent years, what we have seen is the emergence of a vanguard of dynamic new Chinese businesses that are capable of this. Through DHgate.com, I have found that fostering this attitude internally has allowed us to achieve rapid expansion in international markets. In the West, audiences respond to originality and not, as has been the case in China, to replication.
This has been at the forefront of my mind recently, as one of our key competitors Alibaba, developed and introduced a mechanism which allows its suppliers to access rival backend system and pull content over to their site. This competitive imitation is the hallmark of the old way of doing business in China, and it is a worrying sign that a recognized company such as Alibaba has resorted to these tactics.  This is not the environment in which Chinese business will thrive and become true international market-share contenders.
The philosophy we espouse at my own company, DHgate, is that to be the best you have to be able to innovate beyond the competition. First-mover advantage has proven to be key in online industries, but by the time a new feature has been widely replicated, a truly innovative company will already have developed another improvement.
The competitive situation is improving in China. Government regulations are slowly being rolled back, industries are becoming more diverse and dynamic, and a growing number of Chinese businesses have shown they have what it takes to be global leaders in their field.
China’s future lies in developing high-tech, fast-paced, competitive new industries, and I believe fostering a inventive business atmosphere, not competitive imitation, is the quickest and  way to get there.

In recent posts, I have been discussing payment systems in China. Before I continue on that in my next post, today, I would like to talk about Alibaba’s recently developed hacker-technology and how this relates to another important aspect of the business environment here: the competitive situation in China.

One of the key challenges facing China is moving away from low-quality imitation of products and services to more innovative, high-quality equivalents. In fact, this is a key area of investment for my company, DHgate, as we development support and education systems for Chinese manufacturers. Previously, Chinese businesses could create value by lowering production overheads; however, in the twenty-first century, being ‘cheap’ is not enough. I believe the goal should be for Chinese businesses to create value in a totally different way: by innovating beyond the competition.

In recent years, what we have seen is the emergence of a vanguard of dynamic new Chinese businesses that are capable of this. Through DHgate.com, I have found that fostering this attitude internally has allowed us to achieve rapid expansion in international markets. In the West, audiences respond to originality and not, as has been the case in China, to replication.

This has been at the forefront of my mind recently, as one of our key competitors Alibaba, developed and introduced a mechanism which allows its suppliers to access rival backend system and pull content over to their site. This competitive imitation is the hallmark of the old way of doing business in China, and it is a worrying sign that a recognized company such as Alibaba has resorted to these tactics. This is not the environment in which Chinese business will thrive and become true international market-share contenders.

The philosophy we espouse at my own company, DHgate, is that to be the best you have to be able to innovate beyond the competition. First-mover advantage has proven to be key in online industries, but by the time a new feature has been widely replicated, a truly innovative company will already have developed another improvement.

The competitive situation is improving in China. Government regulations are slowly being rolled back, industries are becoming more diverse and dynamic, and a growing number of Chinese businesses have shown they have what it takes to be global leaders in their field.

China’s future lies in developing high-tech, fast-paced, competitive new industries, and I believe fostering a inventive business atmosphere, not competitive imitation, is the quickest and way to get there.

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Posted in: Business News, DHgate, Know-How, Personal Insights – 5 Comments
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