Cross Border E-Commerce - Term Paper Example

CROSS BORDER E-COMMERCE Student No. & Name Tutor’s Name Tutorial Class University City Date Submitted Student Declaration Abstract Cross-border e-commerce is a certain channel of import that permits the sale of products online to consumers. Cross Border e-Commerce has transient immunity to tariffs as well as other legal requirements that apply to conventional international trade. Cross Border e-Commerce began due to exchange of gifts between Chinese and Australian residents that visited one another MZECO International Pty Ltd initially distributed these products through brick and mortar channel of distribution. Later, the company decided to incorporate e-commerce channels as well as their second distribution channel. MZECO international Pty Ltd began to use Cross Border e-Commerce (CBEC) just a year ago. The products distributed by MZECO include; Natures Organics, Ius Wines and Ozgarnics. The suitable platform used by MZECO for online sales in China is VIP.com. This platform determines retail prices, and it is the same price to their customers in the platform. The seller has low chances of risk and the platform chooses brands carefully. It is important and worth look for an online store that is well established. This is because established platforms have low chances of getting risks. As costs of CBEC are higher than most people expect, investors have the choice of selecting TPs that support alternative platforms to enter into the market gradually. Table of Contents Introduction 4 Background. 4 FTZ and Government Policies 7 Flow of goods- normal trade 8 Physical sales 8 Online sales 8 Obstacles for Normal trades 8 Flow of Goods –CBEC 9 Flow of goods in free trade zones (FTZ) 9 Flow of Goods –Direct Post 10 Barriers for CBEC trades 10 Comparison of costs 11 Normal trades 11 Discussion 13 International business 15 Conclusion 17 Reference 18 Introduction Cross-border e-commerce (CBEC) is a certain channel of import that permits the sale of products online to consumers (B2C). Cross Border e-Commerce has transient immunity to tariffs as well as other legal requirements that apply to conventional international trade (B2B). Cross-border e-Commerce was formed by a stream of pilot policy announcements by General Administration of Customs in the year 2014. CBEC is extensively targeting Chinese online shoppers as well as Australian exporters. Chinese online shoppers use Cross Border e-Commerce to get a way to approach a broader choice of international products at lower prices. Australian exporters use this channel to promote market and sell products to Chinese shoppers. Therefore Australian exporters are noticed to register their products with authorities from China early enough to avoid penalties that may be imposed on them. The research is going to deal with various platforms that are used for e-commerce. A detailed study is going to be conducted on how this CBEC is conducted between Australia and China. Background. MZECO International Pty Ltd began as a trading company whose main focus was import and export of products that are eco-friendly to and from Australia. MZECO Company was established in early 2011. MZECO International Pty Ltd formed its representative office in Qingdao later in 2011. The intention for this was to study and research the Chinese market and promotes required Australian consumer products in China. In a joint venture with Chinese partners back in 2012, MZECO formed Qingdao MZECO International Trading Company Ltd for distribution of products from Australia in China. The partnership provides MZECO International Pty Ltd with in-depth knowledge of the consumer products China market, access to channels of sales and local marketing capacity. MZECO International Pty Ltd became top distributor of Natures Organics Pty products in China by mid-2012. Other products that MZECO is exporting China include Ius Wines and Ozganics. MZECO International Pty Ltd initially distributed these products through brick and mortar channel of distribution. Later, the company decided to incorporate e-commerce channels as well as their second distribution channel. MZECO international Pty Ltd began to use Cross Border e-Commerce (CBEC) just a year ago. Online trading in China is positively progressing and expanding annually. China’s e-commerce has attained a 10% of the total consumer retail sales of China by first six months of 2015, accounting for 253 billion US Dollars. Chinese retailers have assisted consumers in online marketing making online transactions simple. In 2012, online transactions between China and other countries have increased by 32% to 2.3 trillion yuan, and this accounted for 9.6% of the total international trade made by China. This has been made possible by e-commerce transactions platforms like Alibaba that is very popular in China. In China, Alibaba had an e-commerce market share of 80%. In 2014, China had 600 million internet users making China the largest online market. China also prides of largest e-commerce market globally by value of sales in 2016, estimated to be US$899 in 2016. Pros and cons of e-commerce to: Customers Pros Cons E-commerce is convenient and efficient in looking for products and comparing them without going to the physical shop. E-commerce brings about loss of social aspect of physical shopping The chosen products are delivered to where they are required. There is no extra carrying of products from shop to home. Buyer Is unable to feel and touch products before purchase. E-commerce provides products that are locally available. Customer is unable to obtain the product instantly. There is extra cost incurred for delivery Sellers Pros Cons E-commerce enables sellers to avoid certain costs and taxes for distribution. Sellers may at times need to incur delivery costs. Enables sellers to get to customers that would access through physical stores. High risks of returns Investing in advertising required to attract traffic. FTZ and Government Policies Free trade zone (FTZ) is chosen area within territory of a country or state where goods may be processed and stored. Generally, goods that are unprocessed or processed, are re-exported and there is no taxes (customs duties) are levied on such goods. Suppose goods are delivered to buyers within the country, the standard clearance processes would apply, and customs duties together with local taxes will be imposed (Eid, 2011. P78). Two ago, the government of China legalized free trade zones in most cities boarded to warehouses to hold goods for sale on online sales platforms, and applied certain rules in terms of clearance and taxes for these free trade zones. Cross Border E-Commerce (CBEC) prospered on very well from that point. Many Chinese online sales platforms are employing suppliers from overseas to promote and sell their products on their e-commerce platforms, especially products that are selling in the Chinese market. MZECO and CBEC Distribution of products of Natures Organics is the exclusive business of MZEECO Company. Natures Organics is properly represented at brick-and-mortar retailers. Most of the income was obtained from traditional retail. MZECO International Pty Ltd is using platforms such as JD.com and suning.com to do online sales on goods that been cleared by customs and cleared the local taxes (Li and Buhalis, 2006 p153). MZECO currently have main store on Tmall Global and supply vip.com for other products. Flow of goods- normal trade Physical sales The diagram below shows flow of goods from Australia through to the customer in China. This is where the customer physically goes to the retailer to buy the product he/she needs from the retailer. Online sales This diagram shows the flow of goods from Australian warehouse through to customer in China. The customer orders for good from Australian warehouse online. Obstacles for Normal trades The following factors affect the flow of goods thus affecting normal trades. • Inspection requirements for goods- Inspection involve type of goods, labels, and specifications. Random tests some products like baby formula and cosmetics among other products imported. • Custom duties- There have been two tariff reductions since introduction of China-Australia Free Trade Agreement. Most of the goods imported from Australia are will enjoy free tariff in three years time. • Value adding tax (VAT) - The law governing VAT in China is very complex. Usually, goods sold in China are always liable of value added tax. Value added tax on imported goods in China is charged together with customs duties simultaneously. It is quite unique that most of the CBEC trades were exempted from VAT. Flow of Goods –CBEC Flow of goods in free trade zones (FTZ) Flow of Goods –Direct Post Barriers for CBEC trades • Requirements for goods inspection- Types of gods, specifications, and labels must be known. Majority of the products are excused from requirements they are levied to normal trade. New rules put into action since 8th of April, 2016 harmonized the requirements. Since there are several practical problems, authorities in China suspended the effectiveness of new rules for a year This implies that goods that could not be imported through normal trades, but could be imported through CBEC via FTZ will be now be impossible. • Inflexibility of goods within FTZ- Authorities in China put stringent rules on handling of goods within the FTZ. Third party service is employed to receive, store, pack and send goods there. Some courier services are required to deliver goods to buyers and all is at extra cost. • High freight- For mode of FTZ, there is higher freight since most of the authorized FTZ officers reside inland. Therefore, transport from the seaport to free trade zones needs special escort and procedures, which can become expensive, slow and risky Transport of cargo by air is always the choice, but is always at higher cost. Direct mailing is often expensive and slow. Comparison of costs Normal trades These are charges imposed on goods at each point of their destination through their transportation process to the customer. These charges include: General charges Physical stores Online sales Transportation charges made on the cargo from the Australian warehouse to Chinese port One off entry for every cargo Service charges by the online sales platform Destination port charges, inspection charges on the cargo, custom duties as well as value added tax (VAT). Margin of regional distributors taking care of the cargo at retail. Charges by third party services Margin charges by retailers Margin charges by e-commerce websites Wages and/or commissions to promoters in the store Payment services VAT Charges made on delivery CBEC General charges Bonded warehouse mode Direct post mode Payment services Airfreight charges from Australian warehouse to bonded warehouse within Chinese within a Chinese free trade zone (FTZ). Cost of packaging Charges made by e-commerce platform Storage charges in the bonded warehouse International courier charges. Third party service charges Service charges for receiving, packaging and sending products to buyers Periodic service charges of the e-commerce website Delivering cost for taking the cargo to customers Discussion Chinese law requires compulsory animal testing on all cosmetics products that are manufactured and exported to China. In April 2016, China harmonized the policy of animal testing on imported cosmetics. This has been a big relief to China’s cosmetic manufacturers. Animal testing is not banned for China’s cosmetic manufacturers they can use it as well as alternative methods of testing available for the cosmetic products. The animal testing law is not applicable to online shopping; it is only applicable to products that are physically sold in China. When a buyer purchases a cosmetic product from a foreign or international shopping web platform, the cosmetic product does not require to be tested on animal. Therefore, the only harmless way to know whether the company complies with the animal testing law has knowledge of which brands are sold in China. For the free trade zones, cosmetic products exported in bulk to China’s free trade zone then distributing them to buyers through agents must undergo animal testing. On direct mailed by foreign companies to customers in mainland of China for personal use requires no animal testing. This policy is upheld for one year. This is basically beneficial to cosmetics products exported through Cross Boarder E-Commerce (CBEC). Besides the direct not hugely affected so long as specific requirement on the value and quality of the cosmetic product limits are observed. However, this policy will be active on goods that are imported through normal trade or via Free Trade Zone (FTZ). Due to the company’s adherence to animal rights, the company as well can use the CBEC route to export skincare products to China. The company can also use the direct post route but only if the company observes the limit on value and quality of the cosmetic product. The suitable platform for online sales in China is VIP.com. This platform determines retail prices, and it is the same price to their customers in the platform. The seller has low chances of risk and the platform chooses brands carefully (Chaffey, 2007 p46). Besides, the platform covers all costs from the point the goods are handed to them. VIP.com online sale provides the products to the seller on consignment. Auspost, Woolworths, and Chemist Warehouse all have flagship store on Tmall global. This is because at times running or starting an online store can be risky or expensive. Therefore, it is worth to look for an online store that is established. Any investor extending into China must plan the extensive costs of getting into the new market. However, investors always underestimate the cost of establishing an online sales store, and costs related to engaging a Third Party (TP) are looked down upon. Generally, TPs charge sales commission as well as quarterly service fees as a motive to provide services that are effective. TPs have various rates depending on their sizes, service provided, reputation and uniqueness of their expertise. For instance, Tmall Global needs a US$ 25 000 for deposit in security, annual fee of US$5 000, and 0.5-5 percent commission depending on product category (Xiao and Benbasat, 2007 p138). For small to medium business enterprises, online sales transaction is a good opportunity to promote the cosmetic products in China (Doz, 2011). Therefore, it would be imperative for the company to adopt e-commerce so as to increase exportation of cosmetic products to China (Asiabugwa, 2011). For this company to be successful in e-commerce, the following step has to e considered: Simple-to-understand categories- An important factor to success of e-commerce is to be able to navigate e-commerce website easily. This can be achieved by having logical labels, filters and primary categories. Good URLs- the company should make sure that addresses in their website are easy to navigate and understand. The company should focus on essential keywords and separate various keywords using hyphens. Unique product content- This strategy would definitely help the company to stand out and help in drawing customers to the site. The company should ensure that product description is brief and straight to the point. Quality images- images should be clear for the buyer to able to view the product without difficulty. Besides, the image should be having proper size to allow the customer to easily identify the product as well as the product sub type. Emails to the abandoned carts- Abandoning of shopping carts by buyers is an occurrence that is more often. Thus, it would be important for the company to be emailing such buyers reminding them of their unfinished purchase process. Another strategy the company can use is target remarketing. The company can as well do reminders via social network platforms. The other strategy the company can use to promote sales of cosmetic products is Google Search advertising. International business International business is the process of raising engagement in business in the global markets (Ball, Geringer, Minor, and McNett, 2012). There are various theories trying to explain success of a given country in the international markets (Ghezzi, Mangiaracina, and Perego, 2012 p54). However these theories have enabled businesses, countries and economists to comprehend the global trade and strategies to regulate, promote and manage international trade, these theories are as well contradicted by events occurring in the real global market. From this context, there is no international business theory that is superior to the other. The superiority depends on the organization, business, economist or government that is viewing which theory that would suit them regarding the conditions they want to trade. The company will have to use some of the international business theories to promote and manage sale of cosmetics in the China market. The theory of foreign direct investment can be significant to the company in promoting their product (Griffin and Pustay, 2012 p63). This theory suggests that the company should make investments in China (foreign country) as it would enable the company to gain large market share in China. The investment include owning stores and retails that will be used to as dispatch as well as selling points for the company’s product. However, this would prove difficult due to strict policies of China government on foreign investment. The other challenge would be the local stores in China would prove it hard for the company to penetrate (Ball, Geringer, Minor, and McNett, 2012 p88). Even though, this strategy would enable the company to have close contact with the buyers, thus, promotion of their products would become cheaper. The other theory that would prove beneficial to the company is the Uppsala model theory (Buckley and Caisson, 2010, p67). Uppsala allows the company to gain experience for the local market before moving to the international market (Ajami, Cool, Goddard and Khambata, 2014 p108). This is significant in that it allows a company to encounter challenges in the domestic market. This equips the company so that when it encounters similar challenges in the foreign markets the company can adjust appropriately. The company should begin their international operations using original exports and eventually more demanding products both at country and international level. Conclusion It is important and worth look for an online store that is well established. This is because established platforms have low chances of getting risks. As costs of CBEC are higher than most people expect, investors have the choice of selecting TPs that support alternative platforms to enter into the market gradually. Besides premium flagship stores, most TPs provide support for legalized and specialty stores. The Authorized model store includes a product selling directly to TP that re-sells the goods on its storefront or via other consented re-seller. Reference Ajami, R., Cool, K., Goddard, J.G. and Khambata, D.M., 2014. International business: Theory and practice. Routledge. Asiabugwa, M.A., 2011. E-commerce strategy and performance of commercial banks in Kenya (Doctoral dissertation, University of Nairobi). Ball, D., Geringer, M., Minor, M. and McNett, J., 2012. International business. McGraw-Hill Higher Education. Buckley, P.J. and Casson, M., 2010. A theory of cooperation in international business. In The Multinational Enterprise Revisited (pp. 41-67). Palgrave Macmillan UK. Chaffey, D., 2007. E-business and E-commerce Management: Strategy, Implementation and Practice. Pearson Education. Chakraborty, D. and Sengupta, D., 2006. IBSAC (India, Brazil, South Africa, China): A potential developing country coalition in WTO negotiations. Centre de Sciences Humaines Occasional Paper, (18). Chung, W. and Chen, L., 2012. Group-buying e-commerce in China. IT Professional, 14(4), pp.0024-30. Doz, Y., 2011. Qualitative research for international business. Journal of International Business Studies, 42(5), pp.582-590. Eid, M.I., 2011. Determinants of e-commerce customer satisfaction, trust, and loyalty in Saudi Arabia. Journal of electronic commerce research, 12(1), p.78. Ghezzi, A., Mangiaracina, R. and Perego, A., 2012. Shaping the e-commerce logistics strategy: a decision framework. International Journal of Engineering Business Management, 4. Griffin, R.W. and Pustay, M.W., 2012. International business. Pearson Higher Ed. Laudon, K.C. and Traver, C.G., 2007. E-commerce. Pearson/Addison Wesley. Lawrence, J.E. and Tar, U.A., 2010. Barriers to e-commerce in developing countries. Information, society and justice journal, 3(1), pp.23-35. Li, L. and Buhalis, D., 2006. E-Commerce in China: The case of travel.International Journal of Information Management, 26(2), pp.153-166. Qin, Z., 2010. Introduction to E-commerce. Springer Science & Business Media. Xiao, B. and Benbasat, I., 2007. E-commerce product recommendation agents: Use, characteristics, and impact. Mis Quarterly, 31(1), pp.137-209. Zhang, Y., Fang, Y., Wei, K.K., Ramsey, E., McCole, P. and Chen, H., 2011. Repurchase intention in B2C e-commerce—A relationship quality perspective. Information & Management, 48(6), pp.192-200. Read More