Date06 Apr 2021
CategoryInternational Services, Corporate International Tax
We have all taken a bruising from the COVID-19 pandemic, both personally and financially. One of the few comforts which may be open to us is to consider whether enduring lessons may have been learned from the experience. Additionally, the impact of Brexit is taking its toll, as business looks to renavigate supply chains and routes to market.
One consequence of the combined impact of COVID-19 and Brexit is the acceleration of the prominence of e-commerce as a mechanism of conducting business. In many respects, the altered commercial landscape has forced businesses to embrace, or at least consider, the internet as a channel for marketing and sales, particularly in the consumer sales sector. As a potentially inevitable structural change is upon us, we consider how one of the fastest recovering and expanding consumer market should be considered by UK businesses. The potential for online sales into China should be a serious consideration for UK firms, as it offers potential for expansion and diversification of revenue streams.
The underlying statistics speak for themselves. China has over 800 million internet users (compared with the US which has approximately 285 million). The retail market of e-commerce in China is greater than that of the US and Europe added together (in fact, bigger than the combined next 10 countries). China was predicted to become the largest retail market in the world in 2020 and e-commerce accounts for approximately one quarter of all Chinese retail sales. Furthermore, China has a growing middle class with spending power and a demand for quality products. Foreign (and especially English) products are very popular with the Chinese, as we have a reputation for quality and design. Whilst UK brands used to be seen as ‘traditional’ and ‘upper class’, they are now regarded as ‘dynamic’, ‘innovative’, ‘reliable, and ‘trustworthy’. All of these factors combined mean the sales potential in the Chinese consumer market is limitless for UK businesses.
Prior to COVID-19, China was already one of the leading countries in terms of a digital economy, but the pandemic has reinforced the trend towards online shopping. Since the outbreak of COVID, many countries are experiencing significant rises in the proportion of retail sales through e- commerce, for example, a 10% increase to 20.3% in the UK between the first and second quarter of 2020 and a 5% increase to 24.6% in China between January and August 2020*. The sales ratio of online retail to total retail in China is higher than for most developed nations but there is still potential for the online market to grow further. Not only is the e-commerce market so dominant in China, but it is the country where the online shopping experience is developing fastest. Many Chinese businesses have successfully developed their retail business models to take advantage of the opportunities the shift from offline to online. Consumers are being attracted to products through ‘social commerce’ techniques such as live streaming and short videos and Chinese consumers are becoming increasingly demanding.
There is no question that e-commerce sales offer fantastic opportunities for retailers. Sales/delivery/payment logistics have greatly enhanced, making on-line sales a more viable proposition for small businesses. Furthermore, issues such as brand or copyright infringement, which may have previously deterred businesses from taking advantage of the e-commerce opportunities presented by China, have been greatly improved. In addition, cost effective protection is now available through legal registration of patents and trademarks, as the enforcement process is now ‘user friendly’.
How Azets can help
Members of the Azets China liaison team, together with our Allinial Global partner in China, SBA Stone Forest, have already assisted UK companies in taking steps to evaluate the China e-commerce proposition. This has been through the sponsorship of initiatives and linking of UK companies with potential agents or purchasers. SBA Stone Forest are available to assist in development of a bespoke roadmap for your China journey. Our very strong recommendation is participation in one of the Trade Missions as a first step and we would be happy to discuss what is involved. This is very cost effective, and we have evidenced successful China entry strategies built off the back of such investment of time.
What may appear as a daunting task in terms of assessment of opportunity has already been successfully navigated by UK exporters. China emerged as the biggest growth engine for UK exports in 2020 - UK trade data for the first eight months of the year showed that British goods exports to China rose by 10.7% compared with the same period in 2019**. For UK businesses considering China as a potential export market, help is also available from Government trade organisations such as the DTI and other organisations such as the China-Britain Business Council (CBBC).
As a first step, Azets can assist clients in effecting introductions to advisors/contacts to advise on formulation of market entry strategy and in the customs duty logistics of executing sales, transporting goods and managing the paperwork. Please do contact us to discuss how we can help your business.
To assist businesses’ response to the global changing dynamic of the consumer products sales chain produced by e-commerce and the significant opportunities presented by China, we will be running a webinar on 20 April. This webinar will help UK businesses plot an initial strategy for the evaluation of a China e-commerce proposition.
Click here to register for our webinar.
* Source: OECD
** Source: ONS