Webinar Transcription Josh Halpern: Welcome everybody, to another version of “Conversations from the Field – China.” We’re here with Tony Shan, from Alibaba, talking about all things China market entry through ecommerce. Tony Shan is the head of Tmall Global & Kaola, the Americas and Alibaba Group. Tony, thanks for joining us. Tony Shan: Hi, Josh, thank you for having me. Hello, everyone. Josh Halpern: Getting started on Tmall Global. Tony Shan: Tmall Global is the largest B2C cross-border ecommerce platform in China. It’s, really, it’s a channel for international brands to test the China market. And we offer different business solutions for merchants entering the market because we know that there are brands of all sizes and they’re all at different stages in terms of their market expansion. We know that a one-solution-fits-all approach it’s not gonna work for everyone so we do have different business solutions that we can tailor to brands, depending on what they’re looking to do. For Tmall Global, specifically, more than 80% of the brands that we currently sell made their China debut on the platform. One thing we did not talk about is the cross-border ecommerce policy, how it’s a little bit more favorable compared to the more traditional general trade direct import process. It’s a lot faster and the requirements is, I would say less, stringent than the general trade process. This is why a lot of brands are making their debut in China on a cross-border platform instead of our domestic platform. Currently on Tmall Global, we have over 25,000 international brands from 92 countries and regions that are covering 5,100 product categories. Josh Halpern: Wow. I have to ask just to be fair, can you compare that to Jingdong in terms of both models and size? Tony Shan: Yeah, so Jingdong is another B2C platform in China as well. I don’t have their specific numbers in terms of how many brands they sell. I do think there’s some overlap, of course, the brands want to extend their channel and we understand that, you want to be able to have different channels to sell your products to gain more potential consumers. So Jingdong also has a domestic platform and a cross-border as well. Josh Halpern: And I don’t want to put you on the spot, Tony, because at CITC, we want to understand a little bit. My understanding is that it’s more of the Amazon’s fixed asset model meaning they own inventory and they fulfill, and then they also have a marketplace. Tony Shan: I would say the other platforms are primarily more self-operated, meaning it’s more of a wholesale model, whereas Tmall Global, our predominant solution is this marketplace where brands can set up shop, their own branded ecommerce store within their Tmall Global platform, and it’s a great way for brands to manage their own assortment, their own pricing and their own messaging, it’s kind of like their marquee store online within China. One thing I mentioned is Kaola, which is another cross-border ecommerce platform that Alibaba acquired in September of last year, so combine the Tmall Global and Kaola platforms, we currently represent over 60% of the cross-border ecommerce market within China. Kaola also sells cross-border goods as well and it’s now all within the Alibaba Group ecosystem. I would say the Kaola consumers are generally even younger than the Tmall Global customers, so predominantly generation Zs, and the selection on Kaola is more curated and geared towards this consumer. One of the reasons why we acquired Kaola is, it’s there isn’t a lot of consumer overlap between Tmall Global and Kaola, so it’s really an additional way for brands to gain more following within the China cross-border market so they can think about whether they want to be both on Tmall Global and Kaola to expand their presence within the Chinese market. We have various solutions, offering two brands at the different stages and depending on, from a brand’s perspective, what your objectives and strategy looks like in terms of the Chinese market. Like I mentioned earlier, our predominant model is our marketplace model, it’s more brand-focused stores, where, as a brand, you can manage your assortment and your branding. There’s on the right here what is the TMG flagship store model, that is our marketplace model. It says self-managed by the brand working with the TP that we mentioned earlier, the service providers to help manage the stores locally to promote your brands and introduce new products. It’s a way for a brand to build, maintain, engage with the customer base through our dedicated CRM system, like a backend portal that a brand has access to, that you can see real-time data in terms of who’s coming to your store, what their demographic looks like, and the various marketing resources that you have to engage with them. So this is our marketplace model. And then we also have the direct import, the wholesale model that I mentioned earlier as well, where for top-selling products that are fast-moving, products that we want to promote in terms of driving a lot of volume, we would be able to buy it at a wholesale price that we import and sell through our bonded warehouse. So that’s the direct import model. And then we have our overseas fulfillment, which is more similar to Amazon FBA, Fulfillment by Amazon. We have warehouses in LA and New York here in the U.S. that brands can ship their products to and then we would do the selling and the marketing of the products. Again, we also do API integration and drop shipping as well within this overseas fulfillment program. And then lastly, we have web to web, and this is more for brands that have a big ecommerce presence that have a broad assortment within their portfolio that we can do API integration and basically we can just sell what you sell on your U.S. website to the Chinese consumers directly. Josh Halpern: Wow, okay. The fees, I presume, vary, and we can’t get into those today, I presume? Tony Shan: The fees in various brand investments are different amongst all of these business solutions. Again, so we have a team here in the U.S. that we can work with brands on to kind of tailor their approach and strategy and figure out what is the best business solutions for them. I want to provide an example of a flagship store, so Sun-Maid, hopefully, people have heard of that, the raisins, they are known for their raisins. It’s actually a Californian brand, I think they’re headquartered in Fresno County. So this is their Tmall Global flagship store, the Sun-Maid overseas flagship store. So most recently on 5.20, they launched new products within their store and that’s what the screenshot looks like. And then on the bottom of the screenshot, it’s their key item product detail page. As you can see, their first thumbnail is a video, as I mentioned earlier, short videos are a really a great way to engage with customers and for them to see and hear your story. The way that this product is being positioned is really, you know, healthy snacks for the family, for kids. In this video, you’ll see a lot of, like, family engagement and a lot of focus on children as well. This is kind of the brand’s approach to marketing this specific product. Josh Halpern: I see the little American flag there indicating to the Chinese consumer, “this is going to be a product sent direct from cross-border.” Tony Shan: Yes. And it’s indicating that it’s a U.S. brand. So for all of our overseas brands that we sell within Tmall Global platform, they have to be all actual global brands that you would find in these local markets. Josh Halpern: Sure. And we actually did a great workshop with Fiona on your team and Chris from Sun-Maid at the World Ag Expo and we had a great conversation. And one of the things he mentioned was that it’s such a great way to sell cross-border not only because it shows authenticity, it shows the origin of the products that are generally from the U.S., but it also is a way to demonstrate your skew selection in a way that allows you incrementally add to your in-country skews that are on Tmall class. Tony Shan: Yeah, it took about two months for Sun-Maid to find the right trading partner, so trading partner is the TP that I mentioned. We actually encourage brands to spend the most time in terms of finding the right partner for them to operate their Tmall Global flagship store because, as I said, this is the kind of your marquee branding within the platform and within the China market. You want to make sure that you have the right partner who shares your vision and your strategy to be able to operate it, so they took about two months to find the right trading partner for them. Fiona and our team shared a list of potential TPs for Sun-Maid to engage with. They reviewed operational plans from each of these partners and discussed the backgrounds in terms of these TPs’ capabilities and what kind of resources that the TP partner is willing to allocate to the brand in terms of, you know, how big is the team managing this store, what kind of marketing that they recommend, and how responsive they are to the brand’s requests. So those are all kind of different criteria as a brand that you should think about in terms of evaluating these trade partners. And then another thing is we have two types of trade partners, one is a distributor type and one is a pure service type. A distributor is basically they buy the inventory from you and then you give them a distributor pricing and they set their own retail. And they, the TP, would manage your China channel distribution, pricing, marketing, and message so they have the control over that, and you just supply them the goods. And then pure service TP is where a brand is more engaged and they kind of dictate the strategy and more involved in the operation of the store and the TP is the one that’s kind of executing the brand’s strategy. Some brands will consider the TP, the distributor TP model because it is minimal upfront costs from a brands perspective. But Sun-Maid decided to go with a pure service TP model for two reasons, because, one, they want to have full control of the brand image, they don’t want to kind of pass that to a distributor TP to manage that, they want to have the control of their branding, and also just pricing strategy also from all channels within the market. And then their inventory is a tiny bonded warehouse in Fujian, which is a free trade zone within China that you can deposit the goods in. Generally, I would say for fast-moving goods, like snacks and food categories, that we recommend the inventory be deposited into a bonded warehouse because the delivery is much faster, it’s two to three days to the end consumer, especially, for food items when a customer wants to buy them, they generally would want it right away. The speed of the delivery is very important so that’s why the inventory for Sun-Maid is currently in a bonded warehouse in China. Josh Halpern: For some companies, putting it in a bonded warehouse is a great option if you can afford to allocate certain inventory on a consignment basis in many cases, correct? Tony Shan: Yeah, and generally speaking, like fashion is a category that’s kind of the opposite of this, like apparel is, you know, very skew-intensive. You don’t know what skews are going to sell, like the different sizes, so it’s much easier to have inventory be in an overseas warehouse, like a global fulfillment center, whether it’s in LA or in Hong Kong, so you have a lot more flexibility in terms of your inventory movements. Because in a bonded warehouse it’s in China, so it’s really kind of put aside, set aside for your store sales within China, but if it’s the inventory is outside you have more flexibility moving it around. If you wanted to learn more about the various options of business solutions we have and learn more about the cross-border opportunities, we have a dedicated Tmall Global Merchant Channel, it’s merchant.tmall.hk. It’s really our one-stop information hub where brands that are interested in exploring doing business in China. Within this merchant channel, this website, we have case studies of brands across the globe, more information on the business solutions, we have different webinars across the globe as well if you’re interested, and there are recordings there, you can see as well. And then if you’re interested in getting to know more about how to work with us, there’s a place for you to click, join us to submit your brand information, and a local business element professional on my team, for example, if it’s a U.S. brand, we’ll reach out to you and then we’ll go through kind of your brand strategy, your objectives, and then figuring out together what is the best approach to selling in the Chinese market on Tmall Global. Josh Halpern: Quick takeaways? Tony Shan: Yeah. So quick five key takeaways from today’s conversation. For one, China dominates ecommerce. As I mentioned, it’s a huge ecommerce market for this year, 44% of retail sales, online sales is going to be ecommerce. And then second, you should have a tailored market entry strategy as Chinese market is very different than the U.S. both in terms of how to engage with consumers and where you can sell. Our team, again, can work with you in terms of tailoring a specific approach for your Chinese market strategy. And then the third, Chinese consumers is younger and savvier, and now with more income to spend on global brands and products. And this kinda ties into the fourth point as well, retail has now become entertainment in China, so from a brand’s perspective, you need to figure out how to engage with these younger and savvier customers in more unique ways. So live streaming and short videos are some of the things we talked about today. And then lastly, find the right partner for you, both from a local business partner, like a TP, and also the different sales channels, and, you know, explore Tmall Global, explore Kaola, you can explore other channels within China as well. There are many options for brands, but you have to kind of think about what is the right approach and the distribution channel for you as a brand and as a business. Josh Halpern: One of the things that I’m thinking about is getting some of the brands that we work with onto Tmall Global, some of them are very small, they don’t have awareness of their brand so far into China, what do you think is the best way to do that? Tony Shan: From our perspective, our overseas fulfillment approach is a great way to test the market. Brands can just deposit a small amount of inventory in our warehouse in Los Angeles, and then we can do the selling and marketing and provide some initial feedback in terms of who is buying this product, if there is a market right now. If it’s not, then we can provide in terms of some opinions and advice in terms of what the brand can do to get there, that’s one way. But also, I think, if really a brand is serious about going to the Chinese market, they should start to do what we call seeding, meaning that having some social media presence in China, maybe getting some rising influencers to help promote their products within social media. Word of mouth, again, is very important. So who’s buying their products now in China, can these people be the ones that can help spread the word as well? I think it’s going to be challenging that, you know, travel is still going to be restricted, not a lot of Chinese tourists are coming here to see the product in retail stores here in the U.S. So, really, I think from a brands perspective, engaging with the different ecommerce platforms to test the market and also utilizing social media to find unique ways of engaging with Chinese consumers to see if, you know, it’s the right timing and right market for a brand to expand it. Josh Halpern: Very cool. Tony Shan: In terms of next steps, if you’d like to get in touch with us, you can go to merchant.tmall.hk or you can scan this QR code to fill in some basic brand information, and then our team will reach out to you to have a one-on-one consultation to discuss next steps. And you can always contact me as well, that’s my email, again, Tony Shan, and I lead the team here in the U.S., covering the whole Americas region, both North America and South America, for these brands that are interested in selling in China.