China is the biggest centre for e-commerce in the world – bigger than the US, UK, Japan and Germany combined – but it is by no means an easy market for western companies to access.
Along with cultural and language differences, technology and logistics can present barriers to exporting to China. This often means it can be too expensive and difficult for many UK businesses to consider shipping products to this potentially lucrative area, which is expected to become the world’s biggest market for luxury goods next year.
Currently, only about 2 per cent of Scotland’s exports go to China, so there is vast scope for growth. One Scottish company, Unineed Group, a Glasgow-based e-commerce specialist, is helping to make it easier for businesses to enter the rapidly-expanding Chinese market by offering a range of services.
In various ways, Unineed has been supporting diverse Scottish businesses that want to reach the increasingly wealthy Chinese population. For example, in May this year, Gretna Green family business and visitor attraction launched a dedicated Chinese website in partnership with Unineed to raise its profile and expand its client base there.
The most recent initiative from Unineed is the setting-up of its bonded warehouse in China in a Chinese government-supported tax-free zone. The warehouse can be operated by Unineed at a relatively low cost, which helps make it an attractive proposition for western companies looking to export to China.
The development of the warehouse, and accompanying technology and logistics, was accelerated when Unineed signed up the London Perfume Company, a large UK online retailer of fragrances, skincare and cosmetics.
The London Perfume Company was founded in 2010 and, after almost 20 years in business, is now a global provider of luxury goods, selling more than 200 brands, to an expanding number of territories.
The retailer was looking to overcome the difficulties of distributing perfume and its other products to China. Challenges included transporting heavy glass containers and shipping what are classed as hazardous substances, as well as the high tax on perfume exported to China. It therefore decided to approach Unineed for assistance in overcoming these issues.
Unineed founder and managing director Lowell Wang, a Chinese national who originally came to Glasgow to study international marketing, explains: “The London Perfume Company were looking to enter the Chinese market but didn’t have the knowledge and infrastructure to do so and were wary of the investment required, so we were able to provide an end-to-end platform for them at no upfront cost.
“We were already offering the platform service to other clients, but that process has accelerated with the addition of the London Perfume Company. Our bonded warehouse provides the company with low-cost logistics in the Chinese market, and it faces a much lower rate of tax compared to traditional import routes.”
According to Unineed, some higher priced perfumes can incur tax of 25 per cent or more when imported in a traditional way into China, compared to about 9 per cent through its bonded warehouse. This is partly because tax is paid on goods when they are sold and leave the warehouse in China, rather than when they enter the country. But lower tax is not the only benefit, adds Wang.
“We have built technology that enables us to interface with Chinese customs. It means the whole process is incredibly smooth,” he says. “The London Perfume Company products are now being sold from the warehouse this way. Every time a sale is made the appropriate tariff is automatically settled. There is very little form-filling as it’s all dealt with by the system. We handle all the end-to-end logistics and such things as insurance so there is very little risk to the client.”
As far as Unineed is aware, the London Perfume Company is the only fragrance retailer in the UK, and possibly Europe, that is currently able to sell this way into China.
To set up a bonded warehouse requires a Chinese company and the London Perfume Company has been able to benefit from Unineed’s subsidiary in the market and avoid the costs of entering a new market with a local business.
“There are a lot of up-front costs associated with building the platform and connections,” says Wang. “You need a locally-registered company to act as the customs agent and technologically the integration with the customs and warehousing systems is complex. You can’t just buy a plug-in to do this, it’s all proprietary software. To our knowledge we are the only suppliers able to offer this as a service to other retailers.”
Having successfully used the bonded warehouse for the London Perfume Company, Unineed is now looking to sign up other clients wanting to export to China.
Wang explains: “The whole idea of setting up the bonded warehouse is to give British and Scottish companies access to the Chinese market they wouldn’t otherwise be able to create on their own.”
According to Wang, the bonded warehouse service can be particularly attractive to fast moving consumer goods companies, often with low-margin products. This is because it is less expensive and more efficient to ship larger amounts in bulk to the bonded warehouse than try to export smaller quantities direct to overseas customers.
It does not make sense for all products to be delivered in this way through the bonded warehouse. Unineed says the average shipping cost it has secured with its delivery partners for delivery to China from the UK is around £5 to £7, which is good compared to an average in the UK of £3 to £6. Coupled with the low-cost bonded warehouse, from which delivery fees are about £1, an entire range of products can be efficiently sold into the Chinese market using the Unineed platform.
In terms of the type of businesses Unineed it looking to sign up, it is primarily targeting retailers and wholesalers with appropriate depth and breadth of products. For example, it is looking into shipping a chemist’s products to its warehouse in China. This would not include the chemist’s pharmaceutical goods, but all the other products it stocks, from skin creams to vitamins, which have large sales volumes.
Wang concludes: “The core of our sales proposition is to provide access to the Chinese market to western brands, companies, products and organisations.”
This article first appeared in the Vision supplement in the Scotsman – see it in full here.