Industry Insights | Driven by Both Demand and Supply, Cross-border E-commerce Holds Great Potential

Cross-border e-commerce refers to an international commercial activity where trading entities belonging to different customs territories conduct transactions and settlements through computer networks. It digitizes traditional import and export trade processes through e-commerce methods and delivers goods across borders for transaction completion through cross-border logistics.

Cross-border e-commerce mainly includes two business models: B2B and B2C.

The B2B model is not very different from traditional foreign trade, mainly digitizing in the areas of information display and business matching. Buyers can find potential sellers through product information and marketing advertisements on the platform, reach a cooperation intention through online communication, and then proceed with a series of processes such as product customization, letter of credit payment, container shipping, etc.

The B2C model relies more on digital means and internet platforms. Common outbound sellers include group sellers, general merchandise sellers, and independent websites. Merchants not only display product information to overseas individual consumers or small wholesalers through cross-border e-commerce platforms but also use social media platforms for online advertising to drive traffic to their stores. Consumers can make online payments and purchase products on the platforms or independent websites of merchants.

To fully reflect consumers' personalized needs and the intelligent transformation of manufacturing, an important online composite trading form - B2B2C model has emerged. It can not only meet the demand for reduced international trade costs but also adapt to the trend of fragmented order aggregation.

Cross-border e-commerce can be divided into two categories: export cross-border e-commerce and import cross-border e-commerce. Each category has its own B2B and B2C business platforms. For export cross-border e-commerce, B2B platforms include Alibaba, Global Sources, etc., while B2C platforms include Global Express, eBay, Amazon, etc. For import cross-border e-commerce, B2B platforms include Dolphin Supply Chain, Xingyun Global Exchange, etc., and B2C platforms include Tmall International, JD.com International, Amazon Overseas Shopping, etc. In addition to the main entities of cross-border e-commerce import and export, supporting industries such as logistics, payment, and finance are continuously maturing, boosting the rapid development of the cross-border e-commerce industry.

Cross-border e-commerce is constantly evolving in development, and its trading entities and scale exhibit different stage characteristics during the following four periods:

• 2003-2010: Developed through exploration, with the initial sprouting of cross-border e-commerce

In 2003, relying on traditional trade service systems, cross-border e-commerce initially took shape as a prototype of B2B transaction models. At this time, transaction products mainly consisted of consumer electronics and related products, with few concepts of brands or intellectual property rights. During this period, some emerging players began to emerge and actively participate in international trade. However, their channels were single, and they were highly dependent on European and American markets. In addition, due to the small industrial scale and the lack of a mature cross-border e-commerce international trade system in China, the industrial chain division of labor for cross-border e-commerce was not clear, and the supply chain was scattered and lacked coordination, mainly operating on a single-item procurement model.

• 2010-2013: The rise of domestic e-commerce, and the popularization of cross-border e-commerce

After 2010, with the increasing penetration rate of the internet and e-commerce, cross-border e-commerce gradually entered the public eye from a niche area. During this period, domestic e-commerce has embarked on a path of standardization, and domestic enterprises have also seen the market potential of cross-border e-commerce, entering the market to seize market share, leading to the emergence of professional cross-border export service providers. As players in the industry continue to expand their markets, cross-border e-commerce in China has further penetrated into developed markets. At this stage, the SKU (Stock Keeping Unit) of traded products continues to expand, with categories such as clothing and home goods rising in overseas markets. Supply chains and factories begin to establish cooperative relationships to form synergies and increase revenue scale.

• 2013-2018: Entering the Internet era, cross-border e-commerce expanded rapidly

With the explosive growth of internet mobile users and the improvement of industry maturity, cross-border e-commerce has received significant attention as an emerging market. At this stage, third-party cross-border e-commerce platforms are developing rapidly, with independent sites emerging one after another. Transaction products show a trend towards lightweight customization and premium development. Players in the industry are not only expanding their SKU but also continuously enhancing their awareness of intellectual property rights. At the same time, the cross-border e-commerce industry chain is gradually enriching and improving, with various value-added services and support roles differentiated upstream and downstream of the chain. At this stage, business models are becoming increasingly diversified, with regional industrial agglomerations emerging; some B-side players are rapidly expanding, actively deploying upstream and downstream of the industry chain, building mobile product systems that adapt to mobile devices, and leading to a high-speed growth in online transaction volumes.

• 2018-present: The industry has gradually become compliant, and cross-border e-commerce has developed steadily.

After 2018, thanks to the E-commerce Law and the construction of cross-border e-commerce comprehensive pilot zones and bonded areas, the cross-border e-commerce industry has gradually become more compliant. The industrial chain has basically matured and entered a period of integrated development of various models, with independent sites, third-party platforms, and offline channels coexisting. At this stage, China's e-commerce exports have basically completed coverage and penetration of the world's mainstream countries. The SKU (stock keeping unit) of transaction products is stable, and the service capacity for overseas B-side customers has also correspondingly increased. Although the global COVID-19 pandemic has faced severe challenges to cross-border logistics and supply chains during the period, with the continuous rise in the popularity of overseas e-commerce, cross-border e-commerce still shows great development potential and presents a good development trend.

Due to the rapid development of the digital economy after the pandemic, overseas consumers' acceptance of e-commerce has increased significantly. At the same time, with the rise in disposable income and consumption levels among residents, Chinese consumers' demand for imported high-quality goods has also been continuously increasing. These two factors have jointly catalyzed a continuous growth in the transaction scale of China's cross-border e-commerce market. From 2017 to 2021, the transaction scale of China's cross-border e-commerce market rose from 8.1 trillion yuan to 14.2 trillion yuan.

Although affected by the pandemic, international logistics routes have been hindered and overseas online shopping demand has slowed down, the trend of scale expansion remains significant.As the market gradually matures, cross-border e-commerce places increasing demands on capital, technology, and services. The industry threshold and operational difficulty have also correspondingly increased, leading Chinese cross-border e-commerce to develop towards refinement, branding, localization, and diversification.

In 2021, the scale of China's cross-border e-commerce market reached 14.5 trillion yuan, and it is expected that the cross-border e-commerce industry will maintain a relatively high growth rate. By 2026, the market scale in China is expected to exceed 26.6 trillion yuan.

From the perspective of the composition structure of China's cross-border e-commerce market, export business accounts for the dominant share of the overall market. Thanks to China's increasingly strong export competitiveness in manufacturing, a complete industrial chain, and strong demand from international markets, the scale of the export business market is expected to reach 20.2 trillion yuan by 2026.

Meanwhile, due to the increase in per capita disposable income domestically, a significant rise in residents' purchasing power, the continuous expansion of SKU offerings for e-commerce products, and the diversification of sales channels, the market scale of import cross-border e-commerce will grow at a significant annual compound rate. It is estimated that the market size will reach 6.4 trillion yuan by 2026.

• Demand side: There is significant room for improvement in the penetration rate of foreign e-commerce.

Compared to the highly developed e-commerce economy in our country, the global e-commerce penetration rate is currently still at a relatively low level. Although European and American countries have formed relatively complete e-commerce ecosystems, due to the impact of the pandemic and uncertain economic expectations, consumers have become more cautious and their confidence in consumption has declined. Before the pandemic, European and American consumers were more focused on shopping service experiences than domestic consumers and preferred offline consumption more often. However, the pandemic has created new consumption scenarios and changed the consumption habits of European and American consumers, shifting their offline consumption behavior online. At the same time, e-commerce products with high convenience, rich categories, and cost-effective prices have gradually captured people's hearts, accelerating the further penetration of cross-border e-commerce.

Moreover, there is still a significant gap between the e-commerce economies of Southeast Asian countries, African countries, Latin American countries, and other countries along the Belt and Road with those of China. There is a high demand for B2B and B2C business connectivity, and infrastructure such as logistics and payment is still in its early stages of development. The market presents a blue ocean. Taking Southeast Asian countries as an example, their local supply chains have low production efficiency, few categories, slow iteration, and poor quality. The supply chain has not yet formed large-scale clustering effects, and there are obvious arbitrage opportunities due to the break between the production and demand sides, providing opportunities for Chinese enterprises to enter the market.

• Supply Side: Synergistic Efforts of Favorable Policies and Technological Development

In recent years, the favorable growth momentum of China's cross-border e-commerce industry has been driven by supportive policies.

The first is the expansion of the pilot layout of cross-border e-commerce comprehensive pilot zones. Since 2015, the State Council has approved six batches of cross-border e-commerce comprehensive pilot zones, continuously expanding the scope of these zones. This not only creates employment and increases income locally but also provides a new approach for the high-quality development of China's foreign trade. At the same time, policies strongly support the integrated development of market procurement trade and cross-border e-commerce, helping enterprises fully utilize overseas warehouses to expand exports and optimize the filing of supervision models for cross-border e-commerce export overseas warehouses.

Secondly, to facilitate cross-border e-commerce trade, national policies have continuously expanded the list of imported goods for cross-border e-commerce. The 'tax-free without invoice' policy has been implemented for e-commerce retail exports in comprehensive pilot zones for cross-border e-commerce, and the collection of export enterprise income tax has been promoted through a verified assessment method.

Meanwhile, our country has been vigorously developing digital economy technologies such as 5G, artificial intelligence, and cloud computing. In the marketing process, we have innovatively applied emerging technology tools such as AR, VR, and artificial intelligence, establishing a globally leading position in the field of e-commerce digital marketing. With further development of digital technology, it will surely become a powerful driving force for e-commerce going global and B2B transformation in foreign trade, enabling efficient identification of market opportunities, rapid response to overseas demand, and expansion of scale effects.

Cross-border e-commerce branding has become an inevitable trend.In China, e-commerce going global can no longer rely on low-price and click-through models for long-term operation. Overseas local e-commerce has also seen a new trend in the post-pandemic era, with a large number of players entering the market and increasing competition in the industry. Cross-border sellers are shifting from extensive management to refined operations, focusing on enhancing brand visibility, establishing recognizable brand images, and thus consolidating customer brand loyalty. At the same time, in the digital media era, cross-border sellers cannot solely rely on a single third-party platform or search engine marketing channels to acquire customers; they need to deploy more media platforms for larger-scale traffic generation, which poses high requirements for the branding capabilities of various players.

Another trend is the decentralization of regional layout.Although in overseas markets, Europe and America remain the top destinations for domestic cross-border e-commerce exports, the market potential of developing countries cannot be underestimated. Due to the unpredictable international situation, there is a greater risk of focusing on a specific market. In the future, more and more enterprises will shift from focusing on one regional market to diversifying into multiple regions to actively respond to risks brought about by international relations.

Finally, due to significant differences in consumer preferences between different countries, the trend towards localized e-commerce marketing will become more pronounced.In the face of fierce competition, cross-border e-commerce enterprises have fully realized the necessity of localized marketing. In the future, various players will continue to take corresponding measures to accelerate their penetration into the local market.