Posts Tagged ‘cross border e-commerce’
China’s health supplement market is forecast to be worth 180 billion yuan (US$26.5 billion) by 2020, up from 120 billion yuan in 2015, according to a report published in May by consulting firm Roland Berger.
China may soon overtake the US as the largest nutritional products market in the world thanks to rising health awareness among the mainland population and the country’s growing per capita GDP.
“Increasing health conscious behavior and rising incidence of lifestyle diseases has led to a significant rise in the demand for health supplements,” said Vipassa Kakroo, senior food and beverages consultant at Persistence Market Research. “Moreover, the shifting trend towards preventive health care in China, which reduces health care expenditure, has also contributed to the demand for nutrition products.”
For most foreign products, the main sales channels in China are e-commerce platforms like Taobao, operated by Alibaba Group, which owns the South China Morning Post. With the thriving cross border e-commerce, international companies have been able to bypass mainland regulations on health products and avoid local taxes, which has given them an edge in price competition with domestic products. In 2015 Australian vitamin company Swisse generated more than 700 million yuan in sales on Tmall, the e-commerce platform within Taobao, making it the most popular nutrition brand on the site.
However, foreign brands selling products to the mainland are now required to pay import tariffs and comply with a pre-approved import list under a series of new regulatory changes.
In April this year, Beijing announced updated guidance on cross border e-commerce that directly affect bonded warehouses, where international brands ship merchandise for sale to Chinese consumers without being subject to normal import duties or quality checks.
Under the changes, bonded warehouse products face tariffs ranging from 1.9 per cent to 11.9 per cent. The updated guidance also shortened the list of overseas products which could be purchased online and distributed through bonded warehouses without registration with the China Food and Drug Administration.
According to the Roland Berger report, e-commerce platforms have grown considerably in China, replacing pharmacies as the second-largest sales channel for health supplement products. But direct-sales remains the top sales channel for nutritional products, accounting for 49 per cent of total sales. Pharmacies and other traditional distribution models still play a critical role in China, especially in rural areas.
“International brands have mostly relied on online channels and expanded in first and second tier cities,” said Joe Jin, a partner at Roland Berger Shanghai. “Their influence in some lower-tier cities is limited and almost non-existent in the offline, direct sales market.”
Jin said one potential strategy for new players is to enter the market through direct-sales licensing and then leverage e-commerce sales channels for rapid expansion. Meanwhile, traditional offline channels such as pharmacies should also be considered, he added.
However, it is not easy for foreign brands to penetrate the offline market because the health supplement industry is one of the most tightly regulated in China.
“Companies need to comply with a stringent regulatory framework, requiring registration of the product under China’s Food and Drug Administration. The process not only requires extensive investment of time but also involves intensive clinical trials, meaning it is a cost intensive process,” said Kakroo from Persistence Market Research.
Legal registration for nutritional supplement products in China requires a license issued by the country’s Food and Drug Administration, with approved products able to include the FDA’s blue hat logo on their packaging.
So far, about 700 imported health supplement products have been granted “blue hats” while 13,000 Chinese products have the same recognition.
Facing tighter regulations and lured by the market potential, foreign brands have come up with another way to bypass the registration process: cooperating with local companies. (Source: scmp）