This article originally appeared in HongKongEcho 82: The gateway to it all
Image courtesy of Lewis Tse Pui Lung / Shutterstock.com
E-commerce has already become a dominant force in the Asia-Pacific region. Maxime Bessière from GEODIS looks at this rising sector and the implications for companies in Hong Kong.
The Asia-Pacific region (APAC) accounts for around one-third of global B2C e-commerce sales. An October 2015 report by Research and Markets revealed that APAC was already the global leader in B2C e-commerce, beating Western Europe and North America. In 2016, B2C e-commerce sales within APAC should exceed US$850 billion, and APAC’s share of global B2C e-commerce is set to continue growing over the next five years. What will be Hong Kong's role in this scenario?
As APAC emerges as the world’s e-commerce hub, markets like China and India will gain share from currently more developed markets such as Japan and South Korea. Much attention has been focused on the rise of China, where private consumption is set to reach US$6.4 trillion by 2020.
Mainland China's appetite for imported goods is growing. The purchase of products from overseas online shopping sites, or via overseas agents, is becoming ever more popular. The China E-Commerce Research Center estimates that 35.6 million people will shop overseas online in 2018, compared to 18 million in 2014, with the value of goods bought rising to US$150 million from US$22.5 million.
Meanwhile, the PRC Government has introduced a series of policies encouraging the development of cross-border e-commerce. What is the position of Hong Kong given this huge commercial potential and the opportunities it affords to local companies, and how will China’s policies affect it?
Hong Kong well-placed to benefit from the Chinese e-commerce boom
Since China is still a controlled market, its customs policy for cross-border e-commerce sees constant change as it develops towards best practices. Hence it is still necessary to work in China's Bonded Logistics Park/Free Trade Zone (BLP/FTZ) environment.
Hong Kong, a free port with smooth and stable customs, is beneficial for business startups and for companies seeking to penetrate the China e-commerce market.
Since Hong Kong is a free trade market, whether bringing goods in or out, separation of inventory into general trade or e-commerce trade is not required. This plus daily air freight services makes Hong Kong more suitable for handling time-sensitive overseas e-commerce orders.
Hong Kong’s role in cross-border e-commerce
E-commerce consumption in China is huge. Cross-border e-commerce is being aggressively developed, with sales of US$14 trillion expected by 2018, a 130% increase compared with 2015.
Hong Kong has the potential to serve as an APAC or even global distribution centre for e-commerce, just as GEODIS does in Hong Kong for its retail customers.
In this situation of rapid expansion, Hong Kong serves as a transit point between vendor and customer. It can handle e-commerce clearance or personal consumption clearance, requiring just an extra two to three days of delivery time to get goods to their destination in China. It is suitable for low-volume e-commerce that serves the B2C China market, goods for personal consumption with low cargo value and low tax rate items.
The effect of new Chinese tax laws on local e-commerce companies
The new Chinese tax policies, because of both the short notice given for changes (just one month) and the lack of clarity in instructions from local customs, have disrupted trading and caused investment losses for many local companies, with some being unable to continue.
Since local China Customs have still not given notice of possible further changes, importers have to use the general trade category and pay an average of 13% tax on goods going into China. Importation via the e-commerce channel is less attractive, with volume down 85% compared to last quarter.
Challenges for companies in the industry
The use of technology matching the client's systems and expectations has become key to success, since dealing with small parcels in high volume requires automation at a much deeper level. Automation of traditional tasks such as preparing shipping documents has become a necessity. Moreover, to make the process even more efficient, the warehouse online system is now linked with both customs of different countries and the courier companies for generating the e-Air Waybill and customs documents. The time needed for customs clearance, and indeed the whole logistics process, is thereby hugely reduced. Flexible courier selection and online management of orders are great pluses for the client.
Some companies, particularly online merchants outside China, are unaware of certain aspects of e-commerce. For instance, many cross-border shipments may require the ID card numbers of individuals for security and income tax purposes.
Land costs in the China Customs dedicated area for e-commerce (in the BLP/FTZ) is continually increasing, reaching unreasonable levels. Investing in a warehouse system and equipment, and meeting China policies, is costly. Then, sales volumes have huge seasonal factors, e.g. Double 11 Day (‘Singles' Day’). The right amounts of goods must be available at the right times.
Another problem is that e-commerce trading licenses may be granted to companies with official connections, rather than on the basis of competitive strength. In addition, China policies, including the China Inspection and Quarantine process, may still change.
Changes are expected in the trade environment. E-commerce is one of the engines China can employ to maintain GDP growth. Risk is balanced by opportunity. Rising logistics costs will slow and there will be changes to make use of unused resources. Resource reallocation may create openings. Some products, e.g. cosmetics, will benefit more from the changes. Some experts forecast that by 2020 Chinese e-commerce could be worth more than that of the US, UK, Japan, Germany and France combined.
Overall, Hong Kong’s SMEs would do well to recognise the advantages of their central location in APAC and Hong Kong's unique position as an entry point to China. This is the time to prepare to expand their businesses by tapping into the rapidly expanding world of B2C e-commerce.
THE GATEWAY TO IT ALL: PERSPECTIVES ON SUPPLY CHAIN AND LOGISTICS
As one of Hong Kong's key pillar industries, supply chain and logistics is an issue that concerns us all. Of course, Hong Kong's geographical location has made it a natural hub for air and sea freight, and today it enjoys a robust logistics sector defined by world-class expertise and infrastructure.
Read the full publication here.