China’s online retail sales were due to surpass the combined retail sales of the 10 next-largest markets in the world in 2019, according to the “China digital consumer trends 2019” report published by McKinsey & Company (US), the consulting firm.

“It’s only natural that when people hear about the size of this online market, they want a part of it,” opined George Chan, Head of the Simmons & Simmons (Beijing) Intellectual Property Agency Company (China), and moderator of yesterday’s panel session Bringing Your Business Online in China.

He explained that many brand owners receive advice such as, “Bring your product to China, it will sell.” “Just get it online, there’ll be buyers lining up.” “The process is easy and straightforward.”

“This is all terrible advice,” Mr. Chan declared—and the panel went on to explain why. The discussion explored both the online and the offline markets in China.

Back to Basics

Beginning from a legal perspective, Donna Short, Partner at Addisons (Australia), said: “China is a massive market and every six months around a million trademarks are registered, so don’t be surprised if your client’s trademark is not available; it is also likely to be blocked by another mark.”

As China is a first-to-file country, it is essential that companies register their trademarks before launching their brands in the country. Applicants may choose to either file nationally in China or internationally through the Madrid System, designating China.

However, Ms. Short noted, it is sometimes better to file nationally, because the country has its own subclassification system.

“If you’re manufacturing in China, register in China as well, otherwise someone is going to see that brand and it will be counterfeited. If you’ve filed your trademark registration with Chinese Customs, they can stop the export of counterfeits,” she said.

Tim Brown, Chief Business Officer of Health More (Australia), added his own “horror story” to illustrate the point, citing the case of a New Zealand-based skincare brand that gained sudden popularity in China and had to boost its manufacturing. Within six months, a squatter registered the brand’s trademark, effectively cutting off all its online sales in the country.

“If they had put proper protections in place, they could have grown to become one of the most successful skincare brands in the region,” he stated.

A Clear Strategy

Aside from ensuring trademarks are registered, brands looking to access the online market in China must consider where they will distribute their products.

Elijah Whaley, Chief Marketing Officer, PARKLU, KOL Relationship Management & Analytics (China), said: “Increasingly, there are a number of e-commerce and social commerce ways of delivering your products online to customers. The number one thing is not to be fooled—Alibaba owns nearly 60 percent of the e-commerce market in China.

“No matter where the customer hears about your product, they’re typically going to go to an Alibaba site to look for your products. If you’re not there, you’re likely to miss a huge amount of traffic.”

The panel discussed three distribution options: domestic platforms, international platforms, and daigou—this is the term for a person who buys goods on behalf of someone living in mainland China. Literally translated, it means “professional buyers.”

“There are advantages in using daigou as their goods get into the market, and it also increases demand as more and more consumers see them. The downside is that you’ve got no control over the sales,” said Ms. Short.

Free trade zones can help facilitate companies’ entry into the market. They are designated areas in China where foreign companies can engage in economic activities that are generally not accepted in other parts of the country. Products are shipped in bulk to warehouses, managed by the Chinese government or private entities, in these zones and temporarily stored under the supervision of Customs, before being sold in the country.

Health More, which distributes and sells health, wellness, beauty, and other products, operates from three different free trade zones in China. Mr. Brown explained that it was an “obvious workaround” to registering and selling products for general trade, as it doesn’t involve issues such as labeling.

“Using a free trade zone sounds great, but the reality is that there are many little rules and it is complex. You really do need a local partner,” said Mr. Brown.

On domestic platforms, he noted, the difficulty of registering for general trade is very category-specific. For example, skincare and beauty products must be tested on animals before they can be sold in the domestic market.

In sum, brands must have a clear online strategy, according to Ms. Short. They can either set up their own company in China, sign an agreement with a Chinese partner, or enter a joint venture with a Chinese company.

She underscored the importance of having contracts in both English and Chinese languages and of localizing agreements, so that if something goes wrong, brands can enforce them in China.