The Changing Landscape of China eCommerce: Interview with Jeff Unze of BorderX Labs, creator of Beyond Mobile Shopping App

James Eron: Hi, we're talking today with Jeff Unze, president of strategic partnerships at BorderX Labs, creator of the Beyond Mobile shopping app used by over six million Chinese cross border shoppers. Jeff, thanks for joining us today.

Jeff Unze: Thank you for having me, James.

James Eron: So the topic today is China's eCommerce law changes for 2019, specifically about cross border. And I know you're an expert in that. Tell me just a little bit about your background. Because I know you've been involved in China and eCommerce for a number of years now.

Jeff Unze: Sure, I started in the Chinese digital space in 1999. I was with Sina.com,  新浪, Chinese call it. Back in 1999, the pre IPO days, and was with the company for five years. So when I started in the Chinese space, there were about half a million people online, and over the last 20 years, I've really seen it grow, and obviously become the biggest eCommerce market in the world now. Ecommerce has grown too, whereas before, people had to go to a local store to get a prepaid debit card, and they could purchase online, it was very limiting. Now with mobile payments, the convenience of some of the different shopping platforms, the industry has exploded, so now its two or three times the size of the US eCommerce market.

James Eron: Obviously that's grown quite a bit. It is massive. Even the last 11.11 single sales data came in at over $30 billion US dollars in a day, that's quite amazing. So tell me about this new Chinese cross border eCommerce law. What is the current status of the law, and how does that look like it's going to change in 2019?

Jeff Unze: Sure, well the Chinese government is putting a lot of items in place to protect consumers with these new eCommerce laws. They're trying to encourage cross border eCommerce, but they're trying to encourage it through official channels, or through companies that actually pay taxes, and follow the rules of the Chinese ecommerce. First of those being there's obviously a lot of fraudulent products, a lot of fake products in the China market. A lot of those are brought and sold on platforms like Taobao.

And so one of the changes they're doing is they're actually making the platform liable if fake products are sold. Before, just the seller of the fake products could face fines, now it's actually the platform. So there's going to be a lot more vetting done on the authenticity of a product. Secondarily, for Chinese eCommerce, you have seven days to return any product, no questions asked. If you are a Chinese platform, you certainly have to subscribe to that law. If you're a Chinese reseller, or even a company selling into the market, sometimes they avoid it, they may have a no returns policy. So they want to protect the consumers by having everyone play by the same rules, giving the consumers the same protections to actually return a product if there's something wrong with it, or if they don't like it, or if they change their minds.

James Eron: Okay. So obviously, this will be helpful to the consumers. How do you expect this to impact the businesses? Will this be a big change? And is there a difference between, for instance, official Tmall sites versus Taobao sites? Or fraudulent sellers, et cetera? How do you expect this to rollout?

Jeff Unze: Well, one of the other things they're doing is they are making the BC channel, which is the official prepaid channel where you pay a reduced fee, they're upping the annual limit, and the per order limits on that as well. So you can buy more expensive products at the lower 11.2% rate than you could before. So the idea is to move some of that gray market business to more official channels. Like Tmall International, or for example, our platform, the Beyond app别样

Companies that pay taxes in China, follow the rules they’ll benefit from the new laws. I think who will really be impacted by this law are number one, the resellers, be they big or small companies that maybe pair with freight forwarders, buy products from US sites on sale, or buy on a wholesale basis, and then sell them on Taobao. Second, brands that have a lot of gray market sales are going to be impacted as well. There's a number of companies out there in the beauty, bag and fashion industries that don't know exactly how or what percentage of their sales are going to China.

There's this one brand bag, we're looking at their Taobao and Tmall store, their Taobao resellers are outselling their official channel by about 60 to 1. So you have to think that if you're that company, these laws come into play, suddenly a lot of your resellers, and the people who are really selling your product that look like US sales are going to disappear. So your China sales, and even your US sales are going to be greatly impacted by this. Most companies haven't done an audit of where their gray market sales are going. In many cases, if the sales are good, it doesn't really matter what bucket you put them in, China or the US, they just want product to go out the door. But Chinese shoppers are a huge portion of luxury. And so I think there's going to be a rude awakening for a lot of companies that really haven't watched the gray market closely.

James Eron: So you're saying as an example, there are consumers buying bags for instance, in the US, and taking those into China and reselling them. Those sales from the brand perspective are showing up as a US sale, but now that the government is trying to clean up those unofficial channels, that those sales may come off the US books, and perhaps may end up on an official Tmall business to consumer sale, or platform in China.

Jeff Unze: They certainly could. Tmall could benefit but a number of the items Chinese like about resellers (offer long tail products, lower pricing) aren’t available on Tmall. So it might just effect demand in general. If people are used to buying from a particular reseller, and that reseller can't sell, they have no capacity to buy it directly from the site in many cases, because they don't have a credit card. They can't read English very well. They'd have no way to ship product. So in some cases, perhaps Tmall International will pick up the slack. In other cases, it'll just be that brand may see a huge drop in sales while consumers really adapt.

James Eron: And so who would be the winners then here?

Jeff Unze: I think the winners are really the official channels. One could say the consumer, because hopefully a lot of the fake products are going to be cleaned up. Hopefully a lot of the shady channels that mix in fake product, or have product that's substandard are going to be forced out. So I think that's certainly a positive for the consumer. I think for the brands, once they figure out the policy, this hopefully will dry up some of the gray market business. Most companies say they want to control that, I have my doubts if they really do. I mean I think everyone likes hitting their sales marks. But as they adjust and as they develop a more transparent strategy, they'll be able to know where their products are actually going, and I think that'll be helpful for them long term. But I think in the short term, official cross border channels, such as Tmall International, and maybe Kaola, certainly our platform, Beyond, are going to benefit.

Because once again, when you're following the rules, when you have guaranteed authenticity, when you're buying directly from the merchants, and from the brands, and selling, and paying taxes in China, and following consumer protection laws, the laws won’t impact your business. So I believe a lot of consumers will migrate over to our platform, and realize that if they want popular products, long tail products, or the same promotions a US consumer enjoys, they'll have to find other real solutions for that. And so the hope is that they'll find our platform, and find some of these other platforms that have more scalable inventory, and can really service them better.

James Eron: And so putting that all together, what should brand managers be aware of, or keep in mind going forward?

Jeff Unze: If I'm a brand manager, I really want to focus on transparency moving forward. I want to figure out exactly where my products are selling. I want to pick partners that will pass customer data to me. I want to know exactly who my customers are, so I can make better decisions on product inventory, advertising, and product design. This law may hurt in the short term, but in the long term, it should certainly help, because it'll take those gray market sales out of the shadows, let them know a little bit more about who their consumers actually are.

For merchants, they’ll finally know their end consumers. Obviously people aren't selling 50 of the same bag to one end consumer, they're going to resellers. And to know that, and to know who your actual consumers are could be very impactful to the brand. That being said, a lot of companies in the first two quarters until the market adjusts, will not hit their goals. Especially in the luxury space. And I think luxury beauty in particular. Things like cruelty free beauty, they could have a real rude awakening come Q1.

James Eron: That's interesting. All right, very good. Jeff, fascinating conversation, and appreciate your expert insights and in depth conversation. If somebody wants to get in touch with you, what's the best way to reach out?

Jeff Unze: Sure, you can go to our website BorderXLabs.com, or more information about our app is By, B-Y, Bieyang, B-I-E-Y-A-N-G.com. Or just reach out merchants@BorderXLabs.com. And me or one of my people would be happy to talk to you. We do have, I think since we started four years ago, we've talked to about 3,000 companies at this point. We have some pretty good insight into the cross-border market, and some pretty good data behind what we talk about. So always happy to have a chat about China.

James Eron: Okay, Jeff, thanks so much for your time today, and look forward to catching up and talking again soon.

Jeff Unze: You bet, thank you.

About Jeff Unze

Jeff Unze is a Chinese internet pioneer with 20 years experience helping companies go to market in Asia. He has extensive experience helping both Fortune 500 companies and small startups use online advertising, social media, content and marketplaces to reach their international goals. 

Jeff joined BorderX Lab, a cross-border technology company in March 2015 as head of strategic partnerships. Jeff is instrumental in bringing high quality merchants like Saks, Barney's, Harrod's, Everlane and Alexander Wang onto the companies fashion and beauty discovery app, Beyond. He is also tasked with building partnerships with best in class logistics and payment partners to better serve the company's international customers.

Prior to joining BorderX Lab, Jeff co-founded Lucky Pacific Networks, an Asian-focused marketing company that focused on Greater China and SE Asia. Lucky Pacific helps clients like Marina Bay Sands, Ipsos, eBay, Expedia and Groupon acquire customers with strict KPI requirements. 

Jeff began his Chinese internet career at  China's top internet portal SINA.com (NASDAQ: SINA) in 1999 when only 500,000 Chinese people were online. He was instrumental in helping companies like Dell, Nike, LG and Johnson and Johnson see and realize the potential of the new medium. He later advised and consulted on the international English version of the company's Weibo platform.

Jeff earned his bachelor's degree in Advertising at Brigham Young University and his MBA in International Marketing (China Emphasis) at Thunderbird in Glendale, Arizona. Jeff is a frequent speaker on China ecommerce and cross-border marketing BWG contributor and China marketing expert.  He resides in San Jose, CA with his wife Athena and their two hockey-crazed boys Parker and Spencer. 

About the Author

James Eron has over 20 years of consulting and industry experience in China, Japan, and the US. As a Partner at Kung Fu Data, James is a China market entry expert bringing quality brands into China and executing strategic turnarounds for brands struggling in the world's most competitive eCommerce market. His work makes extensive use of China eCommerce data to identify and capture market opportunities. Clients include a wide range of B2C brands from apparel, cosmetics, and luxury to pet food and consumables.

James is a frequent writer on China eCommerce topics and is regularly invited to speak at events surrounding China’s e-commerce sector. He is also global ambassador for the Global Retail Insights Network (GRIN), a community of creative, inspired retail minds helping shape the future of global commerce.

About Kung Fu Data

With offices in Beijing, Shanghai, Hong Kong, and San Francisco, Kung Fu Data is an independent data firm and market maker possessing a rare combination of authentic understanding of the West and China in-depth local know-how. Since 2010, we have used proprietary data and optimization technology to help foreign brands enter and thrive in China’s largest e-marketplaces. Our sole mission is to bring brand owners a level of strategy and data transparency they never thought possible.