The New Silk Road: Japan to China
Japanese brands are loved by Chinese consumers for their design and high levels of quality. With the Japan-to-China cross border e-commerce market estimated to be worth over US$25 billion per year, the Chinese e-commerce market represents an attractive prospect for many brands who are looking to expand. In addition, the rapid fall in travel and tourism caused by the Covid-19 pandemic has caused many brands to want to sell their products online through cross border e-commerce channels. However, especially for SME brands and retail stores, the high cost and complexity of exporting to China hits them hard with extremely high trading and logistics costs, along with the risk of losing control of their brand when using a large local distributor.
The new Managing Director of Samarkand Japan, Simon Truss, has a plan to solve this challenge for SMEs. Simon has been working at the forefront of the Japanese cross border e-commerce and logistics industry for the past 14 years, having headed up the Japan offices of companies such as Maersk Logistics, Panalpina and most recently, China’s largest logistics company, SF Express. Now returning to Japan following a period in Europe, we sat down to chat with Simon about his new venture and why he is so passionate about helping SME Japanese brands to enter the China e- commerce market.
Wayne Yoshida sat down with Mr. Truss for a video interview.
What are the features of Samarkand?
First, thanks for letting me introduce our company Samarkand Global to you. We are a cross-border eCommerce company focused on connecting overseas brands with China. We operate more than 10 different ecommerce storefronts on a range of ecommerce platforms for our clients in China, with a proprietary technology platform called Nomad which powers everything that we do. Our mission is to connect overseas brands to Chinese ecommerce making it simple, accessible, and profitable for brands and retailers of all sizes.
As you mentioned, China is by far the largest ecommerce market in the world, but it’s also the most complex ecommerce market to enter, particularly for international SME brands. This year is going to be a watershed moment where China will become the first country in the world where more retail transactions will happen online than offline. That is miles ahead of even the second place, South Korea at 29% online sales. So it’s obviously a very attractive market for Japanese brands, but it is difficult to penetrate. Those Japanese brands that have found significant success in China have tend to be on the larger size of the spectrum.
The smaller brands face problems with a lack of understanding of the market in the role that ecommerce and social media plays in China sales and they are worried about IPO issues and how they can maintain control of their brands. The traditional model of working with a local distributor can be difficult for brands to navigate. Often needing a three-to-five-year exclusive distribution deal and a lack of transparency on sales and pricing, has cause brands to either retreat from the market or not attempt to go at all.
So we have built a technology platform and a range of managed services that encapsulates all the cost and complexity that Japanese brands face from translation, logistics, marketing, store operations, customs, tax data analytics, and customer service payments design. Our NOMAD platform is integrated with all the necessary touch points for ecommerce in China to make it happen. We are trying to make it simple and cost effective for SME Japanese brands to sell in China and to keep control of their brand.
So in Japan, you may have sales on Amazon or Rakuten, you may have sales on your own website, perhaps a few different marketplaces, but China is much more fragmented. You have dominant platforms like TMall, JD and Little Red Book, but there are many others such as Wechat and TikTok that can drive significant sales. We are integrated with many of these to provide a one-stop-shop storefront service for our brand partners.
What is the difference between the current e-commerce model and the Samarkand model?
Most brands today are shipping B2B2C. Often, the middleman is a large ecommerce marketplace or distributor. Brands have to store product in China, which is expensive, the fees are expensive and unless Cross Border E-Commerce (CBEC) customs integration is in place, China’s import tax is expensive. This makes it too hard for SME brands to grow their business. There is also the problem of C2C delivery from Japan to China using postal methods, which has the risk of delay and high customs inspection levels.
Our approach to this is to let our technology take the strain, to use our integrations, trading licenses, and brand focused approach to help brands sell B2C directly to customers using our social media channels supported by KOL marketing. Once the brand is established, we then work together to open flagship stores on the larger ecommerce stores. To help brands get started we have set up our Japan Pavilion store on We-Chat, which is a multi-brand cosmetic and healthcare store and is a great place for Japanese brands to get started and test the market.
Our logistics process is also unique in Japan. For Japanese SMEs we will take the product from their factory in Japan and deliver it directly to the customer, normally within a week using China’s most reliable express company—SF Express.
What are the short-comings of the current model and how will the Samarkand model address those short-comings?
We could see last year with the interruption of flights caused by Covid-19 that many postal and C2C channels were unreliable and not fit for purpose. Samarkand does not have this problem because we have a unique partnership with several express companies which enabled us to deliver to customers in China throughout the pandemic. The unreliability of the C2C method is a major short coming, and the high cost and lack of control of the B2B2C channel which is a major short coming for smaller brands. We want to make the whole process simpler and cheaper for SME brands, and as we use CBEC (China Cross Border E-commerce) customs routes we also offer our clients the reduced CBEC Tax Rates which is currently 9.1% for cosmetics vs 20% if shipped using postal methods. Another important aspect for the brands we work with is that this is the only way for brands to enter China without doing animal testing.
We feel we are needed now. Because we are in the middle of a pandemic that has accelerated the change in shopper’s behavior from offline to online shopping. Brands know that they now need to adapt from offline to online, and for many they need to expand from domestic to cross border selling. The general lack of trust in an overly complicated and expensive process is not acceptable in our eyes, so we feel an obligation to support our brand partners to make that transition in the most efficient and risk-free way possible.
How do you see the market growth over the next 2 to 5 years?
It’s well known that the cross-border market is continuing to grow rapidly, but one facet of the market that is growing particularly quickly is that more and more Chinese shoppers want to buy online directly from the brands overseas website. They want to know the product is real, they want to check the details. Unfortunately, in Japan, most SME website shopping is great for local buying in Japan—but is not fit for international shoppers. By integrating a Chinese checkout APP which we call NOMAD Checkout into the SME’s own website, we are helping SME brands to grow their customers, by themselves, from their own website.
ABOUT THE AUTHOR
Wayne Yoshida, aka Supply Chain Wayne™, is the Business Director for the executive search consultancy FocusCore Japan. Based in Tokyo, leaders in Supply Chain Management, Logistics and Transportation trust Wayne for difficult-to-fill and C-Suite searches. Originally from Quebec, Canada, he has called Tokyo home for the past 15 years.
He serves on the Board of the International Propellor Club Japan (IPCJ) and as Editor for “The 50 Words App” and “CARGONOW.world.” As a proud father of three children, he is teaching them the joys of the transportation industry with his soon-to-be-released, “Connor the Container”, based on the real-life adventures of an ocean container.