Today I wanted to talk about what it is to be a trade partner and how it works. It’s something that I know, you know inside out with your businesses.
And first of all, just to give a bit of an introduction – Michael Simonet has been working in China for nearly 10 years. He is originally from Switzerland and has several businesses helping small and medium-sized companies enter into China.
With Qingdao Alea e-commerce, you and your team support brands everything from market entry to social media management and all the way through too obviously, of course the actual e-commerce operations.
And as I know you operate both traditional e-commerce and also cross border e-commerce.
I thought it would be really great to have you on here today to give us a bit of an overview about what it’s like to be a trade partner.
Well, it’s awesome. You’re having me and I’m very glad to share a bit of some information and a bit of background. I think it’s important that you really get into the topic if you want to come to China and channel like yours are the perfect thing to start. Thanks for having me.
Thank you. Great. The first question is:
When a brand is thinking about entering into China specifically through cross border e-commerce, what are the main things?
A trade partner is actually quite important part of that. What are the main things that a cross-border e-commerce brand needs to think about? Yes. Basically the TP is, as it says it is a trade partner. The partner here is key.
Just before saying anything more if you come to China, you need to have a partner. You just can’t do it by yourself. How do the partner look like, it can be in different ways.
I know you are helping the beauty brands to come to China so you could be part of such a partner as well. Then just helping them to manage a bit more tightly like the TPs, like us with more understanding.
I had clients in this kind of a triangle set up before and it actually works very well. It’s very challenging. But it brings you forward much more.
the TPs – what do they do?
It’s really helping the brand to assess if the products and the brand is a right fit for China. This is the first thing we do.
I see more and more TPs which are very selective with whom they take on board. Because it’s simple nobody wants to go into a relationship which you know already it will be. It isn’t going to work.
Basically we look at the digital market. We check what are the opportunities for your products, for your brand’s and then basically make some research and give suggestions according to data.
This is really one of the core competences in the very beginning and then you take it from there.
However, it goes right. Some actually ask for forecast. European companies come they asked for a five-year plan. Five years, I don’t know where I am in 5 years in China. In China that’s very difficult in China.
I’m comfortable with the 18 months to 24 months forecast in the pitch phase whereas but later we do that on a yearly basis just on months by months. Because there is so much which can go wrong in terms of support you know from the brand and so on.
This is then the second like a fork has to give them an idea. Once we say, okay. It has a fit. What can you expect? Then the third is okay. All these, how can we make it work?
Basically then laying out the landing strategy. This thing includes the idea of how to approach within the marketplace? For example is JD or whatever.
On the other hand, what kind of external factors do you need? Such as social media and go there a bit more into details like landing campaign, may be Hongxiu receding with paid KOLs and so on and then slowly bring the ball into the game and start drawing.
This is really what the TP does.
But it’s a partner and honesty and integrity is most important, I guess.
Because there are many TPs out there still, they are happy if you come along and then you pay for one year service fee and it doesn’t work.
There are people which tell you we going to sell 10 million in the first year just come along and so on and so forth. Honest feedback helping them not to make mistakes. They might do if they go alone or with wrong partner.
Actually that makes me think about a client I had recently. We were looking for TPs and the difference in forecasts given between the different TPs was enormous.
Of course, yes, that’s something that brands really should look at right. It’s not necessarily the biggest number is the best. You really do need to, as you said integrity and look at the quality of the plan and you need to trust each other as well.
What I found out is that really if you come along very well with the client. It’s much easier to do business. This is something, it’s obviously right. It’s logic. But it’s not always happening. Because you don’t see each other.
People are busy. You maybe have some other stuff going on. It’s really important. In the end, what I do is like in this forecast, for example for the pitch. I give them numbers which they will look at.
Oh! Okay that’s not what we thought. We will do and I’m like, yes. Because what you imagined and what will happen is anyway two parachute. Different.
From the very beginning I put it there and say look that’s what I think is possible. If this doesn’t meet your requirements, I’m very happy to say no too. We don’t need to work together.
This is really an approach I take. Maybe they don’t choose me but people come back.
They’re like after a while if it’s not going good or how do you see things? Yes, the first time I might do some one with the biggest number and then they come back to the more realistic one later.
If a brand is looking at cross-border e-commerce, obviously a trade partner is one option and then another option is a distributor.
From your perspective, what’s the advantage of a trade partner over a distributor?
Actually, I wouldn’t put it as a choice of A and B. Because in different kind of business setups or stages of the business. You need to choose them. If we talk in cross-border e-commerce, I see it personally as a market trial.
Especially as a beauty brand, you come to the market, you have not much idea. Your TP thinks he has an idea or your partner thinks he has an idea but nobody actually knows. That’s all just a bit of research and so on and so forth.
Cross-border e-commerce, you come, you get your first hand experience, you get real customer feedbacks. You CA, do I have a problem with shelf life? If it was too long in the sun? That’s the taste change. All this kind of stuff.
Because some things are just not stable. They can change. Its oily or use this. So, real feedback from customers who bought it. And then you can see a, the market response is pretty good at the same time you actually have to invest via cross-border e-commerce on your brand awareness.
Choosing a TP or a distributor both will let you pay for it as a brand. There is nobody who is going to invest on brand awareness from day zero for your brand unless you have an exclusivity contract for 10 years. I don’t know but no. Very impossible in China. Never!
These two things, you come with cross-border e-commerce to get real feedbacks and to spend money on your brand awareness via the cross-border e-commerce kind of start.
I see that starting face about one to two years. And once you created some traction, once you see okay, this is getting interesting. Okay people like it or they didn’t like it. You bring new products until you are at the place where you say, “This is getting interesting.”
Then you have two choices. You either go for a distributor. You say I’m going via the general trade model or you even can say, “Oh! This looks even better than I thought I’m going in myself.”
Then you can make your own business plan. You pitch it to investors or your CEO. It doesn’t matter. And you say, “Hey, might make sense if we go to start directly by yourself.” So you skip the distributor all along.
But if you choose this route then there’s some other benefits you have and really I see that happening. You are at a different stage of negotiation.
You’ve spent the money for brand activation who have the feedback and so on. So you’re going in and you can start really to say, “Look this, this and this is what we think, what we would like you to do as a distributor.”
They will look like, “Oh! They have a lot of things everywhere.” It’s not something, it’s not hard work. Of course it’s hard work, but they don’t need to invest a lot, a lot of time.
You’re at the better point of choosing the right distributor or choosing multiple distributors. At this point you can then say, “Look, I don’t go anywhere with one. I go with several.”
If you do that in a very beginning, no distributor will really even consider you. Take you.
That’s a really good point.
The last thing is they actually even maybe just come to you. Via the e-commerce, they come, they chat. Hey, I’m a distributor. I would like to operate your brand in China.
You get even needs not even traveling there. And I always compare it like you go to fairs searching distributors on a general trade model. Spend $100,000, $200,000 for hotels, flights, follow-ups and so on.
You could just put that money into your cross-border e-commerce strategy. And you’ll get your two years or let’s say one year in the game with the very same money. But the result is like a huge difference.
You have so much experience already with the cross-border e-commerce approach. Obviously the TP, your partner needs to be the right fit. Else that’s also a bit of wasted money.
Of course. You always have that. I think it is really interesting about the distributor, the different stage and being able to have that equity.
You know, like by building your brand of bit before you go in, you have that leverage.
Because I’ve worked with brands that are really quite popular outside China, but you know, of course you don’t have the equity in China. It means nothing.
It doesn’t matter how popular you are in the US or wherever. If people are not searching for you in China, then no one cares. That’s important.
I think in…in the Cosmetics space, you can be a bit lucky if you have a social media momentum in the Western World. You might be lucky that some Chinese influencer actually are following these foreign influences and like that.
In example, we do food a lot as well. In the food, it’s a bit more difficult. You can’t really have this kind of like going back. But in fashion and cosmetics, I think this is also possible.
Yes. It’s more established than the influence of root. Right. Yeah.
What do you think is the most important for an International small/medium beauty brand in order to be successful in China? If you could think of one or two things, what advice would you give?
I wouldn’t even say for a beauty brand because it’s so general. It’s the things everybody must have to be successful and this is a customer fit of your products based on data and not feeling and not believing.
Because this was 90% what I see people approaching me are doing that. And I always think like we are the 20 to 30 year old people from Tier 1 cities. Huge! So many people right there.
Yeah. A real fit based on data and if you don’t have these data, okay. Now, you need to have it. So the TP can help you but if your product is unique or a bit different, you can’t just say this is the same.
Then you have to take educated guesses from the data you can take out and then still come and get your valuable feedback on the market. This is the first.
The second is Speed and Agility. We as Europeans speaking, now Swiss are very slow.
The holiday season is just over. I think you’ve experienced it as well. Yeah. That’s going on during June~July to now. You need to be fast.
And if we say, “We’re going to start.” We got to start. And if you say, “You’re going to give me material for the brand…”