Yiwu, which course will you follow?

By Wayne Huang, Frank Xu, Christina Liu

Legend, opportunity, and fortune are gathering on this territory- Yiwu, China.

Here lies the most lavish scale small commodity market and the highest mailing demand. This land also suffers from material deficiency and labor shortage. Most significantly, here lives a group of diligent people who have been writing the epics of the city since the 1980s.

Back then, Yiwu was a laggard place due to the lack of natural resources. People went out on business, exchanging chicken feathers with cheap goods like brown sugar and coarse paper. Later, diversified goods were being traded and sold. Finally, Yiwu gathered comprehensive goods, attracting nearby merchants to purchase goods. Over time, Yiwu has developed a ripe export system and small commodity industry.

Excerpt from http://www.baike.com
Exchange chicken feathers with candy.

However, something has brought Yiwu down from the pedestal: cross-border e-commerce (CBEC). The weight between orthodox and new power has been subtly shifting since the 2000s. CBEC has become more critical in cross-border trading because it provides better service and meets different needs.

Coincidently, the unexpected COVID-19 epidemic disturbed the traditional offline business order. The epidemic has served as a catalyst for the vigorous development of CBEC.

Fewer people compared to before in Yiwu Small Commodity Market

Suppliers and buyers are unable to do business offline during the pandemic. Since traditional offline cross-border trade has been diminished sharply, commodity demand becomes unsatisfied. Undeliverable goods have also led to the rupture of the capital chain. In this circumstance, CBEC released its advantages and quickly filled the market blank.

As the epidemic progresses and consumers become more comfortable with online consumption, the market share of CBEC is expected to continue increasing. According to national customs statistics, in 2020, 2.45 billion imports and exports were approved through the customs CBEC management platform. The value increased by 63.3% from last year. CBEC totaled 1.69 trillion RMB, realizing a 31.1% YOY growth rate.

The rise of CBEC has significantly influenced the traditional offline cross-border trade of Yiwu for several reasons.

CBEC makes business possible under the condition of the outbreak. The number of foreign businessmen in Yiwu dropped to about 4,000 during the pandemic from January to April, decreasing by 79.3 percent compared to the same time in previous years. It has been very difficult to communicate and make deals through traditional offline channels like before. ‘Most foreigners can’t get their visa approved.’ said Mr. Hassane, a Mali businessman who had just got his 5-year work Visa in Yiwu. ‘We have to develop CBEC. It’s unstoppable.’

CBEC also makes business easier. On CBEC platforms, customers can easily view all the product images and information on one page and choose products more intuitively. ‘You know, it’s been more convenient than before.’ a purchaser from Peru called Harold Mori said, ‘you could miss something great (offline), but searching online makes it more accurate.’

In addition, CBEC enables both B2B (business to business) and B2C (business to consumers) business. The traditional offline method is B2B which means operators only get wholesale business. Among all the operators, 4 over 5 operators do not retail their goods. However, CBEC operators could have more potential business by attracting individual consumers. Customers in Brazil can lie in bed, pay for the selected goods and wait for them to get delivered from Yiwu.

CBEC has apparent advantages over offline trades in several core aspects. Yiwu could transform their business partially online to be more competitive in small commodity cross-border business.

However, most Yiwu Small Commodity Market operators have reported a wait-and-see attitude in the face of CBEC transformation opportunities.

In the process of our field research, more than 80% of operators said they had no intention of engaging in CBEC business.  

Those who came to Yiwu before 2010 were generally pessimistic about CBEC. These operators have run their business for a long time with a stable source of customers and foreign trade income. Therefore, their need for transformation is relatively low. They are already accustomed to foreign buyers’ offline selection and ordering mode in Yiwu Small Commodity Market, which makes them feel less risky.

Those who came to Yiwu after 2010 are more optimistic about CBEC. It is partly because they are less competitive in traditional business. Most of them have been more affected by the epidemic and urgently need to transform to increase orders.

Only a small group of people have viewed CBEC as an excellent future opportunity. However, these are mainly speculative investors who prefer to wait until CBEC is riper before joining. It is worth noting that foreign buyers in the Small Commodity Market are generally optimistic about CBEC. Hassan is one of them. ‘I’m considering joining CBEC. I know we need to change, but I just want to see if the market is ripe enough for me. I won’t endure much risk.’ He said.

Mr. Hassan had a Q&A with us

Bur why is it so tricky for Yiwu operators to transform into CBEC? Several reasons have been found.

Talent deficiency is the most important reason. CBEC raises exceptionally high requirements for digital marketing, online store operation, and allopatric languages. Expertise talents are needed. Unfortunately, most of the current operators in Yiwu are middle-aged and older people whose ability can hardly meet the threshold conditions of engaging in CBEC.

In addition, existing operators are busy with their current business, having little time to learn. ‘Every day, I work till night to chat with my customers, offer them my prices, and beg them to purchase more. Would you please tell me how I could spare any time for learning?’ complained Mrs. Su, who ran the Christmas decoration business. This is the reality of most operators in the Yiwu Small Commodity Market.

Meanwhile, due to their relatively small scale, Yiwu operators and SMEs are not competitive in attracting excellent high-end talents with lucrative salaries compared to Amazon and AliExpress. This has posed a significant challenge to the digital transformation of Yiwu’s cross-border trades.

Mrs. Su and Wayne are chatting

Even if some merchants have tried to carry out CBEC, it’s still not a satisfying try. For instance, Yiwugo.com, the former official CBEC platform launched by Yiwu Zhejiang China Commodities City Group Co., Ltd (600415) in 2012, has insufficient functions. Standard e-shopping functions like prices comparison, purchasing access are missing. It only works as an official gateway, presenting operators with goods and store information. As a result, operators who tried on Yiwugo.com have never received much response from the market.

In addition, compared to other regions with well-developed CBEC, Yiwu’s lack of a seaport and low administrative level makes it less capable of developing CBEC.

Guangzhou is a city with highly-developed cross-border trade. It is located at the heart of the Pan-Pearl River Delta region, adjacent to Hong Kong and Macau. Guangzhou has excellent location advantages and developed land, sea, and air transportation.

In recent years, Guangdong, Hong Kong, and Macau have enlarged their CBEC industry and achieved good results. Under the “Hong Kong-Guangdong Cross-border Freight Forwarder” model, the Customs Department has overlaid “mutual recognition of customs supervision between Guangdong and Hong Kong” and “cross-border fast customs clearance” to facilitate customs clearance. This greatly helps to reduce CBEC delivery fees and lure more people into carrying out CBEC there.

Despite the temporary drawback, Yiwu Government has been continuously carrying towards the Yiwu spirit: ‘venturing before others, never to be followers,’ promoting transformation towards CBEC.

‘Yiwu started up because people here held our chance.’ said Chao, the general manager of Yiwu Zhejiang China Commodities City Group Co., Ltd, ‘Once if we couldn’t immediately hold this trend and control this blue ocean market, who knows where would become the next ‘Yiwu’?’

In recent years, Yiwu has made many efforts in various aspects of the transformation thanks to local government and state-owned enterprises. On Oct 21, 2020, Yiwu Zhejiang China Commodities City Group Co., Ltd launched their new e-commercial platform, ChinaGoods, to meet different and higher market demand.

Compared to the Yiwugo platform, ChinaGoods equips itself with more functions and advanced technology. For instance, it has transactional access, more humanized UI, and information about shops, Etc.

For example, ChinaGoods has provided an excellent solution for a common e-shopping problem: merchandise intangibility. The platform enables live streams to display commodities directly. Livestreaming realizes instant translation and reinforces the connection between foreign purchasers and the operators.

Physical live stream house in Yiwu Small Commodity Market
Interview with live streamer

Endorsed by the Yiwu Small Commodity Market, ChinaGoods provides operators with extra allowances. For example, ChinaGoods remains a free platform for Yiwu operators till now. In February and March 2020, operators who trialed on the Chinagoods platform can get a two-month rent-free, Etc. In conclusion, ChinaGoods has been a well-worth trial to prompt the CBEC transaction in Yiwu.

Besides the efforts from state enterprises, influential groups have also given a helping hand.

The fast-developing world needs more diversified roles to function well. Luckily, Alibaba is paying efforts in this field. On Mar 23, 2016, Jack Ma, the former border chairman of Alibaba Group, proposed to build the eWTP (Electronic World Trade Platform) system. ‘eWTP is a non-government marketing e-commercial platform.’ Said OuYangCheng, director of Alibaba CBEC research center.

This platform aims to build up its ecosystem and attach more and more resources, especially those directly involved in the international trading process. By gathering them, the platform will make more valuable resources available. ‘Although eWTP is still a prototype, with hard work and practice, it will become an essential driver of CBEC in the future,’ OuYangCheng added.

Nevertheless, how could eWTP help Yiwu Small Commodity Market? In Jun 2019, the trialing relationship between Yiwu and Alibaba was signed. Yiwu became the second test site right after Malaysia.

The entry of the eWTP system helps Yiwu in two ways. Firstly, SMEs will directly interface with CBEC and enjoy more speaking rights in the eco. Secondly, the system can promote the transaction, unit all the Yiwu SMEs, and react according to market and consumption changes. ‘It is a historical opportunity for SMEs in Yiwu to conduct CBEC under the eWTP,’ said He Qi, a Yiwu Industrial & Commercial College Spanish research center researcher.

As our investigation suggests, the existing operators are not capable of carrying out CBEC due to their limited digital knowledge. In order to get this resolved, the Yiwu government has been cultivating students in Yiwu Industrial & Commercial College.

By carrying out the ‘schoolwork & business’ model, the college has been encouraging students to start their own CBEC business since 2008. CBEC major was approved in 2019 into this college, aiming at developing expertise practitioners. The students will utilize their professional knowledge and skills to help Yiwu transform into a new appearance.

The development of CBEC has been endorsed by the State Council. Premier Li Keqiang presided over a State Council executive meeting on June 22, 2021. In this conference, the executive meeting of the State Council decided on measures to accelerate the development of new forms and models of foreign trade, promote the upgrading of foreign trade, and cultivate new competitive advantages. This new legislation implies that CBEC will continuously be a long-term trend in China.

Unfortunately, operators in Yiwu seldom think about interest and development in the long term. Getting rich faster, rather than getting richer overnight, is their only standard in Yiwu. The government should stand in the top position to get Yiwu out of the dilemma, instructing operators to keep open-minded.

It’s been decades since Yiwu’s first legend, but there is still a long way ahead for Yiwu to go. ‘Digital will be everything.’ Steve, an Indian purchaser, ever-again emphasized. It’s clear that in the blueprint of China’s foreign trade, CBEC will be an indelible mark, a wind direction. How will the pioneer, Yiwu, keep its all-time dominant position in cross-border trade? They need to develop CBEC with government, enterprise, and the operators’ triune effort. Hopefully, Yiwu would transform and shift towards a bright future.

References:

1. https://baike.baidu.com/item/%E9%B8%A1%E6%AF%9B%E6%8D%A2%E7%B3%96/2307379

2. https://www.gov.cn/

3. http://www.gov.cn/premier/2021-06/25/content_5620711.htm

4. https://tech.sina.com.cn/i/2020-08-04/doc-iivhuipn6677277.shtml

5. https://zhuanlan.zhihu.com/p/367662564

6. https://zj.zjol.com.cn/news/952458.html

7. https://new.qq.com/omn/20210128/20210128A09VHM00.html

8. http://www.chinagoods.com

9. http://www.yiwugo.com

10. https://news.mydrivers.com/1/524/524757.htm

11. http://www.yw.gov.cn/art/2020/4/20/art_1229144443_51418353.html

12. eWTP 机遇下义乌中小企业跨境电商发展探索 (2096-711X (2020)22-0102-02)

13. https://cyxy.ywicc.edu.cn/djsz/kjdzsw.htm

14. https://www.sohu.com/a/459159272_100209482

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