Chinese sellers are gaining market share on Amazon, at the expense of sellers in other countries. That said, it’s not always the usual suspect, the manufacturers, that drive this trend.
In this Q&A with Edward Li, a former Amazon employee and co-founder of Starlity.com in his native Hong Kong, you will learn what’s actually going on and how you can play to your strengths as an American, European or Australian seller on Amazon.com.
Here are some topics we cover:
- Why is Amazon trying to get more Chinese sellers onboard?
- What advantages do Chinese sellers have?
- What advantages do Western sellers have?
- Are Chinese sellers manufacturers or ‘regular’ e-commerce companies?
Edward, please tell us about yourself and your background working for Amazon UK
After graduating with an economics degree at the London School of Economics, I joined Amazon through their graduate program. I started in their consumer electronics retail business. I was promoted quite quickly through the ranks and very quickly started managing several product categories with multi-million-pound turnover.
It was very interesting working in consumer electronics as it gave me the opportunity to work with some of the largest global brands such as Sony, Apple, and LG.
After a few years, I moved across Amazon and took on a new role to launch an online-to-offline business in 15 UK cities.
Amazon has been rather active in getting Chinese sellers onboard. Why do you think that’s the case?
There is a well-known quote from Jeff Bezos: “In our retail business, we know that customers want low prices… They want fast delivery; they want vast selection.”
Expanding product selection has always been a priority for Amazon’s retail business because this is what consumers want. I think Amazon is recruiting many Chinese sellers because they offer consumers selection.
What advantages do, for example, Hong Kong and Shenzhen based Amazon sellers have compared to overseas companies importing from China?
Shenzhen is a global hardware hub. For electronics sellers, there is one major advantage in basing near Shenzhen – speed. One of the most important differentiators of a successful seller is their ability to select or design unique products that consumers want. For most of the unique products, new tools need to be designed and various materials need to be tested.
If you cannot reach Shenzhen easily, you will have to wait for days or weeks before you get your hands on tools and materials for your experiment. They add up very quickly. You don’t have this problem if you are based near Shenzhen.
I know that you work with a number of Chinese manufacturers. From your experience, what challenges do Chinese manufacturers face when they transition from OEM production to selling directly on Amazon?
I have spoken to many manufacturers who are keen to build their own brands and products. While they are often very skilled in product manufacturing, one of the most common challenges amongst them is the lack of understanding on the consumers.
To develop a good product, you need to understand the needs of your target consumers, what difficulties are they having with the existing products, what problems do they want your product to solve, etc.
Without a good understanding of these, it is easy to end up with a product that no consumer wants.
Do you have an example of a factory that successfully launched an F2C (Factory to consumer) business?
There are many examples across product categories. To illustrate how feasible this is, I am going to share an example in the TV category as it is not easy to launch a new TV brand. What TV do you have at home? Chances are they are from one of the very established brands such as Sony, Samsung, LG, and Panasonic. These are household brands with million-dollar advertising budgets.
Notwithstanding, I was able to launch a new TV brand with a manufacturer in Poland and generated million-pounds of revenue in the first few months.
The reason for our result is straight forward. It wasn’t cutting edge technology or aggressive marketing, we simply identified a gap in the market that is not well served by the existing brands and fill it with our products- TV of smallest sizes that fit around the house as a second TV.
The same formula can be applied by almost any manufacturer or seller. The key is to identify unmet consumer demand and satisfy it with your products.
At the same time, there are many examples of factory failing to launch a successful F2C/D2C business. I met a factory owner just a few weeks ago. He was a manufacturing expert with over a decade of experience supplying brands all over the world.
Six months ago he got a team to work on developing their own products and selling them through Amazon. It didn’t take them long before they had products shipped to Amazon’s fulfillment centers across the US.
Despite the low prices, the products failed to sell and the owner and his team had no idea why. When we looked into the products for them, we quickly realize that they were copycat products competing against products with established brands. Consumers were not interested in low prices alone.
Isn’t there a conflict of interest if a manufacturer is competing directly with their overseas customers?
I would argue the opposite in fact. I think there are benefits to OEM customers if their manufacturers make products under their own brands. Like most companies, manufacturers try to utilize their resources as much as possible.
When a manufacturer starts making their own products, they often need to produce new equipment, mold, manufacturing processes, etc. These resources would inevitably be made available to OEM customers, improving the product quality and allowing them to get a wider range of products produced.
But, are the Chinese sellers generally factories, or just ‘regular’ eCommerce companies buying from local manufacturers?
If you look up a random Chinese seller online, it is more likely that they are a ‘regular’ e-commerce company rather than a factory.
The reason is simple. It is very easy for any individual or company to start selling their own products, and even easy to sell existing products.
You primarily work with Hong Kong-based companies. Are they are keen on selling B2C as their counterparts in Mainland China?
Based on my own experience, Hong Kong-based companies are often less aware of the B2C opportunity vs. their counterparts in Mainland China. This could have to do with the difference in e-commerce penetration rate.
While the penetration rate in Mainland China is one of the highest in the world, it is significantly lower in single digit in Hong Kong.
Many Amazon sellers in the West are worried about the long term prospect of the factory to consumer model. What can they do to stay competitive in the future?
Going back to my earlier point on the importance of making products that consumers want, there is a major advantage for sellers in the West whose target markets are also there. To make a product that consumers want, you need to have a good understanding of the consumers.
The best and the easiest way to do this is to interact and talk to them. This is very easy for sellers in the West and much more difficult for factories in China or Asia. Sellers should make use of this competitive advantage and try to win by bringing better products to the market.
For those who have not developed a product before. How should they start?
First, you need a product idea. This is a difficult step for many. There is a slightly easier way for anyone to come up with an idea- Think of a product that you hate using. Then ask yourself why. For example, you may dislike using your wallet because it is bulky and difficult to fit into your pocket.
The next step is to look for ways to address it and improve the experience. Immediately you have a product idea. Using the same wallet example, Bellroy addresses the issue by reducing the amount of leather used in their wallets. Their wallets are now sold around the world.
If you are looking for a step-by-step guide on starting your e-commerce brand or require finance and production support in launching your brand,
Starlity is a freelancing platform for non-specialists. By leveraging industry experts to create online training materials and tools, it allows anyone to take on freelancing jobs without prior experience.
For businesses, Starlity provides expert-managed services, including OEM-to-OBM transformation and e-commerce platform management. Businesses pay nothing until they get the desired results.