The Chinese economy is very much consumer driven. One of the most popular methods of shopping is online, and while online shopping alternatives continue to mushroom left and right, the most popular, by far, is still Taobao. In light of Taobao's unwavering popularity with Chinese consumers, the question on many foreign businessmen's lips is, "How can I cash in on the online trading industry in China?" While there is a lot of potential business to be done by those who have the patience and savvy to harness the power of Taobao, there remains quite a bit of confusion from foreigners regarding how they can trade on the platform.

According to consumer behaviour data released by Taobao in February 2012, more than 2,300 items of clothing were sold per minute on the website…fficially released figures show that the company also sold 310 million home electronics items, 130 million personal accessory items and 83.64 million toy items in 2011. That is a lot to share from the consumer pie, and when one considers that mobile transactions on Taobao reached 10.8 billion RMB in 2011, it comes as no surprise that more and more foreigners want in on the action!

Trading on Taobao: procedures and limitations

As a potential merchant, it's free to set up shop on Taobao. Unfortunately, those with foreign passports and no Chinese ID will find that the authentication process lacks the ability to verify foreign identification numbers, and thus only accepts Chinese and Hong Kong ID for registration as a trader. As a result, foreigners who wish to do business on Taobao will need to partner with a Chinese national, who will then use their ID details to set up shop.

If you're looking to enter the online trade world in the same league as the big boys, TMall is Taobao's shopping platform that caters to bigger chain stores and brands. Foreigners can register to trade on TMall by first registering a Chinese company, and then using that company to open a TMall store. Additionally, you need to be able to prove that you are legitimately selling the goods that are featured on your TMall store by providing the relevant documents upon registration. For example, you cannot set up a Louis Vuitton store, because chances are, you don't have the necessary license or certificate to do so. There is also a hefty deposit to pay, which is upwards of 80,000 RMB depending on what goods are being sold in your TMall store. As a result, it is a significantly longer process to open a TMall store than a Taobao store.

As far as choosing what to sell on your online store, anything goes. There are no limitations to what one may sell, as long as it is legal in China and is not an imported publication. A possible stumbling block for foreigners who are looking to set up shop on Taobao may be the language factor. Because Taobao.com doesn't have an English website, one will have to conduct all business in Chinese. Thus, your Chinese business partner will need to be easily accessible, or you'll need to have staff on hand to chat to customers using the popular Ali Wang Wang integrated chat system, which allows potential customers to communicate with traders about their merchandise and to index merchandise according to the correct keywords. Ali Wang Wang plays a very important role in the success of any Taobao store, as it allows the trader to fully understand what the customer's needs are. Ali Wang Wang is an important element of the Taobao.com user's shopping experience, and if your staff are not helpful to customers in this regard, their displeasure will definitely be reflected in the feedback for your store.

A dog-eat-dog online world

Like with many industries in China, competition between traders on Taobao is incredibly fierce. Prices are really low – sometimes lower than the original retail price. If an item sells particularly well on Taobao, chances are it will soon be copied by other traders, thus putting the original trader under the pressure of competition. Another thing to keep in mind: as with so many trading platforms and activities in China, Taobao customers will often try to negotiate a better price. As the trader, whether you or not you choose to engage in bargaining is up to you. Some traders prefer not to engage in bargaining, and as such, notices are posted on the store sites.

Alan Shelley, Marketing Director at tradeontaobao.com, a company that offers foreign individuals and companies advice on engaging in e-commerce in China, tells a story that reflects the cutthroat nature of Taobao trade: as a toiletry item became one of the most popular sales items on the website, competition between traders turned more aggressive, as they continued to undercut one another on price. The profit per unit soon dropped to only a few jiao, but because the sales volume was so great, it was still worth it for the traders to sell the item. Eventually, one trader started selling the product at 1 RMB less than the wholesale price. This left the other traders convinced that the store would soon go out of business. But it didn't, and he soon cornered the market by striking a deal with a courier service; due to the volume of business he gave them, he would receive a rebate of 2 RMB for every delivery. This meant that while he lost 1 RMB on the sale, he still made 2 RMB back from the courier service.

With the low overheads and potentially high sales volumes, it's obvious that there is plenty of money to be made from the online trade here in China. The questions to ask oneself  is whether one has the stomach to engage in the fierce competition, whether one has the staying power to keep playing the game and whether they are in it for the long haul. If the answer is yes, it might just be time for you to set up shop on Taobao!

Related links
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Keywords: online trade China selling on Taobao online business Taobao China Taobao