For the past year or so a common thread among American marketplace sellers has been a growing concern over the impact of Chinese sellers on their American marketplace listings (check out our guide on expanding from eBay to Amazon for more info). After seeing this concern on Etsy, eBay and more recently on Amazon, it's clearly becoming a bigger issue than what the platforms are willing to say publicly. Do Chinese sellers have an unfair advantage in US marketplaces?
Horizontal marketplaces like Amazon and eBay require huge product selection to ensure that customers don't think twice about using them. This past year, Amazon has focused on helping Chinese factories list their products on the Amazon marketplace. I believe the main reason for this sudden focus is to ensure that Amazon negates any impact that Wish.com has by providing manufacturers access to US customers.
FBA enables worldwide logistics
Fulfillment by Amazon (FBA) is a logistics service from Amazon that handles the last mile of logistics. Amazon can use FBA to help manage customer expectations, speed up deliveries, and help open doors for new or international sellers (who may not have the bandwidth to handle shipping and handling logistics). According to USA Today, one of the main enablers of the recent surge in Chinese sellers is FBA.
Instead of shipping products to the United States and then finding warehouse space here to process, package and mail from, sellers can hand over much if not all and shipping to the Seattle-based company. Products can be easily sent from Chinese producers to Amazon fulfillment centers in the United States, where they become part of Amazon’s two-day Prime program, seamlessly integrated into its logistics network.
Whereas international sellers previously had to find multiple partners to operate in America, Amazon FBA is a one-stop shop. If you are a Chinese manufacturing plant owner or foreman, using this service could provide revenue that did not exist before FBA. According to Deloitte, China is the most competitive manufacturing nation / market in the world, so thinking outside the box and using FBA to sell in America could be a game-changer for Chinese manufacturers.
Good for merchants, but increases competition
A large majority of sellers use Chinese factories to create their private brand items, which they list on US marketplaces. Amazon sellers tend to invest heavily when they believe that they've found a profitable niche. Suddenly, a product that looks very familiar could pop up from a Chinese merchant, and if something isn't patented internationally it could mean rivals profit without having to painstakingly invest and research a niche.
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According to Digital Commerce 360, Amazon is the most popular cross-border marketplace for Chinese e-sellers:
Take Spreadshirt Inc., for example. Spreadshirt is a German custom T-shirt printing company, which sells on marketplaces around the globe, including Amazon.com. The e-retailer says it is facing increased competition on Amazon from Chinese manufacturers selling copycat designs on the marketplace, says Philip Rooke, CEO of Spreadshirt. That competitive pressure from China-based merchants has led Spreadshirt to lower its prices for some products, Rooke says.
Chinese sellers do have advantages in the marketplace
In 2011, USPS entered into an agreement with Hong Kong Post to unveil ePacket. USPS's ePacket Service allows merchants from China to use international postage services to ship items with a weight of less than 4.4 pounds (2 kilograms) in a packet at lower costs than a logistics service.
The U.S. Postal Service has initiated a new service with Hong Kong Post that is structured to foster growth in e-commerce. The new ePacket service expands the array of options offered to e-commerce merchants in Hong Kong seeking to reach consumer markets in the United States. The ePacket shipping solution features tracking and Delivery Confirmation in the Postal Service network for lightweight goods and merchandise ordered by consumers in the United States from merchants in Hong Kong.
One of the only advantages US marketplace sellers have against Chinese sellers on US marketplaces is the speed of delivery when Chinese sellers are not using FBA. If your competitors are taking advantage of FBA or other logistics providers, I recommend ensuring your product weighs more than 2 kilograms (maximum weight for the ePacket service).
A thorny issue for marketplace sellers
Imagine perfecting your product, getting it made in China, and then seeing your product being sold on Amazon at a cheaper price directly from your manufacturer. Even if you branded and patented your product, you could still face issues; your customers will come to expect the cheaper price, if quality isn't controlled your reputation will suffer, and you could have issues getting their listings removed.
If you report an unethical Chinese seller to Amazon, it could fix the problem, but it's more likely that any suspended account owners will just open new ones within days. Catching double account holders is a problem that Amazon takes seriously, but their processes aren't perfect. I recommend joining local Amazon Seller groups in your state to get advice from other sellers who may have been in similar situations.
Here are a few ways you can manage risks associated with using a Chinese manufacturing partner.
- Register international patents on your products to ensure that your intellectual property is protected against abuse. By doing this you will have more leverage when reporting counterfeit or copies of your products.
- Build relationships with your Chinese partners - I have seen countless stories of how dealing with your Chinese partner face-to-face has lead to mutual trust and understanding.
- Look at Amazon reviews of your products and keep your finger on the pulse with regards to a sudden influx of unhappy reviews mentioning a similar product. Consider employing an intern or a dedicated staff member to scout these daily.
- Continue to innovate your products. If your products continue to delight customers by using customer feedback to improve, your products will stand out from rival or lookalikes.
- Have at least 3 different pieces that make up your complete product, and have each of these components manufactured somewhere else.
- Report products that are similar to your patents to marketplace management.
Chinese sellers do have an advantage because so many things can be manufactured in China for a fraction of the cost. With Amazon FBA, manufacturers in China can sell directly to American audiences for much lower prices. Not only that, copyright issues run rampant if you don't work with a trustworthy partner.
As a high-volume Amazon seller, you should practice the merchant beware mantra and ensure that you are firmly aware of who competes against your business and how their products look.Take note of my tips and protect yourself and your e-commerce business from international competitors.