Chinese Factories Have Turned into Amazon Sellers:
Chinese factories have grown exponentially faster than these other two types of Amazon sellers. And they’re currently dominating to the point of essentially taking over the marketplace.
Here’s why: out of Amazon’s 2 million sellers, 25 percent are based in China. 250,000 Chinese sellers with decades of exporting experience flooded the online marketplace in 2018. Not to mention, the Chinese have a pricing advantage over US sellers.
Chinese factory owners have completely bypassed three steps in the traditional supply chain. For many years, raw goods went from manufacturers in China to a distributor. Then the distributor sold those products in bulk to a wholesaler, who then sold them to individual retailers. And finally, the retailers sold directly to the end consumer. At each step, the pricing increased by a markup of 50 to 100 percent.
But now that Amazon has completely changed the game, Chinese factories have been selling directly to the end consumers at near-zero prices that cannot be matched by sellers who follow the traditional supply chain.
It used to be much harder for Chinese companies to sell products in the United States. They had to deal with the cultural differences and language barriers and other roadblocks associated with shipping across the world. And more importantly, they didn’t have one massive marketplace to focus all their energy on. With Amazon claiming the spot as that one marketplace, Chinese sellers can move insane quantities of product at rock bottom prices while completely avoiding the majority of the standard supply chain.
And on top of that, Amazon has been taking a number of steps to encourage Chinese sellers since 2015, resulting in a more than doubling of Chinese companies selling on the platform. This also resulted in a 20 percent revenue increase for Amazon. In the years since, the growth of Chinese sellers on Amazon has skyrocketed.
Jeff Bezos and Amazon created a Chinese seller central, hired a whole staff of Chinese-speaking support, began offering freight options directly from China to US Amazon warehouses, and even specifically trained Chinese factories and companies on the best ways to sell on Amazon. Essentially, Jeff Bezos gave his endearing support to the Chinese because they’re adding so much revenue to his business.
And these are only a few advantages Chinese factories have over American sellers.
Why the Chinese Have An Advantage
In addition to stepping over the bulk of the supply chain, both the Chinese and US governments are encouraging China’s advantages.
To start, Chinese sellers are nearly exempt from paying taxes, or at least the laws aren’t as heavily enforced since they’re across the world and selling to US consumers. These sellers also get generous discounts on their shipping. Ever heard of AliExpress? They use dropshipping that’s made possible through a method called ePacket. ePacket makes shipping from China to the US cheaper than shipping within the US. Added up, these factors result in massive cost advantages for Chinese sellers that sellers in America simply don’t enjoy.
Additionally, China’s government has reduced taxes on global trade and supports the actions taken by Chinese sellers. Also, the factories have easy access to the supply of goods and products because, well, they’re the ones who make the products.
D2C to F2C
Direct to consumer (D2C) was only a stepping stone for factory to consumer (F2C). Factories who were manufacturing the products noticed that they could just as easily sell straight to consumers using Amazon—and at lower prices.
This creates problems for sellers in the US because we have much stricter sales tax laws, especially in states like California and Pennsylvania. Meanwhile, Chinese factory sellers are completely exempt, have Amazon and both governments on their side, and don’t even care about penalties.
Let’s not forget about the Chinese benefits on shipping rates. It costs the same amount to ship from China to Connecticut as it does from New Jersey to Connecticut.
The Chinese Have Created a Fake Amazon Review Economy
It’s totally normal to experience competition when selling products on Amazon. It’s actually expected. But China operates on a whole different playing field, and sellers resort to illegal activity that they’re not punished for in any way whatsoever.
For instance, Chinese sellers continue to distribute counterfeit products on Amazon and suffer zero penalty for doing so. Amazon takes basically no action because they are making even money off of the sales.
Also, there are entire companies in China devoted to selling both positive and negative Amazon product reviews. Many Amazon sellers in the US have been targets from malicious Chinese negative reviews. You may have seen and questioned how some brand-new product listings get hundreds and even thousands of 5-star reviews in two weeks. Well, that’s most likely one of these companies in action.
Much of the time, these Chinese companies have hundreds of Amazon accounts, so if one account gets banned, they go right to their other 99 accounts. This ensures they always have a backup for their illegal activity. Meanwhile, Amazon overlooks this and refuses to take action for violation of their terms of services in many cases.
There’s no doubt that fake reviews have been a problem for Amazon since the beginning, but those problems have been amplified since 2015, when the company started inadvertently encouraging Chinese sellers to do so. In doing so, the company has opened the gates for a flurry of new products being sold by hundreds of thousands of new online sellers.
Manufacturers in China send bulk shipments of products and goods to Amazon warehouses in the US for bottom dollar prices through Amazon’s fulfillment program FBA. Many of these products are fake, but also indistinguishable from real products. This allows Chinese sellers to game the system by taking shortcuts and getting away with it. Consumers who pay real prices to receive bad products are the ones who suffer.
Amazon tends to respond to criticism in this area by saying it’s a merchant meritocracy. With this, the best products earn the top reviews from honest customer feedback and therefore reap the benefits of having the most success. But due to the massive expansion and the undeniable growth of competition in the online marketplace, a big problem has emerged: fake reviews being bought and sold all over the world, with no way to tell which ones are genuine.
By now, you probably have a firm understanding of the problems and threats begin created by Chinese sellers on Amazon. But if you run an e-commerce store, what should you do to make sure your business doesn’t fall victim to malicious reviews or unfair competition?
After studying what the Chinese factory sellers are doing, we’ve come up with a few tips you can act on.
- How Other Merchants Buying from Factories Can Rise to the Challenge
- Despite challenges with China, small e-commerce stores are still thriving.
But why is this?
Many people hold a common misconception that the e-commerce market is becoming saturated. But that’s not true. In fact, e-commerce only accounts for 9 percent of all global retail sales. Let that sink in.
The e-commerce market is also growing at over 10 percent each year; in 2018, it grew 15 percent. And on top of that, Amazon has been growing somewhere between 20 and 40 percent in recent years. As mind-blowing as the growth in this space has been so far, there really doesn’t appear to be any end in sight with the opportunities available to sell products online. So, don’t let qualms about Chinese sellers steer you away from starting your own e-commerce online store. You can still achieve massive growth.
But that doesn’t mean selling on Amazon hasn’t gotten extremely competitive. The businesses that succeed implement the following tips to experience rapid growth.
First, they establish a recognizable brand. That doesn’t necessarily mean clever packaging or sleek logo design. A cool brand doesn’t really mean anything unless it’s recognizable to consumers. Successful e-commerce businesses invest in a long-term brand strategy that involves constant interaction and communication with customers. This means driving people back to your website or other web properties over and over again to where it becomes a habitual decision to buy your product. And you can’t do this by just uploading products to Amazon and expecting people to come crawling.
The key things to focus on when building a long-term brand strategy are:
1. Content Marketing
Many businesses are putting out consistent and high-quality content to their existing and potential customers. No selling is involved in content marketing. Publishing online articles, blogs, and social media posts should educate your audience and give them the tools to understand your industry so they can make informed decisions.
2. Search Engine Optimization
Having an SEO strategy is an absolute must. This doesn’t only go for e-commerce stores, but anybody who does business on the internet. If you rank highly on major search engines like Google, but also any listing where people type in a search, you significantly raise the chances of people seeing and clicking on your product. Think about it, do you ever go to page 2 of Google? Didn’t think so. The same principle holds true for Amazon listings, YouTube videos, LinkedIn posts, and so on. You need to think of how well you rank in these sites, and possibly hire a professional to audit your site or store.
If you want to learn the SEO ropes yourself, you’ll want to start by analyzing which keywords your site uses, and also your page speed, as both of these greatly impact your site’s ranking.
3. Diversify your online presence
Now that Chinese sellers are threatening to eat your lunch, it’s becoming more important that you diversify your digital presence. You’ll put yourself at risk if you only sell your products on Amazon, can’t drive traffic to another outside site, or don’t have a customer base that you know. This is comparable to putting all your eggs in one basket. Since Amazon is still a volatile marketplace, you’ll want to have other pillars holding up your business.
4. Understand who you’re selling to
In order to establish your business as a brand, you need to do customer research. Come up with buyer personas, frequently request customer feedback through emails or social media posts, drive traffic to your website, and analyze web behaviors to see what resonates the most.
5. Email marketing
By sending out regular emails to your customer base, you’ll encourage customers to return to your site, provide feedback, and ultimately keep buying what you’re selling. Email is different from other marketing channels because it allows you to easily maintain consistent communication with your customers. If you’d like to automatically send them an email when they subscribe to one of your offerings, that reinforces your brand in their mind. It also lets you talk to them as a person, not simply another customer.
6. Retargeting
Retargeting is when you target your marketing to somebody who has already shown an interest in your business or product in one form or another. They might have visited your website, checked out a social media post, or signed up for your newsletter. Targeting these “warm leads” is a much better strategy than targeting random people, because you know they’re that much closer to buying since they’ve already interacted with your brand.
Now that sketchy, malicious activity on Amazon is to be expected by genuine, thriving e-commerce stores, it becomes even more important to follow these tips to ensure your business stays healthy and ahead of the curve.
These days, it’s more important than ever to have a strong brand that has a wide surface area over the internet and make sure you’re driving traffic to other web properties by utilizing content marketing, SEO, email, retargeting, and customer feedback through surveys. Next week, we’ll cover more tips on how to build a brand that takes your business where it needs to go.