E-Commerce Channels Help Hong Kong Businesses Expand into the Mainland Market
Interview with Michelle Cheung, Managing Director, USA L&H Health International (HK) Limited
Mainland China's e‑ commerce market is booming, but competition is fierce. Many in the health products sector believe that “Brand Hong Kong” inspires confidence among mainland consumers. As a result, Hong Kong health brands looking to explore the mainland market may find it advantageous to explore the demand there via cross‑ border e commerce channel, which allows them to bypass the cumbersome product registration procedures associated with “general trade” practice. It also enables them to gauge consumer responses through e ‑ commerce retail platforms. These insights can then be used to develop long term strategies for venturing into the mainland market.
Driving market expansion through e-commerce
Asian consumers tend to be very health conscious. When they buy nutritional supplements, they are likely to consider brand’s reputation, as well as the safety and efficacy of its products. The “returnee brand” Lock Health established USA L&H Health International (HK) as its operational headquarters in Hong Kong in 2011 and currently has 30 brick and mortar stores and specialty counters in the city. Meanwhile, for market expansion, the company chose to market its products to mainland and overseas markets via cross‑ border e ‑ commerce.
Lock Health Managing Director Michelle Cheung emphasised that e ‑ commerce can help companies achieve market expansion quickly. “When selling products to the mainland, we need to comply with the mainland’s cumbersome regulatory and product registration requirements for health food if we import these via “general trade” trade channel. However, mainland registration is not required for B2C retail imports of health products via cross ‑ border e commerce.1 Hong Kong companies may consider exporting health food to the mainland via cross‑ border e ‑ commerce channels.”
Cheung said although Lock Health's overall online business had stalled during the pandemic, but that cross border e commerce has enjoyed rapid growth in recent years. She believes now is the ideal time for Hong Kong companies to tap the mainland's e ‑ commerce opportunities. Notably, sale via cross border e commerce is a way for the companies to “test the water”, as this will help them to gauge which products are most desired by mainland consumers and then draw up more refined sales and promotion plans.
That said, the mainland market is flooded with all kinds of health products and proprietary Chinese medicine, and competition is fierce. “Hong Kong companies must make good use of ‘Brand Hong Kong’ to excel”, said Cheung, adding that “Brand Hong Kong” has long enjoyed a good reputation, especially in relation to food, cosmetics and health products. This is thanks to the fact that Hong Kong companies attach great importance to quality control and product safety, while emphasising compliance with relevant product standards. Therefore, “made in Hong Kong” products such as nutritional supplements and proprietary Chinese medicines instill confidence where mainland consumers are concerned.
Although Lock Health products are made with technologies developed abroad, the company uses production lines in Hong Kong. The entire process, from the procurement of raw materials to production, aligns with high standards and control measures. In particular, every batch of product has to be tested by a third party independent inspection agency in Hong Kong to ensure that multiple international certification requirements, such as GMP and those of the United States' FDA, and Australia's TGA, are met.
Platforms matter
Hong Kong companies may have concerns about matters such as payments and courier services when they expand their cross- border e -commerce operations. However, Cheung believes Mainland China's e- commerce and payment procedures have matured.
After an e ‑ commerce platform confirms an order and takes payment, companies can either use the courier service provided by the platform or commission a third party service provider to deliver the goods to the mainland. Usually, companies will receive payment from the platform after the goods are dispatched and delivered. In addition to collaborating with local couriers, Lock Health has set up warehouses in the Shenzhen Comprehensive Bonded Zone to shorten the time taken to dispatch goods to mainland consumers, thereby meeting their demand for fast delivery.
Choosing an e- commerce platform that aligns with a firm's product positioning is crucial for success. Cheung said: “If a company wishes to target the mid ‑ to ‑ high end market, it should put more emphasis on brand and quality in its promotion and work more with platforms like Tmall and JD.com to reach mid ‑ to‑ high‑ end consumers. They should avoid relying too heavily on mass appeal platforms and publicity methods that focus primarily on sales volume.”
Cheung suggested that in choosing an e ‑ commerce and publicity platform to work with, Hong Kong firms should consider the platform's positioning, operating rules and advantages, with a view to achieving optimum publicity and sales benefits.
At present, Lock Health promotes its brand and products through mainland social media platforms such as Xiaohongshu and Douyin. These platforms try to divert the viewers of posts to Taobao stores to make purchases.
In addition to selecting appropriate sales and publicity platforms, companies must also pay close attention to compliance issues in product advertising. Cheung emphasized that before making health claims about their products, companies should thoroughly understand the relevant laws and regulations on the mainland regarding the wording of such claims. Violations of these rules can lead to compliance issues, negatively impact sales, and result in account restrictions on e commerce platforms.
This article forms part of a joint study conducted by Hong Kong Export Credit Insurance Corporation and HKTDC: “Unleashing the Lucrative Potential of Cross-border E-commerce for Hong Kong Traders (Company survey and expert opinion)”
1 For more details, see Circular on Improving the Supervision of Retail Imports in Cross Border E Commerce (Shangcaifa No. 486 [2018]).
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