The per capita GDP of China edged up to 10,000 dollars in 2016, meaning that the living standards of hundreds of millions of Chinese middle class improved up to a point. In accordance with this trend, there is a growing interest in and demand for foreign brand-name products within China. Tendency to purchase quality brand goods is so strongly marked among young consumers that posting pictures of themselves wearing brand-name clothes and yet the clothes’ logo is slightly visible on Wechat have become a daily routine for Balinghou(people who were born after 1980) and Jiulinghou(people who were born after 1990)
In case of local fashion brand companies based in China, it is often the case that they are weak in terms of branding and recognition due to frequent occurrences of poor quality control or ambiguous market positioning. On the contrary, foreign brands have captured young consumers’ attention in China with their sophisticated details and brand identity, rapidly enlarging their market share over recent years.
In reality, however, entering into the Chinese market is a tricky business for foreign brands. In case of making inroads into the Chinese market directly, it costs an astronomical amount of money to create online and offline paths to market. Even when entering into the Chinese market under contract to merchandising companies in China, there are high risks associated with finding and managing a partner. Meanwhile, merchandising companies in China often state that it is a tricky business to be responsible for sourcing quality products overseas. In case of foreign brand companies, many of them do not make sufficient preparations in advance at all. Moreover, Chinese retailers also state that fraud cases frequently occur as well. For instance, some companies would express their will of supplying their products, however, they do not answer any contact after receiving deposit. MEMBERSHEEP, a B2B platform which resolved such risks, is now getting love-calls from a lot of investors thanks to its capacity of resolving obstacles that Chinese merchandising companies and foreign brand companies are facing and also to an external factor that China being one of the best places for companies to start and also being a huge potential market.
MEMBERSHEEP is a B2B transfer station foreign brand companies must go through before entering the Chinese market. MEMBERSHEEP supplies foreign brand products to the Chinese market under contract to roughly 500 of brand companies’ head offices and suppliers in the United States and Europe, establishing itself as the only brand B2B platform in China. By partnering with service enterprises in China, MEMBERSHEEP provides consulting on copyright, branding, naming, marketing, and so forth so that foreign brand companies can be furnished with strategic channels in China. Additionally, MEMBERSHEEP even resolves customs problem as well in concert with Chinese logistics companies with high international creditworthiness.
MEMBERSHEEP offers all sorts of various brand-name products including shoes, clothes, bags to department stores, select shops, online shopping malls, offline franchises located in China, Taiwan, Korea, Thailand, Hong Kong at the moment. MEMBERSHEEP possesses sole distribution channel network involving brand companies’ headquarters and Asia-Pacific region. Through this network, MEMBERSHEEP can offer products ordered by customers promptly. Furthermore, enterprise customers can manage supplying channels efficiently and management of supply chain of agent products, inspection and shipping of products of Europe and the United States, customs clearance as well. MEMBERSHEEP is capable of providing everything needed in purchasing goods and customs at once based on its ability already proved through years of merchant trade and experience.
Since its founding in 2014, MEMBERSHEEP grew quickly by 170 percent monthly. This growth is deeply related to its rational purchase service. Now, MEMBERSHEEP is creating profits by managing a large transaction with enterprise customers through three main ways of ordering such as spot goods, gifts, and season products. By setting Minimum of Quantity per order 5,000 USD, it makes vast cuts in operating funds and the quantity of order of retailers compared to the national B2B platform. Thus, it offers convenience to enterprise customers in ordering goods.
MEMBERSHEEP manages orders in Asia comprehensively, and thus securing volume discount from brand company. This also connected to next season’s order, letting both buyers and sellers make stable, steady profits.
In the upcoming future, MEMBERSHEEP is planning to start a membership system and wholesaling dealing with small quantity of goods and to expand its service to the level of 3PL service in the United States and Europe in concert with global logistics companies, which will be the new source of profits.
CheChanglong, Director of MEMBERSHEEP projects that the company will win market dominance in China due to guarantee of authenticity especially in China in which hundreds of counterfeit goods are being distributed mixed with real ones, convenient system, and burden-less Minimum of Quantity.
When MEMBERSHEEP holds a dominant position in Minimum Purchases, it will be able to expand its market, and supplying Wechat sellers, managing offline vertical franchises will also become one of profit models. Likewise, MEMBERSHEEP is building up a new channel and profit structure in the Chinese market.
Service platform can be understood as an industrial platform which is responsible for prompt financing. MEMBERSHEEP is striving to provide quality service since it received angel investment from Shanghai in 2015. MEMBERSHEEPis now concentrating on enhancement of the platform and is planning to apply for some additional loans corresponding to some liquidity it will hold in the future.
Process of Founding
Experts who have good understanding of circumstances of Asia as a place for starting a company state that in comparison with China’s brisk situations, Korea’s economic growth is further slowing down, and younger generation is suffering from high unemployment rate. Besides, founding in Korea is not active due to the government’s intervention, general social atmosphere including conservative values, and many start-up companies run short of money.
According to the study conducted upon successful entrepreneurs around the world, the average number of times that founders failed at starting a company of China was three, which is the largest number and the average number of Korea turned out to be one. This is due to the fact that in Korea, staging a comeback socially is not an easy job when you fail at founding a company because of people’s view upon starting a company in Korea, lack of job stability, joint surety, financial difficulty.
Before MEMBERSHEEP was born, director Kim Jinseong already experienced founding a company not only in Korea, but also in Silicon Valley, which is located in California, U.S., and disposing of a start-up company by sale. After he came back to Korea, he started a MEMBERSHEEP and launched its service in April 2014.
In August 2015, the company worked on penetrating the Chinese market in earnest in concert with a new business of Alibaba, a Wholesaler team as a supplying partner.
Penetrating the Chinese market
In September 2015, the company received angel investment worth roughly 12 million Renminbi in Shanghai
In August 2016, the company closed a financing deal worth 5 million Renminbi monthly with funds provided by GDFS, a tax-free shop of Hong Kong.
In October 2016, the company is now working on developing a platform and will launch its official B2B service in early 2017.
Currently, employees of MEMBERSHEEP are consist of individuals from all around the world including Korea, the United States, China, the United Kingdom, and so forth. This team comprised of talents across the world is receiving high praise among venture capitals, and this is being assessed as the biggest strength of MEMBERSHEEP in holding a dominant position in foreign fashion market in China in the upcoming future.
The Chinese Market
Why did MEMBERSHEEP, foreign fashion B2B platform, entered into China, such a huge country with a population of 1.4 billion and how did it successfully resolved the heart problem of the Chinese imported markets?
Kim Jinseong, Director of MEMBERSHEEP says that “Although there are a lot of opportunities to start a company in Korea as well, I have thought of entering into the Chinese market from the beginning of founding, judging that the size of Korean market is less competitive in global market. MEMBERSHEEP launched its initial service in Korea, and when it showed some business value, it made its entry to the Chinese market right away, expanding its market share targeting Chinese cross-border electronic commerce market worth of quadrillion won.
Lin wu tang, China’s noted author and scholar, stated that “Face is the most subtle, and peculiar quality of Chinese psychology, and it is also one of the most sensitive standards that Chinese people care when they socially communicate with others.” MEMBERSHEEP which established its spot in the Chinese market is now deeply penetrating the market with brand goods of the United States and Europe. Does this correspond with Chinese’ “face” consumer confidence?
According to the report studied consumers’ attitude toward brands all around the world announced by ‘’Xi Wei’ market research institute’, Beijing’s research center, in 2016, Asian consumers showed much higher interest in brands in comparison with Western consumers. In this report, it turned out that 68 percent of participants preferred brand goods in case of Hong Kong. Jill Telford, CEO of Xi Wei research center mentioned that “In Hong-kong, brand logos imply one’s image seen by others. Above all, people want others to know that what they are wearing including watches and bags is not counterfeit, but genuine.” Particularly in China, since assets of a large number of wealthy people have been formed throughout 10 years of relatively short time, these consumers want to show off the fact that they have become higher social class to people around them. That is, famous brand logos can role as the clear barometer that shows wearers’ success
Identifying this core fact, MEMBERSHEEP, focusing on its core business of supplying genuine brand goods of Europe and the US, is taking aim at needs of “New Rich” of China. Since 1990s, Chinese’ interest in brands is gradually increasing as consumer culture has been fueled and widespread media coverage on a multitude of global brands of the next generation of the press allowed those companies to win Chinese consumers’ heart. This paved the way for foreign brand companies wishing to enter into the Chinese market. Young consumers of China nowadays want to purchase foreign genuine brand goods, and thus counterfeit goods will gradually disappear.
Korean companies, meanwhile, need to develop overseas market quick for future reference since consumer segments are limited to the national market and the growth of enterprises can be strained. Korean companies consider China to be more familiar than the United States, which is distant in terms of physical distance due to social circumstances and cultural similarity. Accordingly, China has become one of the countries in which Korean enterprises make inroads in the market most actively. As the Korean wave has been successful in China, Korean entrepreneurs have high hopes for penetration of the Chinese market.
It is essential for Western brand companies to make sufficient preparations if they want to enter into the Chinese market. As more and more Chinese consumers show their interest in foreign products, merchandising companies in China are quickly aligning themselves with MEMBERSHEEP in order to match up to consumers’ expectations. In case of products of Alibaba, Alibaba Wholesaler, Tmall, Ju hua suan, sourcing a portion of those products have been the role of the company through membership, and in case of Netease, sourcing a portion of brand goods for ‘Kao la'(Internet platform) is the role of the company through membership.
Succession of value
Since the birth of the first cross-border electronic commerce market took place in 2014 Shanghai, the market’s importance is more and more increased. At this moment, B2B platform is worth a name of step-by-step opportunity. When a foreign global brand gradually push its boundaries outwards, its head office starts to operate overseas sales by itself. This would weaken the competitive edge of MEMBERSHEEP, as it is a B2B platform that connects brand companies’ main office and local customers. Furthermore, clients(vendor customers) of MEMBERSHEEP will have to jump into a cut-throat competition of price with competitors under pressures on price.
On this matter, Director CheChanglong provided several detailed market analysis. First and foremost, everyday there emerges 300 new brands around the world and most of them wish for making inroads in the Chinese market. However, it is not easy for small-sized brand companies to work on making an entry to the Chinese market by themselves in reality. Thus, MEMBERSHEEP experiences steady influx of customers and deals since it supports these brand companies’ entry into the Chinese market through its platform which yields low cost and yet high efficiency.
In early 2016, a product of Adidas named NMD became the talk of the town. NMD’s official price
was between 1,099 yuan to 1,499 yuan at that time. When it comes to informal purchasing, the price skyrocketed from 2,055 yuan to 4,000 yuan.
In mid-March, Adidas launched sales of NMD model in China. At noon the following day, hundreds of millions of people started to queue in front of malls in West Nanjing road, Shanghai, and by the evening, there were so many people that Adidas cancelled the sales of NMD in West Nanjing road. Another mall in Shanlitun, Beijing also cancelled the sales of NMD, making a lot of people being unable to purchase NMD even after undergoing lining up in front of malls. At that time, MEMBERSHEEP was steadily ordering to sole distributor of Adidas in the United States, however, the head office of Adidas cancelled all orders of NMD. Such unexpected “big-name brand effect” frequently occurs in the process of distributing famous global brand products. Aiming at well-organized management in a long term, core clients of MEMBERSHEEP are not famous global brands, but low-end global brands.
Korean cosmetics still command a huge fan base in China due to the Korean Wave’s influences. However, due to Korean cosmetic companies’ poor control of the Chinese market, suppliers being responsible for a cheap supply of Korean cosmetics popped up everywhere. Consequently, companies have nearly zero margin on Korean cosmetic products and are now facing cut-throat competition. On the contrary, brands of the United States and Europe show good control on the market. Specifically, retailers and agents are graded and market is well stabilized. Consequently, MEMBERSHEEP focuses on cosmetics of Europe and the United States, not letting cut-throat distribution competition of Korean cosmetic products weakens profitability of MEMBERSHEEP.
In the arena of B2C, influence of information technology is dominant considering mobile sales, cross-border sales, sales via a live internet webcast and a variety of channels have been developed. However, the arena of B2B is just a fledgling business still in its infancy. MEMBERSHEEP is now working on moving its head office from Seoul, Korea to Hongkong, the financial center of Asia in an attempt to provide Chinese enterprise customers with better service. It is now in the process of establishing platform in China and this will be officially launched in early 2017. Its new platform will feature distribution of low-end brands’ products as a key functional role.