Moon Rabbit blue print

CHINA CROSS BORDER E-COMMERCE BUSINESS BLUE PRINT

Tutor: Matthieu van den Bosch Exam code: MAS-IA1A Date: June 3, 2018 Group: 4 Authors: 1. Karin Ramaker - student number: 611266 2. Naomi van der Vliet – student number: 558949 3. Tom Sprenger – student number: 612301

MOON RABBIT CROSS BORDER E-COMMERCE

Business Blueprint Arnhem Business School

Karin Ramaker Tom Sprenger Naomi van der Vliet

Minor Asian Studies: Doing Business in China Tutor: Matthieu van den Bosch

June 3, 2018

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MANAGEMENT SUMMARY This report was written on behalf of the start-up company Moon Rabbit: the first health supplement producer in North America using mushroom adaptogenic ingredients. Moon Rabbit is currently setting up its business on the Canadian market and has shown a serious interest in engaging in cross border e-commerce on the Chinese market. To successfully engage in cross border e-commerce on the Chinese market, Moon Rabbit’s current positioning strategy is to be adapted while carefully considering Intellectual Property Rights, logistics, marketing and financial aspects. However, a lack of time to investigate potential opportunities on the Chinese market is experienced. Additionally, Moon Rabbit is in the need of substantiated research which could determine the potential target group in China, the appropriate sales channels to use and what logistic solution to apply. To address Moon Rabbit’s issue, the following main research question is formulated: “What strategic actions should Moon Rabbit successfully perform to introduce its product to the Chinese health supplement market through cross-border ecommerce?”. The objective of this research paper is to provide Moon Rabbit with actionable recommendations on how to strategically introduce the company to the Chinese health supplement market by the means of cross border e-commerce. These recommendations are to be supported by a marketing and financial plan.

Analytical frameworks such as Porter’s Five forces and SWOT were applied to systematically analyze Moon Rabbit’s internal and external environment. The main stakeholders involved in this research are: Moon Rabbit’s founders, namely: Matthew and Robert Fuller, native Chinese students, the Chinese health supplement consumer and Kevin Li and Jerry Zhao, founder and senior director of e-commerce corporation ‘Wisepartners & Co. Shanghai.

Field research efforts include the distribution of the Chinese Consumer survey, containing open and closed questions as well as interviewing five native Chinese students and an information session at Wisepartners & Co. Shanghai.

Desk- and field research both revealed that the China – Canada trade relationships promise no problems for Moon Rabbit while engaging in cross border e-commerce in the future. The current user groups of health supplements on the Chinese market are mainly millennial focused women and China’s middle class. Motivations for these groups to use health supplements are sports, beauty, weight loss and immune support. China is still considered a high-risk country in terms of IPR. Therefore, it is advised to follow the IPR step plan provided by the Canadian Embassy.

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Moon Rabbit’s main competitors offer equal products and are well-established on the Chinese and global market. To enter the market quicker and for greater and cheaper logistic opportunities, Moon Rabbit should change its current product ingredients to be put on the positive list. This would eventually enable Moon Rabbit to use bonded warehousing and shipping in bulk. A Joint Venture would reduce the hassle that comes with pursuing cross border e-commerce in China and additionally Moon Rabbit is advised to take Chinese ‘guanxi’ serious, remain using Shopify but solely in Shanghai and establish its own homepage and Lastly, a pricing strategy for Moon Rabbit product would reflect the ‘high-low pricing’ strategy.

Lastly, concerning the main question explicated in this research paper, Moon Rabbit should focus the upcoming years on strengthening its brand awareness on the Canadian market.

Once established in Canada, Moon Rabbit should keep its brand name since it connects to Chinese culture but adjust branding and packaging accordingly.

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TABLE OF CONTENTS 1. INTRODUCTION .................................................................................................................................................................................................. 8 1.1. CONTEXT..................................................................................................................................................................................................... 8 1.2. PROBLEM DEFITION..................................................................................................................................................................................... 8 1.3. OBJECTIVE................................................................................................................................................................................................... 8 1.4. MAIN AND SUB-QUESTIONS ........................................................................................................................................................................ 9 2. REFLECTION OF THE RESEARCH AND DEVIATIONS............................................................................................................................................. 11 3. RESEARCH FINDINGS......................................................................................................................................................................................... 12 3.1. COMPANY ANALYSIS.................................................................................................................................................................................. 12 3.2. POSITIONING STRATEGY ............................................................................................................................................................................ 13 3.3. BRIEF RELATIONS BETWEEN CANADA AND CHINA ...................................................................................................................................... 14 3.4. CONCLUSION............................................................................................................................................................................................. 15 4. THE CHINESE HEALTH SUPPLEMENT MARKET ................................................................................................................................................... 16 4.1. MARKET DEVELOPMENT ............................................................................................................................................................................ 16 4.2. TRADITIONAL CHINESE MEDICINE AND HERBAL PRODUCTS ........................................................................................................................ 17 4.3. HEALTH SUPPLEMENT USER GROUPS ......................................................................................................................................................... 18 4.4. CHINESE CONSUMER TRENDS .................................................................................................................................................................... 19 4.5. CHINA’S CHAGA MARKET ........................................................................................................................................................................... 20 4.6. FIELD RESEARCH OUTPUT .......................................................................................................................................................................... 21 4.7. CONCLUSION............................................................................................................................................................................................. 21 5. INTELLECTUAL PROPERTY RIGHTS (IPR)............................................................................................................................................................. 22 5.1. IPR IN CHINA ............................................................................................................................................................................................. 22 5.2. CONCLUSION............................................................................................................................................................................................. 23 6. THE COMPETITOR ANALYSIS ............................................................................................................................................................................. 24 6.1. THREAT OF SUBSTITUTES ........................................................................................................................................................................... 24 6.2. THREAT OF NEW ENTRANTS ...................................................................................................................................................................... 25 6.3. POWER OF SUPPLIERS ............................................................................................................................................................................... 25 6.4. BARGAINING POWER OF CONSUMERS ....................................................................................................................................................... 25 6.5. COMPETITIVE RIVALRY .............................................................................................................................................................................. 26 6.6. CONCLUSION............................................................................................................................................................................................. 26 7. LOGISTICS SOLUTIONS FOR CROSS BORDER E-COMMERCE ............................................................................................................................... 27 7.1. CHINESE CONSUMERS ............................................................................................................................................................................... 27 7.2. FREE TRADE ZONES.................................................................................................................................................................................... 27 7.3. IMPORT MODELS....................................................................................................................................................................................... 27 7.4. COSTS OF IMPORTING ............................................................................................................................................................................... 28 7.5. DISTRIBUTION OPPORTUNITIES ................................................................................................................................................................. 28 7.6. RULES AND REGULATIONS REGARDING SHIPPING ...................................................................................................................................... 29 7.7. CONCLUSION............................................................................................................................................................................................. 30 8. CHINA’S MARKETING LANDSCAPE .................................................................................................................................................................... 31 8.1. MARKETING STRATEGIES ........................................................................................................................................................................... 31 8.2. GUANXI ..................................................................................................................................................................................................... 31 8.3. ADVERTISING LAWS................................................................................................................................................................................... 32

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8.4. MOON RABBIT’S THE MARKETING MIX AND CHINA .................................................................................................................................... 32 9. SWOT ............................................................................................................................................................................................................... 39 10. FINAL CONCLUSION .......................................................................................................................................................................................... 40 11. RECOMMENDATIONS ....................................................................................................................................................................................... 41 12. FINANCES ........................................................................................................................................................................................................ 44 BIBLIOGRAPHY....................................................................................................................................................................................................... 45 APPENDICES ......................................................................................................................................................................................................... 51 APPENDIX X – RESEARCH PROPOSAL................................................................................................................................................................. 51 APPENDIX II – CHINESE CONSUMER SURVEY – JADE RABBIT TALE RESULTS........................................................................................................ 67 APPENDIX III – SIGNIFICANT EVENTS IN THE CANADA – CHINA TRADE RELATIONSHIP ........................................................................................ 68 APPENDIX IV - INFORMATION SESSION WITH WISEPARTNERS & CO - A SUMMARY ........................................................................................... 68 APPENDIX V - TRADITIONAL CHINESE MEDICINE (TCM) AND THE WHO.............................................................................................................. 71 APPENDIX VI - CRITICS TCM .............................................................................................................................................................................. 72 APPENDIX VII - PRICE RANGE OF CHAGA AND TCM HERBS................................................................................................................................. 72 APPENDIX VIII - ASIA PACIFIC FOUNDATION IPR STRATEGIES ............................................................................................................................. 72 APPENDIX XI – IPR STRATEGIC STEPS BY THE CANADIAN EMBASSY .................................................................................................................... 73 APPENDIX X – A TABULAR REPRESENTATION OF PRODUCTS INCLUDED OR NOT INCLUDED ON THE ‘POSITIVE LIST’ ........................................... 74 APPENDIX XI – ADVANTAGES AND DISADVANTAGES OF THE DEPENDENT AND INDEPENDENT MODEL............................................................... 75 APPENDIX XII – THIRTEEN FREE TRADE ZONE LOCATIONS .................................................................................................................................. 76 APPENDIX XIII – BONDED IMPORTS VISUALIZATION .......................................................................................................................................... 77 APPENDIX XVI – DIRECT PURCHASE IMPORTS VISUALIZATION (B2C) .................................................................................................................. 78 APPENDIX XVII - THE DIFFERENCES IN COSTS OF CROSS BORDER E-COMMERCE, TRADITIONAL TRADING AND POSTAL PARCELS ......................... 78 APPENDIX XVIII - TAX ADVANTAGES FOR CROSS BORDER TRADE ....................................................................................................................... 79 APPENDIX XIX - LABELLING AND PACKAGING INFORMATION............................................................................................................................. 79 APPENDIX XX- EU SME LISTED SIMPLE RULES OF WHAT NOT TO DO IN PRESENCE OF CHINESE CULTURED PEOPLE ............................................. 81 APPENDIX XXI - ADVERTISEMENT LAW CHANGES IN CHINA FROM 2015 ............................................................................................................ 81 APPENDIX XXII - WECHAT MOMENTS ADVERTISING COSTS PER LOCATION ........................................................................................................ 82 APPENDIX XXIII – WECHAT BANNER ADVERTISING PER LOCATION ..................................................................................................................... 82 APPENDIX XXIV - MAIN DIFFERENCES IN TERMS OF SOURCING OF TARGET AUDIENCE AND PRICING BETWEEN FANSTOP AND FAN TUNNEL ...... 83 APPENDIX XXV - BAIDU INDEX TREND LINE FOR THE KEYWORD “CHAGA” ON THE CHINESE INTERNET BETWEEN 2011 AND 2017. ...................... 83 APPENDIX XXVI - SWOT ANALYSES DESCRIPTION .............................................................................................................................................. 84 APPENDIX XX- DETAILED INFORMATION ABOUT THE FILING AND REGISTRATION .............................................................................................. 86 APPENDIX XXVIII - THE BLUE HAT REGISTRATION .............................................................................................................................................. 89 APPENDIX XXIX– BUYING PLATFORMS .............................................................................................................................................................. 90 APPENDIX XXX– CHINESE CONSUMER SURVEY - PRICE RANGE........................................................................................................................... 91 APPENDIX XXXI – CHINESE CONSUMER SURVEY - PLATFORMS........................................................................................................................... 92 APPENDIX XXXII – FIVE INTERVIEWS WITH NATIVE CHINESE STUDENTS – A SUMMARY ...................................................................................... 93 APPENDIX XXXIII – COMPETITORS..................................................................................................................................................................... 97 APPENDIX XXXIV – GROWTH IN DESCRETIONATY SPENDING ............................................................................................................................. 98 APPENDIX XXXV – INCOME SHIFT OF CHINESE HOUSEHOLDS ............................................................................................................................ 99 APPENDIX XXXVI – CHANGE IN INCOME DISTRIBUTION ..................................................................................................................................... 99

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ABBREVIATIONS AND DEFENITIONS SQ

= Sub questions

SSQ

= Sub-sub questions

IPR

= Intellectual Property Rights

AAOCC

= Accuracy, Authority, Objectivity, Currently and Coverage of online sources

CL

= Confidence level

CI

= Confidence interval

VDS

= Vitamins and dietary supplements

TCM

= Traditional Chinese medicine

WHO

= World Health Organization

PSC

= People Supreme Court of China

IP

= Intellectual property

SME’s

= Small to medium enterprises

Guanxi

= “Fundamentally ‘guanxi’ is about building a network of mutually beneficial relationships which can be used for personal and business purposes” (Businessinsider, 2011).

GNC

= General Nutrition Centers supplements (competitor)

CBEC

= Cross border e-commerce

Daigou traders = “Chinese shoppers who purchase foreign goods abroad to resell illegally in the mainland at cheaper prices” (KnudsenCRC, 2017) VAT

= Value added tax

CFDA

= China Food and Drug Administration

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1. INTRODUCTION 1.1. CONTEXT This report was written with the aim to expose cross border e-commerce strategies for the start-up company Moon Rabbit. Moon Rabbit is founded months ago by the Fuller brothers: Matthew and Robert. “Moon Rabbit is the first health supplement producer in North America using mushroom adaptogenic ingredients and currently holds four powder supplement blends, namely: the functional protein blend, the energy blend, the brain blend and the longevity blend” (Research Proposal, 2018).

Moon Rabbit is currently setting up its business on the Canadian market and has shown a serious interest in engaging in cross border e-commerce on the Chinese market because of China’s enormous market size and hence potential sales opportunities. The main research question and corresponding sub-questions (SQs) and sub-sub questions (SSQs) have determined this report’s structure. Firstly, the report will generally introduce the reader to the current Chinese health supplement market and consumer trends. Secondly, the reader will be informed about China’s Intellectual Property Rights’ landscape, followed by an extensive competitor analysis using Porter’s Five Forces. Then, possible logistic solutions were researched as well as China’s (online) marketing landscape. Per section, a conclusion is constructed which answers the corresponding sub-question. Ultimately, a final conclusion is formulated which provides the answer to this report’s main question. The main question and corresponding sub-(sub) questions are mentioned in sub-chapter 1.4.

1.2. PROBLEM DEFITION Currently, Moon Rabbit is wholly focused on positioning its brand on the Canadian market. To expand to the Chinese market and engage in cross border e-commerce, Moon Rabbit’s current positioning strategy should be adapted while carefully considering IPR, logistics, marketing and financial aspects.

However, the owners experience a lack of time to investigate the potential opportunities on the Chinese health supplement market. Additionally, the owners have little no knowledge on what group to target in China, which sales channels to use and what logistical solution to apply.

1.3. OBJECTIVE The objective of this research is to provide Moon Rabbit actionable recommendations on how to strategically introduce the company to the Chinese health supplement market by the means of cross border e-commerce. Additionally, a financial overview is to be presented. The recommendations and financial overview are to be constructed before the 4th of June 2018” (Ramaker et all. 2018).

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1.4. MAIN AND SUB-QUESTIONS 1.4.1. Main question: “What strategic actions should Moon Rabbit successfully perform to introduce its product to the Chinese health supplement market through cross-border ecommerce?”

1.4.2. Sub(-sub) questions: SQ 1: Does Chinese history/culture influences Moon Rabbit’s chances of success in the Chinese market?

▪ SSQ 1.1: How well known is the story of the Jade Rabbit among the target group?”

▪ SSQ 1.2: What are the brief relationships between Canada and China?

SQ 2: How is Moon Rabbit currently positioning itself on the Canadian market?

▪ SSQ 2.1: What channels is Moon Rabbit presently using to transfer its product value?

▪ SSQ 2.2: Who is Moon Rabbit currently selling its products to on the Canadian market?

▪ SSQ 2.3: What does Moon Rabbit’s current supply chain look like?

▪ SSQ 2.4: Who are Moon rabbit’s current competitors on the Canadian market?

SQ 3: How could we define the health supplement market in China?

▪ SSQ 3.1: What groups are currently buying health supplements on the Chinese market?

▪ SSQ 3.2: What kind of supplements are presently being sold at the Chinese market?

▪ SSQ 3.3: What health supplement brands sold on the Chinese market are considered Moon Rabbit’s competitors?

▪ SSQ 3.4: How has the health supplement market developed itself over the past five years in China?

SQ 4: What are the main Intellectual Property Rights aspects to be considered by Moon Rabbit while selling its product to the Chinese market?

SQ 5: How are Moon Rabbit’s competitors in the Chinese market selling their products?

▪ SSQ 4.1: What sales channels do Moon Rabbit’s competitors use in the Chinese market?

▪ SSQ 4.2 How does the competition promote itself on the Chinese market?

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SQ 6: What are possible logistic solutions for Moon Rabbit to distribute its product on the Chinese market?

▪ SSQ 5.1: What are the costs of importing Moon Rabbit’s products to China?

▪ SSQ 5.2: What are the best distributions channels used on the Chinese market?

▪ SSQ 5.3: What are the rules and regulations to be considered by Moon Rabbit to ship its product to China?

SSQ 7: What marketing tools are to be used by Moon Rabbit while moving into the Chinese market?

▪ SSQ 8.1: What are the marketing possibilities for health supplement brands active on the Chinese market?

▪ SSQ 8.2: What are the best and worst ways way to reach Moon Rabbit’s specific target group?

▪ SSQ 8.3: What rules and regulation are to be considered when performing marketing practices in China?

▪ SSQ 8.4: How does the Chinese culture influence marketing practices?

▪ SSQ 8.5: What are the costs of promotion in China?

▪ SSQ 8.6: What is the consumer’s opinion about Moon Rabbit’s product?

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2. REFLECTION OF THE RESEARCH AND DEVIATIONS To ensure the usability, validity and reliability of all desk research, the AAOCC criteria were applied on all secondary online sources. Field research includes the ‘Chinese Consumer Survey’ constructed by the research team which reviews potential consumers of Moon Rabbit’s product. The survey icontributed to the attempt to map potential consumer’s demographics and buying behavior.

Initially, it was intended to survey students from Wuhan University by using WeChat. To ensure a high level of validity and reliability of the survey results, the chosen sample size had to ensure a confidence level (C.L.) of 95% and a confidence interval (C.I.) of 5%, meaning that would a randomly chosen sample size be selected again, the gathered data would most of the time (95%) deviate only 5% above or below the average results. Respondents were chartered by using WeChat networks of Wuhan University representatives (students) and e-commerce experts from Shanghai. These networks contain more than 1500 people each, throughout all of mainland China. Due to time constraints, the research team was only able to reach 25 respondents via WeChat. Unfortunately, this sample is not big enough to meet any chi-square analysis or Pearson correlations conditions. Therefore, no relationship testing between the variables and respondents could be applied. Even though the survey could not contribute to any sophisticated statistical analyses, the output is utilized to its advantage as much as possible.

Additionally, five semi-structured face-to-face in-depth interviews with native Chinese international students were performed and an information session with Kevin Li and Jerry Zhao of e-commerce corporation ‘Wisepartners & Co. Shanghai’ (founder and senior director, respectively) was analyzed.

Both the interviews and the information session are considered sources that contribute to highly valid and reliable results knowing that the interviewees are native Chinese students, part of the age group Moon Rabbit currently targets on the Canadian market and all familiar with the Chinese health supplement market. The information sessions with Mr. Lo and Zhao is considered highly valid and reliable due to the level of experience with e-commerce of both the founder and the senior-director.

The conducted research slightly deviates from the original plan that was formulated in the research proposal. Deviations include the removal of sub -sub questions 2.4, 2.6, 3.3, 3.5 and 7. Sub-sub question 3.3 and 3.5 overlapped too much with the competitor analysis of sub-question 4 and therefore did not add enough value to stand on its own. Sub-sub question 2.4 required the research of the IPR risks encountered in Canada. After critical reviewing, this question was considered irrelevant since Moon Rabbit already possesses all the information on IPR in Canada and no link was to be found to the Chinese market. Sub-sub question 2.6 was is considered merely a final recommendation instead of a guiding research question. Therefore, this sub-sub question was deleted. Finally, sub-question 7 was deleted which included the research for Moon Rabbit’s potential cost-drivers when engaging in cross border e-commerce. A separate sub-question on this topic was considered irrelevant since this report includes a financial overview based on the formulated recommendations. It has been decided to use this section to cover all financial instructions. Lastly, the indented interviews with field research experts were not executed.

The sub-question order portrayed in this report includes the order adapted to the deviations. For an overview of the original sub (-sub) questions, please refer to the research proposal in appendix I Moreover, due to time constraints, no observations nor focus groups were performed.

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3. RESEARCH FINDINGS The following chapter includes a short internal analysis on Moon Rabbit. The owners of Moon Rabbit made the assumption that the name ‘Moon Rabbit’ would contribute to positive product demand since it connects to the Chinese culture (Ramaker, et. all. 2018). To confirm or invalidate this assumption, desk and field research was executed. Moreover, to generate a basic understanding of Moon Rabbit’s current positions strategy, the chapter flows into an external analysis of Moon Rabbit’s current sales channels, target group, supply chain and competitors on the Canadian market. Lastly, the brief relations between Canada and China are shortly reviewed to exploit potential relationship management risks between the two countries. A conclusion is formulated at the end of this chapter which provides an answer to the first and second sub question.

3.1. COMPANY ANALYSIS The brand name ‘Moon Rabbit’ is inspired by the ancient Chinese Jade rabbit tale. According to the Chinese consumer survey 66,7% out of 24 respondents is familiar with the tale. A graphical representation of this measure is to be found in appendix II. According to the transcript summary of the interviews with the five native Chinese students, all students were familiar with the Jade Rabbit tale. The interviews point out that the tale is shown in many children television shows and that the tale is being told in school (native Chinese student interviews, 2018).

The information session at Wisepartners & Co has confirmed that the Chinese consumer will react positively to Moon Rabbit’s brand name due to connection with the Chinese culture. Detailed information on the information session at Wisepartners & Co is to be found in appendix IV. Moon Rabbit is the first health supplement producer in North America using mushroom adaptogenic ingredients and currently holds four powder supplement products, namely: the functional protein blend, the energy blend, the brain blend and the longevity blend. The main ingredient of Moon Rabbit’s blends is the chaga mushroom. Moon Rabbit found a chaga harvester in Northern Ontario which provides this ingredient. Chaga has to be harvested from life birch trees. The tree dies once the chaga is removed. This makes it very difficult to find a source for the chaga mushroom and impossible to produce artificial (Fuller, 2018).

The core value of the product is to be a new age medicine; this is because the product will help prevent illness. The supplement is in powder form that will mix with any liquid substance. Moon Rabbit aims to produce single servings with small packaging. There is still a development in looking for biodegradable packaging to make the product more sustainable. Other than biodegradable packaging, Moon Rabbit aims for a sustainable strategy by replanting the birch trees. Additionally, the company wishes to donate part of their profit to charity. What percentage specifically or what charity Moon Rabbit will donate is yet to be decided on (Fuller, 2018).

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3.2. POSITIONING STRATEGY Prior to engaging with cross border e-commerce in a foreign country, one should thoroughly analyze its current company strategy and identify all possible alternations to be made from the moment of selling abroad. To map all possible alternations, Moon Rabbit’s current positioning strategy is researched.

3.2.1. Sales channels Currently, Moon Rabbit only sells its products to friends and family. Its mission is to sell products via the e-commerce platform ‘Shopify’. Shopify is a complete e-commerce solution that allows companies to set up an online store. Companies are able to organize products, customize storefronts, accept credit card payments and track and respond to orders.” (Shopify, 2006). Moon Rabbit is in the process of establishing its own website. To ship its products to the customer, Moon Rabbit will hire a distributor called RFI ingredients which is located in Ontario, Canada. Moon Rabbit focusses on selling B2C until the company grows. Expanding to sell B2B to gyms or stores like Wholefoods is a vision for the possible future (Fuller, 2018).

3.2.2. The Canadian target-group Based on prior market research, Moon Rabbit has concluded that the target group in Canada is aged between 18 and 35, are millennial focused, are progressive health conscious and are looking for a natural solution to boost their immune system without any synthetic produce. People above this age are rather skeptical about Moon Rabbit’s product and claim that mushrooms are vegetables, not a health supplement (Fuller, 2018)”.

3.2.3. Moon Rabbit’s current supply chain Moon Rabbit yields its protein, mushrooms and additional ingredients from suppliers Nammex, Nutrex and a Chaga harvester from Northern Ontario. The supply will be shipped to Ontario to RFI Ingredients.

Moon Rabbit sends out the product requirements to the contractor, where the final product is constructed while taking into account all Canadian health care regulations required to legally sell on the Canadian market.

Nammex Nammex develops and manufactures medicinal mushroom extract for the nutritional supplement industry. Nammex is located in British Colombia and provides the other ingredients to complete Moon Rabbit’s blends. The extracts are made from certified organic mushrooms and are grown naturally on substrate materials native to each particular mushroom (Nammex, 2018).

Nutrex Moon Rabbit’s latest addition to its supply chain is Nutrex and is a mushroom protein supplier. Moon Rabbit is one of the few companies selling blends that include the Chaga extract. Nutrex wishes to produce only and outsource retail by companies such as Moon Rabbit (Nutrex, 2017).

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3.2.4. Canadian competitors in the supplement industry Moon Rabbit’s biggest competitor in the supplement industry in Canada is General Nutrition Centers (GNC) supplements. GNC originates from Pittsburgh, Pennsylvania where its headquarters are still located.

Currently, GNC has more than 4,800 retail locations throughout the United States (including more than 1,000 franchises and 1,200 Rite Aid store-within-a-store locations) and franchise operations in 46 international markets. GNC divides its product in seven different sections: vitamins & supplements, protein & fitness, herbs & natural remedies, digestion & superfood, weight management, personal care and food & drinks. Even though GNC has a very broad spectrum of different ingredients, there are only a few products that incorporate mushrooms. These products are classified under herbs & natural remedies. GNC uses the slogan ‘we’re committed to exceeding your expectation’ and wants to accomplish this by demanding truth in labeling, safe ingredients and effective products while staying front line on the development of nutritional science (GNC, 2006).

GNC reaches its target group by offering discounts on new products, free shipping on 49$ or more, a visual on ‘most sold’ products and the option to shop by wished results. Foreknowledge on any of the products is not necessary as this is easily retrieved on the website (GNC, 2006).

3.3. BRIEF RELATIONS BETWEEN CANADA AND CHINA The first relations between Canada and China date back to 1942 when Canada sent an ambassador to China. Although the relationship had just started, the communist victory in the civil war of China in 1950 caused a break between both countries. In 1961 the Canadian government, under the leadership of John Diefenbaker, passed legislation to open up the Chinese market for Canadian farmers. Starting in 1968 the government of Canada initiated negotiations with the People’s Republic of China. These negotiations lead to the official recognition of the People’s Republic of China in 1970. The relationship evolved, and in 1973 Canada granted the status of most-favored-nation to China.

What influenced the trading patterns between China and Canada (Koty, 2017): ▪ ▪ ▪ ▪

As the Chinese economic reforms began in 1978, Canada’s merchandise exports to China also started to rise.

Directly after the Tiananmen Square massacre in 1989, Canada’s exports to China decreased.

Since and after the first team Canada trade mission that went to China, Chinese imports have been rising up from 5 billion U.S. dollars in 1995 to 30 billion U.S. dollars in 2005.

After China’s access to the World Trade Organization, trade even increased more. (Koty, 2017)

A visual representation significant events in the Canada – China trade relationship are to be found in appendix III.

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3.4. CONCLUSION To conclude, Moon Rabbit’s target group on the Canadian market is millennial focused and between the age of 18 and 35. Moon Rabbit’s supply chain includes Nammex, Nutrex and the local chaga supplier. On the Canadian market Moon Rabbits largest and strongest competitor is GNC. It can be concluded that much has happened between China and Canada in terms of trade. However, the current relationship between the two countries is well-established and positive.

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4. THE CHINESE HEALTH SUPPLEMENT MARKET This chapter provides the reader a thorough analysis of the Chinese health supplement market. Desk research has exposed different aspects of this market, namely: the different forms of health supplement used by the Chinese consumer, Chinese health supplement user groups, Chinese consumer trends and the chaga market in China. Additionally, output of the Chinese consumer survey has revealed facts and figures about health supplement usage. A conclusion is formulated at the end of this chapter which provides an answer to the third sub question.

4.1. MARKET DEVELOPMENT According to Zhang Yongjian (2012), an expert with the China Health Care Association and affiliated with the Chinese government, the health supplement market in China is has been growing since a couple years. Mr. Yongjian claims that the main users of health supplements are located in the big cities and that domestic brands are becoming less popular because of a lack of innovation. According to consultant firm Roland Berger, ‘China’s health supplement market is forecasted to be worth 180 billion yuan (US$26.5 billion) by 2020, up from 120 billion yuan in 2015’ (Yifan, 2017). Health supplement expenditure includes ‘out-of-pocket’ health care expenditure. In a study from 2004 until 2014 executed by Deng et. all (2017), it is confirmed that 50.61% of total health care expenditure was ‘out-of-pocket’ and mainly occurring in rural areas of China. Currently, it is claimed that health supplements could generate a gap-filling prophecy since the Chinese population’s feeling towards its domestic health care system reflect dissatisfaction. This dissatisfaction mainly occurs after having experienced health care services (Duckett & Munro, 2016).

The market tends to be booming because of improved living standards, the overseas shipping possibilities, growing disposable incomes and improved health awareness combined with worsening health problems and an aging population (Lu, 2012). Ronald Berger (2017) claims that the rise for health care supplements in China is due to ‘increasing health conscious behavior and rising incidence of lifestyle diseases’ as well as shift towards China’s preventive health care system which reduces health care expenditure (Yifan, 2017).

According to the Health Products Association (HPA) China (2016), the boom of the market started in January 2014. This time was the time when the ‘Administration of Quality Supervision Inspection and Quarantine (AQSIQ) stopped importing foreign supplements that did not have the so-called Chinese ‘blue hat’ registration. Global supplement firms were of course hurt by this but fortunately, at this same time, China cross-border e-commerce picked up on this momentum (HPA, 2016). By the time of 2014, the market was worth around RMB 102 billion and it has been claimed by the China Business Review (2016) that almost half of the urban Chinese consumers regularly buy health supplements.

More details about the blue hat registration is to be found in appendix XXVIII. According to Laurence (2016), a marketing researcher of Daxue Consulting 2016, China’s consumption in ‘vitamins and dietary supplements (VDS) in 2015 accumulated to 109 billion RMB and this number is projected to grow to CNY 149 billion by 2020 which reflects a 6.4% growth rate in the 2015-2020 period.

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4.2. TRADITIONAL CHINESE MEDICINE AND HERBAL PRODUCTS China is well-known for its herbal products and for its traditional Chinese medicine (TCM). Besides these specific sorts of supplements, China experiences sales in regular vitamin supplements.

Chinese herbal products are mostly co-prescribed with pain-killers such as acetaminophen, and anticough medicines. Even though there are currently plenty of modern medical solutions, Chinese herbal products remain used extensively for health maintenance, disease prevention and even disease treatment (Chen et. all, 2013). TMC is either the main health care deliverer or functions as a complement to it. The World Health Organization (WHO) has established special ‘Traditional Medicine Strategies’. More information about TMC and the World Health Organization is to be found in appendix V. TCM does experience critique. A field research on ‘Implications for indigenous health systems in a modern world’ included fourteen respondents from Chengdu University of Traditional Chinese Medicine (CUTCM): one of the major traditional medical schools in China. The fourteen respondents included journalists, CUTUM hospital administrators, clinicians, faculty, a graduate of CUTCM who had just completed her bachelor’s degree and was leaving for graduate public health study in the United States, and a Western student working on his TCM master’s degree (n = 14, female 50%, age range 23 to 57 years). Although this was a non-representative sample with limitations, these selected individuals were able to provide diverse and informed perspectives on this issue. The critique on TMC is to be found in appendix VI. Currently, a serious interest in TCM is taken by the younger millennial market (Bland, 2017). According to Robert. L. Moore, professor of Anthropology at Rollins College, the modern Chinese youth belongs to a rather unique generation. Since the death of Mao Zedong, opportunities opened up for the young Chinese, some of which their parents could never imagine. Professor Fong from Amherst College notes that the older Chinese generations admire the millennials for carrying out goals the older generations never could themselves but worry that the younger generation do not possess the strong value for family ties or willingness to defer to the elderly. The millennials tend to lack a ‘moral or spiritual’ foundation (O'Reily, 2018) (Deng, 2018).

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4.3. HEALTH SUPPLEMENT USER GROUPS 4.3.1. Women and mothers A research from Taobao and CBN Data in 2015 has proven that 60% of total nutraceutical sales in China come from women between 22 and 50 years old. The percentage of women between 18 and 28 has been steadily on the rise. Mothers tend to take their supplements during pregnancy. Among the maternal dietary supplements, calcium and folic acid is mostly consumed (Scattergood, 2017). A total of 2079 mothers with children under the age of 5 in Chengdu and Wuhan were surveyed and the results indicate that 32.4% of the Chinese children were taking dietary supplements. According to the survey the most commonly used dietary supplements were calcium (58.5%) and zinc (40.4%). In China, “being unwell” and “having higher household income” were significantly related to dietary supplement usage (Chen, Binns, Maycock, Liu, & Zhang, 2014). For pregnant and postpartum women, calcium was the most popular supplement, whereas folic acid was only taken during pregnancy (62.3%) with an average usage duration of 2.5 (standard deviation 1.3) months among users. High school, above education and attendance at prenatal classes were associated with dietary supplementation during pregnancy. Mothers with a higher level of education were also more likely to use dietary supplements in the postpartum period (Tang, Lee, Hui, & Binns, 2017).

4.3.2. Millennials A current trend China is experiencing involves the fu’erdai. ‘The fu’erdai’, which means ‘rich generation’ or, also known as ‘the millennials were the babies born to ‘fortune or well-connected Chinese in the 1980s and 90s’. It is being claimed that these millennials continuously look for ways to improve their living standards and compare themselves to their friends/peers more than the generations before used to do. They have a special interest in natural ingredient and sustainable products. This results in much jealousy, competitiveness and even obsession. They want to be able to live like the upper or middle classes of the Western world (O'Reily, 2018).

According to a study on the “changing Chinese consumer in relation to the health supplement market in China (2017)”, Chinese millennials count for 80% of T-Mall’s buyers. They share three main characteristics: health as a priority, pay premium for branded & original products and niche subcategory supplements. The top sales are (Huang, 2017): ▪ ‘Glucosamine & Joint supplement’ ▪ Fish Oil & Omega 3 ▪ Collagen & Beauty ▪ CO Q10 & Heart Health ▪ Children’s Multi Vitamins ▪ Adult’s multi vitamins The most trending categories among the millennials are (Huang, 2017): ▪ ‘Protein & sport nutrition’ ▪ ‘Skin & beauty’ ▪ ‘Weight loss’ ▪ ‘Immune support’

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Taobao mentions that de fastest growing nutraceutical products demand in 2015 was for ‘enzymebased drinks and powders with major beauty claims including cleansing/detoxing, anti-acne” and weight loss. According to the Roland Berger consumer survey, ‘beauty care will be in the greatest demand along with vitamin/mineral replenishment and immunity boosting’.

The phrase ‘Buddhist youth’ went viral in 2017 which refers to the Chinese millennials embracing a ‘unrestrictive’ approach to their lives, caring heavily about their health. This social-demographic group of millennials has made the word ‘berry’ very popular since TCM claims that this is beneficial for eyesight. Other ingredients that are now very popular in luxury beauty brands are: ▪ Ganaderma (cures insomnia, heart palpitations, coughs and short-ness of breath) ▪ Cordyceps (life enhancing properties) ▪ Edible Bird’s nest (improve physical mental health for the elderly) ▪ Saurssurea (treatment of rheumatoid arthritis, coughing, colds, stomach aches, dysmenorrhea and altitude sickness) ▪ Saffron (associated with heart and liver meridians, removes stagnations, clears the meridians and release toxins).

4.3.3. China’s middle class China’s middle class also puts a premium on its health. This is mainly due to the food safety scandals of the last couple years. They have become most active in boutique supermarkets which were previously only available for the very wealthy. China’s middle class tends to spend heavily on ‘nutritional supplements, bottled water, imported nuts and organic produce’ (Chen N., 2012). A Boston Consulting Group survey claims to see a growth in ‘health and wellness’ items (as opposed to luxury products) mostly due to China’s ‘smog-choked cities’ and food scandals. The middle-class and wealthy travel to South-Korea, Japan and Taiwan for medical treatments. ‘Over-the-counter’ medicine and vitamins/fish oils are being stocked up in duty free stores around the world by this demographical group (Jing Daily, 2015) 4.4. CHINESE CONSUMER TRENDS 4.4.2. Growing disposable incomes One should look back to the harsh times of the Cultural Revolution in the late 1960s and 70s to understand China’s current change in disposable income. People over the age of 55 have learned not to spend thoughtlessly and learned to allocate half of their spending to only the primary goods like food, instead of luxury products. Only 7% of the disposable income for example is allocated to clothing among the population group of this age. This percentage could be compared to the people who are only ten years younger: they devote only 38% of their disposable income to food and 18% to apparel.

It should be taken into consideration that today’s 45- 54-year old’s, which are the ‘older generation’ of 2020, will have spending patterns ‘similar to those who currently spend around 34% of their spending on food and 14% to apparel. Graphical representations of ‘urban households’ annual consumption by category’, ‘the change in income distribution’ and the ‘discretionary spending growth until 2020’ are to be found in appendix XXXVI until XXXIV (Atsmon & Magni, 2012).

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4.4.3. Beauty-from-within: the holistic approach Several years ago, beauty-from-within did not really take off in China yet. Back in 2011, companies such as Fancyl, DHC, Kanebo & Shiseido (Japanese cosmetic companies) started selling collagen-based beauty drinks and powders which became popular in China. L’Oréal and Nestle followed as well did Guizhou Bailing Group (a local pharmaceutical company). The following two years, demand decreased due to incidents. China’s state-owned media questions the products’ claims and high retail prices and there were conspiracies about estrogen being added to the formulas. However, the Chinese culture has always reflected demand for ‘holistic beauty’ (Dai, 2017).

4.5. CHINA’S CHAGA MARKET The Chinese have increased their interest in chaga since 2016 which is visualized by an increasing trend line on the search word “chaga” on the Chinese web. In 2013, the maximum number of searches on the word “chaga” was 150 which increased to 2100 in 2016. The most popular related search words to the keyword “Chaga” are on the topics efficacy, effect, health protection and the certified product.

According to Daxue consulting (2017), the increased interest in chaga is due to the increased interest in healthy living of the Chinese consumer. Chaga is part of traditional Chinese medicine and consumers have been using the domestic product for years. Because of the cold climate in northern China, China has the possibility to produce its own chaga. However, currently the Chinese consumer is interested in discovering and importing new health supplements (Thibaud,2017).

The Chaga mushroom in consumed in different ways: ▪ As a capsule to swallow ▪ In tea form ▪ In powder form to mix with water The form in which the consumer makes tea out of the mushroom is the most popular.

The price of chaga Unprocessed Chaga is currently sold between 350 RMB and 450 RMB for 500 grams, this is between 55-70$ USD. This price is high compared to other popular traditional Chinese herbs. Specific prices and names of the other herbs can be found in appendix VII (Thibaud,2017).

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4.6. FIELD RESEARCH OUTPUT Out of the 24 respondents of the Chinese consumer survey (2018), ten respondents use health supplements. The remaining 14 don’t. Out of the ten respondents using health supplements, four are male and six are female. 47,4% claims to use health supplements because of fitness motivations, 31,6% for beauty motivations, 15,8% for general health motivations and 5,35% for study motivations (n = 24).

Foreign brand usage was questioned and only 25% of the respondents indicated to use foreign brands. The mentioned foreign brands used are: ▪ Swisse ▪ GNC ▪ Holland & Barret Reasons to use foreign brands are formulated as: ▪ Cheap ▪ Trust worthy ▪ Relatively stable and assured market for the products The reader of this report should be reminded that this output is non-representative due to the small sample size.

4.7. CONCLUSION It can be concluded that the current user groups of health supplements in China are mostly woman, millennials and China’s middle class. Woman tend to use supplements during their pregnancy and mostly choose calcium and folic acid supplements. Chinese millennials value their health more and more due to growing disposable incomes, China’s cultural holistic beauty-from-within approach and the many historical food incidents. Additionally, the smog in Chinese cities contribute to a growth in health and wellness consciousness.

The most trending health supplement categories consumed by the millennials are: sport nutrition, beauty, weight loss and immune support. Additional to health supplement are TMC and Chinese herbal products. These alternatives to modern health techniques are still very much in use and are considered health supplements in China.

Reasons to buy health supplements include: eyesight, psychical mental health for the elderly, insomnia and toxin release. The demand in chaga has been increasing due to the increased interest in healthy living. Lastly, Northern China has a good climate to produce chaga. However, the Chinese consumer shows a bigger interest in discovering and importing new health supplements.

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5. INTELLECTUAL PROPERTY RIGHTS (IPR) To generate a thorough understand of China’s IPR landscape, desk research has been performed to expose its potential risks and possible counter strategies. A conclusion is formulated at the end of this chapter which provides an answer to the fourth sub question.

5.1. IPR IN CHINA China is known as copy-cat country and been called the country without innovation and no respect for IPR. The Diplomat (2018) published that due to judicial protectionism, it has been very hard in China to enforce IPR. That there is indeed judicial protectionism existent in China is verified by ‘an empirical study of intellectual property cases’, published in ‘the Bulletin of the People’s Supreme Court of China (PSC) since 1985. The study significantly proves that if the residence coincides within the court’s location, the chance of favorable ruling is increased (Long & Wang, 2015).

An analysis by the Asia Pacific Foundation of Canada (2014) on the IPR challenges facing foreign and Canadian companies in China, points out that ‘China’s intellectual property (IP) regime continuous to present major challenges for foreign companies, despite recent improvements’. The foundation has conducted a survey of 229 Canadian companies regarding the companies’ experience with IPR infringement in China. The survey finds that (Busza et. all, 2014): ▪ ▪ ▪ ▪ ▪ ▪

IPR is one of the main barriers to doing business in China Shanghai tends to be the least problematic compared to other locations Experience in China will reduce fear of IP infringement Most vulnerable to IP infringement are ‘trade secrets and industrial designs’ Chinese competitors are more likely to violate IPR than other type of infringers such as ‘suppliers or former employees’ Instead of only registering IP and bringing into effect non-disclosure agreements, small- and medium-sized enterprises (SMEs) are keen on keeping the knowledge within a small team.

This is another strategy to fight IP infringements.

It is mentioned that China has improved its IPR regime. However, according to the Asia Pacific Foundation, China was in 2014 still considered to be ‘a highly IP litigious country and top patent filer in the world’. What is commonly experienced by Canadian companies is something called ‘trademarksquatting’. This is because China’s trademark law which uses a ‘first-to-file system’. With this system, the original owner of the trademark risks not to be able to successfully register a trademark because an infringer has already registered it. Additionally, Chinese culture plays a role in China’s IPR regime, knowing that Confucianism ‘did not historically perceive knowledge as a form of private property and ‘Moist thought’ generally discouraged the protection of IPR’ (Busza et. all, 2014).

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A single strategy will not be sufficient for all foreign companies who try to protect their IP in China.

Several strategies should be considered such as ‘registering IP; incorporating IP-protection clauses in contracts; encouraging de facto secrecy; training and educating employees; cultivating mutually dependent business relationships with domestic partners; establishing relationships and networks with Chinese government agencies (guanxi) and actively seeking assistance from foreign governments’.

The Canadian Embassy (2018) and the Asian Pacific Foundation have constructed strategic plans for to deal with IPR in China. More information on these strategical inputs is to be found in appendix XI and appendix VIII, respectively.

5.2. CONCLUSION China has been diagnosed with judicial protectionism. Canadian companies see China’s IPR landscape still as one of the major barriers to doing business in China. Shanghai tends to be the least problematic compared to other locations. The first-to-file system increases the IPR infringement risk.

The most convenient types of IPR infringements are the industrial design, trade secrets and trademarks. Different strategies include: registration of patents, industrial designs, utility models, copy rights and trademarks, set up non-disclosure agreements & contracts and cultivate guanxi.

The Canadian embassy implied a strategy which includes the following steps: a law firm which is familiar with Chinese intellectual property law, the company should register their IPR in China, carry out diligence on your partners and to include clear contractual protection for all IP. However, none of the strategies can be considered as a guarantee to safe the intellectual property of the company but giving more protection compare to enter the market without any preventive measures.

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6. THE COMPETITOR ANALYSIS To generate an in-depth understanding of Moon Rabbit’s competitive environment, the Porter’s Five Forces analysis is applied. Porter’s theory includes the analysis of five external competitive forces, namely: the threat substitutes, threat of new entrants, power of suppliers, the bargaining power of suppliers and the threat of rivalry amongst competitors. A conclusion is formulated at the end of this chapter which provides an answer to the fifth sub question.

6.1. THREAT OF SUBSTITUTES When thinking in terms of substitutes, one should consider all products that can generate the same effects of Moon Rabbit’s product. Examples that come to mind are: caffeine infused products and TMC. 1. Coffee China has become one of the largest coffee consumers in the world, in terms of emerging countries. The young Chinese professional tends to consume the most coffee (Coffeebi, 2018).

According to Ester Lau, a research analyst with market research from Mintel, the coffee culture in China has developed over the recent years because of the growing urbanization in China and the increase in Chinese travelling overseas. ‘Starbucks, which opened its first Chinese coffee shop in 1999, has said it plans to double its store count in China to over 3,000 stores by 2019, while Costa plans to expand from 344 shops to 900 by 2020’ (Duggan, 2015).

According to Starbucks (2012), the reasons for coffee consumption are: ▪ ‘Coffee is a fashion beverage that comes from western countries’ ▪ ‘Drinking coffee is a social event rather than a daily necessity’ ▪ ‘Chinese like sweet coffees (mocha or café latte rather than espresso)’ 2. TCM TCM advises on avoiding particular foods and the practice of ‘qigong’ to get your blood flowing, which restores the harmony in your body. Also, it advises on sleep and meditation (Gao. 2017B). To generate the same effects that Moon Rabbit aims for with its ‘beauty’ product, TCM methods could be applied in China. This holistic approach of health also advices on eating healthy to ‘nourish yin and eliminate yang’ and taking herbal baths. (Gao, 2017B).

As mentioned before in chapter 3 of this report, a serious interest in TCM is taken by the younger millennial market.

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6.2. THREAT OF NEW ENTRANTS The health food market in China is a steadily growing market which creates much attention from other companies who might consider entering this particular market. According to five interviews with the native Chinese students, Chinese customers are loyal to brands which reduce the risk to lose customers to new brands as long as influencer or doctor provides the recommendation.

The lack of knowledge about the market is an advantage for established brands if other companies want to enter the market. This is because of cultural and buying behavior differences between the markets.

Furthermore, health supplements belong to health foods and health food is excluded from the so called ‘positive list’. This means that health supplement that are to be sold on the Chinese market should apply for a registration and filing procedure. This procedure can last a couple of years without a guarantee to get all the necessary documents. More information on the positive list will mentioned in sub-chapter 7.2. of this report and is additionally to be found in appendix X. 6.3. POWER OF SUPPLIERS The power of the suppliers depends on the number of suppliers which can provide the ingredients. To evaluate the number of suppliers it is necessary to analyze the current supply chain of Moon Rabbit which is already mentioned in section 3.1.3. of this report.

Currently, Moon Rabbit enjoys an advantageous position since there are multiple suppliers to choose form, which gives Moon Rabbit a better position in negotiations. MycoTechnology and Suzhou-Chem are two big suppliers at the market (Watson, 2016) (Suzhou-Chem, 2017).

The same situation accounts for the manufacturer. In this market, there are many companies offering to produce customized health supplements like Amix Laboratories, Boli Naturals and Gemini Pharmaceutics. These companies are located in America which would not raise Moon Rabbit’s logistic costs if they have to change (Brain Wiz, 2016).

6.4. BARGAINING POWER OF CONSUMERS Moon Rabbit’s consumers are the groups described in this report’s chapter ‘health supplement user groups’. According to Walters & Hsu, (2010) both writing editors for Forbes online magazine, mention that in 2005, ‘a consumer company doing business in 70 locations in China, cities and counts, could reach 70% of consumers in the middle and affluent classes’. In 2010, in order to reach the same amount of customers, a company should be active in 240 locations. By 2020, this number will have been increased to 400 which translates into a dramatic shift in ‘the geographic distribution of consumer spending power’. The unhealthy environment in China in which many live is, additionally to all the reasons already explained previously in the report, the main reason why the supplement industry is booming. A field research from the Financial Times called ‘China Confidential’, significantly proves that half of urban consumers of health supplement products regularly buy vitamins and dietary supplements. It is expected by China Confidential that in the upcoming years, as the disposable incomes will increase, the spending on health enhancements will increase (Plowright, 2015).

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6.5. COMPETITIVE RIVALRY The Chinese health supplement market counts many potential competitors for Moon Rabbit.

According to Huang (2017), the top four of global brands currently active of the Chinese market are: Swisse, Herbalife, GNC and Blackmores. More details about these competitors’ mission statements, product categories, online marketing practices, online sales channels and product prices are to be found in appendix XXXIII. To present the product on the Chinese market to get the best responses from the consumer, one should keep the following approaches in mind: ▪ Show the core value of the product, in order to get the consumer to trust the company it is important for the company to communicate its values and meaning of the product.

▪ Use of influencers increases the trust and familiarity of the product.

▪ Get a scientific approach which claims your product to be beneficial.

▪ QR codes to We-chat, private website or directly to shopping cart ▪ Creating an experience 6.6. CONCLUSION The two products considered substitutes are caffeine infused products and TCM. For Moon Rabbit, coffee forms no risk because it is not consumed to generate an energy boost. TMC, however, is considered a risk because this is popular under the millennials. Therefore, the threat of substitutes is considered moderate. The lack of knowledge and the long registration/filing procedure are reducing the risk of new entrants as well as the degree of Chinese brand loyalty. The bargaining power of suppliers is considered low due to the multiple number of suppliers active that produce Moon Rabbit’s product.

The bargaining power of consumers is low, considering the high demand for health supplement products and the high degree of health supplement sellers compared to buyers in the Chinese market.

The upcoming increase in the salaries of the Chinese consumer causes a shift in the geographic distribution of consumer spending power, meaning: more potential buyers scattered more throughout China. Swiss, Herbalife Nutrition, GNC and Blackmore are the four major competitors on the Chinese and global market. These competitors represent Moon Rabbit largest rivals, since these brands are selling products with the same effect but from a well-established branding position.

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7. LOGISTICS SOLUTIONS FOR CROSS BORDER E-COMMERCE The following chapter includes an extensive overview of possible logistics solutions to be adapted by Moon Rabbit. Desk research has generated information on the Chinese consumer, the free trade zones, the different trade options and potential costs of imports. Additionally, the rules and regulation regarding cross border e-commerce to China has been investigated. A conclusion is formulated at the end of this chapter which provides an answer to the sixth sub question.

7.1. CHINESE CONSUMERS Chinese consumers expect a reliable and quick delivery. If the consumer is located in a first-tier city, he/she expect the delivery the same day. The exception for this is if you sell products from overseas.

In this case, the buyers are more patient and also prefer to wait longer because it is a sign of proof that the products are really from overseas (Ballering, 2017).

7.2. FREE TRADE ZONES Due to the rise of the CBEC and after the outburst of semi-legal cross-border shipments from Daigou traders, Chinese government opened free trade zones. In 2016, China had 13 pilot zones in 13 different cities. These zones are regulated and reliable cross-border solutions for products which are on the positive list. The positive list is an extended document from the Chinese government which includes products which requires no further registration or filings in order to legally perform CBEC. The thirteen pilot zones are located at the east coast and in the south of China close to the Yangtze river, near large trade ports which provides a business environment and an infrastructure for CBEC activities. The main feature of these free trade zones are bonded warehouses. When incorporating a bonded warehouse in the supply chain, a company experiences no import licenses nor test reports when delivering the good to the customer in China (Ballering, 2017).

7.3. IMPORT MODELS In general, companies who plan on executing e-commerce trade in China, could consider three different import models (Ballering, 2017): 7.3.1. Bonded imports (B2B2C) This strategy calls for a warehouse in a pilot zone. The company is able to store products without payment of duty and the product is easily transported to the customer. The company’s product should be on the positive list. Operating within pilot zones ensure faster registration and the overseas companies can postpone import duty and VAT charges. Also, no local Chinese entity required. If a company wants to test new products on the Chinese market this would be an excellent method since stocking a small batch can quickly be distributed to the Chinese consumer without risking large losses. The company saves money because of the decrease in operation and logistic costs. However, in case the company’s product is not on the positive list, this solution requires a lot of registration and tests (Ballering, 2017).

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Additionally, continuous and matured sellers, high investment in stock and limitation in adaptability of one´s transshipment, this model would be disadvantageous. A visual representation of the bonded imports strategy is to be found in appendix XIII. 7.3.2. Direct purchase imports (B2C) Products that are not on the CBEC positive list can also be shipped directly from overseas merchants to China via the postal and courier system. However, the delivery time when using this model takes a lot longer than with a bonded warehouse. Though, according to the fact that Chinese consumers generally accept longer delivery times for foreign products, this is not a huge disadvantage. Direct shipping and longer service time is often considered more trustworthy for goods from abroad. A visual representation of this strategy is to be found in appendix XVI. 7.3.3. General trade imports (B2B) This strategy includes a regular import strategy. After the goods arrived in China, the company has to pay import duties and VAT for the whole shipment. If this procedure is solved, the goods can be sold via local e-commerce platforms. The warehousing and fulfilment will be done from a non-bonded warehouse and the revenue will be received on a local Chinese bank account. This solution is for established brands which are focused on selling high turnover products online and offline and companies that opt for a procurement strategy with domestic or CBEC platforms (Ballering, 2017).

7.4. COSTS OF IMPORTING Costs of importing include tariff, the consumption taxes and the VAT (Value Added Tax). A visual representation of the differences in costs of cross border e-commerce, traditional trading and postal parcels is to be found in appendix XVII. The type of product determines the price to pay by the company who wishes to import into China. For B2C cross border, there are no tariffs nor consumption taxes to pay. The costs thereby incurred are only the VAT which is 11,9% of the retail price. Concluding the costs for import health care products to China you have to pay the logistic costs and approximatly 12% taxes to legally import your products to China (Michelini, 2018). A tabular representation on the tax advantages for cross border trade is to be found in appendix XVIII. 7.5. DISTRIBUTION OPPORTU NITIES There are three different models for how a company can distribute their products to China:

1. The independent model: to sell via an owned platform. Selling via online platform WeChat is also considered independent.

2. The dependent model: this model includes sales from B2C and C2C. The way to generate profit is by charging the merchants. This includes the use of an online retailer like Amazon to enter the market. In China, the biggest online retailers are T-Mall, JD and VIP.com. (Xu, 2017).

Both models experience advantages and disadvantages. For a tabular representation of these advantages and disadvantages per distribution opportunity, please refer to appendix XI. 28

3. Than additionally, there is a third model: The Hybrid model. This model is a combination between bonded warehousing and direct shipping to the customer. When the objective is to ship directly to China, one could use a hybrid platform to list products that are also allowed to use a warehouse controlled by the government or a private entity. With this kind of model, you can list your products on a dependent platform and create your own independent platform (Xu, 2017).

7.6. RULES AND REGULATIONS REGARDING SHIPPING It is for Moon Rabbit to consider that there are selected products which require quotas or licenses.

When the products enter a country, they must pass an inspection and require certification. The average tariff to import goods into China was 9.8% in 2016.

China has labelling and packaging requirements for goods being imported. If the goods do not meet the requirements they will be refused entry into China (Government of Canada, 2017). More information about labelling and packing is to be found in appendix XIX. Again, it is necessary to mention that companies that want to do CBEC have to check if the product is on the positive list which would allow them to import without specific regulations. If the product is not on this list, one cannot use the logistic model with a bonded warehouse in pilot zones. In Moon Rabbit´s case, the products belong to the health food and is thus excluded from the positive list. For goods out of this category it is necessary to register or file under CFDA (CIRS, 2016). The registration and licensing for health products is an extremely lengthy process which can take up to three years and there is no guarantee or approval. To encounter less hassle when entering the Chinese market, a Joint Venture or partner in China is advised (MarketingToChina, 2018).

Any health supplements that wish to be marketed on Chinese territory must be upstream and tested by the China Food and Drug Administration (CFDA). Validation procedures in China are lengthy and complex and encourages the discontinuance of foreign brands to enter the market to promote the commercialization of domestic brands (MarketingToChina, 2017).

The process of getting all the documents and authorizations is divided in two parts. The first part is the health food filling and the second part is the health food registration.

The first part includes: 1. Applicable Scope Filing 2. Applicant´s Qualification Filing 3. Filing Procedure 4. Dossier Requirements of Filing 5. Test Requirement of Filing

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The second part includes: 1. Applicable Scope of Registration 2. Applicant´s Qualification of Registration 3. Registration Procedure 4. Dossier Requirements of Registration 5. Test Requirement of Registration (CIRS, 2017) Detailed information about the specific parts of the filing and registration can be found in the appendix XX. 7.7. CONCLUSION The possible logistic solutions for Moon Rabbit depend strictly on the category the good belongs to.

The health food goods, which the health supplements belong to, are excluded from the positive list and require a registration and filing under the CFDA. In this situation the logistic solution is to purchase directly from Canada and ship to the customer. Moon Rabbit’s product is not on the positive list which makes it illegal to import their products via a bonded warehouse. This results in the customer having to wait longer to receive the product when being shipped directly from Canada. This, however, is not a problem with foreign products for Chinese customers.

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8. CHINA’S MARKETING LANDSCAPE In the following chapter, China’s online marketing landscape is researched. Different marketing strategies, currently used by other health supplement brands, were investigated. Additionally, the importance of ‘guanxi’ is revealed and the four P’s of the marketing mix are used as the framework to portray Moon Rabbit’s current marketing mix. Several marketing mix options for Moon Rabbit to incorporate when engaging in cross border e-commerce in China are also discovered and investigated.

The China consumer survey (2018) has contributed to some but little information about which buying platforms are used by Chinese consumers. A conclusion is formulated at the end of this chapter which provides an answer to the seventh and final sub question.

8.1. MARKETING STRATEGIES Marketing strategies currently used by health supplements brands active on the Chinese market are: 1.

2.

3.

4.

5.

6.

7.

8.

9.

Creating a Chinese ‘identity’: having a Chinese name and product display helps the large number of consumers who are not familiar with the English language.

Show the origin of the product: the interest of the Chinese consumer on the foreign ecommerce market is developing. (Xia, 2016).

Create packages with special pricing: the consumer is always looking for the ‘special deal’ so they can discover the company and get the limited-edition focus. This gives the consumer status and helps them spread knowledge of the product.

Show the core value of the product: in order to get the consumer to trust the company it is important for the company to communicate its values and meaning of the product.

Use of influencers increases the trust and familiarity of the product.

Have a wide product range, the Chinese consumer prefers a large selection to choose from.

Get a scientific approach which claims your product to be beneficial.

QR codes to We-chat, private website or directly to shopping cart to make the sale as efficient as possible.

Creating an experience, this makes the consumer feel exclusive. With the experience economy in full bloom the consumer is looking for more than a sole product.

(Marketing to China, 2018) (Swisse, 2018).

8.2. GUANXI Maintaining a relationship between the consumer and the manufacturer is important. However, the Chinese consumer is used to a different way of communicating than the western world is. They attach importance to a personal relationship which is called ‘guanxi’ and are very interested in the history of the company and owners. Chinese are more collectivistic whereas the western world tends to be more individualistic. A holistic view on situations is how Chinese solve their problems: every detail needs to be looked into before making a selection. Also, the result is not the importance but the way to it and the means (EU SME Centre, 2013). Details on specific rules of what to do and what not to do in the presence of Chinese cultured people are to be found in appendix XX. 31

8.3. ADVERTISING LAWS The advertising laws in China are heavily regulated and the government still has ultimate control over content. Advertising in China is regulated by the Advertising Law of the People’s Republic of China. In 2015, the law was updated to have more control and be stricter on online advertising, health claims, celebrity endorsers and false advertising.

The regulation also states that the following products need review before there are allowed to be published online: ▪ Medical treatments ▪ Pharmaceuticals ▪ Food for special medical purposes (FSMP) ▪ Medical devices ▪ Pesticides ▪ Veterinary drugs ▪ Dietary supplements (USCBC, 2016) For more information on law updates and its effect on current advertisement activity in China, please refer to appendix XXI.

8.4. MOON RABBIT’S THE MARKETING MIX AND CHINA 8.4.1. Promotion Main reasons for Chinese consumers to purchase their products online are: 1. Choice: the e-commerce platforms provide the consumer with a wider option of choices.

2. Convenience: development in distributing the products have made it possible for online purchases to be delivered within one or two days. In some cases, same day delivery is even optional.

3. Price: online competition results in getting the lowest global price for a product. The consumer frequently receives a better price in online sales.

4. Trust: the marketplace online is obligatory to receive and accept returns, this leads to companies being more cautious with their product for them not wanting to have it returned by the consumer (The Sovereign Group, 2016).

Currently, international market players reach their target groups thought the use of marketplaces such as T-mall Global, Tao Bao and JD Worldwide, without the need of a legal entity in China. However, this can be a challenge (The Sovereign Group, 2016).

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Weibo Weibo is a blog type platform on Chinese social media. This platform has different types of advertising available. The for options are (Weibo Advertising, 2018): 1. Display advertisements: this is a banner in various dimensions spread over the web and mobile version of Weibo. The price differs to the place on the desktop and mobile version of the channel and the price differs to the size of the advertisement.

2. Weibo search engine promotion: in the Weibo application or desk top version the search engine is pre-loaded with search terms based upon popular items or advertising.

3. Fanstop: this is promotion on social media, via Weibo. For example; an advertisement for a product promoted by Amazon on Facebook. This way it is easier to reach a more specific target group.

4. Fan tunnel: this is similar to fan headline the difference however, is that these advertisements will always be placed at the top of the target audiences’ social media feed.

For more information on the main differences in terms of sourcing of target audience and pricing between fanstop and fan tunnel, please refer to appendix XXIV. WeChat advertising WeChat is the Chinese WhatsApp, Facebook, Wallet, Webshop and many things else. Over 900 million people using this app daily. Each company is promoting their products on WeChat because one can construct with help of the QR-Code: a huge marketing tool asset. (Klingelhöfer, 2017).

WeChat experiences 3 types of advertising: 1. Moments advertising Advertisements will appear on the user’s timeline. To invest in this type of advertising you need to be either registered in mainland China and willing to invest at least $8000 USD. The option for international companies is to invest $1500- $8000 USD. The components available in this type of advertising are: ▪ Brand name and profile picture ▪ Up to 40 characters ad description ▪ Link to a html5 webpage that’s hosted on Tencent’s server ▪ Up to 6 pictures or 6-15 seconds short videos.

To target the right consumer, it is possible to track the consumer by the means of their location, interest, age, gender, device and phone network. WeChat charges a minimum entry price of 50.000 RMB. For overseas advertising to target tourists, the minimal entry price for the countries Germany, France, England, Italy, Canada and New Zealand is 10.000 RMB. The price per CPM (cost per 1,000 impressions) charged differs per location in China. A distinction is made between ‘core cities’, ‘large cities’ and ‘others’. For a tabular representation of these costs, please refer to appendix XXII.

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2. Banner advertising This type of advertising will be placed at the bottom of the application. This banner will contain a name, headline and logo. If clicked, the user will be taken to the website containing additional information. The minimal entry price is 50.000 RMB. Banner advertisements are mostly restricted to Chinese companies. In order to be eligible to use this type of advertising the company needs to be registered in China and have all the required licenses to justify the fact that they are legal in the specific industry the ads are associated with. As in international company it is possible to apply, but one has to go through the manual application process. This is more time consuming and the change of getting the advertisement is small. For the costs specific costs of the core city, large city and other please refer to appendix XXIII. 3. Key opinion leader advertising This type of advertising uses influential people: reach a popular blogger through a flat-fee, result based fee or give away free items, in exchange for promotion. There is also the option to have an advertisement placed in the article of the blogger or a banner at the bottom of the article piece. Now, instead of charging for advertising cost, the key opinion leader charges on commission bases, most of the time between 20-40% commission. The costs of influencer advertising can range from $100 USD for a banner on the website to $50.000 USD for a push message. The cost of the promotion really depends on the audience of the influencer and on the type of collaboration (Chen, 2017) Alibaba advertising Alibaba is a unique combination of eBay, Amazon and PayPal. They have been dominating the entire Chinese market for years. This company gives small companies the chance to get their products in front of a global audience. Alibaba has currently two websites, Taobao and TMALL. Taobao is specifically for small non-brand products. T-MALL is for selling brand-name items. Alibaba has a huge power on the Chinese market because over 70% of all mobile payments are generated from Alibaba (paperlessproposal, 2018).

Alibaba generated 29 % of the China’s total online add revenues in 2016. Because this platform is generating a lot of attention to the product prices for advertising a popular product can reach up to 10 RMB per click (Vinkenborg, 2016).

8.4.2. Moon Rabbit’s core product Moon Rabbit’s core product satisfies the need for a natural healthy lifestyle. By using all-natural ingredients in its product, Moon Rabbit gives the consumer the opportunity to prevent illness. Moon Rabbits products only have natural ingredients in them. Every product has a mushroom base.

Mushrooms in China are well known because of traditional Chinese medicine. Moon Rabbit is a Canadian brand with local and reliable suppliers.

8.4.3. Moon rabbit’s augmented product With the profit Moon Rabbit will generate in the future, a percentage will be donated to a good cause.

By buying a product from Moon Rabbit there is contribution to the environment. Moon Rabbit uses biodegradable packaging and invests in the replanting of the birch trees. There is a growing value in 34

sustainable products in China. As Moon Rabbit is very serious about sustainability in their brand, this could be an opportunity in the market (Ku, 2015).

8.4.4. Design and branding advised by Swisse and ‘marketing to china.com’ According to Swisse (2018), the following design and branding decisions are advised: 1. Show the core value of the product: in order to get the consumer to trust the company it is important for the company to communicate its values and meaning of the product.

2. Get a scientific approach which claims your product to be beneficial.

3. QR codes to We-chat, private website or directly to shopping cart to make the sale as efficient as possible. QR codes can also be used to translate the product for the customer. Instead of changing the whole packaging to Chinese language, a QR code will suffice.

4. Creating an experience, this makes the consumer feel exclusive. With the experience economy in full bloom the consumer is looking for more than a sole product.

(Marketing to China, 2018) (Swisse, 2018) Value Show the origin of the product: the interest of the Chinese consumer on the foreign ecommerce market is developing. (Xia, 2016). To get the right information across make the informative part on the website as short as possible. This gives the consumer a clear overview in which they know at once what the product is. (Mayer, 2003) Product design visual In traditional Chinese culture red is chosen for good luck, white and yellow are both seen as a royal color. Bright and vivid colors are usually applied to food products, pastel or white shades are preferred for household items and personal care products.

Logo and typeface Most important is to translate the brand name, so the Chinese consumer can easily pronounce and remember. Chinese typeface as part of the logo is preferred to better communicate in the market.

Image, pattern and shape To attract the Chinese consumer pictures and visual are added. Most brands add cartoon design.

Packaging material Expanding segment who prefer buying products with environmental friendly packaging material (Ku, 2015). As Moon Rabbit is using material friendly packaging their value is projected through this.

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8.4.5. Place Shopify Currently, Moon Rabbit aims for selling its products to Canada by the use of the channel ‘Shopify’. As mentioned before, many of the international tech companies are not allowed in China due to the ‘China’s Great Firewall (to censor content)’. Shopify on the other hand remains unblocked and will stay unblocked because of China’s supportive attitude towards the e-commerce industry. In China one can use Baidu to search for Shopify and select purchases. However, ‘Shopify does not offer Chinese language websites or console service and in Baidu search Shopify does not come up with Chinese characters’. This is different from international companies such as Starbuck. On Baidu Starbuck’s meta descriptions appear in with Chinese characters (Chinascoop, 2016).

T-Mall The most powerful platform on selling health supplements is T-mall. T-mall is leading as a cross-border e-commerce platform. It is hard to join this platform, as it is really popular and strict concerning their admittance to new brands. The Chemist Warehouse is an Australian company, specializing in pharmaceutical products which works together with Alibaba to sell its product on the Chinese market (TheChemistWarehouse, N.D.).

The target group The different Chinese consumer segments using health supplement are determined in sub-chapter 4.3 of this report. Below is mentioned where these people buy their products:

▪ ▪

▪

Mothers buy their health supplement online and they search online as well. This specific segmentation group is most active on Tmall and JD.com. (Marketing to China, 2017) The Chinese millennial, these people are found on the internet. They are mobile shoppers and use a lot of social media. They buy most of their products through Weibo and WeChat,and are easily influenced by key opinion leaders. (Chozan, 2017) China’s middle class, these consumers shop online about 5,25 times a month. According to research from Hong Kong Trade Development Council. The HKTDC held a survey with the Chinese middle class. Out of the survey came that 73% of respondents’ shops online at least once a week, mostly with orders on their phone. These people buy on Tmall, JD.com, Amazon and most other platforms. Apart from these they also overseas buying platforms, they are interested in products from all over the world. (Wong, 2017)

The place strategy can be divided into 2 parts: 1. Direct channel; producers-consumers Companies set up their own website to sell their products through.

2. Indirect channel; producers-internet companies- consumers This indicates enterprises to establish e-mall online.

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Distribution strategies: ▪ Share logistics system: here Moon Rabbit will sell its product through indirect channels as named above.

▪ Outsource logistics to a third-party logistics company: Moon Rabbit could realize this if the company hires a logistics company inside of China to distribute their product.

▪ Own distribution centers: Moon Rabbit can start up their own distribution center. This is a big risk due to the lack of knowledge.

8.4.6. Field research output: According to the Chinese consumer survey, 32.2 % would visit the official brand website to buy the health supplements. Only 19,4%, 9.7% and 6.5% indicates to buy their health supplements from Taobao, Amazon and T-mall, respectively. Only 32.2% mentions that he/she would not buy Moon Rabbit’s product online. A tabular representation of this information is to be found in appendix XXXI.

8.4.7. Price For Moon Rabbit to establish an appropriate pricing strategy, several pricing strategies were investigated. Different price strategy should be according to the pricing objective which could be ‘product survival’, ‘maximum current profit’, ‘maximum market share’, ‘maximum market skimming’ or ‘product-quality leadership’.

Market penetration Market penetration pricing strategy means: low price. With this pricing strategy, the market is highly price sensitive and low prices stimulate market growth. Production and distribution costs fall with accumulated production experience. Finally, a low price discourages actual and potential competition.

Marketing skimming Market skimming strategy means: high price. To incorporate this strategy, there should be a sufficient number of buyers which have a high demand. Also, in case of this strategy, unit costs of producing a small volume are not high. High initial prices do not attract competitors to the market and communicates superior product image.

High-Low pricing “High-low pricing involves alternating between high and low prices. Initially, the product is offered at a high price, which establishes the value of the item in the minds of consumers. The price is then reduced, for example, through a sale or by offering coupons. The lower price soon seems like a bargain to consumers” (Smallbusiness).

8.4.8. Field research output Moon Rabbit’s target group has been asked what they would be willing to pay for a foreign health supplement brand. The five interviews with native Chinese students point out that the students are willing to pay between 225 Yuan up to 1942 Yuan per health supplement product.

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The Chinese consumer survey indicates that out of the 24 respondents, 45.8% would prefer to pay 60 to 180 Yuan for a month supply of a foreign health supplement brand (n=24). Please refer to appendix XXX for a tabular representation of this output.

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9. SWOT To generate a concluding and summarizing overview of Moon Rabbit’s internal and external business environment, the SWOT framework is used. The table below shows an overview of all of Moon Rabbit’s encountered strengths, weaknesses (internal), opportunities and threats (external). A more detailed description of the SWOT is found in appendix XXVI. Strengths

Weaknesses

1 All-natural ingredient product (Chapter 4.2)

1 Positive list (Chapter 7.6) 2 No brand awareness (Chapter 6)

2 Tale of the Jade Rabbit (Appendix II)

3 Lack of knowledge on the consumer (Appendix I)

3 Relates to traditional Chinese medicine (Chapter 4.1)

4 No proof of efficiency (Chapter 8.5.3.)

4 Product is sustainable (Chapter 4.2) 5 Good relationship Canada- China (Chapter 3.3) 6 Donation to good cause (Chapter 8.5.3) 7 International experience CEO (Appendix I) 8 Founder backgrounds in science and kinesiology (Appendix I)

Opportunities

Threats

1 Fast growing popularity of health supplements (Chapter 4)

1 Strong competition (Chapter 6.5)

2 Build of online platform (Chapter 8.5.4)

2 Violation of IPR (Chapter 5)

3 Growing popularity of all-natural ingredient products (Chapter 4.2)

3 Entering China market with no prior experience (Appendix I)

4 Production Chaga mushroom in China (Chapter 4.3)

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10. FINAL CONCLUSION

As mentioned before, the main question to this research is formulated as: “What strategic actions should Moon Rabbit successfully perform to introduce its product to the Chinese health supplement market through cross-border ecommerce?”

The answer of the main question and therefore, final conclusion of this research includes: Moon Rabbit is in the process of entering the Canadian health supplement market. The current positioning strategy has yet to be tested. The target group for Moon Rabbit in China will be millennial focused women from particularly China’s middle class. They have the most interest for Moon Rabbits products. One of the biggest obstacles while entering the Chinese market is the IPR. There is no guarantee to secure the intellectual property of the company.

The four biggest competitors for Moon Rabbit on the Chinese health supplement market are: Swiss, Herbal Nutrition, GNC and Blackmore. These competitors represent the biggest risk for Moon Rabbit because they are selling products with the same effect but from an established brand to the market.

Regarding logistics Moon Rabbit is required to do the registration and filing under the CFDA. This is because their product is not listed on the positive list. In this situation the logistic solution is to purchase directly from Canada and ship to the customer. The longer wait time created on the shipment of the product will not be an issue to the consumer.

In the marketing chapter it was concluded that the best way to get on the market is online. It is important to keep the Chinese culture in mind while presenting the product on the market. Regarding rules and regulations on advertising, it is not mandatory for Moon Rabbit to own a legal entity in China, however a business license is necessary for being allowed to advertise. After the rules on advertising were updated, Moon Rabbits product needs to be reviewed before being allowed to advertise on the Chinese market More specific strategies are translated into recommendation and are presented in the following chapter.

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11. RECOMMENDATIONS According to the research conducted, recommendations regarding IPR, filing and registering, the logistic solution and marketing mix are constructed, following by a financial analysis. following subchapters will explain which strategic actions are recommended for Moon Rabbit to engage in cross border e-commerce in China.

11.1. ESTABLISH BRAND AWARENESS IN CANADA First of all, since the Chinese consumer is now more interested in foreign markets than ever before, it is recommended for Moon Rabbit to successfully establish its brand in Canada first. This will contribute to a stronger market position in China. Once established in Canada, Moon Rabbit can start entering the Chinese market.

11.2. KEEP THE BRAND NAME ‘MOON RABBIT’ We recommend Moon Rabbit to keep the name Moon Rabbit, after questioning if this had any influence on the consumer it was concluded that the name Moon Rabbit has a positive effect on the consumer as it is recognizable in Chinese culture.

11.3. TARGET GROUP We recommend Moon Rabbit to sell B2C. Moon Rabbit should focus on selling to millennial women in the Chinese middle class.

11.4. IPR IN CHINA Since China is still a highly litigious country and top patent filer of the world, it is advised to carefully consider its IPR. Therefore, it is recommended for Moon Rabbit to follow the constructed step plan for IPR set up by the Canadian embassy. This step plan is found in appendix VIII. 11.5 FILING AND REGISTERING Since Moon Rabbit is currently not registered at the positive list, Moon Rabbit is not allowed to sell its products via the bond warehouse solution. However, would Moon Rabbit change it current product ingredients it would enable itself to appear on the positive list. Since a bonded warehouse includes the opportunity to ship faster compared to the other options as well as in bigger bulks and excludes import risks, it is highly recommended to change its current product ingredients.

In case changing the current product-ingredients is not possible for any reason, it is advised to pursue the registration and filing procedure. However, this will take one and two years and the costs will be significant.

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11.6 THE LOGISTIC SOLUTION For Moon Rabbit to sell its products in this early phase of its establishment, it is advised to apply the direct purchase strategy. This enables Moon Rabbit to sell in small batches which is required because Moon Rabbit is unable to make a solid estimation of potential market demand, only assumptions.

Within two years it is expected for Moon Rabbit to have grown and increased its market share on the Chinese market. This enables Moon Rabbit to apply the bonded warehouse strategy and ship more in bulk. To become eligible for the use of a bonded warehouse, Moon Rabbit’s product should appear on the positive list. Therefore, it is again recommended that Moon Rabbit changes its ingredients accordingly.

11.6.1 Distribution solution: the independent model It is recommended that Moon Rabbit applies for the independent model to distribute its products in the first upcoming years. This model is advised because Moon Rabbit has not yet established brand awareness. If the dependent model would be applied, Moon Rabbit risks to lose control over how its product will be presented to the consumer in China.

Once Moon Rabbit has established significant brand awareness and has entered the Canadian market successfully, it is advised to adjust this model to the hybrid model. This is advised because this model saves on high-advertisement expenses and puts Moon Rabbit in a strong position to win price wars.

11.7 A JOINT VENTURE During the first upcoming years in which Moon Rabbit is focusing on the Canadian market to establish its brand awareness, it is advised to look into joint venture possibilities using the international experience of the CEO. A joint venture would reduce the hassle that comes with entering the Chinese market.

11.8 GUANXI It is important to establish a solid relationship with the Chinese consumer because of cultural collectivistic and holistic views. It is recommended that Moon Rabbit invests a serious amount of effort in customer service to maintain a healthy relationship.

11.9 PROMOTION Moon Rabbit is advised to solely incorporate online promotion activities since this is preferred by the Chinese consumer. Since Moon Rabbit is still in start-up phase, its generally advised to keep the promotion investments low since the company is not familiar with the Chinese market yet and hence not familiar with the consumer responses to the product. Moon Rabbit is advised to start with opening accounts on social media platforms. The platform which are recommended to use are Weibo and WeChat.

For WeChat it is advised to use key opinion leader advertisements. This the cheapest way of advertisement which serves the right communications to bring across Moon Rabbit’s core values.

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11.10 PRODUCT Moon Rabbit should adjust its product to the Chinese consumer market. The best to do so is: 1. Branding: Because of China’s experience economy’ Moon Rabbit’s marketing strategy should make the consumer feel exclusive. This is partly achieved by creating a Chinese identity. Moon Rabbit is recommended to create a (additional) Chinese name and product display to reach the consumer who are not familiar with the English language. This would ensure that the Chinese consumer remember the brand and communicates this to its peers.

2. Packaging Show the origin of Moon Rabbit product since the Chinese consumer is showing more interest in the foreign market than ever. Additionally, it is advised to use bright and vivid colors. Additionally, it is advised to visualize the brand. This is done by for example showing the Rabbit.

11.11 PLACE Currently, Moon Rabbit aims to use Shopify in Canada and it is recommended to continue using this platform in China since it will remain uncensored. Moon Rabbit should only use Shopify while targeting the city of Shanghai since Shopify is not translatable in Chinese yet and Shanghai holds many expats.

Then, it is recommended that Moon Rabbit establishes its own homepage. This links to the independent distribution model. Once the hybrid model is established, it is advised for Moon Rabbit to include indirect sales channels. Which indirect sales channels should be used in two years from now, should be decided while incorporating using all the knowledge and experience gained in these two years.

11.12 PRICE The best pricing strategy to be considered for Moon Rabbit is high-Low pricing. Moon Rabbit should price its products high throughout the first two years to cover the expensive logistics costs that come with the direct purchase strategy. As soon as Moon Rabbit is more established on the Chinese market and hence able to pursue bonded warehousing, it could lower its prices. This could be done by offering ‘sales’ or coupons.

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12. FINANCES Since Moon Rabbit has no historical data on financial matters nor has it provided any solid sales forecasts so far, all data within this chapter is based on assumptions generated by the field and desk research results of this report.

The total market volume is forecasted from data collected in 2015. The source predicted an annual growth rate of 6,4% of the total market volume (MarketingtoChina, 2018).

To get to a realistic market share, it is necessary to analyze the market share and figure out what can be reached within the first year of entering the market. In Moon Rabbits case, it is realistic to assume a market share from 0,0001% which results in 380 sales units.

Since Moon Rabbit is currently not selling its product on the Canadian market yet, there is no price considered yet. According to the field research, the Chinese consumer is willing to pay about $30 per health supplement. Additionally, logistic costs should be included which generates a sales price of $55 per unit.

Also, the costs of production are not clear yet. To generate these, a marge per package from 15% can be used. Without the marge, the product has a price from $26,09 which is considered to be the price for the good including production, warehousing, personnel and other costs.

The logistic costs for 2019 and 2020 are calculated for a direct purchase from Canada, to the customer in China. From 2021 on, Moon Rabbit will use the bonded warehouse solution to ship the products to China which is a lot cheaper because of the opportunity or bulk shipping. Also, the last mile delivery is included to the logistic costs. Please review the table below for a detailed tabular lay out of the financial plan.

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Natural Products Insider. (2017, November 17). CNIC 2017 Talked About China's Natural Ingredients Industry and Health Market Trends. Retrieved on May 23, 2018, from Healthy living: https://www.naturalproductsinsider.com/healthy-living/cnic-2017-talked-about-chinas-naturalingredients-industry-and-health-market-trends Nothlichs, J. (sd). What is cross-border Ecommerce. Retrieved from Ecommercewiki: https://www.ecommercewiki.org/Cross-border_Ecommerce/Crossborder_Ecommerce_Basic/What_is_Cross-border_Ecommerce Nutraceuticals world. (2016). Change May be on the Horizon for China’s Blue Hat Registration.

Retrieved on May 17, 2018, from: https://www.nutraceuticalsworld.com/contents/view_breakingnews/2014-06-09/change-may-be-on-the-horizon-for-chinas-blue-hat-registration Paperlessproposal. (2018, March 14). What is Alibaba.com and How Your Small Business Can Use It. Retrieved from https://www.paperlessproposal.com/alibaba-com-small-business-can-use/ \ Plowright, M. (2015). Financial Times. China’s vitamin market harder to crack for western companies.

Retrieved on 27 May 2018, form: https://www.ft.com/content/f1c82b58-fa2c-11e4-b43200144feab7de Ramaker et all. (2018). Research Proposal Moon Rabbit. Research Objective. Arnhem: HAN University of Applied Sciences.

Shen, C. et. all. (2017). US National Library of Medicine. Health App Possession Among Smartphone or Tablet Owners in Hong Kong: Population-Based survey. JMIR Publications. Published online.

Shira, D. & Associates. (2016). China Business Review. Getting into Shape: Exploring China’s Health Supplement Industry. Retrieved on May 17, 2018, from: https://www.chinabusinessreview.com/getting-into-shape-exploring-chinas-health-supplementsindustry/ Small Business (n.d.). Examples of high and low pricing strategies. Retrieved 1st of June, 2018, from: http://smallbusiness.chron.com/examples-high-low-pricing-strategies-14681.html Sohlberg, M. (2017A). Export2Asia. Product labelling requirements in China: a complete guide.

Retrieved on 27 May 2018, from: https://www.export2asia.com/blog/china-product-labelling/ Sohlberg, M. (2017B). Export2Asia. AQSIQ in China: What exporters must know. Retrieved on 27 May 2018, from: https://www.export2asia.com/blog/aqsiq/ Suppz. (2015). Blog. Reason why GNC sucks! Retrieved on 23 May 2018, from: https://suppz.com/blog/7-reasons-why-gnc-sucks/ Swisse. (2018). Our products. Retrieved on 23 May 2018, from: http://www.swisse.hk/en/ 49

The Sovereign Group. (2016). An Introduction To E-Commerce In China. Shanghai: Sovereign.

Thibaud. (2017, April 27). The chaga mushroom market in Chine: on the verge of a breakthrough?

Retrieved on May 27, 2018 from http://daxueconsulting.com/the-chaga-mushroom-market-inchina/ USCBC. (2016, October 17). China's New Advertising Law: Key Considerations and Implications for Online Advertisers. Retrieved on May 22, 2018, from china business review: https://www.chinabusinessreview.com/chinas-new-advertising-law-key-considerations-andimplications-for-online-advertisers/ Vinkenborg, M. (2016, December 20). How to Advertise Online in China Through Baidu, Alibaba, and Tencent Platforms. Retrieved on May 24, 2018, from China briefing: http://www.chinabriefing.com/news/2016/12/20/how-to-advertise-online-in-china-through-baidu-alibaba-tencentplatforms.html Walters, J. & Hsu, H. Forbes. Unlocking China’s consumer power. Retrieved on 27 May 2018, from: https://www.forbes.com/2010/04/05/china-middle-class-consumers-markets-economyspending.html#22e8e6f85c46 Weibo Advertising. (2018, February 9). Advertising on Weibo: Which Weibo Advertising Option is Best for You? Retrieved on May 24, 2018, from chozan.co: https://chozan.co/2017/02/09/advertising-on-weibo/ Wong. B., 2017, August 2. China’s Middle-Class Consumers: Online shopping Habits. Retrieved on 27 May, 2018 from http://economists-pick-research.hktdc.com/business-news/article/ResearchArticles/China-s-Middle-Class-Consumers-Online-ShoppingHabits/rp/en/1/1X000000/1X0AAU8A.htm Xiaoning Long, C. and Wang, J. (2015). Elsevier. Judicial local protectionism in China: An empirical study of IP cases. Page 48. Published by Science Direct.

Xu, S. (2017, September 19). The Ultimate Guide to Cross-Border Ecommerce in China: How to Choose Right Platform for Your Business. Retrieved from https://grizzlypandamarketing.com/ultimate-guide-cross-border-ecommerce-china-chooseright-platform-business/ Yifan, Y. (2017). South China Morning Post. China Business. Foreign nutritional product brands seek new growth strategies in China under more regulated market. Retrieved on May 16, 2018, from: http://www.scmp.com/business/china-business/article/2102670/foreign-nutritional-productbrands-seek-new-growth Yun, S. (2018). SHEN YUN PERFORMING ARTS. Retrieved from http://www.shenyunperformingarts.org/learn/article/read/item/9g-WPxuH_YU/white-jaderabbit-goddess-of-the-moon.html

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APPENDICES APPENDIX I – RESEARCH PROPOSAL Preface Nowadays, our world is subject to an enormous degree of globalization in which it builds bridges between nations to realize trade in products, knowledge and experiences. Cross-border ecommerce diminishes the distance factor between these nations and offers endless opportunities.

The ultimate goal of this report is to present the initial phase of the China cross-border ecommerce project, which is part of the Minor ‘Doing Business in China’ and provided by the HAN University of Applied Sciences in Arnhem, the Netherlands. The project involves the construction a complete business blueprint for cross-border ecommerce in China for the company ‘Moon Rabbit’ which is a health supplement product brand, currently active solely on the Canadian market but seriously interested in moving into the Chinese market.

The research team consists of three members, whom will be introduced from the next page onwards.

Furthermore, a special thank you is forwarded to the coordinators of this project, whom provide the research team with the knowledge and guidance needed to successfully carry out the project.

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The team Name: Karin Ramaker Date of Birth: 10th of May, 1998 Nationality: Dutch Education: International Lifestyle Studies School: Fontys Academy for Creative Industries (ACI), Tilburg, the Netherlands “I have been intrigued by different countries and cultures as long as I can remember. While growing up, I connected with many people from all over the world, starting for example with my dad’s colleagues, which resulted in studying internationally myself. Over the past couple of years, while having worked with people from China, I learned intensively about the cultural differences and discovered that Asia stands out for me. Starting this minor provided me the opportunity to learn more about the amazing country China. My home university (Fontys ACI) inspired me to be open-minded towards all new experiences and take on every chance you get in life to explore the things you love in this world. This vision boosts my motivation to fully experience the Chinese culture and ultimately contribute my knowledge to companies who can profit from it”.

Name: Tom Sprenger Date of Birth: 27th of December, 1993 Nationality: German Education: Business Engineering School: Technische Hochschule Wildau, Germany “I was born in a small hospital in Berlin: the city where I have lived ever since. After several studies, I decided to pursue a more practical education at Daimler. At Daimler I received the opportunity to work with people from other countries as well as travel to Hungary. As a result of this internship I was sure that I wanted to continue working with people from different cultural backgrounds. Since I enjoyed the different cultures, I decided to add a minor to my studies. From the course selection I noticed a course related to China and I was sure that I wanted to pursue it. My awareness of China came up very early because I love the Chinese culture and I am very impressed by the way the Chinese economy developed itself in the last three decades. My biggest interests are in production planning and control and I want to improve my business skills which I believe this minor will help me realize. I am looking forward to my first business trip to China: seeing the amazing culture, cities, and get in touch with the Chinese people”.

Name: Date of Birth: Nationality: Education: School:

Naomi van der Viet 1st of September, 1994 Dutch International Business and Management Studies HAN University of Applied Sciences, Arnhem, the Netherlands

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‘I am born in Amsterdam but because of my parents, I spend the first six years of my life in Asia (China & Philippines). Due to my expat-childhood, I engaged with many different cultures from a very young age and deliberately choose to be surrounded by people with multi-cultural backgrounds throughout my teenage-years until my current young adult life. Staying active in highly diverse and intercultural environments is my path and keeps life most interesting for me. Throughout my studies at the HAN University of Applied Sciences in Arnhem, I have developed the following main interests: International-Diversity- and Change-Management. Personally, the most exciting part of visiting China is experiencing the Chinese culture and business landscape and gaining insight in the Chinese perspectives.’

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Abbreviations and definitions HAN = Hogeschool Arnhem Nijmegen (University of Arnhem and Nijmegen) Technische Hochschule Wildau = University of Technology, Wildau Cross boarder ecommerce = ‘The term cross-border ecommerce generally defines international online trade. It entails the sale or purchase of products via online shops across national borders. Buyer and seller are not located in the same country and are often not ruled by the same jurisdiction, use different currencies, and speak different languages’ (Nothlichs, sd) AAOCC criteria = Authority, Accuracy, Objectivity, Currency, and Coverage. ‘Criteria used to evaluate print and Internet information resources, differences between print and Internet resources, characteristics of scholarly vs. popular periodicals, and the scholarly publication cycle’ (Elmer E. Rasmuson Library, 2015) Business model canvas = ‘a business tool used to visualize all the building blocks of starting a business, including customers, route to market, value proposition and finance’ (Enterprising Oxford, sd) IPR = Intellectual Property Rights

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1.0 INTRODUCTION The company involved with the China cross-border ecommerce project is called ‘Moon Rabbit’. Moon Rabbit is a start-up, founded only six months ago by two brothers: Matthew and Robert Fuller (from now on referred to as ‘the Fuller brothers’). Moon Rabbit is the first health supplement producer in North America using mushroom adaptogenic ingredients and currently holds four powder supplement products, namely: the functional protein blend, the energy blend, the brain blend and the longevity blend (Fuller, Company details, 2018).

The brand is inspired by the ancient folklore story of the Jade rabbit ‘grinding a pestle & mortar and producing the elixir of life’. Since the Jade Rabbit tail originates from China, the Fuller brothers are almost convinced that Moon Rabbit’s products would sell successfully on the Chinese market. Another reason behind their trust in the Chinese market is because of the market’s current shift to an increasing demand for Western brands located and established in China instead of Western brands copied in China. The Fuller brothers consider moving Moon Rabbit into the Chinese market by using cross-border ecommerce (Fuller, Company details, 2018).

Matthew Fuller has a history in health, sport and wellness science and combines these interests with his affinity for digital marketing solutions. Robert Fuller lived in Beijing for two years prior to founding Moon Rabbit and is therefore highly informed about Chinese culture and the local market.

1.1 Brand information Moon Rabbit’s product line consists of blends that contain the famous, ‘Chaga’ and ‘Cordyceps’ mushrooms (to sample a few) (Fuller, Company details, 2018). By combining an ancient Asian story with a health supplement product and a western spin on branding, the Fuller brothers aim to move Western skepticism to acceptance and open-mindedness for the consumption of mushrooms for personal health improvements (Fuller, Company details, 2018).

1.2 Pros and cons of the selected brand for the project The following aspects of Moon Rabbit are considered beneficial for the project: ▪ ▪ ▪ ▪

Moon Rabbit is a start-up The Fuller brothers have reasonable and actual expectations of the business blueprint The Fuller brothers considers serious implementation of the recommendations Robert Fuller lived in Beijing for two years and is willing to provide guidance during the field research trip to China

The following aspects of Moon Rabbit are considered possible downfalls: ▪ Except for its Instagram account ‘Moonrabbitco’, Moon Rabbit has not established any other online assets yet ▪ Due to the early start-up phase of the company, there is no historical data available 1.3 CEO’s background, mission and vision As mentioned before, Matthew Fuller has a background in health science and kinesiology. During his studies, the interest in health supplements arose. While working with health related and health care companies, the technological interest began. After his studies, Matthew further continued a career in social media marketing to extend his opportunities. The combination of interests resulted firstly in starting up a coffee company with Robert (brother) and has now extended to setting up a health supplement brand on the Canadian market with the aim to expand internationally.

Matthew Fuller: ‘Our goal is to create a society that can embrace century old medicines and usher in a re-birth of mushroom products that have been stigmatized for so long. Humans are more closely related in our DNA to the fungal kingdom then the plant kingdom, explaining why mushrooms can induce so many more changes in our 55

physiology. Education is a huge part of our project to create awareness about why mushrooms are more than just hallucinogenic or things you put on pizza. We feel society is lacking an outlet for everyday health problems like energy, focus, and immune support. Our goal is to provide consumers with an alternate product for these everyday modalities instead of turning to unhealthy stimulants or costly treatment-based drugs’ (Fuller, Company details, 2018).

2.0 PROBLEM ORIENTATION Moon Rabbit is a start-up brand founded six months ago by Matthew and Robert Fuller. After combining their skills, interests and study histories, the brand ‘Moon Rabbit’ was created. Due to the location of the brand’s owners, Moon Rabbit is initially launched on the Canadian health supplement market. Presently, the Fuller brothers are extremely busy setting up online assets for Moon Rabbit to launch via ecommerce channels and realise market-share in Canada.

After the Fuller brother attended the Alibaba gateway conference in Toronto, they think that Moon Rabbit could be very successful on the Chinese health supplement market due to the spiritual tale behind the product and China’s familiarity with mushroom products. According to Matthew, China is currently experiencing an increase in health and luxury focus. The Fuller brothers experience a lack of time to research the Chinese health supplement market and create business models accordingly, leading to the true definition of the problem in the next chapter.

3.0 PROBLEM DEFINITION Due to Moon Rabbit’s launch on the Canadian market, the Fuller brothers have no time to investigate the Chinese market. In order to expand to the Chinese market, Moon Rabbit’s current business model canvas should be adjusted to the Chinese health supplement market, carefully considering marketing, IPR, logistics and financial aspects ultimately contributing to profitable cross-border ecommerce results.

4.0 RESEARCH OBJECTIVES The objective of this research project is to provide the Fuller brothers accurate and practical recommendations on what strategic actions should successfully perform to introduce Moon Rabbit to the Chinese health supplement market, before the 4th of June 2018. For the research team to succeed, internal- and external field- and desk research methods and tools taught by Arnhem Business School will be applied.

5.0 MAIN QUESTION AND SUB(-SUB) QUESTIONS MAIN QUESTION “What strategic actions should Moon Rabbit successfully perform to introduce its product to the Chinese health supplement market through cross-border ecommerce?”

Sub question 1: Does Chinese history/culture influences Moon Rabbit’s chances of success in the Chinese market?

▪ Sub-sub question 1.1: How well known is the story of the Jade Rabbit among the target group?

▪ Sub-sub question 1.2; What are the brief relationships between Canada and China?

Sub-question 2: How is Moon Rabbit currently positioning itself on the Canadian market?

▪ Sub-sub question 2.1: What channels is Moon Rabbit presently using to transfer its product value?

▪ Sub-sub question 2.2: Who is Moon Rabbit currently selling its products to on the Canadian market?

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Sub-sub question 2.3: What does Moon Rabbit’s current supply chain look like?

▪ Sub-sub question 2.4: What are the risks currently encountered by moon rabbit in terms of IPR due to selling its product?

▪ Sub-sub question 2.5: Who are Moon rabbit’s current competitors on the Canadian market?

▪ Sub-sub question 2.6: How could Moon Rabbit’s current positioning strategy be adapted to the Chinese market?

Sub question 3: How could we define the health supplement market in China?

▪ Sub-sub question 3.1: What groups are currently buying health supplements on the Chinese market?

▪ Sub-sub question 3.2: What kind of supplements are presently being sold at the Chinese market?

▪ Sub-sub question 3.3: What health supplement brands sold on the Chinese market are considered Moon Rabbit’s competitors?

▪ Sub-sub question 3.4: How has the health supplement market developed itself over the past five years in China?

▪ Sub-sub question 3.5: Are health supplement brands hold by Chinese state-owned-enterprises (SOE’s)?

▪

Sub question 4: How are Moon Rabbit’s competitors in the Chinese market selling their products?

▪ Sub-sub question 4.1: What sales channels do Moon Rabbit’s competitors use in the Chinese market?

▪ Sub-sub question 4.2 How does the competition promote itself on the Chinese market?

Sub question 5: What are possible logistic solutions for Moon Rabbit to distribute its product on the Chinese market?

▪ Sub-sub question 5.1: What are the costs of importing Moon Rabbit’s products to China?

▪ Sub-sub question 5.2: What are the best distributions channels used on the Chinese market?

▪ Sub-sub question 5.3: What are the rules and regulations to be considered by Moon Rabbit to ship its product to China?

Sub question 6: What are the main IPR aspects to be considered by Moon Rabbit while selling its product to the Chinese market?

Sub question 7: What are the main cost drivers in the start-up phase (first three years) for Moon Rabbit when selling its product to the Chinese market?

▪ Sub-sub question 7.1: What are possible main revenue streams?

▪ Sub-sub question 7.2: How do the tax systems influence Moon Rabbit’s revenues?

Sub question 8:

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What marketing tools are to be used by Moon Rabbit while moving into the Chinese market?

▪ Sub-sub question 8.1: What are the marketing possibilities for health supplement brands active on the Chinese market?

▪ Sub-sub question 8.2: What are the best and worst ways way to reach Moon Rabbit’s specific target group?

▪ Sub-sub question 8.3: What rules and regulation are to be considered when performing marketing practices in China?

▪ Sub-sub question 8.4: How does the Chinese culture influence marketing practices?

▪ Sub-sub question 8.5: What are the costs of promotion in China?

▪ Sub-sub question 8.6: What is the consumer’s opinion about Moon Rabbit’s product?

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6.0 RESEARCH METHODOLOGY 6.1 RESEARCH DESIGN The research design includes the main- and sub- research questions which shape the building blocks for all following research activities. The following paragraph portrays the research methods to be applied, tools to be used and planned (online) sources to be consulted.

6.1.1 LITERATURE ▪

▪

▪

Literature about the Chinese culture of herbal products usage and history of the relation between Canada and China should be consulted to gain knowledge of the possible effects of the Chinese culture on Moon Rabbit chances of success at the Chinese market Literature on law and regulation on the Chinese health supplement market should be consulted to gain knowledge of regulatory constraints for Moon Rabbit to be considered during marketing, logistics, finance and IPR practices while exposed to the Chinese market Research literature should be consulted to properly perform the necessary research practices while considering the influence of Chinese cultural differences

6.1.2 EXTERNAL DESK RESEARCH ▪

Online data bases such as Google Scholar, Market Line, the online database of the World Health Organization and online journals as presented in ‘The Economist’, ‘Financial Times’, ‘China Daily’, ‘South China Morning Post’, ‘The Straits Times’, ‘Wall Street Journal’ and ‘McKinsey& Company’ (among others) will be consulted to become knowledgeable of the Chinese health supplement market. The search focus will be on current and future trends, historical developments, competitor analysis, government’s role, distribution channels, tax systems, revenue streams, relations between China and Canada and naturally, Moon Rabbit’s consumers.

6.1.3 INTERNAL FIELD RESEARCH ▪

Interviewing the Fuller brothers will provide insights on all current business operations (marketing/logistics/finance/sales) and its motivators.

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6.1.4 EXTERNAL FIELD RESEARCH ▪

▪

▪

▪

Observations of the people in the city centres of Beijing, Shanghai and Wuhan will contribute to knowledge of the potential customer feeling towards- and opinions about the product. Observations will start in Beijing. Here samples send by Moon Rabbit to the research team upon arrival in China will be distributed and people’s responses will be noted. The next observation will be in Wuhan’s supermarkets, focussing on the medicine and supplement isles. Consumer buying patterns will be observed and customers’ knowledge of health supplements and demographics will be reviewed. Continuing the research in Shanghai, samples of Moon Rabbit’s product will be handed out where after reactions to the product are to be observed.

Surveying university students at Wuhan University in China will gain insight in Moon Rabbit’s possible target group demographics and the sales channels Moon Rabbit could use to effectively communicate the brand’s mission, vision and core values.

Focus groups with participating students of Wuhan university will contribute to knowledge of the target group’s opinion and feeling towards Moon rabbit’s product and which channels Moon Rabbit could possibly use to successfully communicate its mission, vision and core values.

Interviewing the Fuller brothers’ expat contacts (research experts) who are bilingual in Mandarin and English, will help the research team to excellently carry out field research during the field research trip to China (Fuller, Company details, 2018).

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6.2 REFLECTION ON QUALITY CRITERIA 6.2.1 VALIDITY All sources consulted must fall within the scope of the research and will therefore contribute to valid outcomes.

Only information gathered from primary/secondary internal and external sources which fully relate to the main and sub(-sub) questions will be part of this research, ensuring validity and transparency for any further marketing research.

6.2.2 RELIABILITY The reliability of the selected secondary desk research techniques is ensured by applying the AAOCC criteria on every published source. To avoid any manifold result interpretations in case of repetition of field research under identical or similar circumstances, the circumstances are analysed thoroughly prior to the field research execution. Furthermore, the sample size established for the field research surveys will safeguard reliability when applied to the population.

6.2.3 REPRESENTATIVE To ensure the representativeness of the quantitative research, the sample size (n) of the participants in for example the WeChat survey, should be large enough to ensure a 95% confidence level, meaning there is only a 5% change the results differ from the true population average. Participants for field research will be chosen according to the scope of the sub(-sub) and main question(s).

6.2.4 USEFULNESS The scope of the research is strictly followed. Therefore, the usefulness of the results is ensured and hence will contribute to clear and complete conclusions, answering the formulated sub and main questions (s) and providing recommendations that which will be clear and useful stepping stones to an effective implementation plan.

7.0 REASONING OF SUGGESTED PITFALLS To prevent unaligned expectations, a solid communication plan must be established since unaligned expectations lead to inaccurate results and disappointed parties. Considering the narrow timeframe for executing and analyzing the field research in a market none of the research team members has formerly experienced, time- and projectmanagement is key. Moreover, since Moon Rabbit’s product involves ‘secret ingredients’, mutual trust is to be established. Moon Rabbit has so far entrusted the research team with several ingredients and will provide an Non-Disclosure Agreement (NDA) to be signed by all research team members

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8.0 FIELD RESEARCH TRIP CHINA To successfully perform field research during the business trip to China, the Wuhan University of Technology is asked for help which implies organizing necessary arrangements with local students in order for the research team to generate valid, useful, reliable and significantly representative field research outcomes. The research addressed a letter to Wuhan University and asked for the University’s help which is to be found in appendix I. The following table includes a clear and structured overview of the field research activities planned at location in Wuhan: What Perform a focus group

Where Wuhan University

Interviews with marketing, logistics and law teachers.

Interview students with expert skills in WeChat usage for research purposes t Interview a social media expert

Wuhan University Wuhan University

Survey 381 students

Wuhan University

Wuhan University

How A group of minimal ten students is gathered, product samples will be handed out and the group will be asked to share their opinion on the brand and to generate an idea of the (possible) target group.

Semi-structured, in-depth and face-to-face interviews will lead to more knowledge about Chinese marketing, logistics and law systems Semi-structured, in-depth and face-to-face interviews will lead knowledge on how to use WeChat (or other Chinese social media platforms) for research purposes Semi-structured, in-depth and face-to-face interviews will lead to knowledge of using Chinese social media platform for logistics, marketing and/or sales purposes Using digital (e.g.: WeChat) and/or traditional questionnaires

9.0 MISCELLANEOUS To effectively execute Moon Rabbit’s research on the cross-border Ecommerce business blueprint, each team member has been assigned a specific role and tasks according to each of the team member’s preference and skill.

More information on the division of roles and tasks in to be found in appendix II. Additionally, to inform the reader in more detail about the project’s planning in weekly terms, a timetable is established and presented in appendix III.

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BIBLIOGRAPHY Business in China. (2017, August 27). THE GROWING DEMAND FOR FOOD SUPPLEMENTS IN CHINA. Retrieved May 25, 2018, from marteking to China: https://www.marketingtochina.com/the-growing-demandfor-food-supplements-in-china/ Chen, T. (2017, April 10). Advertising on WeChat: a Step by Step Guide. Retrieved May 23, 2018, from walkthechat.com: https://walkthechat.com/advertising-on-wechat-moment/ Creative Research System. (2018). Sample size calculator. Retrieved from Creative Research System: https://www.surveysystem.com/sscalc.htm Dr. Axe. (2018). Chaga Mushroom: 5 Health Benefits of this Ancient Remedy. Retrieved from Draxe: https://draxe.com/chaga-mushroom/ Elmer E. Rasmuson Library. (2015, April 24). Evaluting Information Resources. Retrieved from Library UAF: https://library.uaf.edu/ls101-evaluation Enterprising Oxford. (n.d.). Business Model Canvas Explained. Retrieved from Enterprising Oxford: https://www.eship.ox.ac.uk/business-model-canvas-explained Export.gov. (2017, July 14). China- Trade Promotion. Retrieved May 22, 2018, from China Country Commercial Guide: https://www.export.gov/article?id=China-Trade-Promotion-and-Advertising Fuller, M. (2018, 02 28). Company details. (P. g. 4, Interviewer) Fuller, M. (2018, Febuary 16). Company details. (P. t. 4, Interviewer) IHerb. (2018). Cordyceps CS 4 Strain. Retrieved from IHerb : https://fi.iherb.com/pr/MRM-Cordyceps-CS-4Strain-60-Vegan-Capsules/4670 Integrated Group Assignment - China Cross-border Ecommerce Business Blueprint, MAS IA1A (2018).

MarketingToChina. (2017, August 25). The growing demand for food supplements in China. Retrieved from Marketing to China: https://www.marketingtochina.com/the-growing-demand-for-foodsupplements-in-china/ Natural Products Insider. (2017, November 17). CNIC 2017 Talked About China's Natural Ingredients Industry and Health Market Trends. Retrieved May 23, 2018, from Healthy living: https://www.naturalproductsinsider.com/healthy-living/cnic-2017-talked-about-chinas-naturalingredients-industry-and-health-market-trends Nothlichs, J. (n.d.). What is cross-border Ecommerce. Retrieved from Ecommercewiki: https://www.ecommercewiki.org/Cross-border_Ecommerce/Crossborder_Ecommerce_Basic/What_is_Cross-border_Ecommerce The Sovereign Group. (2016). An Introduction To E-Commerce In China. Shanghai: Sovereign.

USCBC. (2016, October 17). China's New Advertising Law: Key Considerations and Implications for Online Advertisers. Retrieved May 22, 2018, from china business review: https://www.chinabusinessreview.com/chinas-new-advertising-law-key-considerations-andimplications-for-online-advertisers/ Vinkenborg, M. (2016, December 20). How to Advertise Online in China Through Baidu, Alibaba, and Tencent Platforms. Retrieved May 24, 2018, from China briefing: http://www.chinabriefing.com/news/2016/12/20/how-to-advertise-online-in-china-through-baidu-alibaba-tencentplatforms.html Weibo Advertising. (2018, February 9). Advertising on Weibo: Which Weibo Advertising Option is Best for You? Retrieved May 24, 2018, from chozan.co: https://chozan.co/2017/02/09/advertising-on-weibo/ Xu, S. (2017, September 19). grizzlypandamarketing.com. Retrieved from grizzlypandamarketing.com: https://grizzlypandamarketing.com/ultimate-guide-cross-border-ecommerce-china-choose-rightplatform-business/

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APPENDICES APPENDIX I – LETTER TO WUHAN UNIVERSITY Dear Partner, I would like to thank you for the opportunity to write to you. I hope this letter finds you well and you are doing well. We are Karin Ramaker, Tom Sprenger and Naomi van der Vliet (please find our personal information in the Research Proposal send together with this letter). We are very excited to visit your location in Wuhan during our trip to China and would like to ask you for your help prior to and during our field research.

During our field research, we would be very happy as to receive your help with our planned interviews, a focus groups and survey distributions.

1. Surveys We would be very happy if you could connect us with a student who is an expert in the use of WeChat for field research purposes. Our goal is to use WeChat for our questionnaires and we would like to reach a minimum of 3811 (n) respondents.

2. Focus groups We would be very happy if you could help us find a group of 10 students to participate in our focus group. These students will be given a sample of our brand’s product (please refer to our Research Proposal for more information on the brand). During the focus group, we would like to create a brand discussion. The discussion will contribute to knowledge of the target group’s opinion and feeling towards Moon rabbit’s product and which channels Moon Rabbit should use to successfully communicate its mission, vision and core values.

3. Interviews We would be very happy if you could connect us with a (social-media) marketing teacher, logistics teacher and law teacher for our interviews2.

The team and I hope you are able to help us with our request and would like to thank you in advance for all your efforts. We are looking forward to meeting you and continuing our project in China.

Kind regards, Karin Ramaker, Tom Sprenger and Naomi van der Vliet Cross-border Ecommerce in China Project HAN University of Applied Sciences Research Team 4

This number is based on the total number of students at Wuhan University of Technology (52700) and a confidence level and interval of 95% and 5% respectively 1

2

All interviews will be semi-structured, in-depth and preferably face-to-face

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APPENDIX II - TASKS & ROLES Team member: Karin Ramaker Tom Sprenger Naomi van der Vliet

Role: Report structuring (Photoshop/in-design) Financial, mathematical and/or statistics expert Planner, contact person and language check

Next to the division of roles, all team members share the same amount of responsibility in carrying out the project.

APPENDIX III – PROJECT PLANNING week #

Date:

What and when

1.2

19 Feb - 25 Feb

•

1.3

26 Feb - 4 Mar

• • •

•

Skype team meeting (Feb 22nd): discuss hand-in company proposal set up meeting with Moon Rabbit set up meeting with tutor Submit company proposal to Mr. van Toorn Start desk research phase (company history etc.)

Meeting Moon Rabbit 2pm Wednesday formulate the main & sub-(sub)-question incorporate Blueprint aspects (marketing/finance/logistics/IPR/Sales) Meeting with tutor Tuesday Progress Feedback Implementation plan questions Submit first draft desk research (show to tutor) Set up research design Field research sources & instruments (internal/external) Desk research sources (internal/external) Submit final proposal (hand-in: 16th of March) Final proposal presentation (20th of March) Prepare for China trip

1.4

5 Mar - 11 Mar

1.5

12 Mar - 18 Mar

1.6

19 Mar - 25 Mar

1.7

26 Mar - 1 April

• • •

1.8

2 April – 16 April

•

Field research in China. To specify what research would be done in China, please refer to 6.1.4 on type of field research used and 8.0 on the action plan for field research in Wuhan.

2.1

•

2.2

• •

Process data Graphical representation by the use of SPSS Interpret results Schedule presentation (next week) Present field research findings (show draft to tutor)

2.3

•

Write Blueprint

2.4

•

2.5

• • •

Show first draft of Blueprint to tutor Incorporate feedback Discuss implementation plan (advice) Complete final blueprint report (hand-in: 25th of May) Feedback implementation Feedback implementation

• • •

Final Report (hand-in: 4th of June) Schedule final presentation with tutor and Moon Rabbit Assessments:

• •

1.9

2.6 2.7 2.8

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2.9

•

Presentations (incl. tutor & Moon Rabbit) Individual oral defence

Resit

(Integrated Group Assignment - China Cross-border Ecommerce Business Blueprint, 2018)

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APPENDIX II – CHINESE CONSUMER SUR VEY – JADE RABBIT TALE RESULTS

Chart 1: pie chart - Chinse consumer survey

Are you familiar with the ancient Chinese Jade Rabbit tale?

Frequency

Percent

Yes

16

66,7

No

8

33,3

Total

24

100,0

Frequency table 1: Chinese consumer survey – Jade Rabbit (Source: Chinese consumer survey, research group 4, 2018).

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APPENDIX III – SIGNIFICANT EVENTS IN THE CANADA – CHINA TRADE RELATIONSHIP

(Holden, Parlament of Canada, 2008) During the last ten years the imports from China has changed. The clothing and textile industry has switch to electronics and other manufactured goods. (Holden, 2008) APPENDIX IV - INFORMATION SESSION WITH WISEPARTNERS & CO - A SUMMARY New retail Everyone pays by using their phones, cash is hardly used.

New retail in china, they are past web 1.0& 2.0 and have now reached web 3.0.

This phase is about the merge of offline and online.

Example: pop-up stores, present the product for people to buy online.

Pop up stores are rising in popularity in china. Great way for promotion.

The online market is really big in china but the offline store they have give a great experience. People often think that buying online is cheaper and more convenient but the offline stores are still used for the entertainment. Because of the easy payment via a QR code people don’t realize how much they are spending and easily spend more money.

Over 86% of traffic is on mobile, including gaming, payments etc. everything is digitalized.

These big companies controlling the online traffic have access to big data, and can track the costumers every online move.

This new retail is also about transparency. Knowing the ingredients in food and the way products are made.

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Logistics Chinese logistics still has a lot of men labor while Europe is more automated.

Ship good to bonded warehouse (only two days more than domestic business) Direct shipping (local business shipping is 15-20 days. People do not have the patience for this. But it is cheaper than a bonded warehouse) Marketing calendar June- mid year festival by JD.com July- Chinese Valentines day August- fall/winter new launch, new arrival campaign (JD & Alibaba) September- 9-9 clearance for spring/summer products.

November- 11-11 December- 12-12 double don festival (for Christmas and new year) February- Valentines international and Chinese new year March- international ladies’ day/ queens day April- new arrivals May- valentines day may 20th (alibaba is trying to change this to mothersday) All the brands and companies have to join this to keep up. Because of so many holidays it gives a lot of stress to companies.

It is predicted that by 2020 ecommerce will cover 50% of the market. But they doubt it is true. They believe that online and offline will have merged together by then so it would be impossible to measure.

People share a lot on social media, this gives apps like wechat a huge opportunity for promotion.

BAT (Baidu, Alibaba, tencent) biggest platforms in China. As a small business In China, one of these three will take the company. It is very hard to find a company through which you can order directly through their own website. There is no omnichannel anymore in China.

Privacy What does the Chinese consumer think about their privacy?

They do care, only different from Europe or the US. In china there are different laws and a very strict government. Chinese people only see what the government wants them to see. They are used to have their private data being shared over and over.

IOT in China There is a growing trend in things to be done automatically. People are hesitant because it is still new but they are getting used to it.

How to do business in retail Lifecycle/ requirements of clients in different stages.

Initial stage (can have 1 store in Tmall or JD, basically to test and see if it works on the market) 69

mid stage (how to make more money and the business bigger. Trying different platforms/stores) mature stage or booming stage (familiar with the market, strategic changing of channel matrix to optimize efficiency) first is to identify what kind of business they need.

Second is to separate the cross-border business and the domestic business.

Customer clearance You do not need authorization from the government.

Ship good to bonded warehouse Direct shipping Health supplements People may prefer famous brands but they are open for other brands if they have a good function and a good effect.

Ingredient restrictions- no big restrictions.

Vitamin market- people are only interested in the big brands.

Food and beverage, people want exotic product.

For baby and mother products it is very good, Chinese people do not trust the local products.

Health supplements are always welcome in china. This is because it is part of food and beverage and F&B companies from abroad are rising in popularity in china.

Cross-border business leads to people buying the ‘hot’ items. If the product is popular people will keep buying.

The chemist warehouse is an online pharmacy where many different health related brands sell their products.

Would the consumer buy products they have no knowledge of?

If there is good promotion they will. If the product functions well they will buy.

Good looking packaging. They also follow recommendations from influencers and a lot of positive reviews will help tremendously.

This is how you will win in the niche market.

Using coupons is a great way to get the Chinese customer to show interest or try the product.

Brand awareness Start with the vertical platforms before moving on to tmall or JD. They will help you get on the market and get you resources for content marketing.

Vertical platforms little red book Kaula Difficult to get on JD or Tmall Not so strict but they have a list in which your product needs to fit.

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Because Chinese use their phone for most of the transaction think about the mobile layout of the website before the desktop version. The content marketing is very important in order to attract customers.

People get different ID’s social and shopping behavior. You can use this information to find the right person to target your advertising to.

The client will be ‘tricked’ into buying a product in an offline store by: - Advisor in store - Special targeted promotion Moon rabbit name Good to think about the name. rabbit equals cute. Image can be connected to Chinese culture.

According to them it could work.

APPENDIX V - TRADITIONAL CHINESE MEDICINE (TCM) AND T HE WHO The WHA resolution on Traditional Medicine (WHA62.13), adopted in 2009, requested the WHO Director-General to update the WHO Traditional medicine strategy 2002-2005, based on countries’ progress and current new challenges in the field of traditional medicine. The WHO Traditional Medicine Strategy 2014-2023 thus reappraises and builds on the WHO Traditional Medicine Strategy 2002–2005 and sets out the course for TM and CM (T&CM) in the next decade (World Health Organization, 2013) Much has changed since the previous global strategy was published in 2002.

Governments and consumers are interested in more than herbal medicines and are now beginning to consider aspects of T&CM practices and practitioners and whether they should be integrated into health service delivery. In order to meet this new demand, and in response to Resolution WHA62.13 on TM, WHO recently updated the objectives of the Traditional Medicine Programme. (World Health Organization, 2013): The WHO (2013): ‘T&CM is an important and often underestimated part of health care. T&CM is found in almost every country in the world and the demand for its services is increasing. TM, of proven quality, safety, and efficacy, contributes to the goal of ensuring that all people have access to care.

Many countries now recognize the need to develop a cohesive and integrative approach to health care that allows governments, health care practitioners and, most importantly, those who use health care services, to access T&CM in a safe, respectful, cost-efficient and effective manner. A global strategy to foster its appropriate integration, regulation and supervision will be useful to countries wishing to develop a proactive policy towards this important - and often vibrant and expanding - part of health care’.

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APPENDIX VI - CRITICS TCM The results of the study on ‘Implications for indigenous health systems in a modern world’ concluded that Culturally there has been a shift toward Western medicine among younger, educated people.

Several of the journalists expressed this sentiment. One of them referred to TCM as “antiquated, nonscientific, and based on superstition.” Even students attending TCM colleges often pursued nonTCM careers in Western health care settings on graduation. Also, The move toward Western medicine parallels peoples’ increasingly busy lifestyles. One clinician noted, “People do not have time for frequent visits or preparing herbal teas.”(Burke, Wong, & Clayson, 2003).

APPENDIX VII - PRICE RANGE OF CHAGA AND TCM HERBS

(Thibaud, 2017)

APPENDIX VIII - ASIA PACIFIC FOUNDATION IPR STRATEGIES

(Government of Canada, 2018).

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APPENDIX XI – IPR STRATEGIC STEPS BY THE CANADIAN EMBASSY

The Canadian Embassy: ‘remember that the best contracts are those that do not have to be enforced’.

The Canadian government’s website holds information which is openly available about patent and/or trademark registration and recommended law firms (Chinese and foreign) (Government of Canada, 2018).

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APPENDIX X – A TABULAR REPRESENTATION OF PRODUCTS INCLUDED OR NOT INCLUDED ON THE ‘POSITIVE LIST’

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APPENDIX XI – ADVANTAGES AND DISADVANTAGES OF THE DEPENDENT AND INDEPENDENT MODEL Model

Pros

Cons

Independent

-No merchant fees

-Limited money, resources and even connections

-Full control over the SCM, logistics, storage and customer service.

-Carry all the risk of inventory waste

-Brand your business or product and gain long-term customer loyalty

-Difficult to make profit in the early stages -High financial expenses

Dependent

-No development or IT headaches

-Advertising cost high and expensive

-Easy to expand the number of the SKUs you sell

-Self-involved with price wars

-Low risks and costs at early stage

-Hard to brand your store -Risk to choose the wrong platform -Initial investment increase when you want to setup on multiple platforms

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APPENDIX XII – THIRTEEN FREE TRADE ZONE LOCATIONS

(Ballering, 2017)

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APPENDIX XIII – BONDED IMPORTS VISUALIZATION

(Ballering, 2017) Explanation: In the figure above is shown that with this logistic model, the Chinese customer is ordering and paying via a third-party platform. After, the CBEC-platform shares the details with the Chinese customs. If they agree to release the products, the package gets packed in the bonded warehouse and can be shipped for last-mile delivery. Before the purchase process can be realized, the goods have to pass through all regulations and be stocked in the warehouse.

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APPENDIX XVI – DIRECT PURCHASE IMPORTS VISUALIZATION (B2C)

(Ballering, 2017)

Explanation: The figure above shows the process from the order to the delivery at the customers place. If the customer orders the product over the CBEC channel, the bonded warehouse receives the information and begins the preparation for delivery of the product. The goods then have to go through an international transport from the warehouse to China. The Chinese customs have to see the details of the order, the payment, and the logistics to agree to the release of the products. If this is successful, the product can go to the last-mile delivery. Before trade the company has to register the product at the Chinese customs otherwise the product can never enter China. With this solution the VAT and the customs duty has to be paid after the consumer orders the product. This solution is suitable for brands with small high value products. (Ballering, 2017).

APPENDIX XVII - THE DIFFERENCES IN COSTS OF CROSS BORDER E-COMMERCE, TRADITIONAL TRADING AND POSTAL PARCELS

(Michelini, 2018)

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APPENDIX XVIII - TAX ADVANTAGES FOR CROSS BORDER TRADE

Note: B2B is based on supplier price. Cross border is based on retail price.

(Michelini, 2018)

APPENDIX XIX - LABELLING AND PACKAGING INFORMATION ‘Register your company with the Administration of Quality Supervision, Inspection and Quarantine of P.R.C.’ (AQSIQ) (Sohlberg, 2017A). The AQSIQ grants approval for imports of a wide range of products, it controls inspections, quality controls and has a great power in decision making. The institute is governed under the State Council of the People’s Republic of China and controls other major subsidiary bodies as well. Not only should AQSIQ be considered. Two other major entities in in China are (Sohlberg, 2017B): 1. ‘The Certification and Accreditation Administration of the P.R. China (CNCA)’ 2. ‘The Standardization Administration of the P.R. China (SAC)’ These entities made themselves responsible with quality management and assurance of imported products, just like the AQSIQ. An AQSIQ certificate is required for the following product groups: ▪ “Special equipment (e.g. pressure vessels, boilers, pressure pipelines, elevators) ▪ Products that have the CCC-mark ▪ Textiles and carpets ▪ Scrap materials ▪ Paper, printing and packaging ▪ Household goods, furniture and furnishings ▪ Electronics ▪ Food and drinks ▪ Chemicals” ‘This list is updated continuously’.

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‘Prepare the label, in both English (original version) and Chinese, for review and approval by China Inspection and Quarantine (CIQ)’. A common way to get help with preparations of labels is to hire a third party, a company that specializes in helping foreigners exporting to China (Sohlberg, 2017A).

The following picture shows article 67 of section 3 of the food safety law 2015:

(Clever, 2015).

Then, there are a number of national regulations and GB standards that apply to labelling. GB standards are to be found by using service providers online, searching in ‘directories’ on AQSIQ’s website or seek help from Chinese importers.

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APPENDIX XX- EU SME LISTED SIMPL E RULES OF WHAT NOT TO DO IN PRESENCE OF CHINESE CULTURED PEO PLE ▪

Showing a lack of respect

▪

Braking promises

▪

Always asking, rarely giving

▪

Overstraining a relationship

▪

Being impatient, displeased, aggressive or immodest

▪

Causing your contacts embarrassment or loss of face

▪

Contacting people only when you need them

▪

Failing to express appreciation for and not reciprocating favors

▪

Introducing someone who damages your reputation

▪

Burning bridges (EU SME Centre, 2013)

APPENDIX XXI - ADVERTISEMENT LAW CHANGES IN CHINA FROM 2015 It is now clearly defined what qualifies as internet advertising and outlines for penalties and investigation measures are defined. Changes of the advertising law include: ▪ ▪ ▪ ▪ ▪

The law expanded to online advertising; Telecommunication, internet service providers, and websites are obliged to remove illegal/misleading advertisements; Dietary supplemental must not imply that they are "necessary" for good health; Prohibits use of spokesperson in many types of health-related advertising; Broadens definition of "advertising" and "false advertising"

Effect of new law on advertisers: ▪ ▪ ▪ ▪ ▪ ▪ ▪

‘One-click close’ options on pop-up advertisements are required Advertising emails with the receivers’ permission are not permitted Unsubscribing from email must be included Disruptive tactics to lure users to click on links, enter email etc. are not permitted Third party advertisements are supervised by the platform operators. They face the same or worse penalties in case of violations.

Advertisement must be labeled clearly so the consumer can differentiate between ads and regulars content.

Search results must have obvious differences between paid and organic search results.

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The platform operator is responsible for verifying the advertiser’s identity and is in charge of removing old and/ or illegal advertisements. According to USCBC, this has a big influence on the search engine Baidu: they are required to reject illegal advertisements. The platform operator is also responsible to examine the contents and qualifications of the ads created by the advertisers (Export.gov, 2017).

APPENDIX XXII - WECHAT MOMENTS ADVERTISING COSTS PER LOCATION

(Klingelhöfer, 2017)

APPENDIX XXIII – WECHAT BANNER ADVERTISING PER LOCATION

(Klingelhöfer, 2017)

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APPENDIX XXIV - MAIN DIFFERENCES IN TERMS OF SOURCING OF TARGET AUDIENCE AND PRICING BETWEEN FANSTOP AND FAN TUNNEL

(Weibo Advertising, 2018)

APPENDIX XXV - BAIDU INDEX TREND LINE FOR THE KEYWORD “CHAGA” ON THE CHINESE INTERNET BETWEEN 2011 AND 2017.

(Thibaud, 2017)

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APPENDIX XXVI - SWOT ANALYSES DESCRI PTION

Strengths 1.

2.

3.

4.

5.

6.

7.

8.

All-natural ingredient product: The Chinese consumer has always had a preference for natural ingredients, this orients from traditional Chinese medicine. Currently there is a shift happening in the Chinese society about the need for natural ingredients. Even though the government regulates everything the consumer is getting more knowledge on it daily products and the effects of it. The manufactured products don’t always have the best result/ reputation hence, the popularity for natural ingredient products is growing (Natural Products Insider, 2017). (Chapter 4.2) Tale of the Jade Rabbit: That the Tale of the Jade Rabbit is included in the company’s brand has a positive effect on the consumer, for more information please refer to appendix I. Relates to traditional Chinese medicine: The product relates to traditional Chinese medicine. The chaga mushroom is part of TCM and is already known by the Chinese consumer. (Chapter 4.1) Product is sustainable: According to the meeting with Moon Rabbit the company includes sustainability in its produce by replanting the birch trees, in which the chaga mushroom grows. This tree dies after being harvested, but by investing into replanting these trees, the company helps to make its produce sustainable.(Chapter 4.2) Good relationship Canada- China: The history and relation between two countries can cause distrust or prejudice about its product/ companies. As mentioned in appendix I in this report the relations between Canada and China are perfect for doing business.

Donation to good cause: Moon Rabbit shares a percentage of its profit with a good cause, it is not yet clear which cause or what percentage. (Chapter 8.5.3) International experience CEO: With his experience of having lived in Beijing, he knows about the culture and how to interact with the Chinese customer. (Appendix XXVII) Founder’s background in science and kinesiology: This give him a lot of knowledge about the product and its purposes. If responses to the product once on the market are not as predicted it would not be a big issue to make small changes. (Appendix XXVII)

Weaknesses 1.

2.

3.

4.

Positive list. Moon Rabbits product is excluded from the positive list. This makes the process of entering the market more difficult. (Chapter 7.6) No brand awareness: The product and company have no reputation or returning customers. (Chapter 6) Lack of knowledge on the consumer: The knowledge of the consumer is still a guess, processed in different scenarios. Without having reviews from the consumer, it is hard to improve the product and customer service.(Appendix XXVII) No proof of efficiency: There are no reviews and if the product scientifically promises to work it will not predict to have the same influence on every consumer. (Chapter 8.5.3)

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Opportunities 1.

2.

3.

4.

Fast growing popularity of health supplement: The demand for health foods in China is growing.

(Business in China, 2017) For Moon Rabbit this means that they can act on the consumers need and provide the health supplement the consumer is looking for. (Chapter 4) Build of online platform: Moon Rabbit only has an Instagram account on the online market so far. By still having an open frame in which the website will have to be build, there is a lot of space available to make the website useful for both the Canadian and Chinese consumer. (Chapter 8.5.3) Growing popularity of all natural ingredient products: Trends regarding health foods in China include the growing interest in natural ingredients. There is more trust in a product if the ingredient list can be red and understood. No additional E-numbers or manufactured ingredients. (Natural Products Insider, 2017). (Chapter 4.2) Production of the chaga mushroom to China: According to the meeting with Moon Rabbit it is possible to produce the chaga mushroom in China. In Canada this type of mushroom grows only in the northern parts which have the same climate as the northern parts of China. To reach the product being all natural and local produced, chaga can be produced in China itself. (Chapter 4.3)

Threats 1.

2.

3.

Strong competition: There are a quite a few big companies already present on the Chinese market. For details on these companies please refer to chapter 6.5, the competitor analysis.

Violation of IPR: China is known as the copy-cat, IPR is not important enough. This however is improving little by little, but it is still very hard to keep a patent up. For more specific information, please refer to chapter 5 of the report.

Entering the China market with no prior experience: The founders of the company are familiar with entering the Canadian market and one of them as living experience in China. However, neither of them has experience in expanding a company to China. Therefor this can be considered a threat, as it can downfall quick without the right knowledge and/ or attention. (Appendix XXVII)

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APPENDIX XX- DETAILED INFORMATION ABOUT THE FILING AND REGISTRATION Part 1: Health Food Filing Applicable Scope Filing 1. The domestic functional health food of which the raw materials meet the requirements in the Health Food Raw Materials Directory.

2. The domestic and imported nutrition supplement of which the vitamins and (or) minerals meet the requirements in the Health Food Raw Materials Directory.

Applicant´s Qualification of Filing 1. The filing applicant of domestic health food shall be the factory who has the production certificate.

2. The filing applicant could be the oversea manufacturer (oversea manufacturer refers to the legal person and other organization).

Filing Procedure

Dossier Requirements of Filling According to the Measure, the following documents are required for health food filing: ▪ Health food filing application form; Letter of commitment for authenticity of the materials; ▪ Copies of legally registered certificates of the applicant; ▪ Product formulation materials (APIs and excipients); ▪ Product production process materials; ▪ Safety and function assessment material; and tests reports of functional components/characteristic ingredients, stability, hygiene health and others if necessary; ▪ Information of packaging materials in direct contact with the product; ▪ Samples of product label and package insert; ▪ Product technical requirements; ▪ Test according to product technical requirements; ▪ Other materials proving product safety and health function.

For imported health food filing, besides the above documents, the following supplementary documents also should be submitted: ▪ Qualification certifying documents issued by government authorities or legal service agencies in the producing country (region) of origin proving that the filing applicant is the oversea manufacturer of the health food market ▪ Certifying documents issued by government authorities or legal service agencies in the producing country (region) of origin proving that the product has been marketed more than a year, or safety report of oversea sales and consumer’s feedback; 86

▪ Health food-associated standards issued by the product producing country (region) of origin or international organizations; ▪ Packaging, labels, package inserts for products marketed in the producing country (region)of origin; ▪ For filing affairs run by oversea manufacturer’s Permanent Representative in China, a copy of the "registration certificate of oversea enterprise’s permanent Chinese representative offices" shall be provided; for filing affairs run by domestic agencies entrusted by oversea manufacturers, the applicant shall provide the original notarized certificate of entrustment and copies of business license of the agencies entrusted.

Test Requirements of Filing According to the Measure, the following tests are required to be arranged in CFDA designated testing institutions for health food filing: ▪ Tests required in the document of technical requirements including (Functional components/characteristic ingredients test, Hygiene health test, etc.); ▪ Other tests if necessary Part 2: Health Food Registration Applicable Scope of Registration 1. Domestic health food of which the food raw materials are out of the scope of Health Food Raw Material Directory 2. Imported health food (excluded nutrition supplement of which the vitamins and (or) minerals meet the requirements in the Health Food Raw Materials Directory.)

Applicant´s Qualification of Registration 1. The registration applicant of domestic health food could be the legal person or other organization registered in China.

2. The registration applicant of Imported health food could be the oversea manufacturer (oversea manufacturer refers to the legal person and other organization).

Registration Procedure

Dossier Requirements of Registration According to the Measure, the following documents are required for health food registration: ▪ Health food registration application form; Letter of commitment for authenticity of the materials; ▪ Copies of legally registered certificates of the applicant; ▪ Product development report including the product technical requirements; ▪ Product formulation materials (APIs and excipients); ▪ Product production process materials; 87

▪ Safety and function assessment material; and tests reports of functional components/characteristic ingredients, stability, hygiene health and others if necessary; ▪ Information of packaging materials in direct contact with the product; ▪ Samples of product label and package insert; ▪ 3 samples with the minimum sales packaging; ▪ Other materials pertaining to the product registration technical evaluation.

For imported health food registration, besides the above documents, the following supplementary documents also should be submitted: ▪ Qualification certifying documents issued by government authorities or legal service agencies in the producing country (region) of origin proving that the registration applicant is the oversea manufacturer of the health food market ▪ Certifying documents issued by government authorities or legal service agencies in the producing country (region) of origin proving that the product has been marketed more than a year, or safety report of oversea sales and consumer’s feedback; ▪ Health food-associated standards issued by the product producing country (region) of origin or international organizations; ▪ Packaging, labels, package inserts for products marketed in the producing country (region)of origin; ▪ For registration affairs run by oversea manufacturer’s Permanent Representative in China, a copy of the "registration certificate of oversea enterprise’s permanent Chinese representative offices" shall be provided; for registration affairs run by domestic agencies entrusted by oversea manufacturers, the applicant shall provide the original notarized certificate of entrustment and copies of business license of the agencies entrusted.

Test Requirements of Registration According to the Measure, the following tests are required to be arranged in CFDA designated testing institutions for health food registration: ▪ Safety and toxicology test; ▪ Animal and (or) human function test; ▪ Functional components/characteristic ingredients test; ▪ Hygiene health test; ▪ Stability test; ▪ Strain identification and strain virulence test for Probiotics-based Health Food; ▪ Stimulants, illicit drugs test for Health Food with Relieving physical fatigue, Weight loss or Improving growth and development function; ▪ Other tests if necessary (CIRS, 2017)

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APPENDIX XXVIII - THE BLUE HAT REGISTRATION Both locally produced health supplements as imported ones need to be checked by the Chinese government. Supervision and inspection is carried out by the China Food and Drug Administration (CFDA), whom is in charge of safety of medicine, medical devices, cosmetics and supplements. The supplements should be ensured with an additional mark from the CFDA, which is called a ‘blue hat’.

Before the Registration certificate is issues, the CFDA will test and ensure that the supplements are safe. Without this ‘blue hat’, the supplements are prohibited to be manufactures, imported, sold or used in China and should be destroyed/disposed ‘under the supervision of the local CFDA’. Currently, this process takes up to three months and testing can be expensive. Relevant legislation to be consulted includes the ‘2015 Food and Safety Law of the PRC, the health food management process ( 保健食品管理办法) and the 2005 health food registration management process (保健食品注册管理 办法)’ (Shira & Associates, 2016).

The blue hat registration is rather complex process and according to USCHPA, the process results in an obstacle for the industry in China, since the process is to be very costly and timely (it can take years of administration procedures, testing and clinical trials and cost around ‘$100,000 or more per product’ depending on the ingredients) (Nutraceuticals world, 2016). In April 2015, the new food law had officially passed and changes to ‘how dietary supplements imported into the country or sold within the country are regulated’ will come into effect. However, according to Jeff Crowther, the executive director of USCHPA, ‘the law boosts transparency and eliminates grey areas within the China supplement-regulatory framework’. Crowther also mentions however, that the blue-hat system will not go away (Grebow, 2015).

The Chinese consumer has been changing over the past and this also means that opportunities for the supplement market have changes. A survey done by Mr. Shirley Huang, Vision Avenue Consulting and produced by New Hope Network claims that the market has experienced double digit growth between 2012 and 2016 which is mainly due to China’s fast-growing e-commerce and predicted a growth until our current year (2018) of 15%. Major drivers for this growth are: ageing population, pollution and health conditions, children becoming ‘the center of nutrition and quality foods’ and more educated middle-class consumers. What has developed as well is the online shopping and has reached a percentage of 12.6% of total retail in China in 2015, according to iResearch (Huang, 2017).

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APPENDIX XXIX– BUYING PLATFORMS

Cross tabulation: from what platform do you buy your health supplement products, Age & Gender Age groups 20 - 29 Amazon

Gender

gender

gender

1

1

Female

Count

2

2

Count

3

3

Male

Count

1

2

0

3

Female

Count

2

0

1

3

Count

3

2

1

6

Male

Count

0

1

1

Female

Count

1

0

1

Count

1

1

2

Male

Count

1

1

1

3

Female

Count

5

2

0

7

Count

6

3

1

10

Male

Count

2

1

0

3

Female

Count

6

0

1

7

Count

8

1

1

10

Total I do not buy this

gender

product online

Total Official brand

gender

website

Total

50 or older

Count

Total T-mall

40 - 49

Male

Total Taobao

30 - 39

Total

Percentages and totals are based on respondents.

(Source: Chinese consumer survey, research group 4, 2018).

90

APPENDIX XXX– CHINESE CONSUMER SUR VEY - PRICE RANGE

Graph 1: Chinese consumer survey - price How much would you pay for a one-month supply of a foreign health supplement brand?

Frequency

Percent

60 - 180 yuan

11

45,8

180 - 360 yuan

9

37,5

360 - 540 yuan

2

8,3

more than 540 yuan

2

8,3

24

100,0

Total

Frequency table 2: Chinese consumer survey - price (Source: Chinese consumer survey, research group 4, 2018).

91

APPENDIX XXXI – CHINESE CONSUMER SURVEY - PLATFORMS

Graph 2: Chinese consumer survey – Buying platform What platform do you use to buy your health supplement products?

Responses Number

Total

Percent

Amazon

3

9,7%

Taobao

6

19,4%

T-mall

2

6,5%

I do not buy this product online

10

32,3%

Official brand website

10

32,3%

31

100,0%

Frequency table 3: Chinese consumer survey – buying platform (Source: Chinese consumer survey, research group 4, 2018).

92

APPENDIX XXXII – FIVE INTERVIEWS WITH NATIVE CHINESE STUDENTS – A SUMMARY

JIAJIE

JACKY

JOY

YONGQI

YANI

(SHANGHAI)

(NINGBO)

(SHANGHAI)

(SHANGHAI)

(SHANGHAI)

GENDER:

Male

Female

Female

Female

Female

AGE:

21

20

20

22

20

Parents

Parents, internships, scholarship

Parents,

Parents,

Parents,

Internships,

Part-time job

Scholarship

3000RMB

Scholarship

-

GENERAL

INCOME MAIN SOURCE:

PER MONTH:

5250RMB

-

STUDY BACKGROUND: STUDY:

DURATION:

Logistics

Accountancy

-

Shanghai U

Shanghai U

Shanghai U

International Business and Economics

International Business and Economics

International Business and Economics

2 years

2 years

2 years

2 years

2 years

JOB:

Student

Student

Student

Student

Student

H. PER WEEK:

32

60

50

50

50

CLUB SPORT:

Basketball

Golf

-don´t like sports

-don’t like sports

HOBBY SPORT:

Hockey

Ping Pong, table tennis

Yoga, hiking

FAMILIAR WITH THE STORY ABOUT THE JADE RABBIT?

Yes

Yes

Yes

Yes

Yes

LABOUR

SPORT

93

CARE ABOUT WELLBEING?

6

3

7-8

8-9

8

--being happy is most important thing

-healthy body and healthy lifestyle is the most important

-being happy is most important

Yes

Yes

Yes

Cod liver oil

Cod liver oil

Cod liver oil

1-10 (1= NOT AT ALL, 10= VERY MUCH)

WHY? DO YOU USE HEALTH SUPPLEMENTS?

-playing and studying is more important

-sleeping, eating and playing is more important

Yes

Yes (younger age)

WHAT? Protein powder

Protein powder

Protein powder GOAL? Gain weight

Gain weight

Protect the eyes

Protect the eyes, college entrance examination

Better health

7-8 years HOW LONG?

One month

WHAT BRAND?

Dutch brand

Amyway

Amyway

Amyway

“Melatonin”

WHY THIS BRAND?

-Friends recommended

-the reputation of this brand is really good

-parents recommen-dation

-parents recommenddation

-parents recommendation

Yes

No

-Nice package -nice taste -can use it for a couple of months

WILLING TO CHANGE THE BRAND?

No

For years

years

years

-everybody is using it

Yes

Yes

94

HOW MUCH ARE YOU WILLING TO SPEND?

230RMB

750RMB

300-500RMB

300-500RMB

1950RMB

WHERE DO YOU BUY SUPPLEMENTS?

Offline

Offline

Offline/ Online

Offline/ Online

Offline

WHY?

-Can´t speak the language

-wants a recommenddation from the assistant

-if the brand is known then online, but if not then offline because of the recommenddation

-if the brand is known then online, but if not then offline because of the recommenddation

-always want to have recommendation what is the best for their issues

Official website

Taobao, pharmacy

Health shop

-friend recommended this place instead of buying it online

WHERE DO YOU BUY HEALTH SUPPLEMENTS IN CHINA?

WHERE DO YOU BUY MEDICAMENTS?

WHY?

T-MALL

-if she knows which product she would buy it online because it´s cheaper Pharmacy; T-MALL

Pharmacy

Pharmacy

Pharmacy

Pharmacy

Pharmacy

-need a recommendation if I want to buy a product the first time

-need recommendation

-sure, that the product is real

-a lot of recommenddation to get sure that the product is perfect for the issues

-professional recommend-

- Taobao not because of the fake stuff

95

Additional information: Jiajie: -

Its common in China that people stay with one brand if they agree with the products In China most of the people go first to pharmacies to buy a product because they don’t know what the best product for their issues is It’s an advantage if a doctor recommends your product to people

Jacky: -

They have tv series in China about the fable everybody knows about the myth Customer comments are more important than brands Every company has an own target group and she would buy from companies which are well known for the products she needs to use She would spend more money to be sure that the product is real then paying less Chinese people prefer to buy from TMALL and western people in China prefer to buy from their own websites Would wait no longer then 3 or 4 days for the health supplements

Joy: -

The teachers on school are talking about the fable Its common that the parents give their kids when they are young health supplements Older generation of Chinese customer are buying products with good advertisement Advertisements with small videos are very popular in China Would be good if a doctor can recommend the product to Chinese people... it´s also the best way to create awareness Most of them wouldn’t buy health supplements every month, just if they need it and then it doesn’t matter how much they have to spend Never on Taobao because you´re not sure if the product is real or fake Its important to have an official account to show your brand They would wait no longer than half a month for the health supplements in rural areas In urban areas like shanghai they would not wait longer then 3-4 days.

96

APPENDIX XXXIII – COMPETITORS

97

APPENDIX XXXIV – GROWTH IN DESCRETIONATY SPENDING

98

APPENDIX XXXV – INCOME SHIFT OF CHINESE HOUSEHOLDS

APPENDIX XXXVI – CHANGE IN INCOME DISTRIBUTION

99