The Chinese cross-border e-commerce startup making inroads in India

3 min read
Image credit: BigStock/Rido81

Cross-border e-commerce has become one of China’s hottest trends. However, it doesn’t only include the import of goods into China—already a trillion-yuan market last year. Firms are increasingly exporting locally manufactured products to the rest of the world. Among these trendsetters is Club Factory, an e-retailer that runs the third-most-popular online shopping app in India.

The backstory: Club Factory is a B2C (business-to-consumer) marketplace that connects consumers with manufacturers, offering price-setting, product recommendations, customer services, and overseas logistics.

  • Founded in 2014, the company is the brainchild of former Facebook employee Vicent Lou and his technical team.
  • Club Factory is based out of Hangzhou, home to Jack Ma’s Alibaba, which has helped foster a positive environment for e-commerce-focused entrepreneurship and innovation in the eastern Chinese city. It is also home to Kaola, the cross-border e-commerce giant that was recently bought by Alibaba.
  • Originally set up as an enterprise-facing data service provider for cross-border e-commerce firms called Baokuanyi.com, the company shifted focus in August 2016 to a consumer-facing model to sell non-standard and affordable goods.

Unique selling point: Similar to Taobao, Club Factory does not stock goods itself, adopting a lighter asset model compared with other platforms like JD. Club Factory requires domestic suppliers to send products to them to quality check before sending them on to buyers.

  • The company is lowering prices for overseas consumers by connecting them with manufacturers, instead of sellers, like on eBay, Wish or Amazon.
  • Club Factory employs an AI-based algorithm to deal with issues like product selection, product recommendation, and price fluctuations.
  • The cross-border e-commerce market is promising in that China has a unique advantage over overseas rivals due to an abundance of suppliers.
  • To attract merchants in the destination market and expand inventory categories, Club Factory does not charge local sellers commission fees in India.

“In India, e-commerce companies like Amazon and Flipkart adopted an operation pattern similar to that of China’s JD.com, which pursues high product quality through a closed chain. Indian customers also need another kind of e-commerce platform—a more open one—which provides more options to customers and more vitality. This is the main reason why Club Factory can rapidly develop in the country,” 

Founder and CEO Vincent Lou, speaking with tech media in October

The investors: Club Factory received $100 million in Series D funding last month led by Qiming Venture Partners, and with support from German investment corporation Bertelsmann Asian Investment, IDG Capital and other Fortune 500 companies from the U.S. and Asia.

  • The new financing round comes eight months after a $100 million Series C from Bertelsmann Asian Investment.

Present condition: The e-commerce upstart, with a focus on the global market, especially India, has been on a steep upward trajectory for the past few years.

  • Club Factory overtook Indian firm Snapdeal in terms of monthly active users on Android in September. This made it the third-largest e-commerce shopping app in India, following Amazon and Flipkart, according to App Annie.
  • Club Factory says it has more than 70 million users, of which about 40 million are from India. The rest come from emerging markets like Southeast Asia and the Middle East.
  • It plans to bring in 10,000 sellers on its platform before the end of this year and expand to more inventory categories.

The landscape: Facing a slowing economy and a saturated local market, Chinese e-commerce giants are expanding aggressively into the global market. The Indian market, which is expected to surpass the US as the second-largest market by 2034, has become a crucial frontier.

  • In addition to global players like Amazon, Club Factory is also going up against Chinese peers like Alibaba’s Ali Express and fashion platform Shein.
  • Russia, Southeast Asia and the Middle East also represent key markets for Chinese e-commerce giants.
  • Alibaba is setting up a joint venture with a series of big-name Russian partners, including media and information technology conglomerate Mail.ru.

Prospects: Despite the rapid growth, the company is facing a greater challenge in the Indian market due to tighter local regulations and consumer complaints.

  • Club Factory was primarily focused on selling imports from China in India. However, growth hit a roadblock when the Indian government started a crackdown in April on Chinese e-commerce platforms that evade customs duty by claiming commercial consignments to the country as gifts.
  • Club Factory said last month that Indian SME business on its platform has expanded more than ten-fold to 5,000 over the past six months, thanks largely to its zero-commission strategy.
  • Club Factory’s Chinese rival Shein shut down partially following the crackdown.
  • User complaints are another challenge. Tech media firm Entrackr reported that the platform has a nearly 50% return rate, which is way above the industry average.
  • The most recent funding comes at a crucial time, indicating that venture capital is still bullish on the company’s prospects.