What exactly has the integration of the entire capital market and the cross-border e-commerce market brought to both parties? What kind of development momentum will the cross-border e-commerce industry see next? What should sellers in this environment do?
Capital “returns to rationality” from the mergers and acquisitions of cross-border e-commerce
On July 30, Lechuang Co., Ltd. issued an announcement stating that it intends to purchase all or part of the equity of Jiangsu Sihai Shangzhou E-commerce Co., Ltd. from the company through the issuance of shares and cash payment. After the acquisition is completed, Sihai Shangzhou will become a wholly-owned or controlled subsidiary of the company. But less than a month later, Lechuang issued another announcement stating that the acquisition was terminated because the two parties did not reach a consensus on the core transaction terms. As soon as this news came out, it caused a stir in the industry. After Huading Co., Ltd. filed for arbitration in March this year because Tongtuo failed to fulfill its obligation to pay the equity transfer fee, Lechuang’s move made people sigh, “Is the capital of the cross-border e-commerce industry going to enter winter?”
In this regard, Huang Dongmin, CEO of Bar-headed Goose, told Hugo.com that whether it is the merger and acquisition of cross-border e-commerce companies or the “curve listing” through this, it is related to the current status of the capital market and the development momentum of cross-border e-commerce. First, since 2015, China’s capital market has been in a relatively depressed state, and the rapid development of cross-border e-commerce has become a bright spot for listed companies to invest; second, the country’s increased support for cross-border export e-commerce in recent years also indicates the future development trend of cross-border e-commerce, which happens to be valued by the capital market. If the previous cross-border e-commerce operation methods, as well as the problems of formalization and compliance, it would be difficult for cross-border e-commerce companies to go public on their own. Now, “curve listing” through mergers and acquisitions is one of the few options.
Chen Siyuan, assistant to the chairman of Ningbo Brand E-commerce Co., Ltd., also believes that “more and more capital markets are pouring into the cross-border e-commerce market, which is the direction of the entire industry. As we all know, for so many years of traditional foreign trade development, China has always been the world’s manufacturing factory, and 50% of low- and medium-end products are made in China. Coupled with the increase in labor costs in recent years, it is very difficult to occupy the remaining 50% of the market. However, the emergence of the cross-border e-commerce model can upgrade the manufacturing industry at the lowest end of the trade chain to the link of direct participation in consumption. Therefore, in recent years, policies and traditional foreign trade transformation are all moving towards a certain trend, and the capital market is paying attention to such a trend, so it will continue to participate in the cross-border e-commerce industry.”
But is cross-border e-commerce entering a capital winter? Huang Dongmin believes that “the capital winter is actually not related to the cross-border industry, but the capital winter caused by the entire international economic market and the rise of the US dollar in the second half of this year.” Compared with the term “capital winter”, Chen Siyuan prefers to call it “capital returns to rationality.” That is, the capital market used to invest money in enterprises first, allowing them to fulfill their original promises and pay for their dreams. But now it is necessary for enterprises to do something first to let the capital see the results. After evaluation, the two sides reach an agreement that the capital will pay the amount of money according to the goals achieved by the enterprise. In his opinion, this is a very rational investment stage.
The integration of the capital market and the cross-border e-commerce market has “two sides”
From the current situation of the reorganization and merger of capital enterprises and cross-border e-commerce enterprises, some are successful and some are failed. For example, after Global Easy Shopping was acquired by Cross-border Communication in the capital market, it achieved a net profit of 167 million yuan in 2015 with an astonishing performance growth rate, becoming an important contributor to the profits of listed companies. Furthermore, the proposed acquisition of Sihai Shangzhou by Lechuang mentioned above was eventually terminated due to the failure to reach an agreement on the terms of the transaction. In Chen Siyuan’s view, “At present, the entire market is pessimistic about A-shares. And after Lechuang announced the acquisition of Sihai Shangzhou, the stock market continued to fall. The real factor is the sluggishness of the entire market this year. Everyone is falling, so this is not a good time to acquire.”
So, what impact will the integration of the capital market and the cross-border e-commerce market have on both parties? Huang Dongmin said, “On the one hand, we must know that the capital market is profit-oriented. It always values profit and comes for profit. Therefore, when it enters the cross-border e-commerce market, it will inject a lot of cash flow into the cross-border e-commerce market. This is beneficial to the development of the cross-border e-commerce market and will attract more capitalists to pay attention to the cross-border e-commerce industry; on the other hand, since the capital market is profit-oriented, its capital will be very high. When the cross-border e-commerce market obtains so much capital, it is easy to lose its direction and cause vicious competition.” Chen Siyuan has a different view on this. He believes that the participation of capital is only as an “accelerator” rather than an “executor.” The entry of the capital market into the cross-border e-commerce market has accelerated the cross-border e-commerce industry. From the perspective of computers, medical care, chips, and the Internet in the past, it can accelerate the development of emerging industries. But in Chen Siyuan’s view, the cross-border e-commerce industry is a business logic that can be proven and recognized for a long time. Therefore, even if the capital market does not intervene, cross-border e-commerce can survive. Therefore, the current intervention of the capital market plays an accelerating role, and both parties may obtain good returns in a short period of time in the future. But it is undeniable that it also has a bad side. For example, some companies may not have completely found their own business model. Due to the excessive acceleration, they have lost their direction and collapsed.
Danger of internal friction: Branding and sustainable development are the kingly way
It is understood that the capital market has participated in the operation of the cross-border e-commerce market as early as 2011 and 2012. Compared with the previous “madness”, it is still in a rational state at this stage. Because today’s cross-border e-commerce market has its own set of business models and has more autonomy. Chen Siyuan said that unless the capital market can provide good resources for cross-border e-commerce companies to accelerate its growth, from the perspective of the brand itself or the company, Chen Siyuan does not want the capital market to interfere too much in the direction of the company. Therefore, he hopes to find like-minded and consistent capital companies to grow together, rather than simply interfere. Similarly, from the perspective of service providers, Huang Dongmin also suggested that capital should not interfere too much in the operation of enterprises. Because capital’s understanding of enterprises and industries is not as comprehensive as their own. If capital participates too much in the operation of enterprises, it may lead to strategic conflicts and internal friction of the entire enterprise.
According to the current support of the capital market for cross-border e-commerce, the trend of capital participating in the cross-border e-commerce industry still exists. So, as a cross-border e-commerce seller, how should we compete and survive in such an environment? “At present, there are still many sellers who are not clear about the situation, including sellers in Ningbo. Many companies blindly expand their operation staff, thinking that as long as they recruit good operation staff, 80% of the cross-border e-commerce work will be completed. In fact, everything can only be done well with the cooperation of the front-end supply chain and the back-end overseas resources. Including the products, stocking capacity and cost of the early factory, the warehouse, clearance, push flow resources, etc. in the later stage, plus good operation, can achieve twice the result with half the effort.” Chen Siyuan said that at this stage, it is no longer like the past where low investment can get high returns. Sellers must build a brand. Only by building a brand can they bring higher premium space.
Huang Dongmin believes that cross-border e-commerce will show three trends in the future: First, the confrontation of funds, which is a very important logic; second, it will focus more on branding and quality development; third, it will be more in line with the country’s requirements for exports and enterprises and focus on consumers’ requirements for quality. Moreover, with the increasing stringency of intellectual property rights, with the support of capital, sellers will pay more attention to product research and development and product quality assurance. “Good products are easy to sell.” In Huang Dongmin’s opinion, sellers should pay more attention to their own sustainable development and do a good job of branding. Poor products will eventually exit the market.