JD.com is using China’s free trade zones to boost ecommerce sales of foreign products.

APRIL 21, 2015 • Last week China’s JD.com, Inc. launched a new cross-border ecommerce platform called JD Worldwide. The premise is to provide Chinese consumers the opportunity to purchase Western brands at a much lower cost. Instead of a foreign company having to set up a wholly Chinese division or a partnership with a domestic company, they can work directly with JD Worldwide as the point-of-sale via their own online store pages. This system is possible thanks to China’s new free trade zones. Western products can be shipped to warehouses in the zones without the heavy import duties associated with regular importation into the China market. Once in the zone, JD handles fulfillment to consumers. The free trade zone in Shanghai launched during 2013 is the most well known, with additional zones planned for Tianjin City, plus Fujian and Guangdong provinces. JD Worldwide is starting with 450 branded Western online shops with more than 150,000 SKUs. The online retailer is also nurturing a marketplace feature where smaller dealers can offer their wares. JD is also partnering with eBay to present a Best of eBay Deals program.

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Impact: China is in the process of setting up some pilot free trade zones that potentially promise a future where outside products can flow more freely into the country via ecommerce.  For 2015 research firm iResearch estimates such trade volume will be 5.2 trillion yuan ($838.7 billion), and will grow to 8 trillion yuan ($1.3 trillion) by 2017. All of which is evidence of a major change in philosophy that could possibly impact the content business. This is not the China we have come to know, with stifling government regulation and import costs. DFC got the first inkling of major change with the arrival of region unlocked PlayStation 4s that led to unlocking the Xbox 360 in China. That showed a much freer position by the Chinese government on the acquisition of potentially sensitive entertainment content by Chinese citizens. If such a concession was being made in content, opening up the market to Western brands without the legal shackles employed does not seem much of a surprise. Although Alibaba Group Holding Ltd. is most often compared to Amazon.com, it is JD.com that is a much closer fit. Alibaba provides the infrastructure to bring together buyers and sellers but does not perform fulfillment. JD.com does provide fulfillment, which creates a critical difference that sets JD Worldwide apart. Many Chinese are sick of having to deal with the middlemen agents that have been necessary in order to purchase Western goods in the country. That has led to many cases where consumers have paid for the real item and have received fakes. This is a issue that Alibaba has suffered from as well. As JD Worldwide handles the stock exclusively, it can assure that products received are legitimate. The company has already built up an enviable last-mile logistics system – boasting same-day delivery in 134 counties, plus next-day delivery in 866 counties – and is well placed to deliver orders from the trade zones to the interior swiftly. Alibaba’s Tmall Global platform may have launched a year ago, flush with a total of 5,400 Western brands today compared to JD Worldwide’s 1,200, but the latter’s logistics prowess seems better suited to moving authentic products from the trade zones inland. Either way, the impact of these free trade zones is startling. For the first time China is really opening up.