Manager recalls hard times in the beginning, but those days are long gone

Joyce Hu vividly remembers the stressful days in 2014 when she drove a truck from London to Manchester, buying up tins of milk powder along the way that would then be sold to customers in China.

"We could only buy a few tins from each shop, because they were careful to leave enough for local buyers," says Hu, who is now Europe's purchasing manager at Dolphin Supply Chain. Those days marked the tough beginning of the company in the UK.

The business has grown rapidly ever since. Last year, it sold 1 billion yuan ($150 million; 134.3 million euros; ￡116.5 million) of products in China, twice its 2015 revenue.

Dolphin Supply Chain's growth was part of a wave in China's e-commerce imports, which started largely as a result of the establishment of free trade zones across China since 2013 onward. Provided to China Daily

Long gone are the days in which Hu would spontaneously turn up at shops to buy milk powder. Her team now has a comprehensive business strategy that comprises a network of direct purchase agreements with dozens of British brands for wholesale prices, and a streamlined logistics chain, from product collection to cross-border transportation. It also provides additional services, including customs clearance and marketing for Western brands in China.

"We've had a few rough years of streamlining our supply chain, and establishing exclusive purchasing agreements with British brands for the Chinese market, so gradually we've increased our profit margins," she says.

Dolphin was founded in Shenzhen in 2014, as a subsidiary of the Chinese export company YKS, which itself was established in 2010. YKS, which became listed on China's newly established over-the-counter board of the Shenzhen Stock Exchange, achieved sales of 1.49 billion yuan in 2016, of which 105 million yuan was profit.

Dolphin's growth was part of the wave of growth in China's cross-border e-commerce, which started largely as a result of the establishment of free-trade zones across the country from 2013 onward. The zones offered favorable tax policies and rapid customs clearance for cross-border e-commerce imports.

Chinese research company iResearch says China's cross-border e-commerce grew from 100 billion yuan in 2014 to 150 billion yuan in 2015.

Even more significant is the potential of the market to grow still further. The data company Research and Markets estimates that China's cross-border e-commerce market will expand to 14 trillion yuan by 2020.

Amid this growth in import volume, a vast number of Chinese e-commerce players have emerged including platforms, logistics companies, overseas product purchasing companies and advisers.

Unique to Dolphin's model is its ability to combine all of these elements: It buys overseas products in bulk, transports them through its own IT-intensive logistics chain, handles all customs clearing processes and provides warehousing. It also makes the products available for sale on Chinese platforms.

"Effectively, we bear the risks if the products don't sell well in China, so tremendous care is taken in the overseas product procurement and selection process," Hu said. "We also invested heavily into creating the most efficient supply chain, to maximize the profit margin amid tough competition."

Such investments relate to Dolphin's own contracted fleet of planes and trucks, and its many warehouses in China and overseas. The movement of trucks and cargo is tracked by a central system to ensure the timely delivery of products. In addition, temperature, moisture and other variables that might affect products during transportation and storage are monitored, says Wang Zhangming, vice-president of YKS.

The team has established more than 200,000 square meters of warehouses across Belgium, Netherlands and the United Kingdom, and additional warehouses in Japan, Australia, the United States and Russia. The warehouses are monitored in real time from the company's central IT office in China.

The enterprise has also built a significant logistics supply chain in China, with more than 6,000 sq m of space in Hangzhou, and an additional 300 sq m in Shenzhen and 200 sq m in Tianjin.

One factor that probably allowed Dolphin to build a profit margin is its strategy of working with niche-sector Western brands that are "not yet well known in China, but have a loyal customer base and proven value in the West", Hu said.

Collaborating with such brands allows Dolphin to bulk-buy at much lower wholesale prices because such brands bank on its being able to make them big in China.

One such example is the London-based cosmetics brand Skin Chemists, which sells a range of facial products with price tags in line with more well-known international brands such as Lancome and SKII. As a family-run business, Skin Chemists' limited marketing budget meant it could not promote itself extensively in China, so earlier attempts by the company to work with Chinese platforms directly saw little success.

"Chinese e-commerce platforms have no motivation to promote our products and brands on their websites, therefore consumer awareness of our brand story is still low," says John Wilken, e-commerce partnership manager at Skin Chemists. "We feel working with Dolphin is a good solution because Dolphin can leverage their resources in the e-commerce space to promote our brand."

Essentially, Skin Chemists sells a bulk order to Dolphin at a discounted price and relies on Dolphin to handle all the logistics steps, customs clearing and marketing and promotion inside China.

Despite the rosy picture Dolphin paints, Wilken stresses that his team did careful research to ensure Dolphin was credible and would be able to sell its products in China in line with expectations.

"We wouldn't want them to release the products to the Chinese market at hugely discounted prices if they realize the products cannot sell well, because that would hurt our brand too," he says.

Despite its existing advantages, Hu and Wang say Dolphin is constantly trying to improve its business model because tough competition in China's e-commerce industry means profit margins are thin.

That competition comes largely from the trend of vertical integration, which sees huge Chinese e-commerce platforms such as Alibaba and JD.com extend beyond their traditional business fields to build cross-border logistics and overseas procurement teams.

JD.com, for example, has launched JD Worldwide, which involves the company's procurement team overseeing the purchase of products from the global market for resale in China.

JD Worldwide buys products in bulk from overseas retailers, stores them in its warehouses and dispatches them to customers once orders are made online.

The model is unlike the typical business model for e-commerce platforms, in which they provide a platform for retailers to sell their products.

"The key to vertical integration is the ability to achieve scale, because this industry is so sophisticated that managing the whole supply chain on a small scale means the business model may not be viable," says John Song, consulting director at Deloitte in China.

Song adds that the existence of big players, such as Alibaba and JD.com, in China's cross-border e-commerce industry, and their vertical integration efforts, mean newer and smaller players may actually have more opportunities by providing niche-sector services.

Such niche-sector opportunities along the cross-border supply chain, such as cross-border logistics management, customs clearance or international procurement, may be something for a company like Dolphin to think about. It would mean a complete adjustment of its current model of offering an all-in-one solution across the entire supply chain.

"Well-crafted niche-sector services in those areas may achieve more value than trying to cover the whole supply chain, especially for smaller companies," Song adds.

cecily.liu@mail.chinadailyuk.com