[Sponsored Article] Driven by the pandemic, China's cross-border e-commerce ecosystem is rapidly expanding into Southeast Asia and the Middle East, and as far as Latin America and Africa as demand for Chinese products from these emerging markets surges. According to the National Bureau of Statistics, China's cross-border e-commerce ecosystem is gradually maturing after years of development, with its size reaching RMB14.6 trillion in 2021. Increased awareness of organic food and quality living among Chinese consumers and the global shift to online shopping prompted by the pandemic are major factors driving this global growth, says EY-Parthenon, Ernst & Young's global strategy consulting arm, in a recent report. China and its neighbouring regions are now complementing one another to form the world's factory. Economic partnership agreements have been signed among China and other countries, whilst favourable trade policies have been implemented in each partner country to strengthen the region's economic ties. This regional collaboration, in turn, will contribute to the expansion of China's e-commerce ecosystem outwards, says Zezhi Liu, an EY Parthenon partner at Ernst & Young (China) Advisory Limited. "This trend presents new opportunities for the cross-border logistics industry. While logistics service providers may face global supply chain disruptions, increased logistics costs and talent shortage, there are now smarter solutions to address these challenges." Chinese firms increasingly invest in a global network of warehouses to smooth out their supply chains. Between January 2020 and December 2021, the number of overseas warehouses they operate doubled to over 2,000 from about 1,000, according to Chinese state media Xinhua . The digital transformation for the supply chain, from order management and master data management to analytics, improves operational efficiency and helps provide more customised services. For example, more warehouses are also using stock-keeping units (SKUs) to keep track of inventory more cost-effectively. Among emerging markets, the Middle East and Southeast Asia have seen a lot of progress in cross-border e-commerce. Africa and Latin America also have high growth potential, with their levels of development growing fast. Brands will typically create an e-commerce website and join an e-commerce platform, then use marketing campaigns to target people who might be interested in their products. They will either gather supplies from themselves or other distribution channels and then distribute the ordered products. Figure 1: Cross-border e-commerce - Industry chain map The post-90s and Gen Z account for half of China's cross-border e-commerce consumers, and they are demanding more personalised offerings. As such, businesses are now more focused on providing value-added services by adopting an omnichannel retail strategy – the integration of marketing, sales and customer service across multiple online and offline channels to create a unified yet personalised customer experience. EY-Parthenon puts China's e-commerce logistic companies into three models: 'dot', 'line', and 'platform'. The distribution of warehousing companies is similar to that of a 'dot'. Freight forwarding, express delivery, postal, and other shipping companies all offer point-to-point service. They do this by forming what are called 'lines'. Cross-border e-commerce logistics companies are 'platforms' that can connect cross-border logistics resources, including these 'dots' and 'lines', thus providing a seamless one-stop service solution. In 2021, China's cross-border e-commerce logistics market was estimated to be about RMB2.5 trillion. Nearly all companies in this space need to work together with third-party logistics companies to finish order delivery (Figure 2). Resource integration is very important. Figure 2: Cross-border logistics process steps breakdown There are various service models for cross-border logistics, including direct mail, overseas warehousing and integrated logistics, more customers will be choosing low-cost overseas warehouses when they are ordering products online (Figure 3). Figure 3: Main service model comparison of cross-border e-commerce logistics Based on the competitiveness and business performance of cross-border e-commerce logistics companies in China, EY-Parthenon has set up a weighted scoring matrix to evaluate cross-border logistics companies. EY-Parthenon analysed performance metrics from a group of existing logistics companies and found their differentiation is determined by four factors – the scope of services they offer, how much control they have over their channels, how strong financial capability they have, and whether or not they can support strategic customer expansion. Figure 4: EY Parthenon scoring matrix EY-Parthenon says four major trends are currently shaping China’s cross-border e-commerce logistics industry. Consolidating resources with key logistics operators is a great way to improve efficiency and become more competitive. One-stop cross-border logistics service providers now work more closely with cross-border logistics solution providers to provide more integrated services. Some have even been transformed into one-stop cross-border e-commerce ecosystems from online trading platforms. Cross-border logistics companies are taking advantage of funding opportunities in the capital markets. Moreover, they are investing in new technologies, and this trend is only set to continue. From clever robots to advanced warehousing automation enabled by big data and artificial intelligence, logistics networks now operate more efficiently. EY-Parthenon The cross-border e-commerce logistics industry is facing new opportunities and challenges, driving new demands for growth and M&A integration in the industry. 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