Compliance Is The Only Way For Cross-Border E-Commerce To Go To IPO

The fast fashion brand sheen, which has been listed for many times, is still confused.

The latest news is that sheen is seeking a new round of $1 billion in financing, valued at about $100 billion. As a leading enterprise, the listing of sheen determines whether the whole cross-border independent station can be recognized by the secondary market as a category.

"Going public means full compliance, and many companies will have no net profit to make." Said Aaron, a seller who has been engaged in cross-border e-commerce for many years.

In his opinion, in the past, cross-border e-commerce enterprises were labeled "making money in a dull voice" because they "had to keep a low profile". Most sellers lack core barriers, and there are loopholes in compliance.

Aron disclosed to Yibang power that a well-known cross-border e-commerce enterprise that is preparing to go public recently has spent a lot of energy on compliance in the past few years. For example, to solve the problem of product infringement, the standardization of import and export declaration, labor issues, whether the supply chain standards meet the requirements of European and American laws, etc. But the results are uncertain.

"When I look at cross-border e-commerce enterprises, the first thing I want to do is ask their suppliers whether they can issue invoices or not. No matter how good an enterprise is, if it doesn't make an invoice, it won't invest. It's afraid that there will be problems." An investor who pays attention to cross-border e-commerce projects also pointed out that a large part of cross-border e-commerce enterprises that have come from the early stage of the industry do not attach importance to the issue of compliance, and at a certain stage, it is easy to "get stuck" here.

Looking back, among the cross-border e-commerce sellers, there are many profitable enterprises, but few of them are valuable, and few of them can be successfully listed. "Even if it has been listed, in addition to Anke innovation and music, the rest have suffered Waterloo." Aron sighs.

In its view, the environment faced by enterprises after listing is complex and cannot be determined by a single factor. However, for the vast majority of cross-border e-commerce enterprises, especially those about to embark on the path of capitalization, a common obstacle is compliance.

01、 How difficult is it for cross-border e-commerce enterprises to go public?

Star Enterprise sheen, since last year, has been frequently reported by the outside world and is preparing to go public.

From the primary market point of view, more and more companies like sheen model. That is to say, the self built DTC mall is an independent cross-border e-commerce station with vertical categories such as clothing, mother and baby, home furnishings and so on as the breakthrough point, which has become a high-quality asset that many investment institutions are competing for.

"Sheen has a large volume, no lack of flow, no lack of growth, and considerable profits. Behind it, there are well-known investment institutions such as red shirt and IDG. Therefore, the voice for listing is very high. But sheen wants to be listed. With such a huge amount of orders, it has a lot of preparation to do only in terms of fiscal and tax compliance." Jiaming, a senior investor who mainly looks at the sea project, said to Yibang power.

But most companies only have the prototype of sheen, not the plate of sheen.

At the same time, if the enterprises want to go further, they are bound to be hampered by the problem of standardization.

"The hidden dangers brought about by the platform seller's multi account (multi store) operation mode, financial and tax compliance, logistics compliance, intellectual property protection, data and privacy issues, group structure, etc., each link's success determines whether the enterprise can be listed successfully and how far it can go." Wang Lujian, a cross-border e-commerce seller, pointed out.

"Like the multi account (multi store) operation mode, although it is common among cross-border e-commerce sellers and Amazon also allows sellers to own multiple stores" with reasonable reasons ", there will still be great potential risks if the listing is to be impacted." Hanson, an international trade compliance service provider, points out that "on the one hand, even if the platform changes or tightens its policies, on the other hand, there are operational risks of unclear ownership and unclear responsibilities."

Take Seville times, a cross-border power seller preparing for IPO, as an example: according to its prospectus, from 2018 to 2020, the total number of stores opened by Seville era on e-commerce platforms was 2292, 2361 and 1404, respectively. Another cross-border e-commerce enterprise, which is applying for listing on GEM, has a similar situation: at the end of 2018-2020, the total number of stores opened on the e-commerce platform was 491, 884 and 1312, respectively.

This situation directly leads to the risk prompt of "possible platform retroactive punishment" made in the prospectus -- if the third-party e-commerce platforms such as Amazon, wish and eBay in the future determine that the company's multi account business model does not have reasonable commercial reasons, violates the platform's registration and operation policies, or modifies the registration and operation policies of its platform stores, In order to limit the business model of multi account opening, a large number of stores will be closed, which will have a significant adverse impact on the overall business performance of the company.

The outbreak of last year's "Amazon brand" tide, a number of listed big sellers were not immune. For example, although the reasons for store closure disclosed by youkeshu and Zebao do not directly involve the "violation of the business model of opening stores with multiple accounts", this kind of business behavior of opening stores on the platform in the name of others (employees or relatives and friends) and actually obtaining the ownership of the store has greatly increased the risk of violations in other aspects (after all, it is inevitable that the management and control will not be effective when there are more stores). These sellers have more or less mentioned the problems of account number audit failure, suspected infringement, suspected "abuse of score, feedback or comment", non-compliance with the value-added tax requirements of the sales area, and poor store indicators.

At the same time, the issue of tax compliance is also a "hurdle" on the way to the listing of cross-border sellers.

As the seller's product sales may involve multiple countries, and the indirect tax policies for cross-border e-commerce in various countries are complex and in the process of continuous revision and improvement, the seller's stores may fail to declare and pay the indirect tax to the competent overseas tax authorities in time and in full due to various reasons in history, As a result, the company may be recognized by overseas competent tax authorities as having the possibility of violating laws and regulations in tax payment, and may be required to pay relevant taxes.

In addition, Yibang power understands that some cross-border enterprises are also faced with non-compliance in the return of foreign funds to China on fiscal and tax issues. In order to save operating costs, the Trade Chamber of Commerce of Datong will split large orders into small pieces to avoid tax, and medium-sized sellers will "split more than one" to apply the minimum tax rate, Through the postal parcel delivery to avoid sales destination tax fees and so on.

In addition, Jiaming also pointed out that in terms of revenue, some cross-border enterprises will adopt the operation method of "paying the bill and customs declaration", which will increase the difficulty of the enterprise's later income verification. "Once a cross-border enterprise that has been in the dark all the way, once it is faced with a listing node, it needs investment banks to come in and help them rebuild their structure and readjust their equity relationship." He said.

02、 The "cognitive blind area" with layers of fog

It is not just on the eve of listing that cross-border enterprises will face the challenges brought about by compliance issues.

"The non-conforming operation will also affect the seller's fund return problem. For example, if the customs does not clear the customs, the goods can only be" returned "or" destroyed on site ". If you choose to return, the goods will be classified as" imported goods "when they pass through the Chinese customs, which will increase a very high tariff. However, if you choose to destroy on site, the cost is lower than the former, but it will also exceed the goods themselves Value, which leads to the seller's capital chain can not be stable backflow, capital turnover difficulties, and even bankruptcy. " Huang Zhiqiang, the logic of international trade compliance service providers, said.

For example, in terms of intellectual property rights, many Chinese sellers have been "hunted" after going to sea. "There is a U.S. law firm called Greer, burns & Crain, which has launched 243 lawsuits in 2020 and closed 22000 Chinese sellers' accounts and 5900 websites in 2020." Li Hanyuan, a cross-border intellectual property service provider, said.

"Cross border e-commerce companies like to" follow up "and sell whatever they see. However, there is a great risk of intellectual property infringement. Because these" hot money "are often protected by intellectual property rights, including trademark rights, design, copyright, invention patents, etc., sellers may not realize the importance of this matter until they come to the defendant's bench." He said.

"In the past, cross-border e-commerce sellers were more inclined to do things in silence and bow their heads to make money. This industry is full of many unspeakable channels, such as black technology aiming at platform rules, and gray industries generated by cross-border chains such as finance, taxation, logistics and trademarks." Aron also pointed out to Yibang power.

He admitted that as an Amazon seller, he had tried some "black technology" competition in the past. "For example, after studying Amazon's various rules, we developed an automated add purchase system. We can automatically purchase 3000-4000 items a day without advertising. After four or five days, the product will be in the first and second pit on the home page."

In Huang Zhiqiang's view, there are a large number of non-compliance operations of cross-border sellers, some of which are deliberate under the cruel competition environment. However, many cases are caused by the "cognitive blind area" of overseas laws and regulations.

"China provides more than 60% of the global e-commerce services. From the perspective of logistics, trade, finance and other aspects, laws and regulations, policies and information at home and abroad are extremely complex and vary greatly. For cross-border e-commerce, it is difficult to realize real-time follow-up of regional policy changes and implement digital platform management by relying on its own resources. These costs and investments are huge, Especially small and medium-sized enterprises. " Huangzhiqiang said.

He continued to explain: "for example, there are many creative brand names in China. If the product number at the time of declaration is incorrect, the customs will also be detained if it can not judge the nature of the goods. The seller is not clear about the differences between domestic and foreign e-commerce policies, and has not found a suitable digital platform to query and consult whether the declaration is compliant and verify whether the declaration is true. The above situations often occur."

At the same time, Evan, who works for a law firm, also points out that in the long business chain of cross-border e-commerce, production entities, procurement and export entities, third-party e-commerce platforms, service enterprises, warehousing service providers and consumers may all be located in multiple countries and regions, so each business link is also subject to supervision in different jurisdictions, This greatly increases the difficulty of standardization.

03、 How to dismantle the "non compliant" time bomb

In the past, cross-border sellers preferred to use non-conforming operation methods because of their fast money, low cost and high efficiency. In addition, there was a blind spot in understanding the overseas regulatory environment and the long trade chain, resulting in frequent non-compliance. How can cross-border enterprises get rid of the fog and build a sunny, transparent and healthy growth path?

After communicating with a number of international trade compliance professionals, most of them gave the following suggestions: first, cross-border enterprises can tap talents with rich experience and strong information integration ability in import and export; Second, find a comprehensive and automated trade service platform to bring together relevant cross-border policies, consulting and data for refined management.

The experience of the former people who have been on the way to IPO may also give some inspiration to the later generations.

In June last year, the initial public offering of stock prospectuses and the declaration of three state shares listed on the Shenzhen Stock Exchange growth enterprise market showed that in the organizational structure adjustment, the legal compliance department of three state shares was set up separately. "Few big sellers in the industry will set up a special legal compliance department. The three state approach is quite farsighted, and it will leave professional matters to professional personnel." According to one head cross-border executive.

*The picture is from the three state share prospectus

As for the industry is more concerned about the establishment of multiple stores (multiple accounts) on the third-party e-commerce platform. According to Yibang power, there are two ways to rectify the situation: the first is to change the main body of a third-party online store into a store company with 100% of the company's shares (most of the stores have registered a number of accounts in the name of their cronies and employees); The second one is to acquire 100% equity of the third party's nominal online store.

"Enterprises involving multiple stores can also sign information authorization agreements with relevant third parties to ensure that they can actually control relevant accounts and stores." Amy, an analyst at a securities firm.

In addition, Yibang power understands that the "9610 mode" may be the most easily accepted small package customs declaration mode for the regulatory authorities in the IPO audit process in the future. "It is suggested that cross-border sellers in Shenzhen, Xiamen, Suzhou and other places should explore the 9610 mode as soon as possible. At the same time, we can also refer to the way that Seville has explored in the small package business." Amy said.

It is reported that Saiwei era has gradually implemented the 9610 export declaration mode since 2020, so as to reduce the distribution of domestic postal parcels and complete the rectification of all postal packets before submitting the initial IPO application materials. "Sevay has set up a subsidiary in Shenzhen for the unified accounting of the export of direct mail refundable goods. At the same time, it has also set up subsidiaries in Suzhou and Xiamen to uniformly account for the export of direct mail non refundable goods, without generating customs declaration forms." Amy said.

"Attaching importance to the issue of compliance does not directly make you grow. However, if you do not attach importance to it, it will be a time bomb. Wait until something goes wrong, or wait until you are ready to go public. It is either too late, or you have to pay a higher price." In Aron's words, the cross-border e-commerce industry is no longer a "sunshine out" zone. Now, it has become a battlefield of competing for the best. From the ideological awareness of the merchants to the actual operation of the business, they need a facelift. Only the value theory of "opportunism" will be severely abandoned by the times.

(Note: some interviewees are pseudonyms)