Did you just come across the term reverse dropshipping, and are you wondering what it means? If so, this article will provide you with the answer!
Reverse dropshipping is a concept that reverses the business model of regular dropshipping. This relatively new concept involves buying high-quality products from suppliers in the US or Europe and selling them to wealthy people in China.
After hearing about reverse dropshipping for the first time, you might have your doubts about it.
Would it be a smart move to start a reverse dropshipping business? And is there an actual market for this?
As said, you will find the answer to these questions in this article. So, keep reading if you are interested in reverse dropshipping!
Reverse dropshipping: A simple explanation
Before diving into all the little details about reverse dropshipping, let me give you a simple explanation of this business model. And for that, we will need to quickly go over the regular dropshipping model.
Regular dropshipping involves creating a product listing for the product you are going to dropship. The product listing can be on your own website or on an online marketplace such as Amazon, eBay, or the Facebook Marketplace.
After getting an order for the product you are dropshipping, you go to your dropshipping supplier and forward the order to them. Your supplier will proceed to ship the product directly to your customer. Any money that is left over in this process is yours to keep!
Regular dropshipping often involves buying cheap products from Chinese suppliers and selling them for a higher price to a US or European audience.
Reverse dropshipping is a business model that almost literally reverses this.
It is the concept of dropshipping higher-priced and high-quality products made in the US and selling them to wealthy customers in China without holding any stock in your own inventory.
Your customer pays you the retail price while you pay the wholesale cost to your dropshipping supplier:
So instead of using a company like Shopify as your selling platform, you reverse the business model and use a Shopify ecommerce store as your dropshipping supplier.
So, why does this work?
Well, as said, you won't be targeting just any Chinese audience. It will be your goal to target relatively wealthy Chinese individuals.
These are people that choose not to buy Chinese products but seek products that offer the highest quality standards.
Just like other business models, reverse dropshipping comes with its own set of pros and cons. Let's go over them below:
Pros of reverse dropshipping
It's likely that reverse dropshipping wouldn't be a thing if it didn't offer some benefits. But what are those? Let's find out!
The first benefit of reverse dropshipping is that the amount of competition you will have to deal with will be significantly lower.
Starting a dropshipping business is so easy nowadays that almost every English-speaking person in the world with an internet connection could do it.
Meanwhile, relatively few people know about reverse dropshipping, and those who do know about it are not always able to start a reverse dropshipping business because of the tough conditions (more on that later).
Let me illustrate the relative popularity of the two business models by comparing the two keywords on Google Trends:
As you can see, the interest in reverse dropshipping is minuscule compared to regular dropshipping.
The reverse dropshipping interest line has mostly been just a "0" during the past five years, with an occasional peak to "1".
In the end, not many people are doing reverse dropshipping because of the lack of popularity and the cons of the business model. (More about these cons below)
The benefit of this is that you will have to deal with less competition if you do decide to go for it!
Target a huge market
With a current population of over 1.4 billion people, China is the world's most populous country.
And with reverse dropshipping, you will be able to target this huge market!
On top of this, ecommerce sales in China are booming.
China is by far the top country in the world when it comes to the highest percentage of ecommerce sales relative to retail sales.
A study by Insider Intelligence revealed that 52.1% of Chinese retail sales are ecommerce sales. To give you a perspective on that, South Korea came in second on the ranking with 28.9%, and the UK third with 28.3%.
Pretty crazy, right?
Good return policies
The third pro of reverse dropshipping is that you will generally be able to use suppliers with good return policies.
Insufficient return policies have always been a common problem for people dropshipping with Chinese suppliers.
In most cases, letting the customer keep the product and sending them a new one for free was the best solution, as we have explained in our returns & refunds guide for dropshipping.
Because of the strict return policies of many Chinese suppliers, returning an item is not be possible in most cases. And if it is possible, the process will often be extremely cumbersome.
Dealing with returns is not something you want to waste your time on, so working with a supplier that offers a good refund policy is a great benefit.
Often, American or European dropshipping suppliers will offer good return policies to make returns easy for their customers. An example of such a policy is shown below:
Cons of reverse dropshipping
Unfortunately, not everything is positive about reverse dropshipping. Let's continue with the cons.
Different market conditions
When trying out reverse dropshipping, you will quickly find out that you are dealing with completely different marketing conditions.
For example, Google and Facebook are blocked in China, so a lot of the knowledge you have learned about Google Ads or Facebook Ads won't benefit you.
Instead, you will have to concentrate your marketing efforts on a platform like Baidu, which is China's most popular search engine.
When selling in China, you need to understand the market you are operating in, including the market's unique needs and any cultural differences.
Tip: If you're interested in submitting your site to Baidu, check out this article here.
When starting a reverse dropshipping business in China, it's likely that you will encounter a number of barriers that make it more difficult for you to run your business.
For example, importing products from the US in China is likely to be subjected to very strict requirements and regulations. Considering the political debate between China and the US, these regulations are unpredictable as well as they could change from day to day.
Either way, it's important to do your research before starting a reverse dropshipping store in China.
Try to find out where and how you should register your business, what taxes you should pay, and what regulations you will be subjected to.
The language barrier
One of the last significant barriers you will come across when reverse dropshipping is the language barrier.
Despite the fact that English is taught in Chinese schools for many years now, few people in China can speak English fluently.
Estimates suggest that less than 1% of the Chinese population master English at a conversational level.
Therefore, being able to speak, write, and read the Chinese language is a pretty strict requirement if you are interested in reverse dropshipping.
Without it, you will have a much harder time building your store, communicating with customers, and understanding the market conditions.
Should you do reverse dropshipping?
Now that you know the basics about reverse dropshipping, you might be wondering if you should start doing it.
Well, I would recommend reading through the pros and cons again and decide if a reverse dropshipping business will be worth starting.
Reverse dropshipping provides you with the opportunity to enter a huge market and potentially make plenty of profits.
Loads of wealthy Chinese people are looking for high-quality products. And as the country continues to develop, your audience of potential customers will continue to increase as well.
Still, you need the consider the difficulties of starting a reverse dropshipping business.
For example, being able to speak Chinese and going through the efforts to make the business work logistically are pretty crucial for a successful reverse dropshipping business.
To conclude, you should do reverse dropshipping if you speak Chinese and are willing to go through all the hurdles that you will come across. The potential is definitely there; just remember it might be a long and challenging road to success.
Otherwise, you should check out our in-depth guide here on how to start a dropshipping business in the US!
Reverse dropshipping is a relatively new business model that involves buying high-quality products in the US or Europe and selling them in China.
You could start selling products in a huge market with little competition, but you shouldn't forget about the difficulty of starting such a business.
You might be a hard worker who is able to understand and speak Chinese. Therefore, reverse dropshipping might be a good business model for you.
However, others interested in dropshipping will likely be better of by sticking to the traditional dropshipping business model.
So, if you are interested in learning more about local dropshipping suppliers, just check out these two articles:
Good luck with everything!