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The tide of electronic cigarettes going overseas: From manufacturing exports to brand exports, the industry has become polarized

The tide of electronic cigarettes going overseas: From manufacturing exports to brand exports, the industry has become polarized

2022-07-18

"The overseas market is now showing a blue ocean trend, and the company's future direction will definitely deviate overseas." On July 11, Zhang Lei, who runs an e-cigarette brand in China, told the Beijing News Shell Finance reporter that a year ago, he consciously "domestic" There is little chance", and he focused his sales market on overseas regions.


Earlier on June 15, the official website of the State Tobacco Monopoly Administration announced that the national unified electronic cigarette transaction management platform was officially launched. E-cigarettes implement "one item, one code", and e-cigarette companies that have not obtained a license will not be allowed to trade through e-cigarette trading platforms. At the same time, the new version of the "Administrative Measures for Electronic Cigarettes" removes the requirement that exporting electronic cigarette enterprises need to obtain a license for tobacco monopoly production enterprises.


According to the "Blue Book of Electronic Cigarette Industry Export in 2022" (hereinafter referred to as "Blue Book"), there are currently more than 1,500 electronic cigarette manufacturing and brand enterprises in my country, and more than 70% of them mainly export their products overseas. It is estimated that the total export value of electronic cigarettes will reach 186.7 billion yuan in 2022, with an expected growth rate of 35%.


After the "Thousands of Tobacco Wars", there is a saying in the electronic cigarette industry: "More than 95% of the world's electronic cigarette production and products are from China, 70% of China is from Shenzhen, and more than 95% of Shenzhen is from Bao'an". China is gradually transforming from the world's largest e-cigarette manufacturer to the world's largest exporter of e-cigarette brands.


"The reason why Shenzhen has become the core lies in its strong IT manufacturing industry, which provides strong technical support for the innovation and upgrading of electronic cigarette products." Guo Xiaoyu, COO, co-founder of Shenzhen Two Supreme Technology Co., Ltd. analyzed, "E-cigarettes have Strong 'innovative' attributes, the product replacement rate is maintained within 3-6 months. Throughout the global market, only Shenzhen can achieve this state of rapid innovation."


On July 2, Lin Yu was busy preparing materials in the office. As a "new recruit" who has only entered the e-cigarette industry for less than a year, he is now planning to lead a team to Southeast Asia for development.


Lin Yu knew in his heart that this decision meant that he would start from scratch in an unfamiliar market. But he said, "Compared to the domestic market with increasingly strict regulatory policies, there is undoubtedly more room for overseas markets."


In 2019, the domestic electronic cigarette industry broke out rapidly, and once set off a "thousand smoke war". However, with the new regulatory requirements such as "manufacturers are not allowed to produce 'fruit-flavored' pods" and "one cigarette, one identity", the industry has begun to develop in compliance.


The Beijing News Shell Finance reporter learned that compared with the domestic market, the overseas market has broader prospects in terms of user scale and future prospects. According to the "2022 Electronic Cigarette Industry Export Blue Book" report, the global electronic cigarette market will exceed US$108 billion in 2022, and it is expected that the overseas electronic cigarette market will maintain a growth rate of 35% in 2022, with the total scale exceeding US$100 billion.


Lin Yu set his first stop in Southeast Asia. Unlike the Chinese market, some countries in Southeast Asia are open to e-cigarettes and even allow e-cigarettes to be sold online. According to data from Euromonitor, a consumer market research organization, it is expected that the total market of electronic atomization in Southeast Asia will reach 766 million US dollars in 2023, or about 5.1 billion yuan.


After a year of preparation and experimentation, Zhang Lei has now established a firm foothold in the Southeast Asian market, and his e-cigarette brand has gradually opened up.


According to the "Blue Book" data, China's e-cigarette exports will reach 138.3 billion yuan in 2021, a year-on-year increase of 180%. It is estimated that the total export value of electronic cigarettes will reach 186.7 billion yuan in 2022, with a growth rate of 35%.


"Before, some e-cigarette companies came into a misunderstanding and felt that going overseas was a path they were forced to choose when there was 'no way to go'." An e-cigarette practitioner told reporters, "In fact, the overseas market is as important as the domestic market. It should be the core direction of the development of every e-cigarette company."


"Now RELX, MOTI and other leading companies have also begun to bet on overseas markets." Zhang Lei said. The reporter checked the public information and found that RELX tried overseas exploration as early as 2019. After its establishment in 2021, RELX International, which is responsible for overseas business, has accumulated millions of consumers in more than 40 countries around the world.


Another brand MOTI now also covers 35 countries and regions around the world, has more than 100,000 outlets of various types around the world, and even established an independent platform for the industry's leading e-commerce in North America.


"Many manufacturers have gone overseas, which will inevitably intensify the competition in overseas markets." Lin Yu said, "Although the future prospects are unclear, this is the most important choice for current e-cigarette manufacturers."


Why Shenzhen? Customers with new ideas can get proofing products within two hours


In the small notebook that Lin Yu carried with him, there was a world map full of symbols, with a long line drawn in black pen on it: Shenzhen - Southeast Asia - Europe and the United States. This is the "sea map" he set for himself. Although he has just entered the first leg, he is full of confidence: "Try to finish this line within 5 years."


Lin Yu's reliance stems from the fact that his partner is a factory located in Bao'an District, Shenzhen.


The Beijing News Shell Finance reporter learned that there are currently more than 1,500 electronic cigarette manufacturing and brand companies in my country, and nearly 100,000 electronic cigarette supply chain and surrounding service companies, forming a complete electronic cigarette industry cluster. And most of them are gathered in Bao'an, Shenzhen.


The origin of Shenzhen and electronic cigarettes dates back to 2004. At that time, the first domestic electronic cigarette "Ruyan" came out, which not only quickly became popular in the domestic market, but also attracted many consumers around the world. Affected by the success of "Ruyan", a large number of electronic cigarette factories have emerged in Zhejiang, Shenzhen and other places, and in the following ten years, Shenzhen has gradually become the most core electronic cigarette production cluster in the country and even the world.


Guo Xiaoyu, the co-founder of Shenzhen Two Supreme Technology Co., Ltd., told reporters that after years of development, Shenzhen Baoan not only has many electronic cigarette enterprises, but also brings together supporting enterprises including industrial design, molds, batteries and other supporting enterprises. "There are electronic cigarettes here." Hours of traffic circle', the entire industry chain cooperates closely. Even when manufacturers and customers communicate with new ideas, they may get proofing products in less than two hours."


Official data shows that in 2021, there will be 55 e-cigarette companies above designated size in Bao'an District, including many well-known companies such as McQuay and Fog Core Technology, with an output value of 35.6 billion yuan. In 2022, the number of enterprises has increased to 77, and the output value is expected to further increase.


Lu Jixian, deputy director of Shenzhen Baoan District Investment Promotion Agency, once publicly stated that Baoan will be committed to building a 100 billion-level electronic cigarette industry cluster, and will build a global atomization technology center in the future, and continuously expand the application boundaries of electronic cigarette technology. Chemical therapy, beauty and other fields, and continue to expand overseas markets.


In July 2020, Lin Yu came to Bao'an District, Shenzhen for the first time. He had previously represented a domestic brand of e-cigarettes. Affected by the outbreak of the market, Lin Yu, who was unwilling to be only a distributor, decided to form a team to build his own e-cigarette brand.


"After asking around, I found that the most concentrated area of the electronic cigarette industry is here." Lin Yu told reporters that although Foshan, Dongguan and other places also have electronic cigarette manufacturing factories, they are far less concentrated than Bao'an, Shenzhen. He was amazed by the high-end production equipment and complete accessories of the local e-cigarette manufacturing factory, "From cigarette sticks, e-liquids, batteries to pods. Just provide the brand and LOGO to the other party, and you can produce exquisite products. Here comes the e-cigarette."


Soon, Lin Yu reached a cooperation with a foundry, and he was responsible for designing the brand and sales channels, and the other party was responsible for the production of electronic cigarettes.


When he saw the samples designed by the other party according to his requirements, Lin Yu's confidence in the export road increased greatly, "It is much better than imagined, and it can continue to be upgraded and iterated according to the needs of players and the market in the later stage. Overseas markets will definitely be welcomed.”


An accident: the road to export is opened, and the logistics bottleneck is hard to stop the enthusiasm for going to sea


The introduction of domestic electronic cigarettes into overseas markets originated from an accident.


A senior industry insider in Shenzhen told reporters that many years ago, a Chinese student studying in Turkey brought e-cigarettes back to Turkey. This new product quickly aroused local curiosity and inquired about purchasing channels.


As the country with the highest smoking rate in the world, e-cigarettes quickly sparked a buying boom in Turkey, and even flowed into the European market through Turkey. In a short period of time, not only a large number of international students with backpacks rushed to the Shenzhen electronic cigarette factory to "human flesh" to bring goods, but also attracted many overseas distributors to Shenzhen to purchase.


"There are two reasons behind the popularity of electronic cigarettes in Europe and the United States. One is that the price is lower than that of traditional cigarettes, and the other is that foreign markets have a more tolerant attitude towards electronic cigarettes." Guo Xiaoyu analyzed to reporters.


But the road to export is not easy.


The first thing that needs to be solved is the logistics problem. In the past, 40% of the e-cigarettes exported from Shenzhen were shipped from Shenzhen to Hong Kong, and then sent to the world. However, Hong Kong previously announced that "it is illegal to sell, manufacture, import or promote e-cigarettes and heated tobacco products in Hong Kong from April 30," and manufacturers had to re-find export routes.


The reporter learned that Shenzhen Airport recently stated that it has worked with relevant parties such as the Electronic Cigarette Professional Committee of the China Electronic Chamber of Commerce to jointly study and issue the whitelist enterprise certification standards for electronic vaping products and air transportation in response to the bottleneck in the domestic electronic cigarette air transportation chain. Export differentiated security inspection operation guidelines, and plans to build Shenzhen Airport into a global transshipment center for electronic cigarettes in the future.


When products arrive in overseas markets, manufacturers also need to face the challenges of different policies and player consumption trends in overseas markets.


Taking electronic pods as an example, many popular flavors in China are not popular overseas. Different countries have different requirements for nicotine content. The United States allows the content to not exceed 3%, while the United Kingdom stipulates that it should not exceed 2%. This requires manufacturers to make corresponding measures and research and development according to local specific conditions.


"Before going overseas, you must also understand the local control system for electronic cigarettes to avoid unnecessary losses." Zhang Lei told reporters that today's global regulatory policies for electronic cigarettes are different. Both the United States and the European Union have adopted a federal approach to e-cigarette regulatory policies. In Southeast Asia and the Middle East, although the market is relatively loose, some countries tend to adopt e-cigarette bans.


The above problems can not hinder the enthusiasm of Chinese manufacturers to export. According to the "Blue Book", the export value of e-cigarettes in 2021 will increase by 180% compared with 2020. It is expected that the export value will reach 186.7 billion yuan in 2022, a year-on-year increase of 35%.


Patent and standards competition emerges


On June 23, an overseas news quickly detonated the domestic e-cigarette circle: the global e-cigarette giant JUUL was officially issued a listing refusal order by the US Food and Drug Administration.


"This is undoubtedly good news for domestic e-cigarette exporters." On July 8, an e-cigarette practitioner told the Beijing News Shell Finance reporter, "If JUUL is really delisted, it means that other brands will Gaining a larger market share, and many of them from China are also benefiting from it.”


The analysis report of Zheshang Securities believes that JUUL’s withdrawal may have provided 52% of its US business order flexibility to its main competitor, Smol International, and many international e-cigarette brands that cooperate with it are now accelerating to seize the US market.


The reporter learned that, as the world's largest single market, the US e-cigarette market will account for more than 55% of the total overseas global market in 2021. In the first quarter of 2021 alone, the US market accounted for 58% of China's e-cigarette exports, with an export value of about 73.3 billion yuan. For e-cigarette practitioners, such a huge market cannot be missed.


"Almost the vast majority of brands and manufacturers have begun to develop overseas markets." Wang Min, who runs an electronic cigarette foundry in Shenzhen, told reporters that his factory has been busy doing OEM production for many brands recently. She found that the sales direction of the other party is almost concentrated in overseas fields.


According to previous media reports, many e-cigarette factories in Shenzhen, which mainly focus on foreign trade, are recruiting people. In order to meet orders, many factories urgently recruited 10-day short-term workers to make electronic cigarettes by additional staff, and worked overtime during the New Year's Day holiday.


"E-cigarettes have a strong 'innovative' attribute, and the product replacement rate remains within 3-6 months. Looking at the global market, only Shenzhen can achieve this state of rapid innovation." Guo Xiaoyu said.


In addition to the rapid iterative innovation of technology, more and more electronic cigarette manufacturers are gradually moving towards high-tech, and they are beginning to care about patents.


According to the "2022-2028 China Electronic Cigarette Industry Market Operation and Development Strategy Research Report" released by Zhiyan Consulting, the number of electronic cigarette patent applications in China in 2021 will be 5,937, a year-on-year increase of 41.9%. Among them, the number of Guangdong Province, the main application area, reached 21,646, accounting for 69.2% of the total number of patent applications.


According to the "Blue Book", patent applications for electronic cigarettes have emerged in the past three years. In the past three years, the number of patent applications per year has exceeded 5,000. The number of patent applications has increased monthly since the fourth quarter of 2021. The total number of patent applications in 2022 is expected to exceed 7,000.


Not all blue ocean markets are risk-free. "A few e-cigarette brands have moved to overseas markets a few years ago, but not all of them can succeed." Wang Min told reporters that there are many losers among overseas manufacturers. Now. Stories like this abound in the circle.”


The reporter learned that the e-cigarette companies going overseas are now showing a two-level trend of differentiation. Due to the characteristics of stricter production standards and better quality, leading companies are not only easy to enter the new whitelist of Shenzhen Airport when exporting, but are also more respected by players in overseas markets. It is relatively difficult for small and medium-sized enterprises to go overseas, and it is not even possible to rule out the ending of leaving the market sadly.


"Going overseas is more like a 'gambling'. It needs to adapt to different regulatory policies, cultural differences, consumer habits and other issues. Once a decision is made wrong, the final result can only end in failure." Wang Min said.


Ling Xiaolu, executive commissioner of Shenzhen Bao'an District Government, expressed the hope that the electronic cigarette industry will continue to expand overseas markets, occupy more overseas market shares, occupy the upstream position of the global industrial chain, and take the lead in formulating standards for the global electronic atomization industry.


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