How consumer, retail companies can capture compliance and profits

Premier Li Qiang told a State Council executive meeting on 19 May 2023 that to deliver tangible benefits from the push to build a national unified market it was important to enhance ideological unity and reinforce accountability, together with the mechanisms underpinning the system.

In light of this policy priority, this article reviews the risks and challenges faced by consumer and retail companies, and offers compliance advice to support their growth in the era of big data.

Government regulation

According to preliminary statistics, the violations punished by market authorities from 2017 to 2023 mainly involved business licences, product quality, advertising, trademarks, etc.

The likelihood of being punished for traditional illegalities such as unfair competition was relatively stable, while the incidence of action over advertising and trademarks saw a rapid increase.

An analysis of about 500,000 penalty decisions showed that cases of false propaganda and restriction of competition via exclusivity agreements and other related matters occurred frequently and were also the focus across varied enforcement authorities.

In tax-related criminal cases, false invoicing, forgery, and selling forged special VAT invoices have always been high-risk violations. Consumer and retail companies should strengthen compliance controls over high-frequency business activities, especially risk controls on advertising, product quality and taxation.

Company groupings

Consumer and retail companies can be grouped into startups, growth and well-established companies, based on their number of employees and revenues.

Startups can achieve effective back-office administration, strengthen training and good business practices, and prevent compliance risks and potential operating loopholes by partnering with professional services teams.

Growth companies need to establish effective risk management systems and internal control mechanisms, which require a large investment of resources to assess, monitor and manage risks.

Well-established companies should focus on domestic and foreign laws, regulations and policies, compliance with major agreements and contracts, legal disputes, IP protection, monopolistic behaviour, dumping and information disclosure.

Industry segmentation

The consumer and retail sector could be further divided into 10 sub-sectors: cross-border goods; sportswear; food and beverage; digital home appliances; household and personal products; catering services; beauty and skincare; department stores and supermarkets; agricultural products; and pet food.

These include quite a few promising industries with new growth drivers. Their compliance requirements differ from those of traditional industries, along with typically having very different patterns of consumption. More refined measures are needed to address the challenges of evolving compliance requirements.

Digital services

In addition to a strategic allocation of human resources, digital market supervision products can help companies to build an early-warning mechanism for compliance risks of high-frequency business activities related to advertising and trademarks.

They could also leverage digital tax management tools to improve invoice compliance and refine corporate cost control, boosting profitability and compliance at the same time.

To address criminal risks in business operations, companies can also turn to digital services, complemented with market supervision and tax inspection, to conduct big data analysis of illegal acts in high-frequency activities, especially in areas such as preventing false invoices, unfair competition and compliance-based non-prosecution. This would enable them to implement standardised and replicable compliance measures.

In general, consumer and retail companies should make use of digital tools to better understand consumer needs and launch more targeted offerings, making themselves stand out from competitors.

Focus on effective services

According to 20 key measures released by the government in 2022, data, as a new type of production factor, has rapidly penetrated all aspects of production, distribution, circulation, consumption and management of social services, profoundly changing methods of production, life and social governance.

In view of this, consumer and retail companies should optimise their management systems, seek to gain competitive advantages that arise from digitalisation and develop the capacity to adopt innovative approaches to cope with tightening market supervision.

When building compliance systems, companies should try to make full use of data platforms to create digital security, review advertising compliance and retrieve trademark laws, etc.

Regarding finance and taxation, companies should take note of the introduction of an online platform allowing direct connections with tax authorities. They should fully utilise platform data and information resources to reduce asymmetries between the tax authorities and enterprises.

Achieving compliance and profitability objectives at the same time may be something of an elusive Goldilocks moment for companies. As the Chinese proverb says: “Use the stones of other mountains to polish your gems.”

Quan Kaiming is a partner and Yuan Wei is an associate at AllBright Law Offices. Xie Meishan, an associate at the firm, also contributed to this article.