THE DAIGOU CHANNEL — HOW A HANDFUL OF CHINESE SHOPPERS TURNED INTO A BILLION-DOLLAR INDUSTRY … for themselves!

KEY POINTS …

-the daigou business has exploded into a multi-billion dollar economic backchannel integrating retail, marketing, logistics

daigou have become known for sinking the share price of companies overnight

the daigou market is worth at least $2.5 billion in Australia

reports of the major players — A2, Bellamy’s, Blackmores, Bubs: zero specifics how the daigou are involved or used

-daigou model: impossible to draw a line betw domestic v international sales if products bought locally and shipped privately

THE opaqueness has sparked controversy over whether domestic sales are actually serving Australians

-daigou blog and livestream through We-Chat providing pre and after sales service

-daigou industry trying to rebrand itself as Cross-border E-commerce enterprise

-to tie in the whole network as one entity for mutual benefit

-ATO has no specific taxation rules!

-Angela pays gst; her income deposited into a Chinese bank account; taxed by Beijing

-many transactions take place on We-Chat; linked directly to Chinese bank accounts; off Aust Govt radar

MEANWHILE in Australia we have citizens:

-losing their homes to debt through job loss, illness …

-persecuted by Robodebt

-high youth unemployment and underemployment

-more than 600,000 international students swamping universities

AS the daigou model allows tax avoidance to run rife … not to mention the Daigou, the Proxy buying up Australian Real Estate …

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The daigou channel — how a handful of Chinese shoppers turned into a billion-dollar industry

Whether it’s parents furious over baby formula shortages or military personnel loading boxes onto Chinese warships — chances are you’ve crossed paths with a trading phenomenon that’s shaken businesses around the country.

By Bang Xiao and Sean Mantesso
China Watch — Part 3

Updated 31 Jul 2019

This is Angela Zhang one of more than half a million international students studying in Australia.

CAAN: Temporary Student Visas on issue at March 2019 to a record high 613,000

ABC: She pays her university fees, rent and living costs by buying Australian-made products and posting them to China.

Angela spends up to 15 hours a day receiving orders from thousands of followers on Chinese social media app WeChat, off the radar of Australian authorities.

She says she can work anywhere, anytime.


“My first time was when I was on Christmas vacation and one of my best friends asked me to send her some high quality and well-known Australian products,” she says.

“Four months later I quit my job and did it full time when I realised it could support my basic life in Australia and was much more flexible.”

Angela is one of an estimated 150,000 “daigou” — Chinese for ‘buy on behalf of’ — working here in Australia.

Angela takes her orders to a daigou shop.

This specialty shop is located in North Melbourne.

A selection of products popular with the daigou.

The items are prepared to be sent to China.

In 2008, China was rocked by a baby formula scandal that left as many as 300,000 infants sick and six dead — consumer confidence in locally-made products never fully recovered.

The crisis sparked a phenomenon here of personal shoppers in Australia sending products to China, which has often made headlines over the years with Australian parents furious about baby formula shortages and the daigou’s ability to influence share prices by having a preferred brand.

As China’s middle class grew over the last decade, so too did the appetite for Australian products, and the demand is increasingly being serviced by international students and new migrants.

*As a result, the daigou business exploded from a handful of personal shoppers with handbaskets into a multi-billion-dollar economic backchannel integrating retail, marketing, and logistics services across the country.

A parcel is labelled with logistics information.

Some businesses also sell directly to China.

Day-to-day orders are handled by logistics firms.

There are now some 1,000 Chinese specialty stores and logistics companies across Australia that have made massive business out of handling retail and shipping for the lucrative industry.

Yaqiong has a master’s degree in accounting from Melbourne University. ABC News

Melbourne University graduate Yaqiong Hu says her parents were initially opposed to her being a daigou because they didn’t believe it was a proper job, but changed their minds after seeing how much she earned.

“My parents thought working in an office with a set income were the standards for a proper job,” Yaqiong says.

“When they realised the income exceeded that of an office job, they started to see it as a career.”

Although the daigou industry was accelerated by the baby formula crisis, it has since expanded to include a vast range of Australian products cosmetics, clothes, food, wine, vitamins, toys — pretty much anything a buyer might want.

Today, with the daigou channel in full swing, those involved in the trade say as many as half a million packages are sent to China every week.

This is how one of Angela’s orders makes its way from the shelves of inner-city Melbourne to a family in the city of Hangzhou, China.

Google Earth: Digital Globe

Angela takes orders and hands the items or pre-packaged parcels over to a local specialty store for processing.

Specialty stores are scattered throughout the country and funnel day-to-day orders on to logistics firms.

Some daigou logistics firms maintain industry-scale warehouses near Australian airports to facilitate processing.

EWE Global Express processes thousands of parcels through its Moorabbin warehouse every single day.

Parcels are flown 7,500km over South-East Asia to major Chinese trade hubs depending on which province they’re heading to.

Angela’s package was sent to Shanghai’s Free Trade Zone to be processed for distribution in Zhejiang province.

From there, Chinese postal services take over distribution to daigou customers across the country.

This package from Angela was delivered to the Shen family residence in Hangzhou city in the country’s south.

Four-year-old Anna Shen has been fed Australian baby formula since she was born.

A typical parcel might include A2 baby formula and Swisse and Blackmores vitamins, among other popular Australian products.

Like any parents, the Shens just want the best products for their daughter.

*“It’s convenient to buy through daigou because they can get us products not sold on big e-commerce platforms,” the family explains.

“But mostly, the daigou we buy from are friends that we trust.”

‘No matter how big or small, your company must embrace them’

While daigou is a global phenomenon, Australia has become a case study in terms of the scale and sophistication of the operation.

*It’s nearly impossible to put an exact dollar figure on the size of the industry, but daigou are massive business — a slew of publicly-listed companies in Australia rely so heavily on daigou sales that daigou have become known for sinking the share price of companies overnight.

Blackmores interim CEO Marcus Blackmore recently told the ABC following an overnight share drop that the daigou made up some 25 per cent of his business.

But analysts estimate that the daigou make up as much as 60 per cent of many businesses, while AuMake, a publicly-listed daigou specialty business, told the ABC that the daigou market is worth at least $2.5 billion in Australia.

Daigou are important for Blackmores’ business.

Popular Australian products purchased by daigou

*The ABC examined the financial reports of the major players — A2, Bellamy’s, Blackmores, Bubs — and while they contain reference after reference to “daigou channels” and “China channels” there are zero specifics about how the daigou are involved or used.

*All companies and media spokespersons declined requests for financial breakdowns and comment, with others saying that they actually just don’t know for sure.

*Part of this is because with the daigou model, it’s nearly impossible to draw a line between domestic versus international sales if the products are bought locally and shipped privately the opaqueness has sparked controversy over whether domestic sales are actually serving Australians.

But if China is such big business, why don’t Australian companies simply increase their international quota and sell directly into China? Well, it’s not that easy.

Businesses who think they can get around the daigou by cutting costs or selling directly into China have found themselves in terrible positions.

Bellamy’s were doing very well through the daigou channels, so they thought: ‘OK, we can just take this over[and sell directly to China and undercut them], because clearly everyone wants our product’,” strategic business management professor Stuart Orr told the ABC.

“But they completely misunderstood.”

That’s because the key to the daigou phenomenon doesn’t necessarily lie in the quality product, but how it’s marketed.

Daigou have direct rapport and personal trust with Chinese clients that Australian companies simply don’t have.

For example, by blogging and live-streaming her services through WeChat, Yaqiong Hu is able to provide invaluable personalised pre- and after-sales services.

Sometimes tens of thousands of people all across China are watching the sessions.

*It’s proof that the daigou bought the product from Australian retailers, but for the businesses, it’s outsourced marketing.

“We’re very dependent on the daigou in Australia,” Mr Blackmore told the ABC.

“They’ve made the point to us that they do a hell of a lot of the marketing and the sales for our product in China.”

At a recent daigou event in Melbourne, Blackmores CFO Aaron Canning said the daigou were “the single largest network of sales, people, ambassadors and influencers [in Australia]“.

“No matter how big or small your company is, you must embrace them,” he said.

‘Where the real concern lies’: Tax loopholes, WeChat and the future of daigou

*Since late last year, the daigou industry has been trying to rebrand itself as an Cross-Border E-Commerce (CBEC) enterprise in order to shake its reputation as an unofficial and unregulated channel.

*Under CBEC — which refers to all digital international trade like that done on eBay and Amazonthe daigou are hoping to tie in the whole network of individual shoppers, specialty shops, distributors, and logistics firms as one entity working together for mutual benefit.

*But while the daigou phenomenon continues to grow, a number of unanswered questions remain: such as whether these lucrative backchannels are creating tax loopholes, and whether it’s responsible for companies to rely on a marketing strategy they can’t control.

Thousands of Chinese buyers pay for daigou services through WeChat off the Australian Government’s radar. ABC News

*The Australian Tax Office told the ABC that while there are “no specific taxation rules” for the daigou business, the expectation is that they would meet GST and income tax obligations, while noting that “some daigou participants may not be correctly registering business activities”.

*Angela pays GST just like any other Australian consumer, and told the ABC that her income is deposited into a Chinese bank account and taxed by Beijing, which she can prove — however, it’s a grey area whether or not some daigou activities should be classified as taxable income here in Australia.Billion-dollar baby formula crazeEver seen people clear entire shelves of baby formula at your local pharmacy or supermarket? They may be Daigou and it’s a simple and lucrative business.

*The fact that many daigou transactions take place on Chinese social media apps like WeChat and are directly linked to Chinese bank accounts, means that many operations are taking place off the Australian Government’s radar, making them hard to crack down on.

*At the same time, using a daigou channel effectively allows companies to sell into China and label it as domestic trade since products are bought locally — in turn, it also allows customers in China to buy Australian products duty free.

*“Whether [those engaging the daigou] are meeting their corporate governance responsibilities in terms of actually understanding this channel — I think they’re not,” Professor Orr says.

*“I think they’re standing back and just allowing it to happen. I think that’s where the real concern lies.”

Yet despite these issues, Australian companies that benefit from the daigou are ploughing ahead in the hopes they’re effectively tapping into the lucrative industry.

Just this week, Bubs Australia said in a statement that “the rapid growth of the corporate daigou segment” contributed to our domestic sales, more than doubling that of the prior year, but refused to disclose the figure to the ABC.

“Our China route-to-market platform capability advanced significantly through new strategic partnerships with Beingmate, Alibaba and Kidswant,” Bubs CEO Kristy Carr said in the company’s quarterly report.

Australia Post’s daigou specialty store in Box Hill.

Everything sold here must be sent to China.

Even Australia Post — led by former Blackmores CEO Christine Holgate — is getting on board, having opened a handful of China Direct stores over the past year that are stocked with duty-free goods that can only be shipped directly to China.

The company and Ms Holgate declined to talk about their daigou strategy or provide a representative to speak on the record, but in a statement to the ABC simply said the enterprise was a trial concept aimed at capitalising on a $320 million daigou market, without providing details on how the market is calculated.

As Australia Post is government-owned, the ABC asked the Ministries of Finance and Communications for comment on how the China Direct stores were related to its principal function of providing postal services for Australians.

A subsidiary function of Australia Post is to carry on — outside Australia — any business or activity relating to postal services [or] any business that is incidental to its principal and subsidiary functions,” a spokesperson for the Finance Minister said.

Australia Post has flexibility and discretion in its operational and commercial decisions within the parameters of the Australian Postal Corporation Act 1989.

*“These stores operate in a highly competitive retail market and sales figures and parcel volumes are commercial in confidence.”

CAAN: Where have you heard that before??? ‘commercial in confidence’ ???

Chinese military personnel loading baby formula boxes on to a warship.

Back in Beijing, China is trying hard to rebuild trust in home-grown products in order to wean consumers off the reliance on imports, aiming to increase local production of baby formula to more than 60 per cent — domestic infant and toddler milk accounted for 43.7 per cent of the Chinese market in 2018.

*Beijing has also implemented e-commerce laws to ensure professional daigou are registered as businesses and pay tax on the products that they’re importing — there are reports some smaller daigou operators have already exited the market, but the laws will be relatively limited in effect as significant portions of the daigou trade take place on platforms like WeChat.

“It will capture some people, it will generate some revenue,” Professor Orr says.

“But it’s not really going to dampen down anyone who seriously wants to continue the trade.”

In the meantime, the phenomenon continues to create such a frenzy that when Chinese warships unexpectedly rocked up in Sydney Harbour this year, some media outlets suggested they were stealth missions to collect baby formula after military personnel were seen loading boxes onto the ships.

Whether the billion-dollar industry can or will ever be assimilated into the mainstream economy is unclear — but for now, the daigou industry show no signs of slowing.

Watch the full episode of ‘China Watch 3: The Daigou Channel’ on YouTube.

The Daigou Channel ABC News

Credits

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SOURCE: https://www.abc.net.au/news/2019-07-31/chinese-daigou-changing-influencing-australian-business/11221498?utm_source=sfmc&utm_medium=email&utm_content=&utm_campaign=%5bnews_sfmc_newsmail_am_df_!n1%5d%3a8935&user_id=9d3e1a2a4fb742155de35fe9b773876b533fd107ad480457f0d57b6b6c2ef332&WT.tsrc=email&WT.mc_id=Email%7c%5bnews_sfmc_newsmail_am_df_!n1%5d%7c8935ABCNewsmail_topstories_articlelink

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