The transformation of daigou in the post-COVID 19 era

Oct 6, 2020

Daigou based parallel trading is a historical phenomenon in the long history of cross-border trade. Its heyday is now history, but it is not dead yet, as the informal, freelance, retail daigou are gradually incorporated into corporate daigou channels in Australia.

Technological solutions, such as blockchain based provenance systems, may supersede or enable corporate daigou channels to process cross-border transactions, based on trust and transparency, in the post-COVID 19 era.

The informal business of daigou—used as a collective term to mean a business or enterprise as well as individuals who run such a business—has enabled many Chinese living in Australia to make a living, and even transform themselves into micro-entrepreneurs through social media marketing. They make a profit by charging a commission or a reasonable extra fee on top of the total cost of physical products and transportation fees.

The Chinese super app, WeChat, is essential to the daigou business, as a tool of communication, marketing, and digital transactions (through WeChat Pay). Australia-based daigou buy and mail a wide range of products to their clients in China, including: health products (baby formula, skin care products, vitamins and supplements), cosmetics and beauty products; to low-end fashion, accessories, and designer fashion brands; sheepskin products (e.g. UGG boots); and supermarket grocery items (e.g. breakfast cereals, Manuka honey, and chocolate). All are marketed as natural, clean and green.

Daigou have relied heavily on Chinese social commerce platforms, most notably WeChat, to initiate and finalise transactions. WeChat has fulfilled three major roles for daigou and the daigou ecosystem: a communication tool; a marketing and sales channel; and a network-building platform. Daigou are not just purchasing on behalf of Chinese clients but also act as marketing representatives of international brands and consultants for both Chinese clients and international retailers and manufacturers. Successful daigou are also ingenious social media marketers.

Personal shoppers are therefore sole traders as well as part of a much larger business network. They are pick-and-pack Asian shoppers as well as social media influencers and marketing experts who help establish Australian brand awareness among Chinese consumers and help small businesses and new brands break into the Chinese market. WeChat functions as the nexus to link and bring together people, organisations, services, and resources. It is the network of networks (of customers, intermediaries, peers, competitors, and resources), from which the Chinese daigou derives their network capital. Such network capital incorporates various forms of capital: the social capital of ties and opportunities; the human capital of skills and knowledge; the cultural capital of experience and attitudes.

Prior to COVID 19, daigou had become a multimillion-dollar industry with an estimated 100,000 to 200,000 daigou scattered in various metropolitan centres in Australia. It was understood that many Chinese international students and new migrants from China joined the informal economy of freelance cross-border e-commerce between Australia and China; and that their collective power was big “enough to make or break Australian brands seeking to enter the Chinese market.” Brands were urged to harness daigou power to sell to China.

At the same time, the daigou phenomenon caused a media panic in Australia about Chinese invading and disrupting the posited “Australian way” of economic life. Media reports about Chinese daigou in Australia have ranged in tone from amazement, disbelief, to fear, panic, and condemnation. They were viewed as instigators of social problems and petty crimes, as quasi-criminals and shoplifters who clear off  “our” baby formula from supermarket and pharmacy shelves in “micro-gangs.” They were suspected of money laundering in association with organised crime groups, even though “police do not know how much dirty money is laundered through them [daigou businesses].” Such portraits of daigou in Australian media could also be found elsewhere, such as in Japan and “ugly Chinese tourist” stories in its media.

Daigou view themselves as saviours of the sluggish Australian retail sector, rather than instigators of social problems. They feel unfairly targeted and alienated from the mainstream of Australian society. There has been an exodus of retail daigou from the Australian market since 2019, due to a number factors, including: the increasing tension in bilateral relations between China and Australia; anti-Chinese sentiment among some Australian consumers; China’s tightening control of cross-border e-commerce with its new e-commerce law from January 2019 requiring daigou to register their businesses and pay sales taxes; and the rise of corporate daigou channels to incorporate and replace the unorganised retail, pick-and-pack daigou in cross-border trade.

Then came the COVID-19 in 2020, which further hit sales of Australian products in the China market, with Chinese visitors and students (who constitute the main force in the retail daigou) being blocked from entry due to the national border closure and the remaining daigou being restricted due to the strict lockdowns in Melbourne. Even corporate daigou have been impacted by the lockdowns. Popular Australian brands like Swisse, A2 Milk, and Blackmores have all felt the chill of the daigou exodus.

The daigou channel is no longer the same, but not gone. Corporate daigou channels are digital marketing and consultancy companies that incorporate large numbers of retail daigou agents into their business operations through formal channels or platforms. The traditional daigou are less seen in Australian retail outlets, now and in the post-COVID 19 era, as they join established channels or platforms like Livia Wang’s Access Brand Management as individual distributors and subcontractors. Corporate daigou platforms help them manage the process of product procurement, delivery, and other logistics and administrative issues.

China is and will remain a huge market with a strong demand for authentic and high value goods. The daigou industry is built on trust, with consumers in China placing their trust in their personal shoppers overseas to source and ship authentic products. Corporate daigou channels run by Chinese Australians are well positioned to solve issues related to brand management, consumer disputes, and authenticity certificate services, in collaboration or competition with policy makers, brands, and companies that offer technological solutions to the trust issue in the digital economy. Blockchain technology, with a decentralised database or distributed ledger, potentially offers an alternative way of creating “trust” and “transparency,” the two words cherished by Chinese consumers, who are willing to pay a premium price for authentic products from a trusted source. Digital startups run by multicultural talents in Australia and New Zealand are leveraging the technology in transforming the daigou industry. The benefits of 5G and next generation mobile networks (and complementary technologies) to the industry are not far away. The Australian Government has recognised this potential by establishing a working group regarding the application of such technology to cross border agricultural trade.

Daigou based parallel trading can be understood as a contemporary type of shuttle trading in the era of social commerce 2.0, which is user driven, characterised by community and global crowdsourcing. This is in contrast to social commerce 1.0 that is vendor driven and peer mediated. We are now witnessing the emergence of social commerce 3.0, which is technology enabled, creating direct relationships between producers and consumers, aided by blockchain, 5G, and complementary technologies. Such is the transformation of daigou in the post-COVID 19 era.

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