2. Daigou Market
2.3. Business Driving Forces
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specific brands instead of others [31]. Though brands are an integral part of the Daigou business, branding falls outside the scope of this paper. A table of well-known brand names are listed respectively in ascending order according to their categories and countries are shown in Appendix 1.
The examples in Appendix 1 show that customers prefer brands from France, Germany, Japan, South Korea, the United Kingdom and the United States. Most of the brands desired by Daigou consumers are from the United States. As mentioned previously, many product types can be traded in the Daigou business when there is demand and supply. However, since the products with the same brand names are easily found in different countries, Daigou agents are able to shop for the same brand in different countries.
In the Daigou business, the intangible product, i.e. service, is also a key to make transaction happen because it drives the communication before, during and after a Daigou purchase.
2.3. Business Driving Forces
According to the Business Dictionary, driving forces broadly mean “the internal forces (e.g.
knowledge, core capabilities and technological innovation) and external forces (e.g. economy, competition, local and national politics and social trends) that shape the future of an organization and make the organization to stay competitive [32]”. By regarding Daigou business as an organization, driving forces mean something that has the power to make Daigou happen. In this section, six driving forces for Daigou will be presented:
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The huge price difference of products between oversea countries and mainland China drives people into the Daigou business to make/save money. Taxes imposed by the Chinese government are the major reasons to drive price disparities. Other than certain products, goods imported into China are normally subject to three taxed levies: import tariffs, value-added tax (VAT) and consumption tax. Hence, imported products sold in China are much higher than any other foreign countries [33]. On average, the price difference for alcoholic beverage is between 64-85 percent, watches between 33-83 percent and consumer goods, such as clothing, perfumes, handbags, cosmetics and footwear are less than 30 percent [28]. For luxury goods, the import tariffs can make up over 50 percent of its price tag [34].
During widespread sales seasons in countries outside of China, the price difference becomes evident. For example, a Dior’s handbag costs around 14,723.7 CNY (2000 EUR) in Italy but is sold at 30,000 CNY in China so even the mainland customer has to pay premiums of about 15 percent above the retail price, excluding the mailing fee, the price is still much lower than what he/she has to pay in a local shop assuming the same product is available. Some other examples include: a Swarovski’s crystals watch which is 40 percent more than in Europe, a “speedy 25”
Louis Vuitton’s handbag which is 18.8 percent more than the United States and Lancôme’s eye mask which is 20.5 percent more than in France [33]. Therefore, it provides a great business potential for Daigou agents to generate revenues while customers save more money by ordering oversea.
In addition, Daigou agents also get extra income in a Daigou activity due to tax refund, which is available when a Daigou agent purchases a certain amount of oversea products during his/her
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trip. After filling in a custom form before exiting the country, he/she gets tax refund in cash or via bank. The amount of tax refund varies by country and total amount spent on tax refundable products has to be above a certain amount in order to get any refund. For example, for every consumption of 7,358.5CNY (1,000 EUR) per order, the tax refund rate is about 12 percent, 11.4 percent, 12.9 percent and 12.85 percent in France, Germany, Italy and Spain respectively [35]. However, in Japan, the tax refund rate of consumer goods is 8 percent and consumption has to be over 313.9 CNY (5,001 JPY) per order [36].
Therefore, for agents who would like to make money through Daigou activity, they will tend to consume over the certain amount of money to get the tax refund. In addition, as mentioned previously, the exchange rate is also a way for Daigou agents to make money. Therefore, price difference, refundable VAT and gains from exchange rate are three things that drive the Daigou business.
Limitation of Supply in Home Country
In China, buying options and product supply in local markets are limited. Limited edition and new products are usually first launched in oversea markets and imported to China later. For those customers who want to follow the fashion trends and get access to the latest designs that are not available in China, there are Daigou agents who take advantage of time gap and distance.
For example, Miss Hung Xi, a Daigou customer, said that when she saw the new clothes on foreign websites, she goes through Daigou agents in order to get them from oversea markets since these new designs took more time to arrive in China [5]. Additionally, China is a big market with over 1.3 billion people with a wide range of product preferences. The local supply is far from enough to fit their demands. Therefore, these external driving forces motivate the
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Chinese people, to consume from oversea markets.
Rising Living Standards
As the economy of China grows at a rapid speed, increasingly paying an influential role in the global economy, Chinese people want to have a higher living standard as well [5]. Despite being an emerging country with high income inequality, China has the world’s fastest growth in living standards [37]. People with higher income, longer life expectancy and more purchasing power are now willing to pay for better products. With the desires for a healthier life and superior quality, especially for the affluent and health-conscious middle classes, the merchandises offered in the home country can no longer satisfy the local needs. The oversea products which customers look for are usually of higher standards and quality.
Additionally, the 2004 toxic milk powder and 2008 Chinese milk scandal have risen quality concerns for local food producers’ quality standards. Newborn babies developed serious mental and health problems and at least half a dozen children died after consuming milk products contaminated by melamine, a chemical used in plastics and adhesives. The local milk powder market thus dropped by 45percent [38]. Together with other incidents, many customers decided to buy from Daigou agents, rather than from a local Chinese shop [5]. For example, Miss Gong, has become a loyal customer for Daigou since her pregnancy and she has never bought any local baby products. Many similar cases drive customers to look for overseas products [3].
Consumers’ growing buying power and the increasing strength of Chinese currency have driven high demand for oversea products as well.
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Technology innovation, such as smartphones, cloud computing and social networking, broadens the channel for Daigou. Information exchange, price checking, data collection, media promotion as well as global trading grow rapidly and effortlessly with the help of technology.
It not only speeds up the growth of e-commerce, but also makes payment much easier that before, creating tons of business opportunities. At present, with a click of a button on the smartphone or computer, consumers can easily do anything online from searching fashion trends, getting current news, sharing information to making overseas orders. This speeds up the Daigou business as physical boundaries no longer exist to limit contact with overseas markets.
Lots of Daigou news, websites and apps are now available online, ten of which are already indicated in the previous section.
In addition, social networking has had a great impact on the way people communicate. Other than direct meeting or calling, people use social media and the internet often to communicate with each other and to get information of Daigou news, such as information on oversea luxury goods [39]. WeChat, a social media app popularly used in China, helps to speed up the Daigou business as Daigou agents can make use of this platform to post messages to their customers and/or friends asking what they need, who then repost them to their friends and so on [40]. In China, three-fourths of internet users take WeChat as the top social sharing platform, just behind QQ and QZone. About 9.6 percent of users use WeChat to share at least three posts a day; 23.1 percent shares 1-2 posts per day; 47.5 percent shares occasionally per week [41].
Hence, when a seller plans to go travelling, he/she simply shares this news on his/her online platform to look for potential buyers. On the other hand, buyers can do the same to look for
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Daigou agents. More than that, new technology has helped to modify the logistic system, which now need less time and cost for delivery.
Since payment methods are important for the Daigou business, ease of payment with the help of technology speeds up the whole business process. For a small order, people may choose to pay by cash or bank transfer since it is relatively convenient and easy. Selection of credit card payment or PayPal is never a good option for small scale Daigou businesses because of the high service charges. With more payment options, the payment cost and time becomes lower and faster. In 2016, there are already 400 million registered users for Alipay, a well-known Chinese third-party online payment platform launched by Alibaba Group in 2004, which has 175 million transactions per day [42]. To broaden the payment channel, WeChat Pay developed by Tencent’s Tenpay was also launched in 2011 and was opened to all business platforms since 2014.
These channels help users to transfer money from one account to another account immediately, with no transaction fees and has become the major payment medias currently used. Depending on the agreement between seller and buyer, payment can be transferred immediately before or after the seller completes the order.
Moreover, China’s e-commerce remains one of the most important sectors in the domestic and global economy with years of explosive growth, also helping to enlarge rooms for Daigou activity, which is also an indication of China’s growing cross-border online shopping as most of the Daigou activities are now conducted through the online platform, such as websites and apps [43]. According to the survey by the China Internet Watch (CIW), in the second quarter of 2016, China’s online shopping market transactions have reached 1,117.8billion CNY (167.51
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indicating that consumers now shop more online than before [44].However, the major differences between online shopping and Daigou are that buyers in the Daigou activity are known at the very beginning and they mainly look for overseas products.
Daigou business grows promptly due to explosion of the cross-border e-commerce between China and the world.
Increased International Travels
With better economy and growing middle class, Chinese people are now more eager to go outside to explore other parts of the world, creating a tremendous market for foreign countries.
Most Chinese tourist like to travel to prominent countries, such as France, Germany, Italy, Japan, Maldives, Singapore, South Korea, Switzerland and the United States [46]. Daigou products are also from most of these countries. The increase of oversea travelling does motivate the Daigou business in some ways as a tourist can act like a seller or a third party to sell his/her oversea products through Daigou activity.
With the increasing access to visa-free countries and the rising number of direct flights, it is now much easier for Chinese people to go travelling and purchase and/or ship oversea products back to their home country. For examples, more and more Chinese travelers, businessmen and exchange students can now freely enter the United States with the China-US visa extension signed in November 2014. Also in 2014, the number of non-stop routes jumped from 10 in 2006 to 35. Projections estimate that there will be up to 7.3 million Chinese visitors to the US by 2021 [46]. In addition, since the introduction of a fast-track 48-hour French visa in 2014, a 61
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transactions from Paris have also been increasing. Similar things happen to other countries as well [30].Though the growth of oversea travelling does not necessarily have a direct impact on Daigou business, it does create business opportunity. Noticeably, frequent travelers are the main third-party engaging in Daigou activity. Therefore, to a certain extent, intensive oversea travelling enhances Daigou business.
Pretentious Culture
In China, there is a growing desire for luxury items. Chinese men use luxury goods to show off their social status, success and flaunt their wealth while women tend to buy them for their entertainment and pleasure [47]. The Bain & Company reported that China has the largest number of buyers of luxury goods, making up 29 percent of the global market in 2013 [5].
According to the “China Luxury Market Research Report”, Daigou was the major channel for luxury goods in 2014, accounting for 38 percent of the total luxury market [48]. This huge amount of transactions can be explained by consumers’ materialistic desires, gift-giving culture and individualism, motivating them to purchase for luxury products [49].
In addition, the rise of brand awareness increases their eagerness for oversea products as their desire for international brands has become stronger and more diverse than ever. With the power of words-of-mouth and networking effects, consumers are influenced to buy well-known foreign brands, such as Pampers’ diapers from the United States, Swisse’s vitamins &
supplements from Australia, Chanel’s perfumes from France, Louis Vuitton’s handbags from
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France and Rolex watches from Switzerland. To purchase these merchandises, consumers are willing to pay premium prices in order to get what they want, especially for limited edition products. For example, Miss Sasa used 380,000 CNY to buy a red crocodile Hermes Birkin handbag through a Daigou online platform. She was willing to pay 40,000 CNY more in order to get that product because she could not find the same model in China [50]. Consumers purchase these luxury goods because it gives them a sense of accomplishment, belonging, status, wealth, brand loyalty as well as exclusivity [47].