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In February, Guangxi native Alex Zhu came up with a new scheme to help her parents with her pricey tuition at one of Australia’s top universities. She started buying baby milk formula and health supplements in Australia to sell to her compatriots in mainland China, advertising her wares on WeChat, China’s most popular social networking platform.

Now the 23-year-old Australian National University student is raking in between A$1,000 (HK$6,160) and A$2,000 a month – and plans to continue with her side project for the rest of her time in Australia.

Zhu – not her real name – is one of an estimated 110,000 Chinese students in Australia making an income as a daigou – a Putonghua term (pronounced ‘dye-go’ in English) for someone overseas who “buys on somebody else’s behalf”. If each daigou made just A$10 per week for a year, the industry would be worth A$57 million annually. It means their collective bargaining power is enough to make or break Australian brands seeking to enter the Chinese market.

Zhu – and countless other students and housewives like her – fits the traditional characterisation of a daigou as a small-time buyer purchasing on behalf of a small network of friends and family. But the world of the daigou is changing. Increasingly, small-time traders like Zhu are expected to lose business to more ambitious daigou operating well-oiled and extensive professional networks chasing big money.

For daigou, the plans by Sydney-based company AuMake to establish the industry’s first public listing are a revealing indicator of the changing landscape and expanding profit margins.

The Sydney-based supplier, which makes about A$13 million a year by selling products to daigou in brick-and-mortar stores and to Chinese consumers directly, is planning to float on the Australian Securities Exchange in October via a back-door listing in a bid to “consolidate the fragmented daigou market”.

As its founder Joshua Zhou put it: “Every Chinese guy in Australia is a daigou.”

Zhou and his wife Lyn Zheng, who cofounded the company, have no doubt the demand for daigou services is growing. The couple, who hail from Fujian province, want their company to be a one-stop shop for daigou, helping Australian businesses gain entry to the Chinese market without the hassle of dealing with the challenges of China.

Currently, they supply about 5 per cent of daigou in Sydney with baby milk formula and health products, although they hope to see that increase to 50 per cent in the next few years. But Zhou also has a grander vision: when the tourists and daigou who stop at his stores return home, they could become China-based daigou, promoting Australian products.

“More and more Chinese people [will become] daigou,” he said. “It will be huge.”

AuMake’s executive chairman, Keong Chan, said Australian brands found it difficult to break into the Chinese market without the support of daigou.

“It gives a lot of transparency to what some would consider to be an opaque industry,” Chan said. “As the market gets bigger, there will be some consolidation – that’s natural, but there will always be room for new daigou that live here. That will never stop.

“We’re here to support them and what they’re trying to do. The reality is that it’s going to be there for a long, long time.”

Australasian dairy company A2 Milk, one of a handful of Australian and New Zealand companies to utilise the daigou networks, certainly hopes so. It posted a record NZ$90.6 million (HK$511 million) profit for the year to June thanks to a 56 per cent jump in revenue, which it credits in part to using daigou sellers as part of its distribution plan.

Peter Nathan, A2 Milk’s CE

O for Asia-Pacific, couldn’t give numbers on how much of the company’s success was thanks to the back-door sellers, but said the company was “very positive” about the networks.

“We believe it’s a powerful way to fulfil consumer demand and to advocate for our product and brand,” he said. “All of the intel we have suggests it will continue to be a viable channel going forward.”

But there are risks for companies dealing with daigou. Experts point to the Tasmanian infant formula company Bellamy’s, which tried to undercut daigou – but ended up losing business when the sellers retaliated by turning against it.

“At the end of the day, it was the daigou that had the credibility – not them,” said Stuart Orr, a business professor at Deakin School of Business in Melbourne.

Utilising daigou could benefit everyone involved, but there are pitfalls, he cautioned.

“The opportunities are growing much faster than Western countries can keep up with,” he said, noting the success of daigou highlighted the sluggish response from Western companies to the appetite for foreign products among China’s middle-class.

“They’re [Western companies] way behind the game. Because of the impermanence of these sorts of networks, there are no contracts, there are no agreements, there’s no infrastructure or anything substantive attached to it, it can change very fast.”

Orr said more ambitious daigou would gradually expand their services and secure a greater share of the market, with some eventually becoming businesses more akin to established courier services.

As daigou fortunes grow, so too does the amount of interest shown by government tax authorities. Orr said it was “only a matter of time” before tax rules were tightened on daigou.

An Australian Taxation Office spokesman did not comment when asked whether tax changes were being considered but said daigou operating businesses needed to pay the general sales tax as well as taxes on their incomes.

Increased competition and possible tax complications might not be enough to discourage the budding daigou in the short-term but there are problems on the horizon.

The daigou industry was still in its early stages, according to Sydney investment analyst Alan Edmunds, who said Australian companies had failed to understand the Chinese market.

“That’s how the daigou hacked into it,” he said. “A lot of Australian companies struggled – they’ve got good stuff – but they didn’t understand.”

While the daigou industry has not yet reached its peak – with many companies prepared to lose some of their profit margins to daigou in return for recognition in the Chinese market, this would not always be the case, he said. In the long-term, he expected companies to try to sell into China directly.

Claudia, 21, a Hongkonger in her third year of studying for a Bachelor of Commerce at Australian National University in Canberra, is unlikely to stop buying products for her friends and family any time soon. Every time she returns home, she packs half her suitcase with cheap health products, and then recoups the cost when she gets home. People are able to claim their goods and services tax back on products when they fly out of Australia, so some of her friends also buy skin care products or jewellery and then collect their rebate when they leave the country, she said.

“Most of us will just buy something for our friends or family, because it can’t earn us much,” she said of her fellow international students.

The changing market isn’t worrying Zhu, either, who said her customers relied on her to ensure quality – not because they wanted the cheapest price.

And while there is nothing overtly personal about her WeChat posts, she takes care to only charge a 10 to 20 per cent premium, less than other sellers who can make about 40 per cent more than they originally paid for the product.

“I will feel guilty if I make too much,” she said. “For customers with many babies and smaller budgets, I will give them nearly the original price.”

Ultimately, for people using daigou, it comes down to trust.

“Chinese people do not tend to trust big companies, they trust familiar friends more,” she said.

By Julia Hollingsworth – Sept on SCMP

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