Page 250 - 2018 White Paper on the Business Environment in China
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8 White Paper on the Business Environment in China
percent of the companies are losing money, 7 percent are Haitao and Daigou
recording heavy losses with 4 percent are breaking even.
Only 1 percent is actually profitable. Nearly 3 billion yuan, Of course, there are a couple of backdoors that
however, was raised in 2017 in six fresh food e-commerce currently gives the advantage to companies outside of
fundings, but after the reshuffle of the previous year, China looking to get into the market. “Haitao” is a Chinese
this market is no longer a playground for small startups. word buying overseas online sites that mail items to
Deep-pocketed backers are standing behind nearly China, and a “daigou” is a personal shopper for Chinese
every top platform that survived 2016. JD Daojia’s one- purchasers. Also known as cross-border e-commerce,
hour fresh food and grocery delivery is in first place in the thriving backdoor avenue allows Chinese consumers
terms monthly active users. The service now partners to buy overseas-manufactured products online and
with over 70,000 local merchants and provides on- effectively go around the regulatory issues that have
demand grocery, fresh products, snacks, flowers, baking foiled access to consumer products from cosmetics to
and pharmacy shopping in 22 cities, with more than 30 Cognac. Faced with pressure from conventional retailers
million registered customers (Lee). at home, and the loss of tax revenue, the government is
now looking at overhauling the legal loophole (Chang).
With their ready-made payment and social media
platforms to lure shoppers, Alibaba and JD.com have Daigous are the often-unseen link between China’s
helped China become the world’s largest online grocery middle class and booming sales of infant formula. One
market, far ahead of the United States. This early lead, of the main reasons daigous exist is because of the large
cemented by densely populated urban areas and cheap disparity of prices in China compared with those overseas.
labor, could be key as retailers and tech firms race to boost They are often students studying abroad or housewives
margins on low-cost consumer goods by reinventing looking for some extra cash who send parcels back to
supply chains with big data analytics. Sales made online China as personal items to avoid tax. Convenience and
are set to more than double to around 6.6 percent of the chance to make a buck on the side aren’t the only
China’s broader grocery market by 2020, compared to reasons for the existence of daigou. The items purchased
around 1.4 percent for U.S. sales by then. U.S. firms are are usually luxury items commonly counterfeited in China,
now looking to play catch up—key as bricks-and-mortar or overseas health and wellbeing brands viewed as more
stores are hit by a slowdown and online players battle genuine and dependable. China has suffered a long list of
with tight profit margins and high delivery costs (Cadell). PR disasters around its largely unregulated food industry
that have fuelled daigou growth. The trust of the Chinese
As Chinese consumers become increasingly affluent consumer has been sorely abused by local industry in
and sophisticated across China, the country’s e-commerce China. Baby formula alone could bring a 200 percent
companies are catering to new consumption patterns to mark-up. Such is the keenness of the Chinese shopper to
grab a larger market share. According to a report from data have an authentic, untainted and trustworthy product.
analytic firm Analysys, Chinese consumers are becoming Some companies have attempted to thwart daigou by
more and more rational in their online shopping behavior imposing restrictions on purchase, but perhaps they are
and tend to focus more on the shopping experience rather taking the wrong approach. According to a 2016 report
than just low prices.“E-commerce companies in China are from Bain & Company, the daigou industry worldwide was
gradually moving up the supply chain, producing high- worth around seven and a quarter billion U.S. dollars in
quality products themselves. That will be an important 2015. This is one reason why other businesses are trying
trend for online retail in the future,” Analysys said in to circumvent daigou altogether by selling their products
another research report. “New retail, in its essence, is a through Chinese e-commerce giants, but for the ever-
strategy that adapts to the change in customer demand,” suspicious Chinese consumer, it is going to take time to
said Hou Yi, Founder of Hema Xiansheng. “Online retail is trust this new route. Even though the products are shipped
playing a dominant role in reshaping the retail industry,” direct with no Chinese middle-man, reviews left on Tmall
the Analysys report said. “We expect to see more cases show customer concerns over whether the product is
of strategic cooperation between online retailers and genuine, with suggestions the packing “looked a bit
physical stores” (Ming). different” or the smell of the product “wasn’t quite right”
(Breitnauer). Indeed the top reasons users choose cross-
border e-commerce are: quality-price ratio, more brands
to pick from, and guaranteed authenticity (Graziani).
250
percent of the companies are losing money, 7 percent are Haitao and Daigou
recording heavy losses with 4 percent are breaking even.
Only 1 percent is actually profitable. Nearly 3 billion yuan, Of course, there are a couple of backdoors that
however, was raised in 2017 in six fresh food e-commerce currently gives the advantage to companies outside of
fundings, but after the reshuffle of the previous year, China looking to get into the market. “Haitao” is a Chinese
this market is no longer a playground for small startups. word buying overseas online sites that mail items to
Deep-pocketed backers are standing behind nearly China, and a “daigou” is a personal shopper for Chinese
every top platform that survived 2016. JD Daojia’s one- purchasers. Also known as cross-border e-commerce,
hour fresh food and grocery delivery is in first place in the thriving backdoor avenue allows Chinese consumers
terms monthly active users. The service now partners to buy overseas-manufactured products online and
with over 70,000 local merchants and provides on- effectively go around the regulatory issues that have
demand grocery, fresh products, snacks, flowers, baking foiled access to consumer products from cosmetics to
and pharmacy shopping in 22 cities, with more than 30 Cognac. Faced with pressure from conventional retailers
million registered customers (Lee). at home, and the loss of tax revenue, the government is
now looking at overhauling the legal loophole (Chang).
With their ready-made payment and social media
platforms to lure shoppers, Alibaba and JD.com have Daigous are the often-unseen link between China’s
helped China become the world’s largest online grocery middle class and booming sales of infant formula. One
market, far ahead of the United States. This early lead, of the main reasons daigous exist is because of the large
cemented by densely populated urban areas and cheap disparity of prices in China compared with those overseas.
labor, could be key as retailers and tech firms race to boost They are often students studying abroad or housewives
margins on low-cost consumer goods by reinventing looking for some extra cash who send parcels back to
supply chains with big data analytics. Sales made online China as personal items to avoid tax. Convenience and
are set to more than double to around 6.6 percent of the chance to make a buck on the side aren’t the only
China’s broader grocery market by 2020, compared to reasons for the existence of daigou. The items purchased
around 1.4 percent for U.S. sales by then. U.S. firms are are usually luxury items commonly counterfeited in China,
now looking to play catch up—key as bricks-and-mortar or overseas health and wellbeing brands viewed as more
stores are hit by a slowdown and online players battle genuine and dependable. China has suffered a long list of
with tight profit margins and high delivery costs (Cadell). PR disasters around its largely unregulated food industry
that have fuelled daigou growth. The trust of the Chinese
As Chinese consumers become increasingly affluent consumer has been sorely abused by local industry in
and sophisticated across China, the country’s e-commerce China. Baby formula alone could bring a 200 percent
companies are catering to new consumption patterns to mark-up. Such is the keenness of the Chinese shopper to
grab a larger market share. According to a report from data have an authentic, untainted and trustworthy product.
analytic firm Analysys, Chinese consumers are becoming Some companies have attempted to thwart daigou by
more and more rational in their online shopping behavior imposing restrictions on purchase, but perhaps they are
and tend to focus more on the shopping experience rather taking the wrong approach. According to a 2016 report
than just low prices.“E-commerce companies in China are from Bain & Company, the daigou industry worldwide was
gradually moving up the supply chain, producing high- worth around seven and a quarter billion U.S. dollars in
quality products themselves. That will be an important 2015. This is one reason why other businesses are trying
trend for online retail in the future,” Analysys said in to circumvent daigou altogether by selling their products
another research report. “New retail, in its essence, is a through Chinese e-commerce giants, but for the ever-
strategy that adapts to the change in customer demand,” suspicious Chinese consumer, it is going to take time to
said Hou Yi, Founder of Hema Xiansheng. “Online retail is trust this new route. Even though the products are shipped
playing a dominant role in reshaping the retail industry,” direct with no Chinese middle-man, reviews left on Tmall
the Analysys report said. “We expect to see more cases show customer concerns over whether the product is
of strategic cooperation between online retailers and genuine, with suggestions the packing “looked a bit
physical stores” (Ming). different” or the smell of the product “wasn’t quite right”
(Breitnauer). Indeed the top reasons users choose cross-
border e-commerce are: quality-price ratio, more brands
to pick from, and guaranteed authenticity (Graziani).
250
