China is the world’s greatest exporter and manufacturer of goods. Yet when it comes to e-commerce and the Internet, it is only taking baby steps towards exerting global influence. The spread of Daigou, however, could be an indication of China’s growing e-commerce prowess.
Daigou is a Chinese phrase that roughly means “buying on behalf of”. It is a free-to-use web service that purchases goods overseas at the request of users. To start the ball rolling, consumers can indicate on the website what their desired product is. Once the payment is made, Daigou agents would make the purchase overseas and ship the product back to the users’ countries.
The service then delivers the product straight to the customer, or sends it to a collection point where the user can drop by anytime. Once the fulfillment is complete, users close the loop by indicating that the purchase has been successful.
The business model first emerged in China as a way for consumers to buy goods that are unattainable or too expensive due to the country’s customs tariffs. Products that come under these taxes include luxury perfumes, bags, cosmetics, and clothes. Demand for these goods are so strong that the Daigou market is worth about RMB24.1B (USD3.97B) in 2011, the China e-Business Research Center estimated.
While the online overseas purchasing industry has hit a snag in China as the government began closing the policy loopholes that make such businesses lucrative, another variant of Daigou is proliferating.
It’s Daigou in reverse: Instead of Mainland Chinese consumers purchasing luxury goods from overseas, this variety lets users buy goods from China while they are aboard. It appeals to overseas Chinese who are aware of the Daigou concept, and also to locals who are on a bargain hunt.
Dozens of such sites have sprung up in Singapore, Malaysia, and the rest of Asia. They don’t face the same problems that are bugging their cousins in China, since the country has FTAs with Southeast Asia, New Zealand, and Hong Kong.
One such website is 65daigou.com. Active in Singapore and Malaysia, the service lets consumers buy from popular Chinese e-commerce portals like Taobao, M18, and DangDang. To supplement their main business, the site has their own e-commerce store and also daigou for Taiwanese goods. The business in its 2 years of existence has attained a modest following on Facebook with about 7,500 likes.
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These businesses have appeal because they act as a middleman between consumers and the messiness of overseas purchasing. They handle purchasing, importing, taxes, insurance, and quality assurance on behalf of users. In exchange, the businesses extract a cut of the transactions.
Daigou services are by nature easy to clone. A quick survey of what’s out there would create a long list (right). The problem is that many players would eventually flood the market, causing cutthroat competition. Executing well to prioritize customer experience, optimizing on cost, and innovating are what would separate the winners from the has-beens.
The Daigou phenomena has been riding on the wave of China’s e-commerce explosion, which has now ballooned to a market size of about RMB 1T (USD160B).
But whether it can continue to do so will, beyond business execution, also depend on China’s ability to retain its position as a low-cost manufacturing center.
If it can’t, Daigou companies should hope that either the China brand develops beyond just ‘cheap’, or that there are enough overseas Chinese craving for homegrown goods to sustain the business.