August 23, 2018 – This post was written by Eric Johnson, Engagement Manager, and Sunny Xu, Senior Analyst.
In a market saturated with knockoffs and counterfeits, Chinese consumers increasingly demand assurance around genuine-branded products. Creative solutions have emerged from the e-commerce industry in China to meet this market demand. Daigou is China’s fastest growing e-commerce pillar. While it may be a new concept to global executives, daigou has been around for more than 10 years.
Daigou is a Mandarin term (pronounced “dye-go” in English), the literal translation of which is “buying on someone’s behalf,” and usually refers to a person who facilitates the buying and selling of international products on behalf of a customer in mainland China. The traditional characterization of daigous are students and other leisure travelers who are small-time buyers purchasing abroad, and bringing goods back into mainland China on behalf of a small network of friends and family.
Today, the world of daigou is changing. Increasingly, more ambitious daigous involve small businesses staffed by a few people living abroad, operating extensive professional logistical networks, and with their sights set on developing into the next big business.
What is the opportunity size and impact?
As more mainland Chinese consumers demand product quality and legitimacy—and show a willingness to pay premiums of up to 100% for them—the number and sophistication of daigous are expanding. This channel is expected to grow at a compound annual growth rate (CAGR) of more than 60% between 2015 and 2018, reaching 7% of total Chinese e-commerce value by the end of this year. In 2015, one out of every five online Chinese consumers purchased from cross-border e-commerce platforms. In Australia alone, an estimated 100,000-200,000 daigous turn over approximately US$ 100 billion annually across the retail sector.
The top-purchased categories for cross-border e-commerce are:
- Health and beauty, including health supplements
- Maternal and infant goods
- Apparel and accessories
- Consumer electronics
Popular goods from these categories are commonly sourced from the US, Japan, or South Korea because consumers associate these countries with high-quality product standards. The rising middle class in China is willing to spend more money on products in these categories because product integrity is essential.
Daigous can play an incredibly important role in introducing brands and building brand awareness in the Chinese market. Many Western companies have been successful in China by embracing the daigou model and working with daigous to build a sustainable business. For example, FSG has studied many successful expansion efforts into China via daigou, and has seen the successful cultivation of a consumer base in mainland China in under a year using the daigou model.
To learn more, look out for the second part of this blog series, which will explore the ins and outs of establishing and maintaining a successful daigou e-commerce channel strategy in China. In our next article, we’ll look at issues such as how to mitigate the risk of a price war, how to identify the right daigous to fit your strategy, and more!
Interested in learning more about how you can make daigou part of your larger China strategy? Through our Shanghai office, FSG is supporting multinational executives in China who leverage our expertise in channel management to explore, establish, and manage the daigou channel.
If you are a client, please contact your client relationship director to learn about this solution. If you are not a client, Contact us to learn more about how FSG can support you.