The opportunities for Australian and New Zealand businesses in China are vast. The market is enormous, amorphous and its sheer size is often difficult to contemplate. The opportunities are also driven by two distinct channels, direct sales into China and ‘grey sales’ to Mandarin speaking domestically domiciled residents who are buying products locally and reselling them in China through online shopping sites like Alibaba and Taobao.
Driven by a desire for products which are deemed safer than their local counterparts, Chinese online shoppers are driving huge growth for many Australian and New Zealand businesses. According to an October 2015 survey by China Internet Watch into mothers using the top three online shopping site, namely Taobao, Tmall and Jingdong, safety is their most important consideration when shopping online:
Much of the extraordinary demand for products from Australian and New Zealand businesses comes from the perception that they are of a higher quality and ‘safer’ than their officially imported or locally available counterparts. And much of this sub-demand comes from mothers, who, following the 2008 milk and baby formula contamination, have been keen to look beyond products with official Chinese packaging to ‘safer’ and ‘cleaner’ Australian and New Zealand alternatives.
The contamination was significant. The World Health Organisation (WHO) refer to the incident as one of the largest food safety events ever and most importantly, publicly announced that they didn’t consider it to be an accident but “a large-scale intentional activity to deceive consumers for simple, basic, short-term profits” which clearly continues to damage consumer confidence in Chinese products. At the time 54,000 infants were hospitalised and 6 babies died from the melamine contamination in the formula in a market in China which is estimated to be worth US$18 billion. It is the infant formula market which has driven public awareness in Australia and New Zealand of the ‘grey market’ as parents complain that supermarket shelves were being stripped of formula to feed the demand for product in China.
This market driver for baby formula has had an impact on local businesses as reported by the Sydney Morning Herald in Australia:
‘Infant formula is on track to become a2 Milk's biggest earner after sales of its Platinum branded product soared more than 300 per cent in four months. A2 Platinum now accounts for about half of the trans-Tasman company's overall revenue and demand for the product, mainly in China, has sent its share price rocketing to a record high.”
As things stand imported products resold by individuals through online shopping sites are effectively exempt from local regulations, but the Chinese government is actively talking about enacting new laws to bring this ‘grey market’ back under local control. In simple terms, this law may restrict the flow of Australian and New Zealand products into China and have a significant impact on the revenues of many businesses. By way of example, Blackmores’ Asian business is reported to be worth $84 million a year, but the current ‘grey market’ into China is worth an additional $70 million a year in domestic Australian sales.
Title Image by Tauno Tõhk