Australian businesses are cashing in on the online grey market in China

China’s economic growth through 2015 has been weaker than previous years, but still extremely strong on a global level.  Growth through the first half of the year was just over 7% and the slowest half in more than 20 years, but still impressive none the less.  China is looking to its digital economy to continue this impressive growth and more specifically, international or cross border ecommerce.  There are now more 5,000 online shopping platforms, a trade which is expected to contribute over US$1 trillion per annum to the economy by the end of next year.

The opportunities for Australian and New Zealand domiciled businesses to drive growth in China are driven by two distinct channels, direct sales into China and ‘grey sales’ to Mandarin and Cantonese speaking domestically domiciled residents who are buying products locally and reselling them in China through online shopping sites like Alibaba and Taobao.

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 – both a huge market and a huge opportunity for ANZ businesses.

The so called ‘grey market’ so named as it is ‘not quite a black market’, is driven by demand from Chinese consumers for overseas goods.  A recent survey by Boston Consulting Group demonstrated that 60% of Chinese consumers would be prepared to pay more for an imported product.

Whilst in Australia and New Zealand it is often consumer health or dairy items which attract media attention and are shipped in large quantities to be sold through online stores by entrepreneurial individuals, there is an enormous trade in luxury goods being bought by quasi personal shoppers for wealthy Chinese and a burgeoning Chinese middle class.  

‘Daigou’ or representative shopping has grown enormously over recent years and is estimated to be worth US15billion per annum by the Wall Street Journal.  Whilst Chinese people want to buy luxury brands, they don’t want to pay the 30% premium being charged locally for officially imported goods and so turn to Daigou living outside China to buy goods to order and ship them back to the Mainland.  Many luxury goods businesses that import officially to China have dropped their local prices significantly to try to limit the ongoing impact of Daigou and recently, the Government has sought to tighten import tariffs to level the playing field.

As things stand imported products resold by individuals through online shopping sites, or to order, 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.

This grey market, whilst hugely significant to many businesses also demonstrates how many organisations have not adapted to global trade.  Whilst it is easy to compare sales prices online consumers in every corner of the world are going to look to find a bargain and product release times and massive inequality in pricing will only help to propagate the activity of the Daigou and the enterprising individual alike.

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