Daigou, the Booming Overseas Purchasing Industry in China

By Eric Chen

Daigou, literally meaning “purchase on behalf” or “buy for you” is a form of popular internet-based business in China. The Daigou agents take orders from domestic customers and then purchase them from abroad. They then either dropship the orders directly to the customers, or keep stock and ship from their own location. The products that these agents “Daigou” are mainly goods that are either unattainable or too expensive in China due to customs tariffs.

Sounds a little bit like the normal dropshipping business, right? But in fact, although these two share a lot of similarities (for example both dropshipping and Daigou agents act as intermediary between the sellers and buyers), Daigou emerged as a new business model is due to a very special market situation in China.

First of all, the Chinese government imposes much higher tariff on luxury goods, like perfumes, handbags, cosmetics, or even cloths. The same Gucci hang bag might costs three times more in China than in the US. Secondly, some international brand products are not available in the Chinese market. For example, baby formulas in New Zealand can hardly be found in any Chinese super markets, and after the Tainted Milk Powder Accident, demand for the imported baby formulas are rocketing. These two reasons have jointly created a booming Daigou market in mainland China.

My roommate, whom you have seen in our previous blog, told me her recent Daigou experience. Her sister just gave birth to a baby and needs to buy baby formula from New Zealand. Since she does not have any friends in New Zealand and does not plan to fly there just to buy two cans of milk powder, she searched the Chinese C2C website Taobao, in hope of finding a reliable Daigou seller.

“How do these Daigou buyers cut costs since they also need to ship them from New Zealand and pay customs duty?” I asked her.

It turns out that most of these agents have either friends or family living abroad who would travel back to China often. They then can bring these products back to China and if they do not bring too many, Chinese customs normally won’t take it as smuggling and they won’t have to pay tariffs. They then add their own markups and sell these “bootlegged” products to domestic Chinese customers.

This is a very common way to do the Daigou business, and some even make it into a big online business with annual turnover of millions. Source from the Hang Zhou-based China e-Commerce Research Center shows that the Daigou industry has grown by more than 100% in 2010, and they forecast the total trade volume to reach 48 billion in the year of 2012.See chart below.

However, the industry is subject to increasing risks as China adjusts its customs regulations on international shipping, and the foreseeable customs tariffs change in future. While some big Daigou agents are still enjoying good profits due to their strong relationship with overseas sellers and costs advantage, small sellers are increasingly edged out of the business. Like any other industries, after a short time of booming, the Daigou industry is undergoing reconstructing.

So what this means to you, our blog readers? Well if you happen to know some friends in China, you can easily partner up to make some profits from the Daigou business, while the market is still strong and steady. Some tips: New Zealand products, like honey, baby formula, US luxury goods like hand bags are extremely popular in China. You can start from today!