Breaking into the Chinese daigou market

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During the 13 years Dr Mathew McDougall lived in Beijing, he observed a lot of brands from around the world failing to break into the Chinese market and others spending a million dollars or more trying to do so.

When he returned to Sydney a year and a half ago, he saw the daigou phenomenon in full flow.

“Chinese students or immigrants were being requested by their friends and family back home to purchase Australian products,” says McDougall, the founder of a new e-commerce venture DaigouSales.

“I thought if we could influence those same buyers with new brands and get them to make product recommendations, then we would have a really interesting word-of-mouth channel through the daigou to create brand awareness back in China pretty cost-effectively.”

Mathew McDougall is the founder of DaigouSales.Mathew McDougall is the founder of DaigouSales. Photo: Supplied

More than an e-commerce platform

So, he created a beachhead within the popular WeChat environment.

His internet platform provides a channel for Australian businesses to showcase and sell their products into China via the daigou community.

“We are more than just an e-commerce platform,” says McDougall. “We offer a true market space for Australian brands and daigou to meet, deal and purchase.

“By setting up an e-store on DaigouSales, Australian businesses can offer their products to the daigou community in a format which enables direct sales and flow-on sales into China.”

Toni Joel and Nikki Horovitz started tonic, which makes luxurious personal care products, 25 years ago.Toni Joel and Nikki Horovitz started tonic, which makes luxurious personal care products, 25 years ago. Photo: Supplied

It is a multi-level marketplace, he says.

The brands have flagship stores and pay $249 a month, plus a 2½ per cent transaction fee. “We have only been running for four months and we have almost 50 brands on our platform.”

Tonic makes luxurious personal care products.Tonic makes luxurious personal care products. Photo: Supplied

DaigouSales expects to have 350 brand e-stores over the next 12 months.

McDougall says while some businesses have achieved significant growth of up to 500 per cent through the business-to-daigou market, others are achieving growth month on month in an incremental manner.

We offer a true market space for Australian brands and daigou to meet, deal and purchase. Mathew McDougall

The daigou on the platform have storefronts. They can pull through brands from the marketplace into their storefront.

The daigou does not have to pay a fee if they do at least one transaction a month. If they don’t make any transaction in a month, they are charged $3.

Chris Bregen and Ryan Mets are the founders of CaveWire.Chris Bregen and Ryan Mets are the founders of CaveWire. Photo: Julian & Angela Pennisi

The products are sent via airfreight from Australia to China, and delivered to the door of the buyer.

McDougall self-funded the company which was incorporated in May and it has “been profitable from month one”.

CaveWire's growth in China has been organic.CaveWire’s growth in China has been organic. Photo: Julian & Angela Pennisi

“We are expecting to have at least 100 per cent growth year on year for the next few years,” he says. “In our first year of operation we expect a turnover of more than $5 million, at least doubling in the second year.”

He opened an Auckland office three weeks ago and intends to head to the US as well.

Different way of doing business

So how are other Australian SMEs faring in China?

Melbourne-based Toni Joel and Nikki Horovitz started tonic 25 years ago, which makes luxurious personal care products.

They began exporting to China 14 months ago. “The main products where interest has been strong are the items we make in Australia,” says Horovitz.

Among their best-selling products are the heat pillow and the eye pillow.

“We have enjoyed learning about a different way of doing business,” says Horovitz of their experience in expanding to China. “China is a different culture and the customers are very aware of up-to-date fashion and global trends.”

Last year, tonic’s turnover was between $2 to $3 million. This financial year, they are targeting a turnover of $3 to $5 million.

Although their export sales internationally are growing strongly, Joel says the China revenue is more moderate. “But we are expecting increased growth over the next three years as interest is very strong, especially in our locally produced items. We have recently engaged a distributor off the back of our growing footprint in Hong Kong.”

Joel says they faced a variety of challenges exporting to China. “Finding the right partners and marketing can prove to be difficult. We are working hard to really get the brand known so that people understand our USP – why they would buy us and what makes us different,” she says.

She says getting the brand known and explaining their products such as the heat pillow – which is a bestseller in Australia and other markets – needs some work.

Organic growth

Chris Greben and Ryan Mets run an online software company Cavewire, which started exporting its software to China at the start of the year.

“Our main product being used in China is our enterprise software Cavewire,” says company co-founder Mets.

“This solution allows branded manufacturers to streamline manufacturing, tracking orders and inventory to drive sales from their retailers.”

He says their growth in the Chinese market has been organic. “We are in a lucky position that our clients require their production teams in China to utilise the Cavewire software,” he says.

“In 2018 we are launching new initiatives targeting leading Chinese manufacturers who want to offer a new level of service for their partners in key markets like the US, Australia and Brazil.”

Cavewire was established in September 2016 and started with $60,000 in federal government funding. Mets says their target is to more than double their revenue across the platform in this financial year as they continue to include new product verticals to the Cavewire network.

By Christine D’Mello
Sydney morning herald

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