New global demand for ‘Made in Australia’

17 Jun 2016

Tags

  • Divya Skene
  • Diaspora
  • E-Commerce
  • International Trade

In recent decades two significant new trends have influenced international trade: the increasing use e-commerce for trade transactions, and the prominent role of new diaspora networks1 in shaping trade.

E-commerce has emerged as a strong channel of export. It has been driven by adoption of digital flows including the uptake of online marketing and payment by firms and consumers worldwide. It is also supported by continued growth of middle class consumers, particularly in Asia.

Diaspora networks have also emerged as important channels for influencing business outcomes. In a previous post, I looked at foreign research that showed the impact of diaspora networks on boosting services exports and global innovation. Last month, an Australian report recommended that Australia leverage its Asian Australian diaspora to build transitional business links with Asia.

In this post, I focus on a new and interesting local phenomenon that brings together these two trends of e commerce and diaspora networks. Specifically, I’ll discuss the role local communities have played in using both e-commerce and their own diaspora networks to help forge new export paths for Australian consumer brands overseas.

Recent news reports have covered the roles played by purchasing agents in opening up or promoting Australian milk powder and vitamin brands to the Chinese consumer through third-party e commerce trade.

A purchasing agent (sometimes referred to as a personal shopper or ‘daigou’ in Chinese) is a buyer based in Australia responsible for purchasing a product from an Australian retail store, before packaging and sending the product to a consumer based overseas. These buyers offer a range of benefits to international consumers, from actual purchasing services to digital word-of-mouth recommendations and authenticity in international purchases. Many also specialise in building a trusted retail presence. Whilst we don’t have hard data on the individuals who make up the daigou network, it is likely that the Chinese diaspora play a critical role.

Digital and multicultural marketing companies Think China and Access China estimate there are between 10,000 and 40,000 purchasing agents in Australia, many who have advertised Australian products on Chinese social media application WeChat or C2C (customer to customer) and B2C (business to customer) e-commerce marketplaces in China2.

In recent years, the volume of goods sent by purchasing agents to China has been supported by favourable exchange rate movements, growth in direct air connections to China and competitive logistics services. Think China estimates freight costs charged by SME providers offering specialist services direct to China are $5-6 a kg. The purchasing agent’s low cost distribution model is also supported by popular mobile payment technologies that include a social messaging service with an integrated payment wallet.

Economic literature considers the phenomenon of personal shoppers under terms such as parallel export (i.e. parallel to the contractual arrangement between manufacturer and distributor), grey market, or arbitrage.

In a recent study by Deakin University3, the authors investigate economic models of parallel trade. These models provide an example of the complex interplay of factors affecting pricing and profits in a situation where parallel trade takes place. (Although Deakin University’s economic analysis focuses on cross-border travellers as the parallel traders, many of the same concepts are also applicable when local residents are engaged in personal shopping to undertake cross border e commerce.) Some of these factors are outlined below.

  • How is the product perceived in the home market and the export market?
    • What are the pricing features of the product in both markets? How is the product differentiated from others sold in each market?
    • Are there similar consumer perceptions or valuation of the product in the home market compared to the export market?
  • Is the product sold in both markets, or only exported?
    • Prominent Australian consumer brands popular in China are also sold in Australia (the home market).
    • There is some evidence that Chinese consumers have specific preferences regarding authenticity of foreign brands.
  • Who conducts and benefits from export sales?
    • Under a parallel trade scenario the distributor or authorised reseller is not the only exclusive seller of the product in the export market. A personal seller might sell into the export market or a cross-border traveller can also sell to the export market, but each may be restricted in sourcing or selling limited quantities of product.
    • Also, the personal shopper or cross-border traveller may be engaged in organised trade (employed by the distributor, with the distributor taking profits from the trade) or engaged in unorganised trade (self-employed, receiving personal profit from their arbitrage activities).

    Whilst focussed on source-country welfare and policy options to respond to parallel trade, the Deakin economic research helps to illustrate that pricing, profit maximising and marketing strategies will become more complex considerations at an export firm-level in a business environment where significant (low-cost) parallel trade through e commerce takes place.

    In an article on the daigou phenomenon, the Australian Financial Review (AFR) recently estimated that the courier market could be worth as much as $350 million annually to Australian retailers4. While data on the value of parallel trade is not readily available, the AFR points to the significance of the channel by referring to estimates of a marked increase in local sales of infant milk powder at a time when Australian birthrates have remained stable.

    In this changed trading environment, Australian consumer goods companies have an opportunity to grow consumer export markets by leveraging e commerce. With regards to the role of purchasing agents, key factors for consumer goods exporters to consider will include:

    • regulatory changes that impact e-commerce trade,
    • the extent to which a brand’s direct involvement in e-commerce through a Chinese-language website can satisfy growing offshore demand directly, and
    • in the event purchasing agents remain a significant long-term phenomenon (as a result of the low cost model employed and Chinese consumers’ established relationships with daigou) - consider how best to position Australian brands among agents or shoppers based in Australia, as well as final consumers overseas.

    On the third point, digital marketing company Think China’s July 2015 research5 into Chinese online shopper behaviour outlines why Australia-based buying agents are – and may remain - a popular sourcing channel for the Chinese consumer.

    The report’s analysis of search trends on search engine Baidu from January to July 2015, reveals that the most-searched keyword associated with “Australia” was “buying agent”. The interest in securing Australian products through buying agents is attributed to three factors – limited availability, price and trust.

    • Limited availability - in July 2015 only forty-seven Australian brands were directly selling to Chinese consumers through China’s biggest online marketplaces and there were only an additional seventy-eight Australian brands sold through authorised online resellers on Tmall and Taobao Global.
    • Prices in China are generally high for foreign products – the arbitrage opportunity has driven Chinese consumers to develop an interest in purchasing products from offshore.
    • Finally, Chinese consumers are considered to place a high level of trust in supply-chains related to foreign brands sourced via e-commerce.

    Drawing on a survey of 3,000 online shoppers who had purchased a foreign product in 2014-15, the Think China report provides insights into Chinese online consumer behaviour. These behaviours suggest locally based purchasing agents may continue to be valued and used by offshore consumers.

    • The majority of Chinese online buyers searching for Australian products are female (66%) and care about peer opinions and word of mouth over price.

    Reasons Buying Overseas Products

    • The majority of online shoppers for overseas products look for brand information on e marketplaces (58%) or from friend recommendations (48%) compared to a smaller share who search on the brand’s website (38%). The majority of actual transactions also occurred in e-marketplaces rather than on brand websites.

    E-Commerce Platform Usage for Purchasing Overseas Products Online

    • Finally, foreign products that are more highly associated with Australia include milk powder, food, supplements and skincare – products that arguably benefit from higher levels of trust in the supply and distribution chain.

    Australian Products Consumer Preference

    Trade in consumer goods internationally via e-commerce is a fast-developing area. It will attract regulatory attention in both source and destination markets over time, which will drive producer and consumer behaviour. (Austrade guidance on cross-border e-commerce with China.)

    What is clear through the ‘purchasing agents’ phenomenon, is that goods sold within Australia do attract strong demand from large consumer groups within our region.

    The revealed preferences of Chinese consumers have delivered Australian companies – through the formation of daigou networks - culturally and linguistically-capable brand and product advocates.

    These multilingual communities have assisted Chinese consumers to pull Australian products into overseas markets through a low-cost model - supporting a positive positioning for ‘Made in Australia’ consumer goods as well as generating orders, undertaking fulfilment and increasing revenue.

    1  The word diaspora as typically defined, focuses on a migrant’s ethnic origin and emotional connection to his/her homeland. In this blog the word ‘diaspora’ emphasises specific features of Australian ethnic communities that provide a networking benefit with the home country – such as shared language, economic and residency rights in the source country, shared media consumption, related cultural preferences and practices, etc – with a view to leveraging these features to deepen connections. The phrase ‘new diaspora networks’ in this blog recognises the scale of diaspora networks in Australia today. Although Asian communities have a long history in Australia, the 2011 Australian census reported that almost 10 percent of the Australian population spoke an Asian language at home. Under our definition, long-term visitors to Australia can also be considered a specific subset of diaspora for the period they are in Australia. For example in 2015, 136,000 Chinese students studied in Australia on a student visa.
    2  Discussion with Think China, June 2016. Access China quoted in Daigou: The extra 50 million customers hiding in plain sight, SMH Lucy Battersby, 15 June 2016.
    3  Cross-border Travellers and Parallel Trade: Implications for Asian Economies, Xuan Nguyen, Chi-Chur Chao, Pasquale Sgro, Munirul Nabin, The World Economy, John Wiley & Sons Ltd, 2016
    4  Infant formula sales article, Angus Grigg & Lisa Murray, Australian Financial Review, 30 May 2016
    5  2015 Chinese Consumer Cross-Border Ecommerce Market Research (Part I), Think China, Benjamin Sun and Johnny Wong, June 2015