Everyone knows how hard getting into the Chinese market is. That’s why so many enter via the ‘Grey Wall of China’ – a series of grey channels or ‘daigou’ that act as a way to avoid protectionist regulations and get in front of the Chinese market. It’s an easy, quick way into the market – but it’s a problem when it comes to really cracking a Chinese audience. Let’s break down why.
What are daigou?
Daigou (buy on behalf) are basically individuals who act as distributors for your products in China – Chinese natives buy products in Western countries like New Zealand and sell it on to their networks back in China. You get immediate access to the Chinese market without having to do the work to establish a business there, and the sales usually start flowing straight away. It’s an easy, instant way in. Sounds great, right? Not so much…
So what’s the issue with these so-called ‘grey channels’?
Well, besides the fact that they are in a grey area in terms of legality, daigou aren’t the greatest long-term strategy for succeeding in China, for these key reasons:
- They’ll cost you
Significantly! Daigou know they have control over your distribution channels, so they can charge whatever they like. Agreed upon an amount when you started working together? A year later, they could raise their costs and you wouldn’t have any say over it. You’d be left with shrinking profit margins and no real ability to go elsewhere. Not to mention the introduction of an 11.9% “daigou tax” in 2016 adding to those costs…
- You’re not building a brand
Daigou are about sales, not marketing. There’s no audience building, or education, and the people buying your products aren’t generally loyal to your brand. Daigou don’t market your product, they have simply established a demand-based network that isn’t specific to category or industry. This means that if you’re keen to enter the market in a bigger way, you’ll end up essentially starting from scratch.
- You’re dependent on them
One of the side effects of using only one individual’s network and not having built any kind of brand is that you’re completely dependent on that individual. Decide the daigou is too expensive and you want to pull back? There go all your sales. Your daigou finds another supplier whose product is cheaper or better quality? You can be replaced instantly.
- They control your product
It’s pretty scary how often businesses stop using daigou and decide to enter China with a more sustainable approach, only to discover that their daigou actually owns the trademark to their brand name.
I’ve seen it with way too many businesses – they get some initial success into China and make the assumption that they can do it themselves. Abandoning their grey channel, they lose all their sales almost overnight and face significant challenges trying to enter the market more legitimately. For foreign companies, using daigou means you’ve got no mid-long term capabilities of building a brand in China. Every channel is immediate and once you turn it off it’s gone.
So why do people even use daigou?
The problem is, building a brand in China is HARD. To use Baidu (probably the closest thing to Google in China) or to legally market your brand across WeChat (what Westerners think of as Facebook but is actually far, far more), you have to register and have an ICP (Internet Content Provider) licence, a national ID, a local address, and more. That can take years, a whole heap of money, and sometimes won’t even come through in the end.
So it’s understandable that businesses would pay more and take these risks to get immediate access to such a huge market. However, I’m a big believer in being results driven. The only way to achieve results is to have control of your brand, your market, and your profits.
It’s a real problem that people can’t pull away from daigou because they have no brand. That was one of the motivating factors of why I started Silk Cloud in the first place, and why I’m so passionate about working with ROCKETSHP clients to build their brand in China. By investing in having facilities on the ground in China and giving access to these for free, we can work on clients’ mid-long term gain and achieve results that have an impact long-term.
Daigou will probably always have a place in entering the Chinese market, but I wish they didn’t – so let’s bring down the grey wall of China, and start building brands instead.