Kiwi skincare exporters use grey channel to reach Chinese market
Small New Zealand cosmetics companies opposed to compulsory animal testing regulations in China are opting for a backdoor export channel using diagous, even if they don't prefer it.
Diagou, which translates to 'buy on behalf' are personal shoppers who sell products to individual Chinese consumers through social media sites like WeChat and Weibo and websites like Taobao (Chinese equivalent of Trade Me).
Diagous can be small business owners or souvenir shops that stock New Zealand products, or Chinese students or immigrants that want to help friends and family or earn extra money.
Linden Leaves chief executive Peter Allard said the diagou channels have formed despite New Zealand's free trade agreement with China because the non-tarriff barriers like animal testing being implemented were stopping free access to the market.
"The diagou channel doesn't sit well with us at all because we don't have the control control over where we are sold, how we are sold and at what price. The discounting that goes on is just ridiculous," Allard said.
"It's very much a case of 'if you can't beat them join them' because some of our competitors are very heavily invested in those channels and that gives them a competitive advantage over us in our domestic market."
Sales to diagous are counted as domestic sales, calculated in New Zealand currency, while sales made by diagous to Chinese consumers are generally use the Chinese renminbi.
Allard said the grey area here was that these products were being sold overseas making them technically exports, but they were still considered domestic sales.
Export consultant Paul O'Brien said the diagou system in New Zealand was still small with only about 100 businesses actively selling to diagous.
But many New Zealand brands were passively in the diagou chain because their products might be bought by individual customers and sold overseas.
"Many Kiwi businesses try to find diagous, but in most cases, if a brand is doing well the diagous find them," O'Brien said.
Diagous sell these products through popular Chinese social media sites, WeChat and Weibo (equivalents of Facebook and Twitter).
Businesses can gauge the success of their products based on the number of mentions, retweets, or direct comments on the social media sites.
Allard said after discovering two diagous that had made purchases to ship to China but resold them locally, Linden Leaves began actively tracking all its products to its specific buyers with a marking system that alerted the company if the products had been resold into New Zealand.
He said larger Kiwi businesses in the health and skin care industry were exempt from animal testing if they were manufacturing in China and then distributing there too.
But Allard said this was not a possibility for many small and medium enterprises.
"We have to sell it this way even if we don't like it, because eventually when the animal testing goes, which it will, we'll be far behind those that already have a presence in China," Allard said.
O'Brien said the diagou market won't last long due to unpredictable Chinese regulations, but for the time being, it was a good way for small companies to test their market in China or beat animal testing regulations.
"At first I was critical of the channel, but for small and medium businesses with turnovers of about $1 million that cannot afford to reach China it's a legitimate way of doing business.
"If we don't take advantage of this channel that other countries are using, including Australia, we'll just lose out on growing our brand awareness in a huge market." he said.