What is Daigou?
Daigou is rising in popularity more than ever in Great China RegionChina and even around the world. The term is widely used from daily conversations to legal documents, but many misconceptions about daigou have emerged. So what exactly is daigou?
As a professional purchase agent, I’ve been running cross-border businesses for many years. This article is based on extensive research plus my personal and professional experience with daigou. I want to help others understand the complex term and embrace daigou for the opportunities it creates.
Definition of Daigou
According to the Cambridge Dictionary, daigou is a noun for “someone who is outside China who buys goods for someone who lives in China.” But in my experience, daigou covers more. China is the epi-center for daigou, but it can be found throughout Asia and the world.
Daigou is originally a loanword from Mandarin meaning “to purchase on behalf of.” Translated into English, it can most accurately be described as a purchasing agent.
The goal of daigou is simple: to turn a profit by buying low and selling high.
Why is Daigou popular?
Purchasing agents and daigou are becoming increasingly popular. Why? Most of the time, American brands are priced much higher overseas. That means that American goods are more expensive to purchase inside Asia.
How much higher? Goods can be priced up to 50% more in China and Asia. That is why there are tremendous amounts of people seeking purchasing agent services. The demand for American products is high, so the need for daigou is growing.
Also, several world-class e-commerce websites are based in the United States. Popular sites like Amazon, eBay, Costco, Best Buy, and more sell highly-desired goods. These American sellers have the greatest selection on their domestic soil.
From these websites, very few selections are available for worldwide shipping. The Asian population needs access to U.S. goods, but usually not the other way around.
Over a million people globally are now working as daigou across America, Australia, New Zealand, the United Kingdom, and more. Anywhere goods are produced that are desired in the Asian market, daigou is sure to be present.
How does Daigou work?
Now that you understand what daigou is, you might be curious how exactly it works. It is generally quite simple.
Daigou begins when a customer asks for a quote, availability, and lead time (how long the process will take). The customer pays for the price of the item(s), plus shipping fees and the daigou’s commission. Then, the purchasing agent will place the order using a U.S. shipping method and ship it to an American address. This order is then forwarded to the receiving customer overseas.
Daigou does not always involve shipping the products via postal services. There are many forms of daigou to get products into the hands of customers.
Different forms of Daigou
The end results of daigou are always the same. However, there are many different forms of daigou to get the job done. Here are a few common types of daigou.
The most popular form of daigou is hand carrying. This is when people take advantage of carry-on luggage to bring items across borders. By hand-carrying items in your personal suitcase, people can evade tariffs and other sales taxes that can be applied through other methods.
However, hand-carrying is a risky business. Chinese customs has decided to come down hard on daigou’ers attempting to bring goods through the airport. When customers officers inspect luggage, they catch people who do not accurately declare the value of what they’re bringing into China. Clearly, these items are going to become commercial purchases, or sold for a higher price.
Here is an example of one person caught by a customs agent. His cries and begs for mercy show you how risky hand-carrying can be.
When hand-carrying is successful, it allows daigou-er’s to move items quickly, but only in smaller quantities. Hand-carrying is restricted to what can fit inside carry-on luggage, and what can make it past customs inspections.
Another prominent example of this is is the 2008 Chinese milk scandal. There was a severe shortage of milk powders, like infant formulas, in mainland China. As you can imagine, milk powders began to be “daigou-ed” from Hong Kong to be resold in the mainland - amid the toxic milk incident.
Please read: https://www.youtube.com/watch?v=X3gNQ9JnJ90
In Mandarin, daigou relates to both sides of a sales transaction. Daigou involves the purchasing and selling of imported goods. Some resellers of imported items call themselves daigou because the items they sell are similar to what a purchase agent would buy.
This also potentially reduces the duties they carry. For example, if the buyer finds anything defective, they can claim that they just “purchased on behalf of” others and not the actual seller.
However, this usage makes the term daigou no different from a normal import reseller. The use of the word here also contradicts what the Mandarin characters were originally intended to mean: to “purchase on behalf of.”
One simple way to look at purchasing agents is basically “international traders.” They help people purchase items from one country and ship to another. This is the form of daigou that has the potential to scale as a real business.
Ocean and freight shipping
Misconceptions about Daigou
There are many common misconceptions about this popular business term. Let’s clear the air on a few of them now.
Daigou does not mean tax evasion
Just like any other international trading business, daigou purchase agents are required to pay taxes. Excellent purchase agents are capable of complying with laws and regulations between countries and are well-versed in international import taxes. Additionally, they must register their business and pay duties and taxes just like anyone else.
The vast misconception of tax evasion by daigou-ers is mainly due to the first form of daigou explained above, hand-carrying. Technically, anyone can bring anything in a suitcase with the intention to sell it. This low barrier to entry allows anyone with access to merchandise to do daigou business.
Daigou is not the grey market
The grey market is when legitimate goods are sold outside of official selling channels. Imported goods sold in this way indeed fall into this category, but there’s a difference.
A purchasing agent helping customers get access to items does NOT involve the change of titles to goods. That means the purchasing agent is buying directly from the brand and original source.
Also, any imported item that goes through customs clearance and registration becomes an official transaction, NOT a grey market transaction. Purchase agents do not control if buyers go through more formal ways of clearance. This depends on the buyers themselves.
Therefore, calling daigou the grey market is very likely to be inaccurate not always accurate.
Daigous are not smugglers
Let’s be clear that daigou-ers are not smugglers. This misconception comes again from the first form of daigou, hand-carrying. Smuggling happens when someone decides to profit by under-declaring what they are importing.
Also “flight attendant” daigouers (I mentioned in a comment above) are known to smuggle high-priced items or even illegal substances base on the convenience of thier work.
If taking volume into consideration, the hand-carriers can only carry so much at a time. An established daigou business is capable of purchasing and shipping way more items.
How much does Daigou make?
As you can imagine, this is a very vague question but popular nonetheless. Everyone wants to know how much money you can make from daigou. But this is the same as asking “how much can an international trading business make?” It’s near impossible to answer. Why?
It depends on every individual case.
For example, amateurs can enter the daigou market without any substantial investments. But, these same amateurs have limited resources and therefore a limited profit margin. On the contrary, a well-established daigou business can generate more than 300M USD annually. Many daigou businesses range from thousands to millions of profits per year.
The competition of daigou is fierce. Customers have access to plenty of other competitors, many of who can offer even lower prices (because of tax-avoiding schemes).
Another reason that answering this question is impossible is that daigou includes the sale of all ranges of priced items. From luxury handbags costing thousands to designer fragrances costing hundreds, there is a wide range of prices and therefore a large range of profits. Daigou-ers even sells mattresses! Daigou offers shipping and purchasing solutions to all sorts of international products, so it’s hard to pinpoint an exact profit margin.
Generally, daigou businesses that focus on higher-priced items such as electronics or luxury handbags tend to generate more revenue. Smaller businesses or new-comers might struggle on a handful of sales due to lack of resources or brand awareness.
Regardless of the size of the business or the price of goods exchanged, daigou is not going anywhere. As long as the demand for foreign goods exists in Asia, daigou will be present to make the sales happen.