A Phantom Army of Chinese Traders

Tourists, students and entrepreneurs are believed responsible for up to six times Blackmores' direct cross-border sales into China.

THE PAST two years have been exceptional for the company founded back in 1930 by Maurice Blackmore, an entrepreneur since acknowledged as Australia’s first naturopath.  
He could never have foreseen how, 85 years later, the whims of the Chinese consumer could change the fortunes of  the nutraceutical firm that still bears his name.
The spectacular success of Blackmores in the China market has been curiously aided by the emergence of an invisible army of Chinese people trading in it products. It is an army which moves millions of dollars’ worth of Australian health and dietary supplements to China to make a profit from informal trade.
Its preferred sales channel is the Internet, its foot soldiers buying direct from Australian chemists or supermarkets, and, if necessary, carrying products back to China in suitcases to be ordered online or on-sold to other Chinese traders. This phantom army is believed responsible for around AUD120 million in sales of Blackmores’ products to China in 2014-15. That is six times the company’s direct cross-border sales into China.
The army is made up of  tourists (one million Chinese tourists visited Australia last year), students, traders/entrepreneurs and e-commerce platforms, such as Tmall and JD.com – all exploiting the demand for imported health and food products in China.
Some of these small-time merchants
have their own platforms in China’s free trade zones, specifically set up for cross-border
e-commerce. They sell a range of imported products, including many from Australia.
Students and tourists who do not have a platform conduct sales on consumer-to-consumer (C2C) portals such as Taobao.
Peter Osborne , Blackmores’ Managing Director, Asia, says the opening up of cross border
e-commerce and the creation of special free trade zones for imported goods is the reason for such explosive growth in sales of imported products within China.
Relaxation of Government restrictions on foreign imports comes as part of China’s desire to boost consumption. The Government has created a new channel of distribution for foreign products in China through special free trade zones.
Cross-border ecommerce opens up the market for the full range of Blackmores’ product categories, Osborne says.
Blackmores itself sells its products through the conventional brick and mortar channel, and, like other exporters, registers its products with Chinese customs and quarantine authorities. Osborne says a number of import restrictions apply, especially on vitamins and dietary supplements. “But in cross border e-commerce, there are less restrictions on what you can sell and the registration process is much more simplified. That is one of the reasons why sales have exploded for companies like Blackmores,” he says.
In total, Blackmores has three channels of sales in China.
First is the conventional business, selling through its wholly foreign-owned enterprise (WFOE) which has an office in Beijing, and branch offices in Shanghai and Shanghai Free Trade Zone. Blackmores’ products land in Chinese ports and are then distributed through 3,000 outlets, such as chemist chains, and through TV shopping channels and e-commerce platforms. All imports through the WFOE attract an import duty and are subject to strict registration processes.
“Then we have direct cross-border e-commerce,” Osborne says. “Our products are shipped into the free trade zone in Shanghai and sold to a range of cross-border e-commerce platforms.” And then there is that invisible army of eager buyers.
Blackmores’ Chief Executive, Christine
Holgate, said at the company’s recent result presentation that China sales, both direct and through Australian retailers, are estimated to represent 40 per cent of Group revenue.
The Group’s first half sales totalled A$341 million – up 65 per cent on the corresponding period of the previous year.
Holgate says sales to retailers in Australia, which grew in double digits, were bolstered by purchases by Chinese tourists and entrepreneurs, as well as continued innovation and marketing activity.