there are 3 main ways to selling a product in china,
1. Export legitimately
This involves companies obtaining export licenses and paying chinese government importation duties. The products will need to comply with chinese labelling standards which involves translation of the labels. Recently chinese government has proposed changes to these requirements to include warehousing, transportation and complaints handling as well. Please note these are proposals only but will need approval before implementation. The government has realised the vast amount of products flooding the chinese markets without proper translated labels and are from sources unknown (multiple middle man supply chains without a know source as a registered entity in China). The companies that are currently doing this include Bellamy, A2, Karicare Aptamil, S26 (these companies are approved infant formula suppliers for the Chinese market, there have been a cut back from 1000 approved companies down to 100, and luckily for Australia, our most popular brands are within that prestigious group.) If you walk into a supermarket in China, these products are selling for around 80-90 AUD equivalent, higher price due to the expenses incurred to enter the market legitimately. Blackmores and Swisse has not yet entered the market this way, Swisse is exploring since Biostime HK takeover as this company is well connected in the Chinese market with their own products, namely infant formula. There are significant risks to this type of entry, companies will have to set up infrastructure to deal with the market. The ChAfta will help australian companies enter into china this way in the future as import duties get reduced.
2. Export legitimately into the FTZ(free trade zone)
There are a number of FTZ in china, largest ones being Shanghai, Shengzhen and Tianjin. FTZ allows distribution channels to be set up be entrepreneurs and products exported from overseas companies into these FTZ channels for distribution. The government monitors these channels but allows it as a form of stimulating new ideas and ways of doing business. These FTZ companies have certain concessions with regards to import duties and other regulatory requirements. Blackmores and Swisse utilises these channels for supply also. This usually involves a webstore and warehousing setup within the FTZ, deal struck between parent company and these webstore owners, people order from the online store and product distributed to them via this method. The FTZ is rather saturated already and cannot meet the national demand.
3. 'Grey Market' into China
This is by far the most utilised method, via ebay, or Tmall, or Daobao, or 'daigou' which is the chinese term for getting someone in Australia to purchase products to send back to china. Blackmores for example is in Hong Kong supermarkets legitimately with chinese labels and all the trimmings, residents from China can buy them and bring them across the border, large amounts of infant formula and vitamins have gone through this way in the past where border control was lacking and people were getting bribed off. The government has already stepped in and now starting to seize massive quantities going across without legal documentation.
After all that is said and done, the facts remain that Chinese people don't trust anything that is made in china, or look chinese. So if your product label is chinese, people would not want it, even if it is made in Australia. They want original packaging products purchased from Australian supermarkets and pharmacies. They also want brands which the Australian population takes. There is no point making something in Australia and sell to China straight away, people would question why is this brand not seen in Australian pharmacies etc. The best a company can do at this time would be to promote their brand to China, then supply their product to Australian retailers to show them that's popular among Aussies, then hopefully one day when the free trade agreement reduces import taxes and they go over there to do business, people are more convinced.
Let's be honest here, these companies are exploiting a country with a severe lack of knowledge of supplements and the lack of evidence/trials behind these products, it gives them a sense of security and it gives them justification to continue living their indulgent lifestyles. Most mothers in China believe that infant formulas are more superior than breastmilk because it is synthesised and more things can be added in... go figure.
Let's hope this boom in the health sector continues as it benefits the Australian economy, lack of stock is a good problem to have. I have always said that the only country that have the capacity to manufacture enough inventory to satify the entire population of China is China itself, and that is exactly the kind of product the Chinese people don't want. It will be interesting to see the results of the premier's new 5 year plan to 'clean up' China.
VIT Price at posting:
$2.73 Sentiment: Buy Disclosure: Held
(20min delay)