Yi Liu-case Study
Transcript of Yi Liu-case Study
Glasgow School for Business and Society
Department of Management
MBA Luxury Brand Marketing
DEVELOP IN A MORE “DECENT” WAY
A Case Study on Online Purchasing Agency Industry in China
Course Title: Global and Globalization Citizenship
Module Code: MML221695
Trimester A (2012-13)
Module Leaders:
Dr. Simone Baglioni
Module Tutors:
Dr. Carol Doyle
Dr. Anne GasteenDr. William Henderson
Dr. Manos Maganaris
Dr. Sovan Mitra
Dr. Mahdi Zahraa
Date of Submission: 3rd December 2012
Submitted by: Yi Liu
SID: S1231474
Develop in a More “ Decent ” Way
-a Case Study on Online Oversea Purchasing Agency Industry in China
Issue:
Understand what caused online online oversea purchasing agency agency in
China
Analyze the problems and risks involved in online online oversea purchasing
agency agency
Discuss viable approaches related to standardization and development of online
online oversea purchasing agency agency industry in China
Introduction
Stewardess Tax Evasion Case has shaken the Mode of Online Oversea
Purchasing Agency in China
Xiaohang Lee, a Chinese 30-year-old former stewardess was sentenced to 11 years
and fined 500,000 yuan (approximately 50,482 pounds) for buying a large amount of
cosmetic products from South Korea duty-free shops and selling them in her
Taobao.com online shop without customs declaration, which involved import linkage
tax evasion over 1.3 million yuan (approximately 151,464 pounds) (Zhao, 2012) .
This recent news has triggered controversy within public and brought online oversea
purchasing agency industry into firing line. Moreover, it has caused some small-scale
online oversea purchasing agents withdrawn from market to avoid illegal issue, and it
is likely that a rise in cost of online oversea purchasing agency due to the majority of
sellers might be forced to follow formal channel—paying proper tax and freight (Xu,
2012).
Along with the rapid growth in online oversea purchasing agency industry
nowadays, it is resistibly prevailing in the wake of increasingly maturing market of
online shopping in China yet it can be indicated from the stewardess tax evasion case
that there are plenty of hidden perils within online oversea purchasing agency industry
that need to come into notice and be solved.
In this case study, the general situation of online oversea purchasing agency industry
in China would be analyzed, and it will discuss about the relative issues from the
perspectives of both consumer and online oversea purchasing agent. In the end, the
viable solutions would be provided in order to make online oversea purchasing
agency industry not only develop better in current business environment, but also
maintain its intrinsic competitive advantages at the same time.
Background Overview
What is online oversea purchasing agency in China?
It is a culture and custom in China that people who travel, study, or live abroad will
buy various goods as gifts to their family members, relatives and friends in China
when they return. From that, domestic people will request those particular group of
people to buy on their behalf in foreign countries and giving some “tips” in return.
Today online oversea purchasing agency is seen as an approach for people in China
access to the goods that are not available or much higher price in domestic market, but
in stock or much cheaper in foreign market, such as United States, United Kingdom,
France, and Australia these kind of hot countries for Chinese people traveling or
studying. Generally speaking, online oversea purchasing agency is simply finding
someone or agent company to buy on somebody’s behalf in foreign countries which is
running bases on the Internet and international logistics(Chen, 2011).
Why online oversea purchasing agency market is huge?
In 2011, the amount of transaction in online oversea purchasing agency market
reached to 24.1 billion yuan (approximately 2.43 billion pounds) and it is expected to
reach 48 billion yuan (approximately 4.85 billion pounds) in 2012 (see appendix 1).
In addition, the increasing number of middle class, Chinese student studying abroad,
and increasingly open and rapid communication of information from foreign countries
also have stimulated this particular industry. Furthermore, the thriving phenomenon of
Chinese online oversea purchasing agency industry actually can be seen as a
reflection to further globalisation of China because it involved a circulation and
trading of various kinds of commodities went beyond import trade.
There are three main reasons that driving Chinese consumer to buy products
through online oversea purchasing agency:
Better Quality
Chinese people are inclined to have exocentric mentality, in other words, they
perceived the quality of goods from foreign developed countries were better than
domestic one. The recent exposure of cosmetics and food safety problems such as
excess level of heavy metal in cosmetics products (Wu & Zheng, 2012) and market
entry of substandard milk powder in China (BBC News, 2009) however activating
this thought again in Chinese people’s mind. Consequently, cosmetic product and
powder milk product occupied the first (22%) and second (18%) place of overall
product consuming category within online oversea purchasing agency in China (see
appendix 2). It is difficult and time-consuming to rebuild people’s confidence on
domestic product and this has led online oversea purchasing industry to a unabated
circumstance.
Cheaper Price
There is a wide gap between China and some specific foreign countries in terms of
price difference in goods, especially in luxury sector. For example, a COACH legacy
Haircalf Pocket Tanner Tote price in American official website was 898 dollars
(COACH, c2012), converting to China Yuan is about 5,593 yuan. However, the
official price for the same bag in China went up to 9,990 yuan (China COACH,
c2012). The most vital reason for almost two times price of that kind of luxury
product is the charging of a series of taxes and dues, such as custom duty,
consumption tax, and value-added tax, which means the total of taxes and dues can
reach around 70% to 100% of the original price. Undoubtedly, the luxury goods,
particularly in bags products, occupying the third place (12.5%) of overall product
consuming category within online oversea purchasing agency in China (see appendix
2).
Appreciation of the China Yuan
In online oversea purchasing agency industry, consumer will use China Yuan as
transaction currency to deal with agent rather than US dollar, Euro or Great Britain
Pound etc. In recent years, China Yuan is continuously appreciating (see appendix 3).
On the contrary, price of the oversea product can be seen as a continuous depreciation
to those consumers if that price remain the same in foreign markets. In other words,
they are able to get a better deal because of the appreciation of the China Yuan. Thus,
it triggered the online oversea purchasing agency to develop further as people start to
search more cost-effective products from outside of Chinese market.
As to online oversea purchasing agent:
There are huge market space and profit-driven for agents within the Chinese online
oversea purchasing agency industry due to numerous consumer base in domestic of
China and the profit from service fee of oversea purchasing agency, rebate of certain
partnership or membership, and logistics discount. The online oversea purchasing
agency industry in China can be divided into two types of sellers:
1. Self-employed agent
International student, flight attendant, tour guide and people who is on business trip
are the main procuring forces of online oversea purchasing agency industry. They
takes advantage of location to directly purchase the foreign products and sell them via
Taobao and Weibo. The former one is similar to Ebay and Amazon yet a huge online
shopping website in China (MZ Hosting, 2011); the latter one just likes Twitter, a
micro-blogging service which is free and the most common and popular social sharing
platform in China (Hewitt,2012).
2. Specialized Online Shopping Website
The majority of specialized oversea purchasing agency website generally consists
with professional e-commerce platform, foreign procumbent partner, logistics partner,
and customer service center. For instance, www.usashopcn.com is the biggest online
oversea purchasing agency website in China which even has branches in New York
and Los Angels etc. and it is the only oversea purchasing agency company that can
reduce the consumption tax in United States for Chinese consumer
(www.usashopcn.com, c2012).
What makes Online Oversea Purchasing Agency Special?
“Online” and “Oversea purchasing” forms the competitive advantage of this particular
industry. First, the obvious advantage of electronic commerce, which in here means
selling over the Internet has reduced a considerable operation cost, especially for self-
employed agents. Second, not only the greater categories of goods and better quality
in oversea market comparing to Chinese market, but also the earlier launch time for
new products provides an initiative advantage to online oversea purchasing agency
industry. It combined those factors and built up a strong competitive advantage of
price, timing and brand competitiveness.
Problems within the Online Oversea Purchasing Agency Industry in China
The lower product price and greater accessibility these two main positive factors of
online oversea purchasing agency actually indicated that it is an integration of existing
resources by doing this business. However, even though Online Oversea Purchasing
Agency itself has unique advantages and it can not be denied that the demand within
this sector is rising year by year so far, there are still quite a lot of distinct problems
and risks because it is easily running in the gray area for such an industry. Indicating
from the steward tax evasion case above, a series issue of smuggling, counterfeit,
after-sale service and so on,appeared and will constantly appear which not only has
drawn attention to relevant departments but also cause Chinese government
strengthened the regulation of online oversea purchasing agency industry. Hence, it
has to faced with both risks from economy and legitimacy.
Prolems and risks to Consumer: Quality and After-sale service
From consumer point of view, it is hard to guarantee the quality and after-sale service
of the products bought from online oversea purchasing agents or websites due to the
indirection access to the foreign goods. If there are problems such as lose, damage,
discrepancy in product specification etc. it is difficult to deal with the return policy
since the agents or websites are just the middleman between domestic consumers and
foreign sellers. Sometimes there are some unscrupulous agents or websites sold
counterfeit or unqualified products to people especially in luxury sector. Usually they
stock from leatherware trafficker with very low price then sell the goods with the
original price (He & Chen, 2012). However, not only counterfeit bags but also
counterfeit receipt appeared in market even if before a receipt or invoice of luxury
goods was a valid certificate of their “bloodline” (Zhou, 2011). Furthermore, there is
no authentication service in any luxury counter therefore it is easily to generate
disputes like one case happened in Shanghai, a girl from rich family spent 380,000
yuan (approximately 38,302 pounds) on a Hermes Porosus bag from an online
oversea purchasing agent but this girl was not the first owner and there was no receipt,
sometimes it also was a means for agents to avoid tax without invoice. As to
authentication, Hermes counter also refuse her. After a long-time mediation even
though this case ended up with refund from agent (Zhu & Qian, 2012), it involved so
many unnecessary troubles to consumers.
All those problems can possibly result consumer in difficulty of self rights and
interests maintainance as oversea purchasing industry is an emerging industry and
Internet-base business—agents doing business online has made this industry carry an
characteristics of high fluidity, in other words agent did not need to do registration in
Chinese ministry of commerce and it was very difficult for relevant ministries to
supervise and follow the circumstances rapidly if there was any illegal agent. In
addition, the usual contact means between consumer and agent was the Internet or
phone, consumer lacked of transparency of agent’s information and valid identity if
they wished to complain. Furthermore, most of the oversea purchasing agency
websites generally were just a transaction platform for both consumers and agents,
which means they are irresponsible for the quality and transaction of products.
Problems and risks to agents:
Cost Increase
The majority of agents in online oversea purchasing agency industry use post as their
distribution channel. Since the sharp increase in transaction of oversea purchasing,
there was a serious loss in Chinese custom revenues. Consequently, the Chinese
customs released an adjustment of tax allowance relating to postal items in 2010,
which set from 500 yuan (approximately pounds) to 50 yuan (approximately pounds)
(General Administration of Customs of People’s Republic of China, 2010) . Base on
this adjustment, basically all the products of oversea purchasing agency have to be
charged taxes which has directly added up to cost in this industry and narrowed the
interest space. In addition, recently the Department of Primary Industries of New
Zealand has issued a statement that they would act vigorously against the illicit export
of infant formular milk powder, the both accessibilities of oversea purchasing agency,
mailing and carrying by person has been blocked referring to New Zealand (Want
China Times 2012). This would be another increase in cost since New Zealand is the
main milk powder exporting country and the most welcome one in China, agents have
to find another way to procure.
Tax evasion
There are minority of agents, like the former stewardess from the case, carry foreign
goods through personal custom clearance. According to the regulation of custom in
China, the tax exemption is higher if people bring products from abroad rather than
mail them. However, the real situation is that a lot of people like the arrested former
stewardess underquote or even not quote the price of parcels in order to avoid tax.
Thus, if agents is not doing business in a proper way or lacking awareness of tax rules
and laws, it is easily to be suspected with smuggling and crime, which actually
involved legal risks with online oversea purchasing agency industry. In addition,
most of the private agents do not have the notarized qualification of foreign trade and
actually they are taking some kind of pressures and risks anyway.
Solutions
Those problems and risks have led online oversea purchasing agency industry into a
dilemma, especially to agents. If they do increase the price, shift the additional tax to
consumer, they will lose their competitive advantage in price difference; If they
remain price in same, probably what they earn even can not pay the tax and force
them be in risk of breaking law. Hence, it is imperative to plan some solutions for
that.
Enhance Industry Self-regulation
Enhancing online oversea purchasing agency industry to regulae itself is a positive
way to facilitate the protection for both agent and consumer. One hand, the oversea
purchasing agency platform websites like Taobao.com, actually can implement
verification system and filter the unqualified agents for consumers, ensure they have
less chance to deal with undesirable agents. On the other hand, formulating relevant
service regulations and spread the legal knowledge for agents in case of touching the
legal limit.
Cooperate with Foreign Trading Company and Individuals
Even cooperate with foreign trading company may increase the cost of doing oversea
purchasing agency business, it can reduce the risk in tax evasion and ensure
everything agents do is legal. In addition, agents could joint with each other could
reduce the cost fee in terms of construction and service fee from online shopping
websites.
Formalize the Industry Standard
Chinese government should regulate the regulators, in other words, pushing and
supervising the relevant departments to perfect the tax law and industry regulation
referring to online oversea purchasing agency industry within the e-business
environment. For example, implementing the revenue department to open online
oversea purchasing business specific channel in order to validly supervise the
transaction activity within the industry.
Conclusion
Overall, the online oversea purchasing agency industry of China is still on its stage of
growth although there are many issues relating to consumer side, quality and after-
sale service of oversea purchasing products, and agent side, cost increase due to
tighten taxation policy and illegal risk. Whereas the distinct price difference, better
quality of goods these two main features are still the main driving force of further
development within the industry. Furthermore, the various solutions would be able to
keep online oversea purchasing agency industry on the right track, which may let this
industry to an optimal situation.
Recommendations
Looking at the bigger picture of online oversea purchasing agency industry in China,
there are still a lot of notice foreign brands, like TOPSHOP, ASOS and
REVIERISLAND these British brands have not shown in Chinese market yet which
might imply that the growing space for this industry is still huge. In addition, the
former stewardess case even has shaken the original mode of online oversea
purchasing agency industry, actually it can be seen as a reforming period that a trend
of eliminating the unqualified agents could be happen in the short term. Furthermore,
the most-profitable luxury sector within the online oversea purchasing agency
industry might move up to the second place of most popular oversea purchasing
agency products ranking from the coming year since China has occupied 28% of
luxury goods consumption in this year (ChinaScope Financial, 2012). However it is
an irreversible trend that online oversea purchasing agency industry in China will
develop into a more standardized market with greater consumer base since Chinese
government is implementing and adjusting policies.
Appendices
Appendix 1 2009-2013 Transaction Size of Online Oversea Purchasing Agency in
China (Source: China Electronic Commerce Research Centre, 2011)
Appendix 2 2010 Most Popular Goods Bought Online through Overseas Purchasing
Services (Source: Gao, 2011)
Appendix 3 Currency Exchange Rates Between the U.S. and China (The Data Mine,
2012)
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