Photo source: Nick Chill, Flickr

The Basics of Distribution in China

An often-neglected yet crucial part of managing your distributor network is to offer support and guidance on the ground.

The majority of businesses in China lack efficiency and professional management, resulting in higher costs and lower gains. For instance, large numbers of distribution networks lack advanced practices in inventory management and demand planning which leads to higher operational costs.

Thus, nurturing your distributor network assists in the development of an appropriate channel system aimed at gaining more market share and reducing overall costs.

“Because the majority of distributors do not keep count of their sales and inventory, we are currently developing our own inventory management system for our distributors. That way we are able to receive market data that our distributors were previously not able to provide.” – Nic Pannekeet,CEO Van den Berg

Being on the ground also enables you to exercise more control over your brand image and provides you with market information. It also assists in strengthening relations with your end-consumers and makes IP infringement less likely.

Working with one or more distributors

Many distributors will demand exclusive rights to your products in the market. However, this is rarely your best option. The Chinese market is fragmented and working with merely one distributor can thus limit your reach. It is vital to find distributors that are well grounded within their respective local markets in order to achieve success.

Distributors will argue they have nationwide coverage but it is important to take such claims with a grain of salt. It is practically impossible to cover the entire country without working with a web of sub distributors. It is smarter to control your own distributors and sub-distributors by working with multiple partners instead of putting all the power in the hands of one party.

“Giving one distributor control over all your distribution is never a good idea. He or she can start selling alternative products to your clients once you start delivering less value to him and it also makes you vulnerable to IPR infringement. If your distributor sees market potential and thinks he can produce a similar product, there is nothing stopping him from doing it.” – Gijsbert de Bruin, CEO of CHC Group

We often see foreign companies making the mistake of trusting their newly appointed distributor (or partner) and taking him on his word.

We urge you to double-check any potential partner and perform extensive due diligence before entering into a contract. We have seen too many partnerships fail because they relied on trust instead of actual data.

The advantages of having your own sales office

Having your own sales office on the ground offers many advantages. A local presence signifies your long-term commitment to China and provides credibility and security to your customers. In addition to being able to better support and train your distributors, a local sales office also decreases risks.

Being fully dependent on your distributor network places the power fully in your distributors’ hands. However, having a local presence enables you to exercise more control over your marketing promotion, stakeholders and IPR, providing you with a stronger foothold.

“Lots of companies have trouble understanding the Chinese market. And it’s no surprise why: they’re not actually physically there. Only their distributors are. Your own office enables you to gain control and receive real-time market information you can work with.” – Nic Pannekeet, CEO Van den Berg

Another thing to keep in mind is that foreign companies are primarily able to compete based on quality, know-how and service. Therefore, not managing your own customer service and leaving it in the hands of your Chinese distributors instead can weaken your competitive position.

Training, supporting and strengthening relations with your distributors and clients is important. Particularly when you develop tailor-made solutions, as is often the case, for instance, in the construction industry. One example we can examine more closely is Royal Boon Edam, a company that develops custom-made entry solutions e.g. doors and safety gates, opened several Chinese sales and support offices in order to service their clients better.

“Our distributors were not able and willing to provide the level of service we usually deliver. It costs distributors money and time and they do not see a direct pay-off. Hence we took service into our own hands, which has worked out much better.” – Willem van de Nes, Ambassador China at Royal Boon Edam

Their average client requires a tailor-made solution, and their distributors simply do not possess the in-house knowledge and expertise to provide clients with professional advice. Consequently Royal Boon Edam employs their own in-house trained professionals to discuss the project with the client, take measurements and offer a suitable solution.

What are your experiences with distribution in China?

Duco van Breemen

Duco van Breemen

Duco is project & marketing manager at Launch Factory 88. He has lived in China since 2008 and has worked with both state-owned and private Chinese and foreign enterprises.
Duco van Breemen