Nowadays you don’t need a wholly owned foreign enterprise or a joint venture to get your products into the Chinese market. You can distribute directly into China through using Chinese distribution partners. It was actually never as easy to sell to China as it is now.
Yet we see many companies who take this route fall into the same pitfalls over and over again. Working with one exclusive distributor. Letting distributors handle product registration or intellectual property. Not performing due diligence and using the appropriate contracts. The problems vary, but here are 5 common pitfalls you should avoid when working with Chinese distributors.
#1 Working with one exclusive distributor
Although you might have hit it off with a Chinese distributor that promises you the world, it’s barely ever a good idea to work with one exclusive partner in China. Whilst some companies do work successfully with only one distributor in China, it’s really a rarity.
#2 Letting distributors manage your product registration or intellectual property
It’s of course convenient to have your distributor handle your product and intellectual property registration in China. Especially when you’re not familiar with local laws and regulations and don’t speak the language.
Unfortunately this is also a sure way to get your business into trouble. In 99% of the cases we advise not to let your distributors handle these processes. In the case of IP registration we can ensure you it’s never a good idea. In both cases it simply means you’re handing over far too much leverage before you’ve even begun selling in China.
We continuously come across companies who trusted their distributor to handle local product registration and got into trouble because of it. Don’t make the same mistake.
#3 Not performing appropriate due diligence or using the right contracts
The golden rule in China is to vet your partners before doing anything else. Make sure to conduct appropriate due diligence before entering into any type of contract.
Talking about contracts – we advise using a local law office here in China to handle your legal work. Local law offices are in a much better position to protect your interests than those who “do China on the side”.
Your lawyer needs to understand China-specific issues and take those into account when writing up contracts. Don’t forget to also include performance targets in your distributor contracts. This goes a long way to ensuring that distributors fulfil their claims and offers a way out in the event of an unsuccessful relationship.
#4 Offering your distributors insufficient support and training
Distributors need your support. A distributor that’s offered comprehensive support, training and the tools to help sell your product will perform infinitely better than if left to their own devices.
Many distributors in China lack the experience and know-how on how to sell your type of product. An often-heard issue is the lack of product expertise, which limits their sales abilities and level of after sales service they are able to offer to your customers.
Another common complaint is that many Chinese distributors are accustomed to selling on price and have trouble communicating your product’s added value to prospects.
Support and training is therefore essential to make sure that what distributors are doing and saying aligns with your company and its ideals.
#5 Not being close enough to your distributors in China
This is related to the previous point I mentioned. It’s crucial not to fall into the trap of thinking that distributors are a one-stop shop to success in China. Using distributors doesn’t mean that you don’t need to be directly involved in your Chinese operations.
In many cases, having some kind of local presence is valuable. That doesn’t need to be a full-fledged sales office. It can be as simple as having one business development manager on the ground to oversee your distribution network. This also signals a long-term commitment to your Chinese stakeholders and enables you to get a better understanding of the local market.
So, that’s it, five common pitfalls when using distributors in China. Avoid some of the common mistakes made, and enjoy a more fruitful relationship with your distributors.
Photo: Nick Saltmarsh, Flickr.
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