Selecting the Right Local Distribution Partners in China

One of the fastest and less risky ways to enter the China market is to leverage on Chinese distributors to sell your products in China. However, your market success will be highly dependent on the distributor to do the right things in right way.

Therefore the first step is to select the right distribution partner who can support your market entry to China. Sourcing for potential distributors can be done in various means. Firstly, through recommendations from another firm already established in China, trade shows in China, established matching websites or lastly through Chinese market research consulting firms.

In the past, foreign firms can appoint Hong Kong distributors to act as their distributors in China. Furthermore, payment may be easier to transfer out of Hong Kong, but with China being more open, there is more incentive to go straight into China then to Hong Kong.

It is important to note that most distributors do not have nationwide distribution coverage but rather on a regional basis with Bohai Gulf, Yangtze River Delta and the Pearl River Delta as the commercial regional centres. For instance, Bohai Gulf - cover the cities of Beijing, Tianjin and the provinces of Liaoning, Shandong and Hebei.

You can use the following factors as a reference for a good distributor:

1. A strong and stable financial background
2. Quality sales staffs / English speaking staffs
3. Shows enthusiasm for your products
4. Strong relationship with an import/export agency
5. Right business direction for its distributorship
6. Appropriate storage of your products

In your visit to China to meet the potential distributors, you may wish to check out the kind and the number of distribution points or outlets it covers, their marketing abilities and their after sales service support. You may consider having a different distributor covering each region with different marketing strategies involving pricing and marketing channels.

It is of most importance that the distribution contract is detailed and understood due to a lack Chinese law in relation to supplier and distributor partnership. Contracts signed in China are often in Chinese. It is safer to have a qualified law firm review any translated documents or even English ones especially with contracts. Contract should have the following:

1. Guard against exclusivity
2. Agreement on the volume targets
3. Goods exchange and payment terms

4. Escape clauses based on performance reviews
5. Cover intellectual protection


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Analysis of the success and failure of doing business in China

Why some foreign-funded enterprise became successful when entering the China market while others fail, and why some grow relatively faster than the rest? Reasons to explain all these are complex and varied. The following factors can determine how well or bad foreign-funded enterprise fare in China:
1. Establishment and implementation of enterprise's development strategy. In China, successful MNCs and foreign-funded enterprise will definitely implement long-term development strategy, adopting a long-term outlook for their business, unlike other unsuccessful companies which do not look far and only concentrate on short-term gains. Besides adopting a development strategy that is of long time horizon, the strategy will need to be a flexible one as market conditions are constantly changing due to the presence of globalization. The enterprise need to be flexible as to react immediately to any changes without affecting its business operations.
2. Leadership of the top management plays a decisive role in deciding the success of the company. In face of greater competition brought about by globalization, management today will need to possess stronger judgment, decision ability, adaptability and greater foresight. Ability to look far is crucial as one need to be able to foresee unforeseen circumstances in order to be ready at all times to react to any changes.
3. Form key competitiveness for the enterprise, and grow together with the economy. Treat your staff with an open heart, cultivate the enterprise’s values and vision constantly into them to foster togetherness within the organization and strengthen the organization’s strengths. .
4. Build and strengthen the institutional framework and economic system of the enterprise. MNCs usually will establish main or Asian headquarters in key cities in China. Beside that, research and development centre, training centre and logistic base will also be built. Therefore it is vital for the organization to have a strong organization structure dealing with its cash flow, flow of information and manpower movement in order to ensure its success in China
5. It is essential for the foreign-funded enterprises to understand the China’s culture, especially regarding the culture of Guangxi (relationship), so as to be able to gain the popularity and trust of China population. With a good relationship, business can become smoother and probability of failure will be greatly reduced. Stronger bonds can also be built with the customers, suppliers and partners.


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Email: en@chinacir.com.cn      

           chinacirmo@gmail.com

    Tel:+86-10-82250824  

          +86-10-82252636

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How to do business in China

It is not surprising at all when many foreign investors complained when they do business in China. Many wondered why their years of experience in the business world could not be applied in China immediately. Doing business is about building mutual trust and benefit amidst establishing relationship with people. If you do not understand your counterpart well, it will be quite difficult to establish good cooperation with him/her. An old Chinese saying goes: know yourself and your enemy well and you can fight a hundred battles without any fear of defeat. This greatly emphasized the importance of knowing and understanding your counterpart.
Modern economic model differ greatly from the traditional one, whereby people in the past ‘fight’ till the last man standing. Today, people seek to achieve a “win-win” situation, and pursue long-term trade cooperation under a fair and healthy competition environment. Understanding factors such as China’s history, humanity and culture will be the key to investors’ success in China. As Western thinking and China’s traditional values do differ, encountering the culture differences is therefore inevitable, thus a better understanding of the cultural differences is necessary when doing business in China:
1. Learn how to handle Guangxi (relationship)
In China, Guangxi (relationship) is a complicated field. Establishing relationship with others does not mainly deal with achieving own self-interests or personal goals. A special feature of doing business in China will be that Guangxi (relationship) in China will have to include relationship with the government body, investors, partners and even relationship with your own staff. China government plays a large role in administrating the investment in China. This is because China is a socialist state; the economy is still largely controlled and managed by the government, so when doing business in China, it is important for foreign investors to learn to coordinate with the China government. At the same time, seeking a suitable local partner may be a shortcut and helping hand in developing your business in China market.
2. How to prevail over competition
China, at the moment, can be said to be a big, open market, and the ability to prevail over competition is a very important issue today. Investors should fully realize and maximize one's advantages. Some investors are afraid that the China’s imitation products will hurt the sale of their products. Even though this symptom is worrying, however in a free and competitive market, it will always be one that has the superior quality that will not be afraid of competition and will prevail eventually. China market is constantly undergoing standardization, and the China government has vowed to protect the quality of the market.
The Vice-Minister of the Ministry of Foreign Trade and Economic Cooperation had previously stated in his speech that being a member of the World Trade Organization, China government will continuously rectify and standardize the economic structure of the market, and will persistently crack down illegal acts of producing counterfeit products. Technology level in China is still relatively lagging behind, thus foreign investors should fully make use of their advantages in technology and expertise to produce high-quality products and services. One should not be over worried about the negative impact brought about by new counterfeited products. Continuous development of one’s technology and emphasizing on innovation will be the key to success.
3. Route for Investment
There are three options to take when make investments in China, mainly: wholly foreign-owned enterprise, Chinese-foreign cooperative enterprise and Sino-foreign joint venture. Which option to take will have to depend on factors such as the investors' investment direction, investment environment, and the amount of investment to be undertaken. Generally speaking, wholly foreign-owned enterprise require examination and approval from many government bodies and this process can be quite hassle and time-consuming. Government procedures for establishing Chinese-foreign joint venture and contractual joint ventures will be even more and the process will require even more from more government bodies. Thus Sino-foreign joint venture appears to be the ideal investment option as less governmental procedures and authorization time will be required. Possibility of encountering hiccups will be smaller.


Contact info:

Email: en@chinacir.com.cn      

           chinacirmo@gmail.com

    Tel:+86-10-82250824  

          +86-10-82252636

MSN: chinacir2012@hotmail.com