China’s business world gains foreign competition everyday. With a disposable income average of $31,195 per capita, demands for consumer products have reached new highs. Formerly, China’s market base spent money into investments, but with increased access to foreign goods and services, the population has turned into a consumer culture.
When positioning your brand in China, it’s best to search out a trustworthy distribution channel before attempting a WFOE (Wholly Foreign Owned Enterprise). This business structure puts the responsibility to operate, market, sell, and distribute your products in a foreign business ecosystem, rather than conserving your efforts and allowing for specialization.
While it is easier to allow a third party to distribute your products, you must follow correct Chinese protocol and understand the legal process of contracting a distributor. First, decide what sort of distributor relationship aligns best with your international account strategy. You have options:
Wholesalers, retailers, and commercial enterprises. In the West, manufacturers typically interact with wholesalers, or potentially retail locations if they vertically integrate.
Trade sales and wholesale marts. In China, trade shows and exhibition events are essential to marketing and business development. You can connect with reputable wholesale marts that distribute to a mass consumer base. These types of distributors often have the widest client base, and require the least amount of involvement from the manufacturer.
Agents and distribution centers. There is a fine line between selling your product to a distributor as a primary customer, and creating an agreement where they become your agent. If you plan to pay them on commission, they become an agent company, which can cause complications and legal headaches for your company, especially if you don’t have an operation in China.
Upon deciding what distribution channel will yield the best results, you can ask potential partners to bid for the position, with a Request for Proposal. Your RFP should give the prospect a detailed summary of the scope and requirements for the partnership, sales requirements, background and company history, along with specific questions targeted to your industry.
Your distributor will want firm guidelines on exclusivity rights and termination of partnership agreement. Decide what exclusive rights your distributor will be granted before your create an RFP, including sales quotas to retain exclusivity. Without quotas for sales, your distributor will not value their exclusivity rights, and may protect their higher profit customers over you.
Important Questions to Ask Your Distributor in a RFP:
- How long have you been in business?
- What is your track record with clients in this industry? How long have you worked with these clients?
- What operational, digital, and inventory management services do you provide?
- What territories do you cover?
- How do you plan to reach sales targets?
In China distributors have fewer rights regarding terminations of agreements than they would in the West. You must set specific guidelines, however, on what constitutes a change in distributor and how you will recoup losses; will you buy back inventory, or let them sell out stock for a lower price? Factor in your transitional costs if you decide to change distributors.
Finding and maintaining good relationships with your partner companies will help you grow international reach seamlessly. Baysource Global has a network of distribution partners specialized to meet the needs of your industry. Read this article to learn more about Distribution in China. Or call us today to talk to one of our specialists in product distribution. We can help you move your products at an international level.