You need to understand that there is no right or wrong distribution strategy to export your product to China. Only business factors will influence which model will suit you the best.
However, if you want to maximize your expansion potential in China you’ll have to manage a strong sales strategy while developing your distribution network.
Keep in mind that due to cultural differences and sometimes, a lack of understanding of the distribution landscape in China, many brands got into difficulties while trying to integrate into the Chinese market.
Also, we’ll give you here some highlights about:
- logistic and distribution in China
- Different strategies
- The maximum result from the minimum efforts
What about distribution in China?
A successful distribution strategy is a crucial step for any company willing to export products to China even though it’s not something easy to do… Here are some key challenges faced by B2B multinational companies when entering the Chinese market:
- Fragmentation of distributors: considering the size of China, many small distributors are unwilling to expand business across regions… they are therefore either pushing companies to seek new partnerships or limit their development in China.
- Many differences among the regional market: variation among the regional market can limit pricing strategies and require different capabilities for distributors.
- Diversification is required: with the fast development of B2B online platforms, companies need to consider developing a multi-channel strategy to optimize their distribution management through both online & offline distribution systems.
- Financial tightness: many local B2B distributors have limited funds and insufficient capacity to carry big inventories.
- Legal challenge: foreign firms must look for channel partners with enough capabilities to deal with the multi-layered legal approval process.
You can understand here that entering the Chinese market can be a real challenge for companies, independently from how rewarding it can be.
China is a country with a very specific way to proceed and you’ll need to mind:
- The cultural gap
- Different business behavior
Also, to fully enjoy the Chinese opportunity, and before detailing the different strategies you may use according to your business model, here are some elements you should think about upfront:
- The desired degree of control over your product
- The desired degree of control over your pricing
- The location that will be covered (China is a BIG country)
- Do you need to keep some business channels separated?
- What capability will you need to manage multiple distribution channels/distributors?
- What marketing support and investment will you need?
- Can you do it yourself or do you need an expert to help you?
What distribution model can you use in China?
A basic model and most common for companies to expand new markets.
How does it work?
- You give a percentage of your sales revenue (usually around 50%) in exchange for local distributors handling the sales on your behalf.
- According to your product fame and negotiation process, a distributor can eventually purchase your inventory so that you’ll get bottom-line benefits
What does that mean for you?
They do the job for you, which means less profit margin and surely more concerns about quality control and branding… If your product already works, they’ll sell it well. If not, your product will be queuing behind the best sellers.
Be sure that distributors have already signed different brands offering the same type of product as yours. And they only care about the one showing the result. If you lack of reputation in China, distributors won’t give you much attention.
What solution do you have using distributors?
- The exclusive one: we don’t recommend it. Complicated to deal with. A distributor is your supplier, not a partner. And they’ll put their interest before yours.
- Multi-distributors: a good strategy. You control the distribution process and it’ll allow you a good presence in China, your own registration in the country, and strong branding.
- Direct distribution: you sell and deliver products by yourself. You’re in total control of operations. You won’t face the costs for intermediary but will have important upfront costs (shops + warehouse)
The DIY model
A simple model meaning:
- Your company enter the market and works with an export company to lower the cost and complexity of exporting product to China
- Your company hires experts to deal with inventory, logistics, and warehousing. Or you can also deal use a service provider to support your e-commerce operations.
This a good way for your company to manage your E-commerce operations the same way you run your home market operations.
What’s the main advantage of your business?
It’s a vertical integration system allowing your company to increase your net revenue while using online platforms and absorb some upfront costs including inventory costs.
What is it?
- You’re a foreign company shipping products from your domestic market to China through an E-commerce platform
- You are not required to own a Chinese business license or a warehouse in China. You can deliver your product through the postal service or use bonded warehouse
A good way to experiment with sales operations on the Chinese market and lower your cost is by cutting out intermediaries, physical shops, salespeople, and inventory.
Maximize your profits – and invest in your Branding
Whether you choose to use an online or offline distribution system in China, keep in mind that each distributor may be handling between 40 to 200 brands. So, they won’t care about yours in particular especially if others are growing faster…
For E-commerce online platforms it’s even worst. Some platforms such as Tmall Global receive thousands of demands every single day. You’ll understand here that cooperating with a distributor in China is not an easy task.
Reasons why a Chinese distributor would be eager to distribute your product:
- Your product/company is famous in China
- You got a lovely positioning perfect to maximize profits on a specific target
- You got a strong E-reputation
Here’s how you build your future strong reputation:
Work on your visibility for China
- Make a website in Chinese and registered on a Chinese domain
- Open an official account on Weibo: Weibo is the Chinese Twitter. The most popular social media in China, it’s also the favorite platform for KOL. So, if you want to target a large audience and engage with potential customers
Work on your reputation:
- Baidu: Having a Chinese website is good, but not enough. They don’t trust companies… before buying anything from you, Chinese people will check for information on Baidu, their Chinese google. They’ll search for information about your product/brand (can be reviews, comments about something specific, forums, or general research). See everything about Baidu Marketing HERE
- WeChat: the Chinese Facebook. Everybody is using WeChat in China. A great messenger APP that also gets a “moment” system allowing people to share content (messages, pictures, videos) and personal feedback.
- Douyin: The Video king. A short video-sharing app growing very fast among young generations. It’s the perfect app to generate content and spread it to a wild audience. More intuitive and fun than WeChat and Weibo, this app is also an amazing tool for KOL.
After working on your branding and e-reputation, you can make an appointment with distributors. And be sure that they’ll do research on your brand through Chinese digital platforms to evaluate your potential. They’ll check:
- If Chinese consumers like it and if they already bought your product
- How’s the quality? what do users say about it on forums and social networks?
- How many followers do you have on Weibo and WeChat?
- How many media are talking about? What can they find on Baidu?
And as it’s never enough, you’ll also have to work on your packaging. It should be:
- Good quality
- Matching your positioning
- Adapted to the Chinese market (successful brands in China build up a very specific range of products adapted to local consumers)
Last but not least, to manage your cooperation with distribution partners, here are some points you should keep in mind:
- Spend time with the distributor to study the market and understand its proficiency/capabilities
- Understand the reasons behind margin, where cost is expensed, and where value is created
- Transparency toward retail pricing levels across different channels
- Jointly develop sales targets and review them periodically
Marketing to Distributors
Distributing products in China is not something easy but can be very rewarding. To resume distributors in China?
- They want to make fewer efforts possible for maximum results
- They want fast results
If you have any questions about distributing your products or expanding your brand to China, feel free to contact us.
We are GMA, your future partner in China
- Experts on the Chinese market & digital marketing specialists.
- We help you to grow your business in China.
- Free advises
- Do not hesitate to consult our case study for more information