After working 7years with Foreign Brands in China, we sum up the 7 common mistakes of Distribution in China. You should enjoy it. China’s consumer base is rapidly expanding, making the country a lucrative market for international companies of all sizes. For companies to succeed in China’s market expansion, apart from a competitive marketing strategy, they must be able to establish a wide and effective sales & distribution network.
However, this is not easy at all. In fact, numerous international brands got into trouble due to the lack of understanding of the distribution landscape, China’s unique business culture or simply not making enough research before choosing their partners…
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From our experience helping a variety of international small and medium-sized enterprises develop and manage their distribution networks in China, we have gained valuable insights into the process of entering the Chinese market. Below we consolidate 7 common mistakes that you need to avoid in order to effectively develop and manage the distribution of your products in China.
1. Working with one exclusive distributor
China is such a big country and comprises multiple unique markets that one distributor cannot effectively cover all regions. And even if they do offer nationwide coverage, it’s usually not nearly as effective as working with regional distributors.
It’s advisable that brands should work with regional distributors who are well-grounded and well connected in their home regions.
Additionally, transferring all power to one party can also be a risky step and there are many examples of this going wrong.
Using a network of distributors is not only more effective for sales but also offsets risks.
2. Letting distributors in charge of 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 as well as don’t speak the language.
Unfortunately, this is also a sure way to get your business into trouble.
The distributor may not register your intellectual property properly with the Chinese authorities, leading to your products being copied or sold without legal protection.
There is also a risk of losing intellectual property and trademark protection. China does not offer protection for an international trademark if it has been issued inside the country. Product registration rules differ in China as well; you will need to research your industry’s regulations. Legal agreements need to include a “no registration” clause that explicitly states you have full ownership of all branded collateral as a client.
3. Not “knowing” the distributors enough or using the right contracts
The golden rule in China is to research your partners meticulously before doing anything else.
You want to ensure your distributor is legitimate and is able to fulfill your requirements in terms of, for example, after-sales and technical service.
Only once you have verified the legitimacy of your distributors you can get down to signing contracts. Without taking the necessary precautions, you are putting yourself at risk of finding a distributor that doesn’t fit with your company, or, even worse, finding an untrustworthy partner.
Talking about contracts – you should hire 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 the distributors.
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. In case distributors fail to fulfill their claims, the contract offers a way out for brands.
4. Offering your distributors insufficient support and training
Distributors need your support.
A distributor that is provided with comprehensive support, training, and the tools to help sell your product will perform infinitely better than if those who resort to their own resources.
Many distributors in China lack the experience and know-how on how to sell your type of product. They also lack product expertise, which limits their sales abilities and the level of after-sales service they are able to offer to your customers. Brands should be responsible for training their distributors regarding products, prices, selling points…
Once they know your products well, they will be able to showcase their sales to end consumers.
By supporting your distributors, you will keep control over your brand image. Support and training are 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
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.
Additionally, not to be on the market and to let the distributor handle the entire market is like letting your distributor have the whole control on your brand image.
Besides, if you are in the market, it will be easier to find reliable distributors and develop a trusting relationship with them. A real trust relationship with partners is very important when doing business in China. Face-to-face contact is essential for establishing positive business relations.
6. Not working on your Chinese e-reputation while finding a distributor
Distributors in China do not respond well to new brands.
Each distributor might be handling anywhere between 40 and 200 different brands so they won’t care about yours, particularly if other brands are growing faster.
The solution is to work on your online branding and e-reputation. Distributors will research the brand across Chinese digital platforms to see how potential it is.
- Do Chinese consumers like it? They will check if people already bought the products and how they responded.
- What is the quality like? They will check what users say about your products in forums and social networks.
- How many followers the brands have on Weibo & Wechat. This indicates the brand awareness.
- Through search engines such as Baidu or Sohu, they will also access how many media sources are speaking about your brand.
7. Let Distributor Manage your Marketing Campaign in China?
Therefore, you must have a strong presence and positive e-reputation to gain initial trust from distributors.
When you get a distributor, would you give to you the management of your brand image and Brand Awareness?
Would you like to let Wallmart or Carrefour manage your Digital Marketing in your country?
The second solution is to start with e-commerce.
An e-commerce channel allows you to build sales for your product, provides a basis for social media and advertising campaigns, and gives you proof of concept to help with distributors.
E-commerce can also allow you to introduce new products and to experiment with seasonal bundles, key opinion leaders (KOLs), and other promotions. You are no longer subject to the preferences of the distributor.
The best approach in China may be to count on the distributors for your high-volume items and rely on e-commerce for the full product catalog, new product launches, and customer engagement activities.
Distributors are also more likely to support you when they see that you have an e-commerce strategy. So these 2 means of distribution complement each other.
Collaboration with a local distributor is necessary, as they ideally possess the right market understanding, relevant networks, or established distribution channels for a foreign company to benefit from. However, the sales and distribution landscape in China is fragmented and complex, posing a challenge for new brands to enter China.
Remembering the above 6 common mistakes would help you avoid unnecessary problems in the long run.
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