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Distribution in China - steps, strategy and models

China remains an attractive territory to enter for foreign companies due to its rapid economic growth and large consumer base – estimated GDP growth at 6.6% in 2019 and 400 million middle class people.

Selling via distributors or to businesses is usually the preferred way versus selling direct to consumer as it comes with less risks and faster results. This article aims to introduce the steps for B2B distribution, the considerations for distribution strategies and the comparisons on the different distribution models.

Four steps

  • Market research

China is a unique market as its own and the Chinese consumers have their own unique buying behaviours. It is essential to understand the market needs in your space and to understand the competitive landscape.

  • Brand positioning and strategy

This is usually based on the findings of the market research and it shall be done before approaching the prospective distributors because they would expect you to let them know your brand strategy, positioning, communication and pricing.

The positioning is usually quite different from that of same brand in Europe, and hence the target clientele and brand message shall also be different. A brand guideline and pricing theme shall be prepared for the regional online/ offline distributors to comply.

  • Content localisation

Whether selling online or offline, instead of direct translation, it is important to tailormake and localise the marketing materials for the targeted clients.

  • Channels to market

When it comes to how to find the distributors, there are different approaches: attending trade fairs, going through professional network, work with trade associations or appointing and managing sales agents.

Distribution strategy

First of all, there is no “right” or “wrong” distribution strategy. It all comes down to what you want to get out of the market and what you are willing to put into the market.

We advise you to consider the following before making your distribution strategies:

  • Desired degree of control of physical product in the supply chain?
  • Desired degree of control of retail pricing in the supply chain?
  • Desired market geographical coverage?
  • What marketing support, expertise, and investment are needed and by whom?
  • Can your business support single or multiple distribution layers?
  • Any need to keep different business channels separate?
  • What regulatory or other constraints can limit distributor appointment?
  • What capability is needed to manage multiple distribution channels/distributors?

Distribution models

In China, different distribution models are applied in different sectors. The common models include:

  • Master Importer/Distributor
  • Master Importer/Distributor & sub-distributor
  • Regional Distributor
  • Consulting/Services Wholly Foreign Owned Enterprise (WFOE) and Key Accounts/ Distributors
  • Trading WFOE and Key Accounts/Distributors

Different models come with different levels of pros and cons. For example, appointing master distributors seem to be an easy and hands-off approach as it requires almost no investment or risks. However, Chinese is such a big market that a single national distributor can rarely covers all the market, online or offline. It’s important to understand their capabilities and negotiate terms before entering an exclusive distribution agreement. Exclusivity maybe given but it has to come with conditions and terms, consult professionals to develop a legal framework to defend your business, brand and IP at all times.

Setting up a consulting or trading WOFE working with regional key accounts or distributors is a hands-on approach. It gives the brand and the company a great amount of control and access to the market. The margin will also be higher than the above hand-off approach but it comes with risks and investment. If the brand decides to go for this approach, make sure to implement the sales and market as local as possible. Hire experienced business developers or consult trading and marketing professionals for a hands-on business development strategy and manage the risks. Be patient as it takes time to generate brand awareness and expand across the country.

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