You’ve signed a distribution agreement in China! Now what?

Signing a distribution agreement for your product or service in China is a significant achievement. It’s taken many rounds of meetings, discussion, and negotiation—not to mention copious amounts of baijiu (Chinese white wine).

For the vast majority of companies, the signing of a distribution agreement will have been achieved on a fly-in, fly-out basis, and all companies, regardless of size, will then be faced with the same issue: can you continue to manage your China operations remotely or do you need to have people ‘on the ground’? How you answer this in your own business is critical and can often determine your chances of future success.

Signed agreements are important to have, but relationships trump all agreements in China. In the West, you negotiate, negotiate, negotiate, and then sign an agreement. In China, you sign an agreement, then you negotiate, negotiate, negotiate. In fact, the legal system in China underscores this and what you agreed to yesterday will usually take precedence over what was written into an agreement some time prior. As a result, any issues that arise really need to be resolved in as close to real time as possible. This requires constant relationship building and the ability to interact on a daily basis, often face-to-face.

In my view, having developed, built, and operated a business in China, too many companies try to manage remotely, and this is usually where things start to unravel. Relying entirely on your distributor to work on your behalf and always in your best interests adds to the risk. I spoke to a company recently who was already importing to China. However, they had no visibility on where (geography) or how (channels) the distributor was supplying their products. You can imagine the issues that will arise as a result. Having your own in-country resources to manage your supply chain—including distribution and sales channel activity—is vital.

Other essential elements to consider when deciding how to support the distribution of your products in China include:

• Who will manage the importation process, especially issues that arise with CIQ, customs clearance, labeling, and warehousing? 

• How will you manage the retail interface including branding, store-promotion policies, and constant pressure on retail pricing?

• Once retail agreements are in place, who will conduct regular store visits to gather intel on product performance and competitor activity?

• How will you provide training for retail sales staff so that they are confident to promote your product, especially when they are responsible for promoting a range of competing products?

• How will you create an interface between the business in China and your home country office on a day-to-day basis to make sure information and activities are synthesised and dynamically aligned?

At a macro level, supply chain and sales channel issues faced in China are not unique to China. However, the specific characteristics of the China market(s) adds layers of complexity and requires experienced and assured local management to deliver a successful outcome.

In2Asia works on behalf of its clients in China to provide a range of expert, flexible, and cost-effective contracted supply chain management services including:

• Operations as a service (OaaS)

• Third-party supplier management

• Account and relationship management

• Public relations and marketing services

• Field force sales activity

• Customer relationship management

• Critical incident management

Contact In2Asia at info@in2asia.global to find out how our experienced China-based team can support your business on the ground and significantly boost your chances of success.