The possibility of selling to China’s rapidly expanding market is becoming increasingly difficult to ignore for international companies of all sizes.
While your company may be excited by the opportunity to establish distribution channels in the Chinese market, it may also be daunted by determining how to actually achieve this goal.
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 offer a guide on the steps needed to effectively develop and manage distribution for your products in China.
Conducting initial market research to understand the demand for your product in the market is essential for evaluating if it is feasible for company to enter China. While the appeal of the Chinese market may be strong, assessing the needs of the market, understanding competing brands’ strategies, and possessing a unique product are important considerations for initial market research.
Learn Legal and Regulatory Requirements
Since some industries are not fully open to foreign companies in China; during initial research, you should also determine if foreign companies are permitted to operate in your industry in China. In addition your company should next learn what, if any, certifications are required before your products can be sold in China. These applications should be started immediately since they can often be time consuming procedures.
Identify End Users
When deciding your company’s target customer, you will need to determine if you will be engaging on a business to consumer, business to business, or business to government basis. One thing to keep in mind is many of China’s largest industrial companies are State-Owned Enterprises (SOEs) and thus under the control of the Chinese government. If your company’s potential end-users are SOEs you should keep in mind that they often operate according the characteristics of a government agency rather than those of a private company.
Identify Key Players and Distributors
Once you have identified the market for your product in China you will need to identify who the key players and potential distributors are in your industry. There are variety of tools you can use to identify these players, including internet research, services of U.S. and Chinese consulting companies, trade organisations and government agencies, and referrals from other companies in related industries.
Develop Marketing Materials and Strategy
At the same time that you begin to identify key players and distributors in your field, you will need to develop marketing materials and a strategy of how to engage with the industry players you have identified.
When developing marketing materials such as brochures and websites, make sure to have them written in simplified Chinese characters. Another thing to take into consideration is that Chinese company brochures and websites often have a different format than those in the West. It is important to consult with people familiar with Chinese business culture to make sure your marketing materials will match with Chinese preferences.
During this time, your company should also develop a pricing structure, sales terms, and an agency contract. Having these ready to present to potential distributors when you meet with them will accelerate the sales process.
Establish a Local Sales Team
In order to achieve sales it will be important to have a local sales team which can guide you through China’s unique business culture in the negotiation process. Local staff will have a better understanding of how Chinese businesses and government agencies operate and how to access key decision makers in order to make a sale. A local sales team can provide your company the local know-how needed to complete business deals.
Meet with and Qualify Distributors
Once you have identified key distributors in your industry, developed a marketing strategy, and built a sales team it will be necessary to visit potential distributors in-person. By meeting them you will have the opportunity to both market your company and confirm that the distributor is qualified. By visiting you will also be given the opportunity to see their operations first-hand, learn their business model, and understand their strengths and weaknesses. Based on this information, your company can make necessary adjustments in its business plan so that it matches with the needs of the potential customer. At this time, it would also be helpful to check with local government agencies to verify the quality and reliability of the company.
Now that your company has identified qualified distributors you can enter the next stage of the sales negotiation process. Your company should expect extensive negotiations with distributors before a deal can be struck. You should be willing to devote time to develop a close relationship with your potential customer during this time in both formal business settings and more informal occasions such as tea sessions and meals. In general, this time commitment means business deals can take three to five times longer to complete in China than they do in the West.
Even if a company is ready to buy your products, finalising a distribution or sales contract can also be a lengthy and complicated process. When drafting distribution contracts it is important to work with a lawyer who is familiar with local legal practices. A good lawyer will help you draft a contract that protects your company’s interests in the complicated international arena.
Manage the Relationship
Even after you have completed sales with a distributor in China it will be necessary to manage the distributor to ensure long-term sales. Having a local presence is also essential for this process. You will need staff on the ground that will be able to communicate regularly with the distributor, provide technical and marketing support, and continue to develop both a formal and informal business relationship between your two companies.
By Anthony Goh and Matthew Sullivan. Mr. Goh is President and Mr. Sullivan is Director of Business Development and Communications at US-Pacific Rim International, Inc. (www.us-pacific-rim.net)
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