One of the fastest and less risky ways to enter the China market is to leverage on Chinese distributors to sell your products in China. However, your market success will be highly dependent on the distributor to do the right things in right way.
Therefore the first step is to select the right distribution partner who can support your market entry to China. Sourcing for potential distributors can be done in various means. Firstly, through recommendations from another firm already established in China, trade shows in China, established matching websites or lastly through Chinese market research consulting firms.
In the past, foreign firms can appoint Hong Kong distributors to act as their distributors in China. Furthermore, payment may be easier to transfer out of Hong Kong, but with China being more open, there is more incentive to go straight into China than to Hong Kong.
It is important to note that most agents / distributors do not have nationwide distribution coverage but rather on a provincial regions or regional basis such as Bohai Gulf, Yangtze River Delta, Pearl River Delta etc as the commercial regional centers. For instance, Bohai Gulf - cover the cities of Beijing, Tianjin and the provinces of Liaoning, Shandong and Hebei.
You can use the following factors as a reference for a good distributor:
1. Extensive distribution networks
2. Strong and stable financial background
3. Quality sales staffs / English speaking staffs
4. Shows enthusiasm for your products
5. Strong relationship with an import/export agency
6. Right business direction for its distributorship
7. Appropriate storage of your products
In your visit to China to meet the potential distributors, you may wish to check out the kind and the number of distribution points or outlets it covers, their marketing abilities and their after sales service support. You may consider having a different distributor covering each region with different marketing strategies involving pricing and marketing channels.
It is of most importance that the distribution contract is detailed and understood due to a lack Chinese law in relation to supplier and distributor partnership. Contracts signed in China are often in Chinese. It is safer to have a qualified law firm review any translated documents or even English ones especially with contracts. Contract should have the following:
1. Distribution regions
2. Guard against exclusivity
3. Agreement on the volume targets
4. Goods exchange and payment terms
5. Escape clauses based on performance reviews
6. Cover intellectual protection