For many Belgian companies both in B2C and B2B, working with a Chinese distributor is the most common entry point into the Chinese market. A trustworthy distributor can provide you with comprehensive support, including customs clearance, storage, shipping, sales and marketing. In a previous BCECC Newsletter we already described how to find the right distributor and explained that it is crucial to do your due diligence before entering into a partnership with a distributor. In this article, we will provide some additional tips how to manage your distributor in China.
After having identified the right distributor, the initial process can seem promising: the distributor invites you to China, arranges an impressive tour, introduces you to potential clients (who often don’t speak English), and pays for all your expenses – including meals, accommodations, and drinks (Chinese are great hosts!). He will present attractive sales projections and promise to sell your products to high-level customers across China. It seems like an easy and profitable business model at first: you sell to the distributor, who pays promptly and takes full responsibility for sales and marketing in China. While this model clearly has its advantages, it is crucial to understand the potential limitations and risks, and how to manage them effectively.
Setting realistic expectations
China is a vast and diverse country, with regions that differ greatly in terms of market dynamics and consumer behavior. Relying on one distributor can therefore be risky. Consider working with multiple distributors across different regions and even different industries. This approach not only reduces the risk of over-dependence but also broadens your market reach and taps into new opportunities.
Never underestimate the importance of Guanxi – the Chinese concept of personal connections. Unlike other markets, distributors in China often rely on their personal networks, such as family or university connections. This approach can be advantageous, but it also comes with limitations. It is almost impossible to find distributors with an effective nationwide sales network. Therefore, granting exclusivity to a distributor without taking their Guanxi into account is often a mistake.
Furthermore, don’t expect rapid growth, you should be in China for the long term. While initial success is important, focus on your long-term growth strategy. Many foreign companies experience rapid early growth but fail to sustain it because they don’t plan beyond the initial two or three years. Build a roadmap that includes scaling your business over time, adjusting to market changes, and expanding your local presence.
Staying in control of intellectual properties and regulatory affairs
Intellectual property protection is crucial in China. Before signing any distribution agreements, ensure your trademarks, patents and product licenses are properly registered in your name. This will prevent distributors from misusing your IP and protect your brand from counterfeit products or unauthorized sales. You should also make sure that all your social media accounts and web shops, if any, are registered in your own name. Even though these platforms are Chinese and you may not be familiar with them, never let your Chinese partner convince you that he will do this for you. He may register the accounts in his own name, which could lead to problems in a later stage.
China has complex regulations around product registration and compliance. Keeping these processes in-house ensures that you meet all regulatory requirements and maintain control over the compliance standards. It also prevents any potential misalignment between your global standards and local practices.
Staying in control of your China operations
While your distributor plays a vital role in connecting with local markets, it’s essential to stay in touch with your key customers. This ensures you have a direct line of feedback and can maintain relationships that are critical for your long-term success. Direct interaction also helps you keep an eye on market trends and shifts in customer preferences. It is important to build your own network and relationships to ensure long-term success and reduce over-dependence on any one distributor’s connections. This can be done by traveling to China on a regular basis and visiting customers together with your distributor, attend exhibitions or other industry events. Building relationships with local industry players, government officials, and partners will also reinforce your brand’s credibility and influence.
This also includes maintaining control over pricing across different distribution channels to prevents unauthorized price cuts or markups, which can erode your brand’s value. And finally, you should stay in control of your content marketing in China to align the communication in China with your company’s global marketing policy.
Distributors are key partners, but they shouldn’t be your only foothold in China. Establishing your own local presence strengthens your position in the market. Your own manager based in China can oversee your distributor relationships, ensuring accountability, smooth communication, and alignment with your brand’s strategy. This person can act as a bridge between your company and the distributor, ensuring that your interests are represented, and that performance is closely monitored.
Conclusion
In conclusion, managing distributor relationships in China is a crucial aspect of success for Belgian companies entering this vast and complex market. While distributors offer a gateway to the market, relying solely on them can be risky. By diversifying partnerships, maintaining control over intellectual property and regulatory compliance, and building direct relationships with customers, Belgian companies can mitigate risks and capitalize on the long-term potential of the Chinese market. Establishing a local presence further strengthens this strategy, ensuring close supervision and alignment with the company’s global objectives. Only by finding the right balance between trust, supervision and proactive engagement, Belgian companies can build a successful long-term business in China.
Please contact the Belgian-Chinese Chamber of Commerce (BCECC) in case you have any questions.