Working with distributors is preferred among foreign companies who wish to enter the Chinese market with low upfront costs. Selling on eCommerce platforms like Tmall Global is expensive and the entry requirements high.
Yet, finding a Chinese distributor is not the easiest task on hand and you must do thorough research beforehand.
In this article, I explain what the benefits and disadvantages are when hiring distributors, how you can find distributors, what to consider when selecting distributors, and more.
What are the benefits of working with distributors?
Foreigners who have little experience in the Chinese market often rely on either eCommerce Partners or distributors. These companies can help you with the imports, storage, shipping, sales, and sometimes also marketing.
One notable benefit of working with distributors is that they have a wide network of partners and can sell and deliver your products to retail stores and customers quickly.
As distributors pocket a commission of the sales, there’s generally a great incentive to find as many sales channels as possible, to maximize profits.
Besides, you don’t need to open a Chinese company such as a Wholly Foreign-Owned Enterprise (WOFE) or a Joint Venture, which can be a lengthy and challenging task.
Instead, the distributors will take care of the imports, storage, and delivery within China.
We find most distributors for food products due to the great demand for these kinds of products in the Chinese market. Not to forget, these products are difficult to sell cross-border, especially due to high logistics costs.
What are the disadvantages?
Distributors can be picky and often require that you have some brand awareness in the Chinese market. The market is highly competitive and distributors have many products to choose from.
Thus, if sales don’t go well, the distributor can simply find another company who sells similar products as yours. It’s not their responsibility to market the products and they simply sell what the Chinese customers like.
Due to this, it can be beneficial trying to build up product awareness before you start looking for distributors. This can be done through eCommerce channels, digital marketing, and web development.
Another point worth mentioning is that you should avoid writing an agreement giving distributors exclusive rights to sell the product over a specific period.
Why? Sometimes, they work with competing brands and simply refuse to market or sell your products.
That said, if the distributor insist to get exclusive rights of the product, you should include a sales quota in the agreement that reduces the risk of experiencing poor sales.
How can I find distributors in China?
Finding distributors can be a daunting task, especially if you’re a non-Chinese speaker. Working with the right people can make things significantly easier and it can be worth to spend some money to save time and reduce the hustle.
Below I’ve listed some common options when looking for distributors in China.
Trade Shows & Exhibitions
Visiting one or more trade shows can help you find various Chinese importers and distributors. By having your product on display, you’ll catch the interest of prospective business partners.
There are plenty of trade fairs in China each year and you can either register for trade fairs yourself, or let a 3rd party attend the fairs on your behalf. Here, they usually set up a booth and promote several foreign brands at a time.
If you sell food products, for example, you should have a look at trade fairs like SIAL and FHC.
Many foreign companies hire 3rd parties that can help them to identify Chinese distributors. These 3rd parties usually do an initial market analysis and translate your product descriptions into Chinese. After, they list the products online for the distributors to see.
These services are often sold as packages, including market analysis, Chinese labeling, product registration, customs registration, CIQ registration, and sometimes with other add-on services
As mentioned above, they can also attend trade fairs on your behalf and promote your products there. A benefit of working with 3rd parties is that they do continues outreach and travel to different cities around China to have buyer meetings.
This can save you plenty of time and you’ll get a great exposure within a short time.
You can also search for distributors online, but this can be a challenge. There are currently more than 85,000 distributors in China, to contact random distributors one-by-one can take a long time with a low success rate.
Not to forget, you’ll increase the risk of coming across unreliable distributors, which is less likely if you find distributors that your partner has worked with previously.
If you know people who do business in China, you can pull some strings to see if you can get an introduction to distributors.
The benefit here is that you know someone who’s already working with the distributor, which in turn can add to their credibility.
Chambers of Commerce
Contacting your Embassy or Chamber of Commerce in China is also something you should consider when looking for distributors. They have a wide network and might be able to connect you with the right service providers, at least.
Tmall B2D (Business to Distributor) is a platform where you can connect with 85,000 Chinese distributors.
Yet, it didn’t become as popular as expected and the website traffic doesn’t increase. There’s little exposure in general on the website.
With that said, it’s more common that foreign companies hire 3rd parties or go to exhibitions to find distributors on their own.
Meeting Distributors in Person
As you probably look for a long term relationship, you should meet the distributor in person, before you enter into a partnership. During the visit, you will be able to evaluate their seriousness and capabilities by asking questions and take a tour on their premises.
Besides, the distributor will take you more seriously as you took the time to visit him or her. Make sure you collect answers to relevant questions before making the trip. Your visit shouldn’t be needlessness!
Below I listed questions you can ask before meeting the distributor:
- For how many years have you been established?
- Can you show the names of companies you work with?
- Any success stories?
- Where are your partners based? (beneficial if the EU or US)
- Can you share some of the biggest challenges you’ve experienced?
- How can you help us to grow in China?
These are just examples of questions. Be more specific for certain topics if you think it’s needed.
Selecting a Distributor
Preferably, you should seek help from a 3rd party when selecting one or more distributors.
They have Chinese and English speaking staff, good connections and are well-versed in the Chinese business climate. Before you take on a distributor, it’s worth to check their track record and to prepare some questions.
Below I’ve listed some additional questions you should confirm before selecting a distributor:
1. Will you have a minimum sales quota?
Some distributors want exclusive rights of products and intentionally avoid to market and sell the product. This might happen if the distributor collaborate with competitors or has lost interest in selling the product.
If you give exclusive rights of the products, be sure to have a minimum sales quota.
2. What are the payment and shipping terms?
As with any other business, you need to agree on clear payment and shipping terms. It’s very risky to send products without getting paid first, a reason why foreign companies often get paid in advance.
3. How to deal with trademark registrations?
Sometimes, distributors insist to help with trademark registrations and register the products in their names. You should preferably manage the trademark registration process on your own. If the distributor insist to register the trademark, you should at least assure that the distributor registers the product in your name, not theirs.
4. What laws will the distribution relationship be under?
You should preferably work under a distribution agreement that’s enforceable in China, with Chinese laws in a Chinese court.
Why? Because Chinese laws don’t protect distributors in any particular way and there’s no need to compensate the distributor if you terminate the contract.
The contract should therefore be written in the Chinese language.
5. Who will pay for what?
Before you start collaborating, you need to know who will pay for what. This can include sales training, presentation materials, translation, marketing, and more.
6. How to deal with warranties?
Most companies prepare the documents about warranty and hand these over to the distributors. The distributors later provide the warranty to retailers and end customers.
The warranty should meet market demands, comply with Chinese laws, work with your company and products, and work with the distributor.
You can also give the distributor the sole rights to draft the warranty, suitable to the Chinese market. The distributor will, in this case, be responsible for warranties not covered in your agreement with the distributor.
7. Will you use a China NNN agreement for trade secrets?
NNN stands for Non-use, No disclosure, and non-circumvention. This should go into your distribution agreement, if your distributor refuse, find someone else.
Support Your Distributor to Increase Sales
You and the distributor have obligations to each other. You expect the distributor to have sufficient knowledge about the products and marketing areas assigned.
At the same time, it’s your responsibility to provide the necessary training and information.
It’s not rare that distributors expect that exporters pay for training or fund parts of visits to trade shows. Make sure you are on the same side of the coin before you enter a partnership and include all essential items in your final agreement.
In general, distributors don’t have a deep knowledge about product specifications, not in comparison with the sales engineers/sales force of the exporter.
Uploading teaching materials on your website, or send an employee to act as a coach in the start-up phase, can enhance the capabilities of the distributor’s team.
If they are not prepared to promote your products, it will be hard for you to gain any profits. Create marketing plans and share them. After all, it’s mainly your responsibility to handle the marketing.
Finding distributors with the help of 3rd parties can be a great option when you look for overseas customers. Managing the complete process solely by yourself demands a high amount of time and costs.
Keep a close relationship with your distributor and see them as a part of your company. Frequent visits or phone calls gives you a better overview of how they work.
Make sure you have a robust agreement that includes all essential items.