Using distributors in China

One of the most common methods for Australian businesses seeking to sell and distribute products within China after selling directly from Australia, is to use a local distributor. A key step for businesses looking to expand to China is therefore to establish the availability of a reliable and competent distributor.

Distributors, as opposed to sales agents, buy goods from a supplier and resell them to local end users. They receive a margin on products that they sell. In some cases, the distributor may sell to other wholesalers who then sell to local retailers or end users. 

Choosing a Distributor

There are several competing factors for businesses deciding whether to choose an agent or distributor to sell their products in China. Distributors are often a favoured option because suppliers can pass a great degree of risk on to them, as well as (in some cases, see below) marketing responsibilities. Because distributors hold stock, they also have greater incentive to sell the product. However, this can result in a lower degree of control for suppliers.

Distributors may carry complimentary and competing lines and usually offer after-sales service. They earn money by adding a margin to product prices. Distributor margins are generally higher than agent fees because distributors have larger costs, such as for storage of inventory. Australian businesses considering a distributor in China should note that although in other international markets a distributor will generally take on the role and responsibility of marketing, this is rarely the case in the Chinese context. Marketing needs to be discussed in detail with a potential distributor – confirm if the distributor will do marketing and what their role will be to market the product. Often Australian businesses find it more suitable to engage a specialist marketing firm.

An important practical step when doing a fact-finding mission to China is to meet with prospective distributors to determine their competency and reliability. In-country assistants can be engaged to connect you with the right distributors. Establish close working relationships, with a high degree of trust and regular communication. This can be done by meeting the distributor in their own market and observing their knowledge and presence in the market. Ask them for trade references and consider using a professional credit-checking agency to confirm their financial stability. 

Some key considerations to make before choosing a distributor include:

• Do they have good networks and contacts? Do they have guanxi (relationships) with the right people?
• With is their experience in that sector? Do they have good knowledge and have they represented a similar product previously? Can they help with marketing?
• A well-established company with a good network of contact may not be flexible or open to your ways of business.
• A young, energetic company will tend to be flexible, innovative and trying to prove its worth. The downside is it may have limited experience or contacts.

Many Chinese distributors work for trading companies that are authorised to deal in a wide range of products. Some of the larger companies have offices in other countries, along with a network of offices and affiliates in China. However, large distributors sometimes manage so many products that yours may not get enough attention. China’s size and regional diversity may also mean you need to engage several distributors to cover different areas. Read more on establishing contracts with distributors.

Prospective distributors will likewise be looking to evaluate you as a business partner. It is thus important to ensure that your website and other primary marketing collateral is informative and attractive – not overloaded with information but cleanly laid out with interesting graphics. If applicable and possible, use customer or client endorsements and photographs to show your products or services. Make sure that contact details are easy to find and use – preferably a direct email with a photo of the staff member and have your website also accessible in Mandarin. Be aware of the national firewall in China and make sure your website is appropriate for it, ensuring that you don't rely on links to sites such as Facebook, Twitter or Youtube as these are not accessible in China. Some web domains and some email accounts are not permitted. 

Case study – KeepCup

Establishing clear and regular communication with distributors in China is crucial to your product succeeding. KeepCup, which produces barista standard reusable drink cups, discovered this when they first started selling their cups in China.

Their cups, which were priced on the index of the local price for a cup of coffee, were being sold by distributors in China for three times the recommended retail price (RRP). The three distributors, which were each focused on a different type of market – café, retail and corporate clients – expressed that the product was undervalued and needed to be sold at a premium, so that Chinese consumers wouldn’t perceive it as being manufactured in China.

KeepCup international Account Manager for Asia Pacific, Katherine Underwood, said a strong relationship with Chinese distributors is important.

“You need to make them feel imperative to your brand and to do so from the beginning. They have to all feel reassured that everyone is working together, not against each other.”

Want to learn more? Explore our other China information categories or download the China Country Starter Pack.