distributing and selling your products in china: a beginners guide

Selling in the Chinese B2B Market:

It’s not 1.3 billion consumers

It’s 40+ million businessespresented by Launch Factory 88 (CHC Group)

2Opportunities in the Chinese Market | One country, multiple markets | A Chinese landscape | Selling to Chinese businesses | Case studies | The 5 most common mistakes | About Launch Factory 88

Do you want to distribute in China?

Many companies struggle to successfully distribute in China. With our distribution support platform you can reach your

sales potential in the Chinese market.

Click here to learn more

http://www.launchfactory88.com

What You Will Learn

Opportunities in the Chinese

marketSee where you fit in One country, multiple markets

Regional differences and why they matter

A Chinese landscapeA crash course in Chinese business culture

The 5 most common mistakesLearn about what to avoid

Selling to Chinese businessesFinding the best entry-mode and getting the most

out of your distribution network

About Launch Factory 88Find out more about us and get in touch

Case studiesExamples from successful B2B companies

SnapshotFirst insights

Opportunities in the Chinese marketChina is currently poised to become the world’s largest growth engine both in terms of output and consumption

The world’s biggest consumer market?

• China is poised to become the world’s largest growth

engine both in terms of output and consumption

• China is transitioning from an export-led economy to

a consumption-led economy

• China can no longer be considered as merely a

sourcing location

• China is becoming increasingly important as a

strategic hub for servicing the Asia-pacific region


Opportunities in the Chinese market

High quality solutions are in demand

• The country’s rapid development has paved the way

for an emerging middle class

• As incomes increase, people are gaining more

purchasing power and are more willing to high

quality products

• China’s ecommerce market has already surpassed

the US

• Increasing demand for high quality foreign products

and solutions

Future growth will come from rural regions

• Foreign companies (particularly B2C) entering

market tend to focus their sales efforts on larger

cities such as Shanghai and Beijing

• Growth in China’s largest cities: ~ 7.5%

• Growth in China’s developing regions

• The developing regions and 2nd and 3rd tier cities

possess many opportunities now and even more for

the future

China is currently poised to become the world’s largest growth engine both in terms of output and consumption


Opportunities in the Chinese market

A hunger for new knowledge and tech

• To push innovation the government is increasingly

supporting domestic and foreign companies through

subsidies and loosened regulations

• China is still behind developed countries in many

sectors

• The hunger for foreign advanced technologies is

therefore offering foreign companies a new and

relatively untapped market potential

Value is starting to triumph over price

• Increased purchasing power has led to quality

awareness

• Chinese consumers and businesses alike are now

increasingly paying attention to quality and brands

• Many consumer groups are becoming less sensitive

to price

• Foreign brands have a high perceived brand value

and are thus in high demand.

China is currently poised to become the world’s largest growth engine both in terms of output and consumption


One country, multiple marketsForeign companies need to understand that China is in no way a uniform and homogenous market

Developed, developing and underdeveloped

• China should be considered as a collection of

individual sub-markets

• China’s rapid economic development started in 1979

in its coastal regions in the East and has only

recently started moving West

• As a result, there are considerable differences in

infrastructure and buying habits in China’s regions

and cities

West: Underdeveloped

Central:Developing

East: DevelopedSource: the Economist


http://www.economist.com/content/chinese_equivalents


“China is as wide as its periphery. Few can

represent the thoughts and feelings of 1.3

billion people and 56 ethnicities in one

statement.”

Bob Tan

“We sell our highest quality flowers in China’s

rich coastal regions and our low quality

flowers in China’s less developed Western

regions.”

Nic Pannekeet, Van der Berg

Focus on a selection of sub-segments

• Recognise regional differences, determine

attractiveness of areas

• Bear in mind local tastes, purchasing power, and

infrastructure



Opportunities inland

• Most foreign B2C companies drawn initially to

China’s richer coastal cities

• Industrial B2B companies are often drawn to 2nd/3rd

tier cities, because of cheaper labour and land

• Coastal cities have higher incomes and purchasing

power

• 2nd/3rd tier cities often offer attractive incentives to

attract foreign direct investment

B2B businesses scattered far and wide

• China’s has industrial clusters spread throughout the

country

• Clusters focused on specific industries

• Examples: Beijing focuses on IT, Guangzhou on

automobiles, Jiangsu on bio medicine, etc.


A Chinese landscapeChina’s business culture and what negotiation tactics you will probably be faced with when doing business here

Learn a bit about Chinese culture

To avoid misunderstandings, make doing business in

China easier and improve your results.

But don’t stress too much…

Business is business and in the end the mutual goal is

to reach a satisfactory deal for all parties involved

• The media often gives a mistaken or negative

impression of Chinese business culture

• Chinese business culture is not mysterious or

impenetrable for foreigners

• You will still need to apply the same business

principles in China that led to your success

elsewhere in the world



Guanxi = personal network

• Having a network is important and often crucial in

business (regardless of location)

• China lacks a strong institutional system which

makes guanxi important

• However, do not let anyone tell you that having

guanxi is a crucial element when doing business in

China

• Your business’ success is still dependent on

your management practices, product, service,

quality, and competition and not merely guanxi!

• Guanxi is slowing losing its importance in urban

regions

Importance of guanxi often overemphasised

“In rural areas guanxi tends to carry more

weight than, for instance, in Shanghai or

Beijing. But even in these cities, it’s starting

to lose its once dominant position.”

Gijsbert de Bruin, CEO of CHC Group



The importance of localisation

• Successfully targeting local consumers and

businesses involves adjusting your product to

local market conditions

• Many a company has failed in the Chinese market

by failing to understand the importance of

localisation

• Localizing your operations also involves modifying

your marketing and promotional strategies to cater to

local preferences

• Examples: modification of brand name, brand

colours, market positioning

Chinese negotiation tactics

• You don’t need to purchase 5 books on Chinese

negotiation tactics

• However, It is an advantage to learn about some

common negotiation tactics in China

• It’s therefore wise to talk to experienced negotiators

to understand common pitfalls

• As with everything, make sure to have your contract

in writing and that it’s signed and sealed.



How important are contracts in China?

• China’s legal system is not as developed as in the

West

• Contracts may not be seen as legal, binding

obligations

• Chinese contracts are fluid and subject to change

• Despite this, contracts are still a must

• The judicial system is improving day by day

• Solid contract will assist you in court and during

disputes

• Be wary of companies that are not fond of

contracts

Compete as a local company

• Have a local team to support key stakeholders

• Prepare a China-specific strategy

• Emphasise superior quality, tech, and service when

marketing

• Localise manufacturing or assembly to become

more competitive



Avoiding IP infringement when manufacturing

• Work with a network of secure and trusted suppliers

• Ensure that no single party has access to the final

product

• Assemble the final product in a separate secure

location

• Consider importing advanced components from

outside of China

Handle your IP rights in China, for China

• Handling IPR is the first thing to do before

entering China

• Do not rely on managing it from abroad

• The Madrid Protocol is not sufficient protection

• A local law office will be able to assist you in this

matter.

Recommendation: Even if you are not considering entering the market at

this point, it would be wise to register your IP rights in China for the future.

It’s relatively cheap and it will save you many headaches and potential

problems when you are ready to make the step.



“We usually assemble our clients’ final products within our own secured assembly

facilities and consequently decrease the risk of suppliers attempting to copy the product.

If your product possesses highly advanced technologies, you can also consider

outsourcing basic component manufacturing to China and importing your advanced

components.”

Gijsbert de Bruin, CEO of CHC Group


Selling to Chinese businessesLearn the basics about selling in China

Are there any restrictions for your industry?

• Some industries in China are restricted in some way.

Most are not

• See China’s foreign investment industrial catalogue

for more information


http://english.mofcom.gov.cn/article/policyrelease/aaa/201203/20120308027837.shtml


Do your products fit the market?

Does your product fit with Chinese market

requirements?

Is there a need for your products in the

market?

Or can you adjust your product to the local

market?

How easily can your products be copied?

If your products can be easily copied you

will lose your competitive advantage to low-

cost domestic competitors, unless you are

able to leverage your foreign brand name

successfully

Can you compete with domestic

competitors?

Strong local competition is hard to beat

unless you possess more advanced

technologies or a strong brand

Can you offer advanced technologies that

are in demand?

China is constantly seeking advanced

technologies to upgrade their working

methods and system

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Most common entry modes

• Distributors

• Agents

• Representative office

• Joint venture

• Wholly foreign owned company

Using distributors

• Most common is to begin by working with distributors.

You don’t need a legal entity in China if you only

want to sell through distributors.

• Using distributors avoids long incubation and

significant investment

• If first few years of sales show are promising, then

many open their sales offices

• Be careful with relying only on your distributors

to gauge your potential in the market

• Foreign companies face challenges when using

distributors in China



Finding your distributors

Trade fairs

• There are an increasing number of high quality

trade fairs in China

• Make sure to adequately protect intellectual

property before attending

Chambers of Commerce

• Host industry-related events and trade missions

• May be able to assist in the distributor search

• Organize events and trade missions

• Advice given may not be industry-specific

Finding your distributors

Service Providers

• Find distributors and perform due diligence

• Often have extensive distributor databases and local

expertise

• But, work with a service provider with specialist

knowledge of your industry



Selecting your distributors

• Do not work with one exclusive distributor, to

avoid transferring too much power and leverage

• Work with a web of regional distributors who are

each well grounded in their respective local

markets

• Ensure to conduct thorough due diligence on

all your future partners in China

• The largest distributor not necessarily the best,

servicing too many clients and commanding too

much leverage

Characteristics of Chinese distributors

• Many distributors in China are unsophisticated, often

battling with high overhead costs and poor inventory

control

• Local distributors tend to focus mainly on price.

Your product’s real selling points will often be

overlooked if not managed properly

• Chinese distributors are known to favor the company

that offers the highest commission



Distributors need local support

• Provide continuous training, support and

management on the ground to avoid common

mishaps and reach your sales potential in China

• Essential if you want full control of your brand and

direction

• Constant management and supervision offers

increased IPR protection

• Benefit from first hand information and

communication by having a presence in China

Don’t work with one exclusive distributor

• The Chinese market is fragmented and working

with merely one distributor can thus limit your

reach

• It is practically impossible to cover the entire country

working with only one distributor (some distributors

claim ”nationwide coverage”)

• Many distributors will demand exclusive rights to

your products

• China is still developing its distribution networks so

you cannot rely on achieving the same efficiency

demanded in more developed markets


Do you want to distribute in China?

Many companies struggle to successfully distribute in China. With our distribution support platform you can reach your

sales potential in the Chinese market.

Click here to learn more

http://www.launchfactory88.com



Having a local presence has many advantages

• Help train, manage and support your distributors

• Maintain relationships with key clients and stakeholders

• Improve your distributors and upgrade their working methods

• Enable you to exercise more control over your brand image,

marketing, promotion stakeholders and IPR

• Access essential market information first-hand

• Signifies your longterm commitment to China and provides

credibility and security to your customers

“Lots of companies have trouble

understanding the Chinese market. And it’s

no surprise why: they’re not physically

there, only their distributors are. Your own

office enables you to gain control and

receive real-time market information that

will help your business. ”

Nik Pannekeet, CEO Van der Berg

25

20+ pages of valuable insights:

Everything you need to know about the Chinese B2B market

A 101 on Chinese business culture

How to find the best entry-method for your company

Insights from successful foreign B2B companies in China

The 5 most common mistakes and how to avoid them

… and more!

25Opportunities in the Chinese Market | One country, multiple markets | The Chinese landscape | Selling to Chinese businesses | Case studies | The 5 most common mistakes | About Launch Factory 88

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