Dr. David Ze

Deputy Director

CMDA North American Office

March 25, 2009

How to Find Your Distributor

In China

Today’s Topics

• Why do you need a distributor in China?

• What should a distributor have?

• What do you need to get a distributor?

• How can you select a distributor?

• 7 advices for your selection of a distributor

• Understand more about your distributor

• Conclusion

1. Identify your own “exclusive distributor”;

2. Your “exclusive distributor” will coordinate with the “regional distributors” throughout the country regions;

3. The “regional distributors” will ship the products to “provincial distributors”;

4. The “provincial distributor” will ship the products to its “district distributors”;

5. The “district distributors” will ship the products to the hospitals in their districts.

Routes for Drug Sales through a Local Distributor

Routes for Equipment Sales through a Local Distributor

• Manufacturers cannot sell their equipment directly to hospitals.

• All the equipment sales must go through the “Medical Equipment Company”

• Those who don’t yet have their own registered agencies in China must use a registered local distributor for sales.

Responsibilities of a Local Distributor

• Communicate on your behalf with local certification and registration agencies for the sales permits;

• Conduct product sales;

• Collect and report feedbacks from clients;

• Provide after-sale services, including product recall.

The manufacturer’s “letter of authorization” to the local distributor as well as its application documents for permits in China must be notarized in its own country.

If the manufacturer wants to change its “exclusive distributor”, it must report to the Chinese authorities and change its “distributor’s registration”.

Requirements for the Manufacturer to Contract its Distributor:

Qualifications for a Local Distributor

• An legal entity duly registered in China to provide distributor’s services for medical products;

• With strong financial background – minimum RMB500,000 for its registration capital;

• Experienced in the network of medical industry; and,

• Valid sales and performance record.

Basic Requirement for Entry into China’s Medical Market

• The products must meet the standard and requirements as stipulated by the Chinese medical authorities;

• The manufacturer must produce the manufacturing license or permit issued in its own country;

• If it is an international distributor, it must produce its license issued in its own country;

• Be able to demonstrate its credibility and the quality of its after-safe services

• The criteria vary from company to company…

• Many of the “standards” are from textbooks – its experience, running capital, specialty, territory, network, HR quality, etc.;

• “Style” is an important parameter – does he share the same value, philosophy, framework, methodology and market perspective with you?

• But they are not all – because you are working in China…

How to Choose a Distributor in China?

Caution for the New Comer (1): How to Select a Local Distributor?

• Invite competition to become your distributor;

• Talk to as many as applicants as possible in order to build your own insight about the market mechanism and dynamics;

• Use the strategy of “probation phase” to try out the applicants – the additional “compensations” to the unselected distributors are worthwhile compared with volume of your market performance in future;

• Sign clear contracts in advance for the “probation phase” to avoid possible disputes with unselected distributors;

• Create an environment that the selected distributor will value your opportunity and will work hard to achieve your goal.

• The contract with your distributor should not be long, preferably for one year only;

• It is a myth that “when a distributor has a long-term contract, he will work for long-term development and will do a better job for you”;

• Pressure often works out more effectively than generosity.

Caution for the New Comer (2): How Long should the Contract be?

• Avoid giving out the “right of distribution throughout China”;

• Find your distributors by region;

• Some big retailers may want to be supplied directly from the manufacturer;

• Don’t let the distributor become your boss by giving him too much rights or territories.

Caution for the New Comer (3): How Big should the Contract be?

• “Cash business” should not be the sole parameter for selecting your distributor;

• The game of “cash business” is often played by the distributors who are new in the trade and needs clients;

• The challenge for new distributors is they don’t have the network and experience to promote and sell your products – you may get a good deal, but end up with a bad market result.

Caution for the New Comer (4): Don’t Believe Too Much in “Cash Business”

• Evaluate your own size of business and see whether you and the distributor are the right match;

• If you are small, your product is never the priority for a big distributor;

• Bid distributors like “mature” products and clients and give less attention to new products and new clients;

• Mind “harassment” – big distributors may force you to reduce prices or provide more free services.

Caution for the New Comer (5): Don’t Believe Too Much in “Big Distributor”

• A small distributor may concentrate on your business, but -

• It may rely on you for everything for its lack of resources;

• Key issue: whether its local networking, running capital and operational capability are adequate to meet your developmental goal in that region.

Caution for the New Comer (6): Not Necessarily “the Small the Beautiful”

• The major consideration is the financial risk;

• Sales on credit basis are risky, especially in large volumes for a new business;

• Investment on massive advertising is risky when the market conditions are not clear;

• A “reversed procedure” is recommended for new comers in their first phase of development – set up your own agency and warehouse for distribution to several local wholesalers without committing to any particular distributor.

Caution for the New Comer (7): How Much to Spend?

• Give strong support to your new distributor for its first round of market campaign;

• Ensure you have enough stock before your campaign;

• Prepare more supplies in advance and not to lose your market opportunity when your advertising starts to take effects.

Caution for the New Comer (8): Value Your Market Opportunity

• “A mouse in a blowing fan” – being squeezed from both ends (provider and user)

• High HR costs – good salesmanship, experienced in networking, and in-depth knowledge about the trade and technology

• Staff retention – well-trained talents are the preys of all distributors;

• High admin costs – office rent, travel, PR and networking.

Understand Your Local Distributor (1): High Maintenance Costs

• Commitment to internalize and promote your product knowledge and philosophy;

• Higher-end products mean less market competition, but much more learning and training;;

• Lower-end products mean less training, but marginal profit;

• Perpetual concern of his own book balance in the highly competitive market.

Understand Your Local Distributor (2): Each Product is Different

• Distributors are a driving force for medical technology development;

• Continuous presentations and seminars to educate hospitals;

• Constrained with constant policy changes by different hospitals, the trade and the government;

• Natural “victims” in political rectification movements;

• Worst of all, the manufacturer may not appreciate these challenges.

Understand Your Local Distributor (3): No Hospital is an Easy Client

• Like in a marriage, the most beautiful one may not be the best wife;

• Easier to start a market, but much more difficult to clean up a messy market;

• Be resolute to change your distributor when you find him “not suitable”;

• Build mutual confident – while you need reasons to believe your distributor, he also needs to confirm your support and your product quality.

Final Remark - Don’t Choose the “Best”, but the “Most Suitable”

Thanks!

Any Questions?