Finding a distribution partner in China: four touchstones for SMEs

Many SMEs enter the Chinese market by working together with a distribution partner. But this relatively easy path comes at the price of greater dependency on the partner. Making the right choice all the more crucial. Four tips from Switzerland Global Enterprise's expert Daniel Bont.

1. Thorough market analysis as a basis

Due to the immense dimensions of the Middle Kingdom, its regions vary considerably in terms of leading sectors, levels of development and customer requirements. Depending on the business model and product, SMEs must first gain a precise understanding of where they want to operate. Potential partners must be strong in these regions, because it is usually not realistic for them to cover the entire country.

Regulatory questions, such as what category the product can be registered in, can also be crucial. An example: a veterinary vaccine could be registered as a dietary supplement or as a medicine, as the category “veterinary vaccine” does not exist. Depending on the category, certain distribution partners may not come into question as their position in the market may be unsuitable.

2. Clear selection criteria

The market analysis can be used to define criteria that a potential partner in China would have to fulfill, for example

  • A Chinese company in the relevant sector with recognized expertise in marketing the selected product category
  • Already active in other fields of activity of the Swiss company – so that its network can be used – but not a direct competitor
  • No products of other direct competitors in its portfolio
  • Capable of covering the selected relevant regions
  • Has a certain market size
  • Meets the logistical requirements, can ensure correct transport and storage of the product
  • Main contact speaks English
  • Professional marketing and distribution competence and the necessary resources
  • Relevant professional competence
  • Proactive, ambitious attitude, customeroriented, to assist the Swiss company in developing its business
  • Cooperative
  • Already has experience importing products

These criteria may have to be refined depending on the sector. It is important for this to happen before you begin searching, so that all potential candidates can be evaluated the same way.

3. Thorough assessment of an initial selection that is as large as possible

It is useful to first establish a long list of potential distribution partners. The longer, the better the chance that it will include enough good contacts. Find out as much as possible about these companies, and then apply the criteria set out in order to gradually exclude potential agents. After this, analyze this smaller selection and ask to what extent a partnership would be conceivable. Now, evaluate the companies on this very short list to create a ranking.

4. Meeting candidates in person and building trust

Once the final selection of potential distribution partners has been made, you can plan a trip to China. Although discussing such a partnership in person in an initial meeting is a matter of course all over the world, very special importance is attached to personal relationships in China. In any case, we recommend that the CEO travel with the responsible experts. Otherwise, your Chinese counterpart may get the impression that the partnership is not of the utmost priority.

You should have with you the business plan for the first few years, the market analyses and a marketing plan. However, the potential partner should first present his or her ideas first and thus “pitch” the order.

Important: the “hard” facts should not be discussed right at the beginning of the conversation. It is recommended to get to first know each other a bit on a personal level, perhaps over lunch or dinner, and then talk about business.

Moreover, these facts may not be solely decisive for the final decision. Due to the large amount of time spent and close cooperation with the partner that will become necessary over the next few years, the CEO and staff must have a good gut feeling and feel comfortable with their business partners.

Use the network of Switzerland Global Enterprise

The whole process appears cumbersome, but it is the result of Switzerland Global Enterprise’s many years of successful practice. For the market analysis, setting up criteria lists and creating lists of potential distribution partners, S-GE relies on the know-how and network of the Swiss Business Hubs in the market in question. S-GE also organizes custom-tailored company trips to meet the right contacts in person.

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