Whilst China is a major market for many companies, it is also often spoken of with fear. High as the rewards can be, so are also the challenges which companies face. Finding the right partner in China is one of the major hurdles confronting companies as the market can appear intransparent and exotic from the outside.
There are two main parts of the challenge of finding your ideal distributor in China
The first part is finding the right company who can truly represent your brand on the market.
The second part is finding a company to work with, who are able to navigate the many regulations in a legally compliant manner that fits to your company mission and ethics
Table of Contents
Whilst the average level of spoken and written English in China has greatly improved over the last decade, the general level is still low. On the other hand, how many of us speak fluent Mandarin let alone Cantonese or any of the other dialects which are spoken in China?
Obviously the situation is better in the major cities however a lack of fluent language skills with your partner can complicate even simple administrative tasks and lead to misunderstandings and frustration. This can really be even a hindrance to finding the right partner in China as it’s hard to evaluate if you have no common language.
Consequently for any sensitive negotiations it makes sense to engage a specialised interpreter who is well versed in the industry in which you were working. It’s not enough to simply have good language skills, as specific vocabulary is likely to be required for translating the nuances. It can be tricky however for certain industries to find such qualified translators if you have a very technical process for example.
Vast size of China
When looking for distribution partner within China you need to consider the regional differences across the country. Regional and provincial governments often have high autonomy when it comes to economic planning whilst the central government is eager to diversify the kinds of business which are supported. Therefore any distributor needs to be able to deal with both central and local government as well as understanding the regional specifics of distribution and customer needs.
China is almost as large as a continent so there are a range of regional cultural variations which need to be taken account of. You need to have a distribution partner who is well versed with both the local laws and the local method of implementation of the laws and who also has good connections with the local subdistributors or retail.
Is Chinese corruption the truth or is this merely western prejudice?
China has a bad reputation in the West. There is a huge amount of prejudice stating that all Chinese companies and all Chinese people are corrupt and open to bribery. This is for sure not 100% of the truth, but also not entirely false…
In 2021, 627,000 party officials were removed from their positions for violating party rules and laws. The majority of those were lower official level officials who were working in farming communities or agricultural companies and only 36 were active at regional or higher levels.
This is a sign of how the government are cracking down on corruption within state organs.
In recent months there has also been a crackdown on the monopoly position of the big tech giants, with both Alibaba and Tencent paying huge fines.
However both of these phenomena have more to do with political power struggles within the CCP (President Xi is looking for a 3rd term in autumn) rather than a true change in the business culture within China.
Beijing has also pledged to improve the quality of the economic data and technology gap between official figures and the market reality which is felt by small businesses.
So what does this mean overall? Well every day bribery has significantly reduced in the last years at least in my observations. The question is however, where does where is the boundary between normal Chinese guanxi and bribery or corruption? For example if I bring you a bottle of nice wine, is this the sign of a good partner who is making a nice gesture or am I trying to bribe you?
This current issue with corruption began with the reforms of Deng Xiaoping at the end of the 70s. At that time bribing local officials in many small ways was a way to get around excessive regulations and bureaucracy, making it easier to do business. Therefore it could be said to have even facilitated Chinese growth early on. It is also a typical sign for societies and transition (the break up of the USSR, India and Latin America have also experienced similar problems at times).
China might not lead the list for being transparent, but neither are they the worst
The Corruption Index in China increased to 42 Points in 2020 from 41 Points in 2019. source: Transparency International.
The Corruption Perceptions Index ranks countries and territories based on how corrupt their public sector is perceived to be. A country or territory’s score indicates the perceived level of public sector corruption on a scale of 0 (highly corrupt) to 100 (very clean).
Labour costs and skills
Whilst average labour costs have tripled in the last decade, in some areas it’s still hard to find skilled members of staff.
That can have an impact on finding the right partner in China because you need to find a team who matches your requirements.
Additionally, graduates or skilled workers are no longer automatically looking to work with foreign companies or Chinese companies who are working internationally. These days they have a lot of opportunities within the domestic market.
As I mentioned in my earlier post on this topic you need to also reassess your product market fit for China.
This reassessment also goes for your partners. Of course you should have a profile of what constitutes an ideal partner for you and your brand however you need to take into account the cultural differences for China.
One example which often causes friction when finding the right partners for China is the polychronic approach to time.
Chinese companies are able to focus on several aspects at once and often prefer to spend time upfront building the relationship before getting down to the nitty-gritty of negotiations.
Don’t assume you know best for your brand
Within China you need to accept that you need to have a distribution partner who can explain and translate the requirements of the market for you.
Just because a strategy or tactic works well everywhere else in the world doesn’t mean that it can automatically simply be translated for China but needs to be reassessed and evaluated. This kind of cultural fit is an important test as to whether you have already identified the right business partner.
I know that every country will tell you that what works elsewhere won’t apply in their market, but in China this is for sure true. (Obviously it is to some extent in other markets too, but not in such an extreme way as in China).
You really need to take the advice of your distributor, which is why finding the right partner in China is such a core part of your potential future success. You need to be able to trust them (which means taking the time to build a strong relationship) to give you good advice on how to adapt for market conditions whilst maintaining your brand core values.
Do your due diligence
It’s not only in the realm of product market fit that you need to do market research and check out what are the customer preferences.
When you looking for the right company to represent you in China you need to do your homework to find a company who truly understands how to operate within the local market and to work together with a foreign supplier.
Of course there are companies such as Thomson Reuters world check who will do background research on potential partners for you. Desk research is also a source of plentiful information although for China it is far less readily available than for other markets you may be interested in.
In the end though nothing beats an in-person meeting.
Obviously that is like Mission Impossible right now, so chances are you will have to appoint a trusted agent to have a face-to-face with your chosen potential customer.
It’s really important to check that the company truly has an office with employees and that the warehouse is fit for purpose for your intended product range. In this case it’s useful to have a local at your side who can check that this is genuinely an office belonging to a company who says it is.
It may sound paranoid, but there have been numerous cases in the past of people just renting an office for a day and putting a company name sign up to receive outside visitors & gain a contract. This “ploy” is not limited to China but it’s better to be on the safe side and check.
When you visit an office you get a feel for the atmosphere even if you don’t understand the language.
For instance if you visit the bathroom three times a day and every time you go there were girls in there crying from the company then chances are that something is wrong.
It doesn’t necessarily mean that you definitely shouldn’t work with this company but it is for sure a red flag.
I once observed this in the shared company bathrooms in an office building in China and two weeks later the company who occupied the other office on that floor of the tower had moved out as they were bankrupt.
Respect for laws
It’s vital to choose a partner who not only is effective on the market, but who will observe the local laws and guide you through the myriad complexities.
You don’t want to find that you have appointed an exclusive distribution contract to a partner who is then prosecuted for bribing customs officials or who otherwise falls foul of the many laws involved in doing import business in China.
However, many private Chinese companies have now started to be much stricter about their internal compliance along the lines of European or US companies. That means that whilst for example there is still a culture of giving and receiving gifts, that these are no longer so opulent or luxurious.
Navigating the many regulations
Import is complicated whichever country is your destination. China is most certainly no exception to this as laws are often applied differently across different regions.
Obtaining the many audits & certifications which are necessary in order to do business can often be tedious. This is an expensive, frustrating and time-consuming process which the right partner can often expedite.
In recent years there have been frequent changes in the laws surrounding imports of especially consumer products be they food or skin care as Beijing places a focus on quality and safety. For cross-border business these changes don’t have such an impact, but for general trade this can be pretty stressful. Many companies have experienced a rude awakening when they realise that the Chinese authorities view the implementation of standards in many European factories to be quite lax.
Therefore having a partner to guide you through the labyrinth not only of what is stated in the law, but how it is likely to be interpreted (yes, that’s a thing in China) can be key for progress.
Finding the right partner in China is possible, but not simple
Especially in these times of closed borders, it’s never been harder to find a suitable match for your distribution. Most people have moved to various collaborations (effectively using guanxi even they don’t title it so) in order to be able to move forward successfully and with a win-win for both parties.
When you can’t visit the market yourself then it’s more important than ever to have trusted partners on the ground and the way to meet those partners in the first place is probably to also collaborate with someone. That may be a government agency in the form of a Chamber of Commerce, a private agency such as the Global Chamber or with a consultant such as myself.
Just remember that the situation is equally frustrating for Chinese importers right now. They are also looking for reliable suppliers with top quality products and it’s hard to separate the wheat from the chaff when you can’t meet in person!
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If you are interested in selling in China, you might also find these posts interesting:
- Successful Selling in China Part 1: The Background
- Successful Selling in China Part 2: Do the Due Diligence
- Successful Selling in China Part 3: Building Guanxi for Success
- China Challenges Part 1: Underestimating China
- China Challenges Part 2: Understanding Chinese Business Culture
- China Challenges Part 3: Keeping up with “China Speed”
- China Challenges Part 4: Finding the Right Partner
- China Registration Regulations for Overseas Food Manufacturers from 2022
- New Trends in China, new Opportunities in Trade
- Top Basic Concepts of Cross Border E-Commerce in China
- Alberto Antinucci: Preparing the Best Market Entry Strategy
- Julia Bingel: Top Tips for Entering the Market
- Laura Cortes: Custom Product Development and Sourcing
- Food and Beverages Trends You Should be Evolving with
- A Sweet Business Opportunity? Entering the Chocolate market
- Get the Scoop on the Ice Cream Market in China
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