Q1: How to determine that there is a market for our product in China?
The one word answer is: Research. As China’s economy develops, different markets are emerging – even different economies within the market. For example, Shanghai bears little resemblance to the poor areas of the northwest. Each potential market needs to be carefully researched upon which market entry strategies can be developed. A comprehensive research is your foundation for a flourishing business in China and reduce your risks substantially in the market.
Q2: Do you need a market entry strategy?
Forward-thinking companies recognize that success rests on the need for a cohesive market entry strategy. This requires a proper understanding of China’s particular business culture and practices through market research. China, of course, is not one big market but a myriad of diverse and expanding markets. Each sector has its own particular attributes, each business is different. Many companies who are interested in market entry have experienced frustration and bureaucratic delay, frequently resulting from ineffective communications, inappropriate relationships and a general failure to comprehend what motivates the marketplace. Companies that have yet to gain a foothold in the country face a number of issue and challenges.
Q3: Where do we start in a country of this size?
Indeed, China’s population size of 1.3 billion is overwhelming. Further investigation reveals that there are approximately 200 million comfortable, middle class Chinese consumers. Beijing, Shanghai and Guangzhou are the three leading Chinese cities which may be considered as first priority in market entry, however there are many additional high population cities with substantial middle income populations.
Q4: How do we find a potential partner? How do we know how good that partner really is?
Finding an ideal partner is your first step to be successful in market entry, however, it might be the most difficult stage. Starmass has extensive experience and network in partner matching as our systematic approach aims at sourcing and identifying the most suitable Chinese dealers/agent /distributors for your company who have capability to market your products. This will reduce your risk in the selection of Chinese partners and save your valuable time and effort.
Q5: What types of difficulties have foreign companies encountered in market entry?
Language and cultural issues are the obvious difficulties. China’s size is daunting, especially when coupled with difficult travel and communications. The second difficulty may be bureaucracy. The split between central planning market and the free market produces inconsistency resulting in referrals from one department to another in the search of finding the right person to contact and the right procedure.
Q6: What are some of the current particular obstacles?
Non-tariff measures frustrate foreigners trying to do business in China. Quotas, some of them not even published, are slapped on many imports. Quality inspection is tougher for foreign-made goods. Even if the goods are allowed into the country, they are at the mercy of state-run-distributors. The complexity and difficulty of the situation is highly fluid. It requires continual monitoring in order to have the most appropriate connection to neutralize the negative impact of bureaucratic action or inaction. These obstacles in market entry are one of main issues to be addressed in our market research.
Q7: Which is better – an agent or a distributor as means of market entry?
It depends on the circumstances and what you are trying to achieve. Considerations include:
* Who are the agents with access to your target customers?
* What are your existing operations and how can the new intermediary fit with them? For example, if you want to keep an existing sales operation, you will need an intermediary who is happy to work alongside with that.
* What rights and responsibilities do you want to be included in your agreement with the intermediary?
* How closely do you want to be involved in the sales process? It can be easier to have more control over how an agent handles sales.
* What type of relationship do you want to have with the end user? Using a distributor may distance you from the ultimate customer.
Q8: Can I give an agent exclusive rights to a particular territory in China?
Yes. An agent may well want to negotiate exclusive rights to the territory. If you also wish to be able to sell through other channels such as through you website or via mail order, you will need to ensure that your agreement with the agent allows this.
Q9: How much control do I have over what my agent does?
The degree of control you have will depend on what has been agreed. For example, you can agree what products can be offered, what contract terms will be offered to customers and so on. You can also agree how the agent should approach customers and so on. However, if you exert too much control in this way, you may find that you inadvertently create an employment relationship with the agent.
Your agreement should clearly spell out the extent of the authority the agent has to act on your behalf. Be aware, however, that if the agent exceeds that authority, and you go along with it, you may well have effectively given the agent authority to act in that way in future. For example, if the agent arranges a sale without authority, and you then agree to fulfill the sale contract.
Q10: How can I protect my intellectual property and confidential information?
Your agreement should spell out what use the distributor is allowed to make of your trademarks and other intellectual property. For example, the agreement may include that the distributor is prohibited from altering your product packaging. Unless your agreement is carefully drafted, there can be unintended consequences – for example, the distributor may become entitled to some of the value of the intellectual property. Confidential information can be protected with suitable terms in the agreement. These will need to be included in the agreement on how confidential information will be protected after the distribution relationship is terminated.