China - Getting into Market
Market & Brand Building Plan
An important step to entering the China market is to create a robust market and brand building plan. A well-considered and implemented plan for building your route-to-market and brand building vision, can help to establish a sustainable and long-term business relationship with a market such as China.
Developing such a plan can be challenging and will require time and effort but getting it right is crucial to your success in the market. It is very unlikely that marketing plans you have for other markets will translate in China. Instead, you will need to consider the unique aspects of the market and tailor your marketing techniques accordingly.
What your plan should cover:
Your plan needs to be clear and concise, and ultimately, deliver tangible results.
You will need to consider:
Characteristics of the market
Competitor analysis and benchmarking
Product range
Pricing
Brand positioning
Strategic objectives
Route-to-Market
Promotional strategy including investment required
Modifications to product, packaging, marketing materials, pricing
Implementation and evaluation of your plan
As well as the following:
Payment terms
Import documentation required
IP protection
Translation services
When you have your plan in place, roles and responsibilities to action the plan will need to be assigned. You will also need to work out how you evaluate the success of your plan by setting key milestones and review dates. You should review and modify your plan on a regular basis in line with the realities of the market.
What to consider when seeking an importer/distributor – avoiding pitfalls…
Geography – where do you want your product to be sold? Major cities have the biggest potential markets but also the stiffest competition.
Channel - China is an incredibly fragmented market. It is therefore recommended that you identify which channel(s) you would most like to sell in and focus on finding an importer or importers that specialize in selling within that channel.
Location and condition of distributor’s warehouse and handling
Size of distributor’s sales team
Remuneration structure of the sales team
Size of the marketing team
Number and profile of brands in their portfolio – a big portfolio may attract a wide range of customers but getting focus from the sales team on your products may be difficult in amongst so many other brands.
Other competitive brands/regions/categories in the portfolio
Price points – yours and other brands on the portfolio; where will your wines sit at trade prices; what margins do they make; what are their selling mechanisms – discounts, free stock, both?
Opinions of customers e.g. restaurants, retailers, chains, supermarkets, consumers
Credit history – do they have a good credit history with existing suppliers? What are their credit terms?
Due Diligence
a) Credit History
Do they have good credit history with existing suppliers?
What are their credit terms?
Do they take direct responsibility for their debtors or do they use a third party?
b) Warehousing
Location
Air conditioning
Logistics & delivery
c) Company Financials & Structure
Financial records to check financial standing
Company structure – often Chinese importers are owned by another holding company so it’s worth working out who is who
How To Find Importers
Use an Agent
As many Chinese do not speak English and generally prefer doing business with people they know personally, hiring an agent to make introductions to suitable importers is generally recommended as the best way to connect.
A good agent will identify active and appropriate importers and identify gaps in price point/country/category/styles/varieties where your brand may fit or be a better offering than an existing brand. They should consider how your business can increase the profitability of a distribution partner.
You will need to give a full overview of your business plan to your chosen agent, including an overview of the history of the brand, ownership, product portfolio and pricing, stylistic direction, and any USPs that may be relevant including press and awards from internationally renowned critics/competitions. You should also include what sort of support you are able to offer for building your brand in China. Agents can help you to broker the import terms and conditions and make formal introductions as and when it becomes necessary.
Trade Fairs
Another way to meet with potential importers is via trade fairs. These obviously require time and investment but in some cases can be a good way to show an importer that you are serious about entering the market. If you don’t speak Chinese, ensure you have a translator with you, preferably with good category knowledge, who can help you to communicate with interested parties who visit the stand.
Displaying signs in Simplified Chinese with key messages can help to attract people to the booth e.g. Seeking Distributor. Having some seating available so you can invite buyers to take a seat and make them feel relaxed and comfortable can help ensure a longer meeting.
Building relationships in China is very important. It may seem counter-intuitive but often the first meeting you may not even discuss business until the very end. On that note make sure that you schedule more time that you would think necessary. If the Chinese are interested to do business with you then they will often follow up with asking you to join them for a meal. It is highly recommended that you attend this meal even if it is conducted entirely in Chinese. Showing hospitality is considered important.
All business in China is conducted through WeChat. Make sure you have an account set up prior to arriving and ideally print off large QR codes so that you can capture people as they come past even if you do not get to speak to them.
Attending trade fairs to find an importer can result in a “mixed bag” of results however. Many producers find it very difficult to sift the wheat from the chaff, and actually engage with serious and professional future import partners.
Direct
It is notoriously difficult to get in touch with Chinese buyers directly, particularly via email. This is because most business in China isn’t conducted via email, rather via WeChat. If you want to get in touch with Chinese buyers directly, it would be advised to find a connection who can make the introduction. ‘Cold’ outreach is generally not well received or advised.
Contracting With A Chinese Importer/Distributor
Unless you are using an agent, it is likely that you will need to travel to China in order to secure distribution with a Chinese importer. You will likely require a visa for travelling to China so make sure you check these details and what’s required well ahead of any planned travel.
One of the first discussions will likely be around exclusivity. As previously mentioned, China is a huge country and it is unlikely that one partner will be able to deliver the entire market, or if they exist they likely have a full portfolio of brands already.
Therefore, whether you offer exclusivity comes down to your ambitions for the market and how much time and money you are willing to invest in managing the territory. If you are willing to offer exclusivity, try to understand expectations on both sides and make sure clear targets are put into place which are linked to maintaining the Agreement, incorporating the following at least:
Volume and value expectation / goals
Distribution goals – regions and channels
Information sharing: forecasts, inventory, sales depletions, marketing activities
Warehouse inspection rights
While it may be important to you that regular depletion reports are generated, the simple fact is that many Chinese importers do not have the systems in place to generate these reports. Therefore, it is important to go into the relationship understanding that you may be frustrated by the lack of information provided. Still, it is recommended to push for clear commitments from the outset.
It is generally recommended that you get a distribution agreement in place. Many companies will not do this as best practice so use your own template if they are not forthcoming. This should be agreed and signed by both parties in advance of shipping.
Once an agreement is signed the importer will likely ask you for a signed and chopped ‘notice of distribution’. This will be in both English and Chinese and it is important for the importer to be able to show their genuine representation of the brand. It is recommended for this letter to include a clear expiry date in line with the Agreement.
Any promotional and educational support should be discussed including POS materials, sample support, marketing support, training, winery visits, winemaker visits, sales incentives etc. This negotiation is very important to ensure your brand is built in the most effective way.
Payment terms
Where possible insisting on upfront payment terms would be advised. However, some of the more established national importers and ‘on trade’ specialists will expect payment terms of 90-150 days. While this may seem daunting it would only be recommended for companies you have done extensive due diligence on and who trade credit companies will cover.
You need to bear in mind the shipping time to China and time for customs clearance (usually around 2-3 weeks for ocean shipments if all documentation is present and correct). National and On Trade importers are typically performing the role of both importer and distributor / wholesaler, hence the aggregate need for extended terms to cover both of these links in the supply chain.
Business Etiquette in China
This is extremely important to learn about before doing business in China. There are certain sensitivities which may seem meaningless in a Western culture can cause serious offence and render future business dealings obsolete. Etiquette is strongly influenced by Confucianism which emphasizes respect for authority, education and age. A few key points to note are as follows:
1) Face
There are multiple definitions of this but to keep it simple think of ‘face’ as a person’s self-image and status within a social structure. If someone feels undermined or has their authority questioned this can cause ‘a loss of face’. If words or an action cause loss of face it will irreparably damage the relationship and may make future business transactions impossible. This concept can be hard to grasp for Westerners but trying to understand it is imperative to do business successfully in China. Here are a few (and by no means exhaustive!) examples of what could cause loss of face and if possible, should be avoided:
An outright ‘no’ to a suggestion. Instead use more gentle language such as ‘allow us to think about it, perhaps, we’ll see’…
Direct criticism especially in front of peers/colleagues.
Not explicitly adhering to someone’s rank and/or age.
Do not demand answers - accept the need for slow, consensual decision making.
While it may not be expected for Westerners to know and understand the intricacies of Face the following flip side of ‘giving face’ is important to show respect and cement relationships. Examples of giving face as follows:
Acknowledge social status
Show appreciation through public praise
Bring a small gift (worth less than 100 RMB) such as tea or a local delicacy
2) Business Cards
While it is becoming increasingly common to share contacts via Wechat it is still customary to give out business cards at the beginning of the meeting. Make sure to give your card with both hands and to receive theirs with both hands. On receiving make sure to read it on both sides and lay it out in front of you at the meeting, don’t just put it away in your pocket or bag which would be seen to be a mark of disrespect. Be sure at some stage though to put the business card into your pocket or bag, do not forget the card or leave it behind.
3) General etiquette
Be on time for your meetings. This is very important, although on the flip side be prepared for your buyers in China to be late!
Bowing or nodding is the common greeting, but a handshake is becoming more accepted. Wait for them to proffer a hand, as Chinese amongst themselves will generally not shake hands.
Small talk in the first half of the meeting is very important and should not be rushed, or reacted to with impatience.
Make sure to schedule at least 2 hours for each meeting. This may seem unnecessarily long, but it is considered rude if you must rush off too quickly.
Often you will be asked to share a meal. This is a very important part of developing the relationship and so, unless impossible, try not to refuse.
At the meal do not directly discuss business.
Do not start to eat or drink prior to the host.
Try and taste each dish as a courtesy. There will most likely be multiple courses so just eat a little bit of each.
What to do if you want to change importers
Changing your importer should be considered carefully.
Things to consider if you do decide you want to change:
Terms of your contract, are you within your rights to break your agreement?
How much stock do they have on hand? Is dumping of stock likely if you leave and if so, how damaging might this be, particularly if it appears online?
Are there unpaid invoices outstanding? If so, you’ll want to ensure you get paid before making a move.
Ideally you’ll want to form an amicable agreement to get stock moved to your new importer. In practice this rarely happens.