Distribution Industry is rising rapidly in China

The distribution in China has witnessed the rapid transformation and upgrade of the retail industry. With the huge potential of the big consumer market, many manufacturers and retailers have tried their best to expand their distribution network as well as improve supply chain efficiency in recent years. The Chinese government has also launched multiple initiatives to support the distribution sector in order to boost domestic consumption.

The Rapid development of retailers put a lot of pressure on the traditional wholesalers and distributors. They have to face adaptation to survive in this new era of the distribution industry. Nevertheless, given the vast geographical span and huge regional differences, distribution in China remains a complicated task.

In recent years, the Chinese government has invested a great deal in the country’s logistics infrastructure. China allocated nearly 40 percent of its massive 2008 economic stimulus (¥1.5 trillion [$219 billion]) to public infrastructure development. In 2009, China built or upgraded 156,000 rural stores and 1,100 distribution centers across the country, according to MOFCOM. China now has 420,000 rural stores that cover 75 percent of all townships and 50 percent of all administrative villages.

Bottlenecks in logistics expansion

Due to a highly fragmented industry in China, logistics here is hard to realize efficient and low-cost product delivery. With more than 730,000 registered logistics operators, according to the Global Supply Chain Council, coordinating supply chain capacity and material handling often affect material flows.

One challenge with logistics optimization involves city restrictions on truck sizes during certain times of the day. Shanghai, like many other major Chinese cities, limits the use of trucks during daylight hours to alleviate traffic congestion. This complicates distribution and batch shipment optimization. Distribution companies must resort to a fleet of smaller cars and vans or pay exorbitant taxes and fees to use trucks. In this fragmented industry, faced with high transportation costs and low sales margins, distribution companies survive by keeping their prices low.

Companies must also decide whether to outsource logistics or develop in-house logistics capabilities. In 2001, outsourcing logistics operations revenue was only $4.7 billion, less than 5 percent of China’s gross domestic product (GDP). In 2006, logistics outsourcing as a percentage of total logistics spending declined to 2 percent, compared with 10 percent in the United States and nearly 25 percent in Europe.  According to the Global Supply Chain Council, third-party logistics is a more than ¥60 billion ($8.8 billion) market in China. As logistics outsourcing grows, competitive advantages for third-party logistics providers—namely in service and efficiency—will lead to greater integration for business operations.

How to develop you own distribution business in China?

Many of China’s domestic agents and distribution channels are offshoots of the state-owned system and were privatized over the last decade. Such distribution channels made up of many smaller distribution networks tend to be large, combine well-established infrastructure networks, and require companies to use strong guanxi at the county and municipal government levels. Companies that use privatized channels to distribute products in China may find it necessary to build strong relationships to make sure the product moves as planned. Even when brand recognition and power are strong, bureaucratic processes may limit efficiency.

Work on your Branding

If you don’t have a website, you should create a new one

Your Website is the first portal between you and our audience. It’s better for you to create a Chinese website to be more close to the Chinese customers. before to trust you, they will make some research about you and your products and services. The best way for them to understand you is to have access to your website in the language that they truly understand. Moreover, you should localize your website in China, for more fastness. don’t hesitate to create a customer service available 24/24h.

Be visible on Baidu

Baidu is the first Chinese search engine with 80% of the market share. You should be paid attention to this big weapon because it can help you or destroy you. Chinese consumers used to make some research about their needs before purchasing products. If you are not present on Baidu, they won’t be able to see you. Moreover, always keep in mind that Google is blocked by China’s great firewall, so you can’t count on Google for being visible in China. It’s important to think about SEO on Baidu if you want to be on the first page.

Collaborate with the online commercial platforms

The rapid expansion of the Internet in China, which now has more than 400 million users, has created online distribution channels. Alibaba.com Ltd. and its subsidiary Taobao.com reach a broad range of customers. In April 2010, Taobao reported over 190 million users. The combination of Alibaba and Taobao creates business-to-business and business-to-consumer opportunities. Foreign companies are also expanding into this market through such online distributors as JiGoCity.com. JiGoCity works with a large network of consumer service companies to offer collective buying directly to customers through their expanding network of online users.

Gain yourself a good reputation

If you want to do distribution business in China and attract good suppliers, at first you have to work on your brand image and awareness. In China, it’s very common that suppliers will only have a look at your reputation and decide if they want to work with you or not.

In order to achieve sales, it will be important to have a local sales team that can guide you through China’s unique business culture in the negotiation process. Local staff will have a better understanding of how Chinese businesses and government agencies operate and how to access key decision-makers in order to make a sale. A local sales team can provide your company with the local know-how needed to complete business deals.

Companies must analyze potential distribution partners, paying attention to material movement within China, because poor inventory positioning and stock-outs can harm brand reputation.

Manage your relationship or Guanxi in China’s market

Personal networks and relationships are an important component of a successful distribution strategy in China. Chinese “networks” are often restricted and exclusive, especially at the local level, where these networks may consist of only a handful of decision-makers. Thus, forging personal relationships with these individuals is particularly important for distribution channel development.

Gentlemen Marketing Agency is specialized in digital marketing in the Chinese market. Do not hesitate to contact us if you want to discuss any projects in China.