June Insight - Working with a value added marketing partner in China

Every company dreams of being able to market worldwide without leaving the office at home. In theory consumer oriented products can be sold via e-commerce platforms but most business to business products and services require a concerted, direct, human interface with market decision makers and end-users in order to maximize sales and provide service support.

For a start-up or a niche player in the industrial space the financial resources and human resources required to build an international market presence when benchmarked against the total market size potentially might not warrant an investment in an off-shore office or subsidiary.

This does not mean that a company has to abandon international sales. It might, however, explore the different business models and revenue sharing options that exist to work with what the Harvard Business School once labelled as a “value-added marketing partner” or the more common name of agent or distributor.

A key concern when choosing a marketing partner for China is to determine the company’s role and actual capacity to assist with respect to marketing, sales,  regulatory compliance, importation, logistical support and service.  A robust China strategy requires breaking down these segments of the business and handling some of them in-house or possibly through a managed but integrated solution that includes a number of local or international marketing partners with specific expertise.

A key question is where is the command and control of sales located? Do you as the manufacturer still invest in advertising above and beyond what the agent or marketing partner does to create demand? Intercedent’s experience indicates that many agents are able to adequately service and existing market demand but very few are able to develop or create a market demand for a product and service. This is in part due to the limitations on the business model as well as the immediacy of sales driven results that drive most agents or distributors.

Intercedent advises working with agents on a customer base or geographic base so that the right risk and reward equation for the exporter to China and the agents selected can be balanced. The exporter should not put their whole market plan in the hands of one agent nor should they deny an agent the reward for developing and servicing the market.  Exporters should review whether it is financially and legally viable to manage the import process of its own products and also physical distribution of these products through a different set of business partners than the marketing agents or partners. Control over trademark, regulatory approvals, import certificates, intellectual property and advertising work should ideally rest with the exporter to China.

Proper due diligence of agents should include credit checks, references from existing clients, checking with trade associations and Embassy people and ideally meeting a few key customers that already buy from your potential agent before signing.

International companies should also wean themselves off sales through an agent by winding down the relationship but not cut out the agent once they get to a critical enough mass to warrant opening or expanding operations in China.  The key foundation of the exporter-agent relationship has to be that both partners make money. Exporters should realize that sometimes agents to do not recover initial costs and investment in market development during the first period sales are being made.  

Like any business partnership a key part of the success lies in making sure that both parties expectations are discussed and documented in detail from the outset and that specific sales and marketing targets are agreed to and made part of the co-operation agreement. A critical part of this agreement is the timing of payments.

Just like a successful marriage means that at various points in the campaign the agent or the exporter will have to be flexible and respect the needs of the partnership to win the long term war of developing the China market successfully and profitably.

 

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