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Distributor or Fulfillment Agent? A Tough Choice for Selling in China

Posted by Vincent Hu
Vincent Hu
Vincent has over 10 years of management experience in leadership positions of logistic companies. He has an en...
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on Friday, 21 November 2014
in Business in China

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The Easiest Way Doesn't Work

The easiest way to sell in China would be to find a reliable and capable distributor who just buys products and immediately pays revenues.

This easy way faces many challenges, which may lead to companies losing the opportunity to grow their sales in China and end up completely losing market share. In Mainland, the market is separated in many small units rather than a huge integrated market place. The attribute of “Guanxi” in Chinese society also hinders a distributor’s access to all channels. A distributor with roots in Southern China would have very limited or even no presence in Northern China (e-commerce would be an exception). And so, to cover as many regions as possible and diversify channels, the investor should choose several distributors rather than an exclusive one who just covers a limited region or channel. However, once the foreign company starts negotiation with several distributors, the main handicap faced is aligning interest among distributors. Who doesn't want to be exclusive? Sharing the cake might get distributors to look for short-term benefits rather than long-term growth.

A Tale on Regulations

There might be much complexity due to licensing and certificate limitations. Before selling in China, many foreign companies need to apply for a license that permits the import of the products. The application process is time and money consuming. For example, a CFDA medical device license would take one or two years to obtain, and the company has to choose a distributor to apply on their behalf. However, once the license has been done, the company pretty much has to rely on this distributor in this product field. Normally, the distributor has the right to terminate the license because they are the applicants of the license. In brief, the distributor will always have the upper hand negotiating prices, for the most part.

Not long ago, the convenience on location drove a medical device manufacturer to use a distributor in Beijing to help on a CFDA products license application. However, after the license application had been completed, the distributor didn't give the original certificate to the manufacturer and required all sales in China to be handled by them. The manufacturer had spent enormous efforts and money obtaining the CFDA products license, but the distributor held the original and has the right to terminate it legally.

No Greedy Distributor? The WFOE vs. the Fulfillment Agent

Most people may think they don’t have much choice. They either hope that they can find a reliable or less greedy distributor who is willing to assist them and never become an obstacle for their further business development in China, or else set up their own entity in China to be independent and become able to make market efforts and co-ordinate all distributors, resulting in setting up a WFOE (Wholly Owned Foreign Enterprise). However, this option is not economical and requires too much commitment and liabilities for a foreign company to take on when just starting operations.

A third option does exist, a fulfillment agent acting on their behalf. The fulfillment agent doesn't need to be an expert in the industry to sell products, but it can fulfill and offer profound experience on license application, as well as trading, logistics and financial services. The fulfillment agent can assist foreign companies to file the product license, work on market activities and co-ordinate sales work with varied distributors. If necessary, the fulfillment agent is also able to import goods, hold stock in China, and sell products and invoice locally in RMB. This assistance can provide foreign companies flexibility on business development with full control.

A recent case study is on cosmetics’ CFDA permit application. After the permit was obtained, the agent informed the company that they could only help on license application but not import. However, the regulation on cosmetic import says that the importer has to be the same company as the applicant. The cosmetic company had to face huge CFDA permit change costs and label redesigning costs, which could have been avoided if they have used the right fulfillment agent. For these strictly regulated products, without the registered agent’s cooperation, the change of agent on the license would be impossible.

The Smart Choice

To find an eligible and reliable fulfillment agent would be a solution for foreign companies to build flexibility in managing their multiple distributors and sales channels in Mainland. A well prepared assessment and a well-defined agreement with the fulfillment agent would ensure the company will benefit from this alternative in the long-term.

In summary, the advantages of a fulfillment agent are:

  • Fulfillment Agents are willing to co-operate with other distributors, because they don’t have their own sales channel and they don’t have “ambitions” to grab other distributors’ customers and squeeze other distributors’ market share
  • Fulfillment Agents are in a neutral position (unlike a distributor) and this solution limits distributors’ conflicts of interest
  • Agreements with fulfillment agents can include any and every service the agent should provide and on a clear fee standard
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Capturing A Billion Customers: The Sales Incubation Model in China

Posted by Michael Wilder
Michael Wilder
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on Monday, 17 November 2014
in Business in China

Not to Be Ignored

As most in the business world would agree, China is one of the most competitive markets on the planet for local and foreign companies alike. In many ways, the country’s economic policies, Five Year Plans and overall top-down leadership out of Beijing are hugely competitive with its counterparts in the West – and in ways, even more forward thinking and innovative. Whether we fear it, hate it or are indifferent to the rise of China, surely those in the global business community would agree that we cannot afford to ignore this ancient culture and increasingly influential super power.

Why Sometimes Knowing Less, Is Knowing More

With publicized market entry failures from the likes of Home Depot and Best Buy, entering the Chinese market to sell your products or services certainly can be a multi-dimensional chess game that requires tremendous amounts of resources for success. But how is it possible that at the same time, there are some very successful foreign Small and Medium sized Enterprises that have been growing sales and operations in the Mainland for a decade or longer? How could they succeed – with the limited financial resources typical of most SMEs – where other MNCs have failed miserably? This complex answer might be broken down into two key elements:

  1. These foreign SMEs were opened minded enough to acknowledge that the Chinese business environment and culture is NOT the same or similar as their native Western countries and;
  2. Upon entering the market (often times, with limited resources, there is only one shot at this) they sought to find a partner (not the same as a distributor) on the ground with the operational business experience in China, required to successfully navigate the market during the first five or so years and grow their sales in a sustainable way.

Where the Hell Should I Start?!

China has a seemingly endless list of “consultants” and “experts” that range from every kind of lawyer imaginable, to specialized tax accountants, to government relations advisors. The list of questions for SMEs wishing to enter is equally long –Should I do market research first? What about opening a Representative Office? How can I “test” the market to see if there is even demand for my product/service? Do I need to register a legal entity before I can do business? What if I need to hire people legally in Mainland China? And how can I get my profits (if you make it that far!) back to my home country?

Well, Start Small… Focus on Maintaining Growth and Real Business Control

One option for market entry that no lawyer or consultant will ever tell you and has been around for almost 15 years in China is the sales incubation model. Before even setting foot in China, this model does not require any legal registration of ANY kind and allows for immediate commencement of business activities:

  • Hiring and hosting an experienced Sales Manager;
  • Importing and warehousing products (even setting up a factory incubator for local manufacturing, but that’s another article!);
  • Selling to local customers by invoicing in RMB; and
  • Repatriating profits out of China

Just some of the benefits for this alternative model are clear from the very beginning:

  • Significantly reduced upfront investment to “test” the market (How do you know if your product/service will sell?)
  • Shared liability with the sales incubation partner (When storing and selling, they earn only when you sell)
  • Built-in, full-range of customizable local Chinese business infrastructureand experienced professionals (These are the teams who have been supporting successful foreign SMEs in China since the early 2000s)
  • No need to spend the time, money and mental effort (yes, that is valuable!)for registering a Rep. Office, Joint Venture or Wholly Foreign-Owned Enterprise (WFOE)
  • Leave China as quickly as you entered, without the hassle of legal obligations

Go Get ‘Em, Partner…

The future of the Chinese economy is far from certain, but one thing is for sure – China will continue to be the Wild West of modern economic outlaws and bandits willing to risk it all for a billion customers.

PTL Group's China sales incubation model could be the perfect opportunity to fully exploit your SME's potential in a globalized world  - for more details click here.

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Operating and promoting foreign company's internet presence and activities in the Chinese web

Posted by PTL Group
PTL Group
PTL Group has not set their biography yet
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on Tuesday, 22 July 2014
in Business in China

Helen Doron & PTL Group

30 years ago Linguist Helen Doron developed a method for teaching English as a foreign language to young kids, a method that imitates the way in which babies learn their mother tongue. Today, Helen Doron English is an international franchise network in over 30 countries, and has recently expanded into China becoming one of our clients.

In China, Helen Doron English currently operates a total of 18 learning centers in nine different cities. Fortunately, the chain continues to expand and grow in China, mainly due to their executive's large scale and long term strategic attitude. In this context, one of their decisions was to choose PTL Group's local operational management services to support their growing portfolio of English learning centers.

The PTL Group marketing department is operating and promoting the Helen Doron presence and activities on the Chinese web. A conversation with Sara Song, PTL Group's project manager of Helen Doron's online marketing, clarifies how this service model works:

R&D Centers and Incubators and as a Growth Model for Israeli Companies in China

Posted by PTL Group
PTL Group
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on Monday, 21 July 2014
in Business in China

PTL Group was invited to take part in the first meeting held between the Task Force for China's affairs in the Israeli Ministry of Economics, and a working team for high-tech interests which represents the Chinese government.


How do you benefit from the knowledge accumulated by Israeli companies and Chinese elements in order to promote the activity of Israeli companies in China? That was the main question of a special seminar that was held recently in Tel Aviv.  Among this question and other things, also examined were models of incubators and R&D centers suited for Israeli companies in China.

That was the first meeting between the Task Force for China's Affairs in the Israeli Ministry of Economics led by Chief Scientist Avi Hasson, and a working team for high-tech interests representing the Chinese's government and led by Ren Zhiwu, deputy director-general of the High-tech Industry Department of the NDRC (National Development and Reform Commission). The Chinese delegation included representatives from the local industry and the four industrial parks which were chosen by the Chinese government for the issue of cooperation with Israel.

A cooperative agreement signed between the Israeli and Chinese governments will help support Israeli companies

Posted by PTL Group
PTL Group
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on Monday, 14 July 2014
in Business in China

In the last five years, we have witnessed the buildup of an Israeli cooperation with the city of Changzhou, Jiangsu Province. PTL Group, which stands behind various Israeli projects in the city, is one of the major driving forces in this buildup.

The agreement, which was signed between the Israeli Office of the Chief Scientist, the Chinese Ministry of Science and Technology and the Science and Technology Department of Jiangsu Province, addresses the cooperation with Jiangsu Province and Changzhou's Innovation Park. Changzhou, which is 50 minutes by high-speed train to Shanghai, is regarded as one of the major cities in China for business activities of Israeli technological companies in the country.

According to this agreement, Israeli companies can benefit from a comprehensive support package, which include bonuses and extenuations above and beyond what was set as standard in similar agreements. This bonus package includes, among other things, tax reductions, unique grants that help to accelerate the start up stage, specific loans and incentives in order to attract more Israeli industrial companies to the park. Israeli companies that operate in the medical sector will benefit from additional assistance in order to obtain the necessary permissions from the CFDA (Chinese Food and Drug Administration).