Electronic and optoelectronic component distributors operating in China can be divided into two categories—generalists and specialists. Generalists are largely global distributors who carry dozens of product lines with focus on the commodity market. These distributors also support large multinational and OEM companies with excellent logistical services. On the other hand, specialists are mainly local or regional distributors who carry proprietary products with focus on the application-specific market. Unlike the generalists, they support fewer product lines with emphasis in demand creation.

Negotiating a partnership

Finding the right distribution-channel partners can mean the difference between success and failure for foreign companies that want to sell their products in China. Key elements in the channel evaluation process—financial strength, variation of product lines, matching business strategy, commitment to support, level of investment, customer-relationship and payment terms—must be fully analyzed and understood by both you and your potential partners.

Today, competition among distributors is heating up in the wake of China's accession to the World Trade Organization (WTO). From a financial standpoint, a distributor with annual sales of more than $50 million and strong cash reserve is a wise choice. Small distributors with sub-par annual revenue and weak funding to expand are at potential risk of being merged or acquired.

Next, you want to feel comfortable that the distributor does not carry too many product lines to detract your share of the attention. Most important, you should understand how well your products complement the companion products in the distributor's existing portfolio.

For a distributor to effectively promote sales and support of your products, you'll need to:

• Make sure that a strategy for creating design wins and sales is clearly defined and mutually understood;
• Negotiate for a product manager (preferably dedicated) who serves as your primary contact;
• Negotiate for a qualified (experience and degree preferred) sales team consisting of field sales engineers and (preferably dedicated) field application engineers;
• Negotiate for distributor's fair share of the budget to cover the purchase of necessary resources (equipment, samples, etc) and marketing activities, such as advertising, seminars, and tradeshows.

In China, personal relationship (quan xi) is still central to doing business. A close relationship between distributor and customer is a big advantage to getting your foot in the door. However, a distributor must also provide quality service and support to keep the business. Finally, customer-payment terms are a major issue. For example, a standard 60-day payment policy could be routinely extended to 90 days or as long as six months. It is highly desirable to have a distributor who could tolerate such delayed payment terms.

Expectations of you

As always, partnership goes both ways. As a credible supplier, you need to accommodate your distributor's expectations with full attention and support. This can be accomplished by placing a local team in charge that can deal effectively in a multicultural environment; providing ongoing training for new products, and sales and technical workshops; and protecting your distributor's vested interests.

In China, a distribution business must be highly localized to be effective. But it is also rewarding if you identify three or four qualified candidates, and carefully choose among them.

HENRY SUN is director of business development at Shenzhen Secom Telecom, USA, P.O. Box 608, Los Altos, CA 94023-0608; e-mail: henry_sun@secomtel.com.