Distribution Market in China: Key Local & Foreign Players.
The distribution market in China has been through major transformations over the last years. In order to serve the huge population of China, the distribution landscape is being shaped by organizing storage facilities, transportation systems and services in the most efficient manner. According to the National Bureau of Statistics of China, the total national statistics bureau of CHINA (NSB) accounted for 28,870.1 billion Yuan in 2011 and local state owed (SOE) distributors captured a large market share of 19.7% of the total revenue. However China’s logistics market still is considered at an early stage of consolidation and poised for major growth over the next five years. As a result manufacturers and retailers are growing their distribution networks and improving their supply chains significantly, thriving to overcome the disinter-mediation, the fragmentation market (100 retailers achieving just 9.3% of market share in 2012) and the wide geographical span of China.
Combination different types of distribution channels
Commonly, the majority of companies opt for a combination of distribution models according to their needs, as relying on a single channel is risky in such a complex market. Here are the main types of distribution channels:
Distributors and agents
If Brands or manufacturers prefer not getting involved in the distribution very much, distributors and agents can be selected. Local distributors cover the majority of the Chinese wholesale trade since they ensure close relationships with the government and follow the “Guanxi” principles. But foreign companies challenge established infrastructures by offering an international perspective and advances management experiences in China. Since 2004, many foreign agents and distributors have entered the Chinese market. The Chinese government implementing major policies related to the distribution sector favoring competition and efficiency. Foreign companies will be able to prosper in the upcoming years. This year, the distribution network is moving towards the north and the west of China with new major logistic centers.
Small and medium manufacturers use intensively wholesale markets in China. Despite having the reputation of a disorganized market selling unbranded products, many wholesales market have improved and are modernizing by practicing better management. This channel is growing particularly fast and this pace is expected to continue; between 2007 and 2013 the number of transaction values over 100 million Yuan saw an increase of 25%, reaching 5.075 in 2011 according to the NBS. The top 3 wholesale markets in turnover are Zhejiang Yiwu China Commodity City, Zhejiang China Light & Textile Industrial City and Wu Ai Commodity Market. Those wholesales tend to focus on specific industries and have different credibility or accreditation. For example, Yiwu China Commodity City is meets the international quality standards for the ISO 9001 and ISO 14001 certification, reinforcing the channel reliability. In the upcoming years, the service reliability will be more regarded than the price, meaning that quality service should become a priority to distribution companies.
Direct from business to customer
A competitive advantage for businesses is to tailor a more efficient distribution channel for its own goods. This method is more relevant in less developed regions of China where only few channels can meet brand expectations or for the large multinationals capable to invest large amounts. This channel is increasingly successful since products tend to be cheaper, but those may not be delivered with as much service.
The online distribution is also playing a significant role in the distribution market; indeed, online shops are being developed across China reaching populations previously inaccessible. The B2C is growing thanks to the intermediary of online platforms such as Alibaba with Tmall and Taobao or websites such as JD.com and JiGoCity.com. Those are significant players in modern China. Alibaba counted nearly 200 million Chinese users in 2010. This distribution alternative will nevertheless won’t erase traditional wholesalers and agents nor efficient distribution networks because enhances manufacturers visibility but isn’t a channel in itself. In addition, due to frequent fraudulent activities practiced online, buyers don’t trust the platforms as much. Large orders are preferred to be purchased through traditional methods.
Distribution players have been transformed totally in the last years. Currently the government is favoring the most efficient channels, and rise of online support is increasing improving distribution channels. The demand for distribution will be higher than ever but in order to pierce in this highly competitive, growing and fast changing environment, distributors will have constantly adapt them selves. Overseas companies will be particularly demanded as they enable more reliability and higher quality managements. As many foreign companies plan to enter the market, offering value-added service is necessary. Building strategic alliances is very important and must be decided accurately to face the competition; if not exploring new geographic regions could bring real competitive advantage and diversified distribution models will be demanded in all part of China. The large market waiting to be served will be expecting environmental friendly services too and the development of foreign distribution companies will have to adapt to the particularly fast growth so fast development strategies will be practiced by most multinationals.
Amy Wang –