Entering into a distributorship relationship with a Chinese company

This tips are for companies that want to get their product into China or increase sales there.

Companies often believe that they have two choices: go it alone via a China WFOE or by forming a joint venture with a Chinese company.

Entering into a distributorship relationship with a Chinese company (or companies) is another option. From a strictly legal perspective, distribution (and reseller) relationships between foreign and Chinese companies are fairly straightforward. They certainly are easier and less risky than joint venture deals and typically far less costly and time consuming than going it alone via a WFOE.

From a business perspective, taking most products into China and then marketing, selling and delivering them is usually a massive task. China is a big and diverse country and it is really many markets, not just one. Using an experienced Chinese distributor or distributors is oftentimes the best way for American companies to sell their product into China.

Chinese law has no special protections for distributors and China has no special compensation requirements for distributors whose distributorship has been terminated.

Only you have to pay attention with IP. One big issue in China with nearly all distributor agreements is Intellectual property protection.

Since China’s Anti-Monopoly Law prohibits retail price maintenance — which includes requiring a distributor sell goods at a minimum resale price to third parties — China distribution agreements should not require the distributor sell its goods at a certain price.

Do not forget the option of using a distribution relationship to get your product into China as doing so can be both relatively simple and effective.