Because of this blog, our China lawyers get a fairly steady stream of China law questions from readers, mostly via emails but occasionally via blog comments as well. If we were to conduct research on all the questions we get asked and then comprehensively answer them, we would become overwhelmed. So what we usually do is provide a super fast general answer and, when it is easy to do so, a link or two to a blog post that may provide some additional guidance. We figure we might as well post some of these on here as well. On Fridays, like today.
One of the questions our China attorneys pretty much never get is the following: I have been using factory X in China for the last seven years to make our widgets and though it was rocky at the start, we eventually built up a great relationship and they have been doing a great job for us for the last five or so years. But the reason I am calling you is because they have asked us about becoming the exclusive China distributer for our widgets and I was wondering whether you think that is a good idea.
Everything but the final question about whether we think it a good idea happens often; the asking us whether it is a good idea is the part that never happens, but maybe it should.
Let me explain.
We are China lawyers, not China business consultants and for that reason we are not the logical people to ask about something like how to choose a distributer in China. But we have been in the China law business for so long that certain things have become obvious to us even though we lack an MBA. And the issues involved in granting an exclusive distributorship to your Chinese manufacturer is just one of those things that is almost always not the best way to go.
But what I usually am thinking (and often say) is something like the following:
I understand that you have a really good relationship with your widget manufacturer and I am not in any way downgrading the value of that, because that is of huge value. But if you are truly serious about maximizing your widget sales in China you maybe should consider whether using your manufacturer as your exclusive distributer is the best way to do that. I say that for two reasons. One, the typical Chinese manufacturer knows zero about consumer marketing, distribution or sales. They know only how to manufacture which is not the same thing. They are usually engineers, not businesspeople or salespeople or logistics people. Two, it is rarely a good idea to grant anyone an exclusive distributorship in China for the simple reason that China is a big country and the odds are slim that the company best at marketing and selling your widgets in Shanghai will be the same company as the company that would be best at doing those things in Chengdu. See China Distribution Agreements: Exclusivity Is NOT Required.
But if you do not want to spend the time and money to find another possible China distributor because all you want is either to keep your manufacturer happy or just make a few extra dollars, then what you are proposing should be fine.
Your thoughts?This article was written by Dan Harris and published on China Law Blog. Original Post: http://www.chinalawblog.com/2017/09/quick-question-friday-china-law-answers-part-xliii.html