While cultivating sales in the domestic market is an enticing possibility, most China manufacturers are still bent on expanding their export reach through the next five years.
Encouraged by the success of a few suppliers, an increasing number of China makers are looking at branching out to the domestic market. Many companies feel taking this step can help raise their bottom lines, what with the numerous challenges that make it difficult to achieve higher gains in the export sector. Among these are the weakening purchasing power in the US and the EU, trade sanctions and the yuan's appreciation.
China's growing middle class has attracted large international brands to set up retail stores in the country. Zhu Chang Ling, spokesman for the China Furniture Association, said even second and third-level markets have become more competitive this year. Data gathered by the association show retail sales have been increasing by at least 15 percent annually.
Thinking that they would have an advantage over foreign companies, export manufacturers followed suit. Richard Brubaker of All Roads Lead to China, a blog that discusses trends and macroeconomic issues in the country, said such makers believe selling to the domestic market would be easier for them. This is because they know the culture of doing businesses in China, transportation costs are lower and there is the perception that customer expectations are not as high.
But companies realized quickly that penetrating the local scene is not that easy. This is true particularly for purely OEM businesses. Many such suppliers do not have the capability to create and market their own designs, even for domestic consumption. Payment is one major drawback. Unlike in the export business where suppliers requiring payment via TT can receive their money in full after products are delivered, it takes as long as a year for local distributors to remit. The duration depends on how established the agents are. In most cases, manufacturers can receive payment between one and three months, especially if they are dealing with large distributors.
Building a stable distribution network is key to achieving success in selling to the domestic market, but it is difficult to find a suitable agent. Both sides have to assess the benefits of forging partnerships. Makers also have to gauge whether the distributor's network and marketing capability are sufficient for their needs.
But once this is formed, cultivating domestic sales becomes easier and certain advantages can be enjoyed. For one, the yuan's appreciation will have no impact on pricing and manufacturing costs. Moreover, sales will not be influenced by import policies and trade sanctions.
From being a purely export-oriented company, Wenzhou Shengli Healthcare Equipment Co. Ltd was able to develop a solid distribution network and now has 600 retail outlets selling its massagers line across China. It also has more than 10 stores overseas, including South Korea, the Middle East and India.
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