Western companies looking for a marketing partner in China have their work cut out for them. You’ve basically got 3 broad options:
- Set up your own sales operation
- Hire someone to sell for you
- Form a partnership where the China party has responsibility for sales and marketing.
Let’s focus on options 2 & 3 right now. How will you structure your marketing deal with a Chinese counter-party?
Less is More
Don’t get married when all you want is dinner and a movie. I’ve seen lots of smart western managers who thought they were delegating away all of their China responsibility when they signed a JV with a Chinese entity. Boy were they wrong. Managing a JV required much more time, hard-work and risk than any sales effort. If you want someone to sell for you, then pay them to sell for you. Forming a partnership doesn’t give you more leverage over your local counter-party – in many cases it gives you much less power and much more exposure. You are better off with a properly structured commission arrangement.
Structuring the deal
Getting someone to sell for you involves 2 options:
- Push (contracts, quotas, punishment, penalties)
- Pull (Incentives, bonuses, exclusivity)
In China, you are about Pull. You want to appear to be giving and giving and giving – so build that into your agreement. Incentives, bonuses, and exclusive territory – all valuable prizes that your local counter-party can win by hitting the targets you agree upon. That’s what the negotiation is about – targets and payouts. Always growing, always smiling.
Unfortunately, many westerners go the Push route and take the Big Stick approach to sales management. They like contracts that have quotas, penalties and claw-backs. These almost never work in China. (The only place they seem to work is the US, and maybe some 4th world submerging markets.) Believe me – you tell a local Chinese counter-party with a warehouse full of your product that he’s not getting full pay for last quarter because the company missed quota, and this guy is going to find a way to get what he thinks is his. Compliance is a tricky business in China, and trying to be the long-distance bully never works.
Variables: Bad & Better
Bad negotiating variables:
Market share is not a negotiating variable. Profit margin and gross revenue are also bad. These are goals – not deal points. They are non-enforceable – unless of course you want to go the punishment route. If you try dinging a Chinese distributor with a lawsuit or contractual penalty for NOT selling your stuff then you will be lucky if it just kills the relationship. It could end up ruining your future in China.
- Realistic board control. Majority is good – but only if you choose the Chairman, CEO and head of sales, HR and finance. Caveat – requires cooperation of your counter-party, regardless of the contract language. If your counter-party uses gatekeepers or avoidance techniques, you don’t have his cooperation and stacking the board will be tricky in practice even if you can get an agreement.
- Hire key department heads – and have the power to replace them. Especially Sales & HR.
- Incentives for reaching targets. Cash bonus, better commission or profit margin and preferential sales terms.
- Territory. Expansion & Exclusivity
- Contests, events, promotions. Make big cash awards central to the event.
In China, short term is better than long term for incentives. So don’t bother with things like stock ownership plans – you’re better off with quarterly or monthly incentives. Make sure you negotiate these points thoroughly and conclusively.
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