Logistics in China Part 3: Determine Best Approach for Serving the Domestic Market

Most of my clients have started to develop robust approaches to selling inside of China. With the rise of the Chinese middle class and the enormous PRC government market, foreign companies see a huge new market opportunity to sell goods. Chinese factories producing goods for export may also be licensed to produce goods for the growing domestic Chinese market. But beware; logistics and distribution within China to support domestic sales are very different from exporting from China.

Chinese distribution channels may be somewhat longer and more complex than the United States. For example, luxury goods retailers have found a robust market in China’s big cities, but these retailers are also opening stores in the tier-two cities. Logistics for tier-two and tier-three cities may not be as sophisticated and may require unique delivery solutions. In large cities, multi-stop deliveries to several retail stores are coordinated by a retail logistics company. In a tier-three city, the retailer may have to wait a week or more for a single store delivery from the airport, which is passed from trucker to delivery cart.

Setting up an effective and efficient domestic Chinese distribution system will take time. You need to consider and vet logistics providers, resellers, and wholesalers. China is a new and diverse market for delivery of goods so the process may be uneven for a few more years. As a result, you should consider where to locate inventories and distribution centers now and for the future. Further, if you produce and plan to market industrial products, you will need to consider delivery sites and capabilities before shipping goods. Older buildings and factories may not have adequate facilities such as truck docks and fork lift equipment.

Overall, logistics and transportation capabilities are maturing across China and in some areas, logistics capabilities are considered world class. Be sure to select logistics providers and partners with global networks and standards, and measure them regularly and rigorously. For distribution within China, verify the capabilities of partners and understand the delivery sites. Companies should not assume that every delivery site can accept trucks, has fork lifts, or other equipment. Verify where you plan to deliver—dock, warehouse, or other location—and the equipment available.

Visit China often

There is no substitute for regular, structured visits to vendors and logistics providers in China. Companies should never assume that just because policies and procedures are stated in a contract that any of them will be followed. In the Western world, we view a contract and written procedures as the end product to be executed. In China, the contract is just the beginning of doing business together. Contracts and written procedures are often viewed as guidelines and are subject to interpretation. If you want procedures to be followed precisely, you must monitor and audit the Chinese operations regularly.

I typically recommend that you visit China operations quarterly. During these visits, you should audit the processes through observation and by using a validation checklist. Ask to see the operations while people are working and return for a surprise visit later that day or evening.

If you cannot put a full-time person in China to watch over and manage operations, it is important to hire a trusted agent who resides in China to work on your behalf. (Some consulting companies provide these services for a fee.) Even with the addition of local services to oversee operations, companies still need to make an effort to visit China quarterly.

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