Distribution hiccups slow foreign firms
Foreign companies trying to sell fast-moving consumer goods into China face a 'daunting' range of problems, a report by business consultants Arthur Andersen says.
Plans to push into mainland markets were being set back by obstacles ranging from unreliable distributors to lack of local information, it said.
'[Foreign] manufacturers are frequently perplexed about the different and changing distribution practices in China.
'There are inevitably problems in formulating a distribution strategy, even though the situation is improving steadily.' In the four years to 1995, average annual real growth of China's retail sales was nearly 11 per cent, the report said.
Foreign consumer goods companies have competed to establish footholds in China, which is opening its retail sector and reforming its traditional centralised distribution system.
The international companies have been frustrated in their attempts in deliver supplies to markets on time and efficiently.
The report blamed mainland distributors and wholesalers for many of the problems.
It said reliable distributors were hard to find and were usually tempted by short-term profits at the expense of building long-term relationships with suppliers.
The performance of distributors was also hard to monitor because they were unable or reluctant to provide relevant information. Many lacked experience in sales and distribution, and often failed to pay on time.
Poor infrastructure and regional protectionism also posed problems and caused higher distribution costs.
Authorities in different regions usually imposed measures to protect locally made products, making national distribution difficult.
The report concludes that some foreign and Hong Kong companies are making progress in improving distribution in China, such as Japanese supermarket giant Yaohan, which has opened an integrated distribution and retail outlet in Shanghai.
The outlet serves retailers and consumers in its immediate vicinity while doubling as a distribution centre for more than 100 other supermarkets belonging to the chain.
Sammy Chiu Kai-kong, senior manager of Arthur Andersen, said: 'We believe that as the retail market continues to open up in China, large joint-venture retailers will have significant influence in changing the channels of distribution in the future.' Mr Chiu said the idea of launching distribution centres in strategic cities and provinces was catching on among foreign suppliers.
Such centres would provide a crucial place for manufacturers, wholesalers, retailers and customers to do business.
'Some Hong Kong companies are setting up this kind of distribution centre in China and are planning to expand the concept nationwide within the next few years, ' he said.
