COMPANIES that jumped on to the China bandwagon are beginning to discover that penetrating the Chinese market and making money from it is not quite a piece of cake. Over the years, firms have been attracted to the market, wonderstruck by the sheer numbers: 1.2 billion consumers with an appetite for 'new and improved' products. One of the major problems that multinational companies face in the China market is the lack of adequate distribution systems. According to a survey conducted by the Economist Intelligence Unit (EIU) and Andersen Consulting, successful companies are more likely to have efficient distribution systems. However, most of them have had to build them up themselves, and some inherited them from their Chinese partners. Most often, the companies focused on a manageable area, to ensure that their products reached the customer rather than on countrywide distribution of the product. The EIU/Andersen Consulting report points out that China's retail and distribution system is highly dispersed and informal, so that at times even firms that are actively involved in monitoring and distributing their products cannot tell where their products actually end up. Broadly, department stores stock products such as shampoos, cosmetics and clothes, the 'wet' or 'fresh' market provides consumers with daily use food products and more than 100,000, usually owner-occupied kiosks that stock tobacco products, beverages and knickknacks dot the distribution landscape. Consequently, multinational companies need to contend with several layers of distribution channels to get their products to the consumer. According to the survey report, companies found that they were left with two routes to the market. They could direct their distribution effort from outside China, preferably Hong Kong, or they could set up complementary sales teams to work with wholesalers in China. According to the survey report United States canned soup-maker Campbell's initially made its foray into the Chinese market with little success. The soups simply did not reach the consumer because of the lack of the appropriate retail outlet for the product category. The company decided to sell through kiosks but the wholesalers could not stock enough of the product in the kiosks. One of the reasons, according to the survey report, was that the wholesalers used had other, more popular products on which to concentrate. Consequently, the company opted for an exclusive import-wholesaler, giving it one major link to the market. Japanese electronics manufacturer, Aiwa, sells its products to five Hong Kong-based distributors who, in turn, get the products to Guangdong through Shenzhen, Zhuhai and Shantou. Aiwa's 24 after-sales service centres are all that affords the company contact with the owners of its products in China. Once the products are in China, they are sold by importers to outlets in the various electronics markets where wholesalers from all over the country come to buy electronic goods. The survey report points out that since prices are highly sensitive to demand and supply in these electronics markets, Aiwa's sales staff must visit them frequently to monitor prices and get a fix on the countrywide demand and supply position. However, once the products are sold to the Hong Kong distributors, Aiwa has no control over either price or where the products are sold in China. Some multinational companies opted for a more hands-on approach to distribution in the China market. Coca Cola, for instance, which in 1990 had been using a single state agency to distribute its products in Beijing, began to develop its own distribution channels. In 1990, the agency handled 80 per cent of the company's distribution. But by last year, the agency was in charge of 55 per cent of the company's distribution, while another 10 per cent was split between two other state agencies and the rest handled by Coca Cola itself. Coca Cola's handling of some of its distribution on its own has its advantages. The company's agents are able to visit outlets, replenish stocks within 24 hours, check refrigerator units and distribute point of purchase and other promotional material. Ice-cream maker Wall's followed a similar route, but because transportation of the ice cream is crucial to the product, the company had to incorporate a training programme for its distributors when it recruited them. According to the survey report, Wall's sells through about 2,500 shops and kiosks in Beijing, and because of the nature of the product, the company decided to have as much control as it could over its distribution. The company has refrigerated trucks transporting its ice-cream from its factories to six distribution points in Beijing. From these points, the ice-cream is transported in boxes filled with frozen carbon dioxide in small vehicles to various outlets. Wall's sales force keeps in touch with the outlets, which gives the company an idea of the market needs as well as to replenish stocks. Some companies such as Procter & Gamble have opted for Chinese freight forwarders and the existing distribution system instead of buying its own trucks for transport. The distribution system in China has traditionally been based on state-owned distributors or wholesalers, each being responsible for a certain product or group of products and a geographical area. But now with the onslaught of more competition in the Chinese market, the system seems to be breaking up. Distributors at the state levels are getting increasingly independent, handling products of competing national wholesalers and other companies. Besides, private wholesalers are beginning to emerge, according to the survey report. However, some of these are very small operations and most lack the range and scope of contacts that the state-owned wholesalers have. Transportation in China remains another hitch in the distribution process. The survey report said the railway system, though cheap, was unreliable and goods were liable to be relegated to a siding for weeks should there be a toss-up between the goods and staple food or passenger traffic, which gets priority. Road transportation, the survey report found, was expensive but fast and flexible, and trucks had to contend with poor road conditions and traffic congestion. Besides, there is the risk of highway robberies, depending on the nature of the products being transported. Consequently, some manufacturers are considering opening factories in different parts of the country to service small areas and keep transportation to the minimum. It is hardly surprising, therefore, that multinational companies doing business in China rated distribution as the smallest contributory factor to profits in the survey. More than 70 foreign invested firms were surveyed and interviewed by EIU and Andersen Consulting. Companies were asked to rank factors that had an impact on their profitability. Having the right connections were not seen as terribly important and political links with the Government, at the central and provincial levels, ranked low.