Entrepreneurship & Small Business

Becoming a Distributor for a Chinese Manufacturer

  • Last Updated:
  • Dec 2nd, 2018 12:37 pm
[OP]
Newbie
Aug 8, 2016
7 posts
1 upvote

Becoming a Distributor for a Chinese Manufacturer

I've been presented with an excellent opportunity to be the exclusive North American distributor for a manufacturer in China. The Chinese company manufacturers state of the art laser micro-machining equipment.

I wonder if anyone can give me some advice regarding:
- payment terms from customers. These machines are between $40k and $100k. Is it typical for companies to pay in advance for high expense items or would they pay on receipt of the items.
- my intent is to drop ship the items to customers as I do not want to get involved with import issues. I can see no reason to import these items first.
- How can I find out what typical mark-up is for this equipment? Prices are not posted on the net for these machines and so short of approaching competitors as a customer and asking for a quote I'm not sure how I can find out what my competitors are charging.
- and lastly any other relevant advice is greatly appreciated.

Thanks,
Rudy
10 replies
Deal Guru
Aug 2, 2010
12906 posts
3223 upvotes
Here 'n There
A distributor takes on inventory but a manufacturer's rep does not so would become the latter if you want to drop ship from China. You're talking 7-8 weeks shipment by Sea. Your first issue might be the Chinese company asking you for payment up front before shipment, which is typically the case.

The kind of company that buys this type of item is not going to be small potatoes. I doubt very much they are going to pay you in advance or even upon delivery. They only way you are going to know is to try them. I doubt you are going to find any RFD members that are involved in the sale of art laser micro-machining equipment costing $40-$100K that can tell you their experience but who knows. Also, I doubt the customer is going to want to import the item themselves and have to pay the duty and taxes upon the product landing at the port.

It's not really the mark-up you are looking for, but rather at what price do you have to sell to be competitive with other products of similar features, etc. The mark-up be what it is based on that. The only way to find out that is to ask. Your manufacturer should know the competitive landscape and be able to tell you competitive pricing or how are they even in the biz?

What added value you are providing if you are not going to be holding inventory and expecting the customer to do everything, including waiting months for delivery from China, paying the duty and taxes upon receipt in the port and not even at their location and then having to pay upon receipt of the product? Who is going to do repairs? How are you going to demo the product, etc. etc. etc.

Given the kind of questions you are asking you don't seem to much about this product.
Deal Expert
Aug 22, 2011
23728 posts
10147 upvotes
Ottawa
I work in manufacturing as a PM and would be hard pressed to try equipment from a Chinese manufacturer without local support.
Money is not an issue if the support and reputation is there, as our latest addition was a $2M SMT line.
[OP]
Newbie
Aug 8, 2016
7 posts
1 upvote
Thanks for advice eonibm,

I like the idea of being a manufacturer's rep or an agent.

You're somewhat right about my lack of knowledge. I know a lot about the equipment, electronics, and electronic equipment repair. I'm also very good at technical communications, customer service and acquiring good employees. So that's the value that I provide to the Manufacturer.

I don't see holding inventory as a value added item and my hope is that my customers make their decisions based on machine spec's. I don't know if a buyer/key decision maker will really want to see a machine before they commit to buy but if they do I may invite them to visit the Chinese manufacturer. Given the size and weight of these machines and sales territory it make little sense for me to have a "showroom".

From what I have researched, I can arrange shipping from China to the Customer's door (using a Freight-Forwarder). The Freight Forwarder will take care of Customs Clearance and Duty. As I understand it, most big companies have their own customs broker and may even have a preferred Freight Forwarder. So I don't think the importation duties will be an issue.
[OP]
Newbie
Aug 8, 2016
7 posts
1 upvote
Thanks vkizzle

Thanks for the advice. I want to be the North American presence for this company and that means providing initial set-up and training, warranty repairs and other pre and post-sales support. The Chinese company wants to break into the North American market and knows they need either a subsidiary, distributor or agent in North America.

Do I understand you correctly when you say that Money is not an issue if the support and reputation is there that your company had no problem paying say 90% up front and the remaining 10% after installation?
Deal Guru
Aug 2, 2010
12906 posts
3223 upvotes
Here 'n There
Phoebus2 wrote:
Dec 1st, 2018 8:47 am
Thanks for advice eonibm,

I like the idea of being a manufacturer's rep or an agent.

You're somewhat right about my lack of knowledge. I know a lot about the equipment, electronics, and electronic equipment repair. I'm also very good at technical communications, customer service and acquiring good employees. So that's the value that I provide to the Manufacturer.

I don't see holding inventory as a value added item and my hope is that my customers make their decisions based on machine spec's. I don't know if a buyer/key decision maker will really want to see a machine before they commit to buy but if they do I may invite them to visit the Chinese manufacturer. Given the size and weight of these machines and sales territory it make little sense for me to have a "showroom".

From what I have researched, I can arrange shipping from China to the Customer's door (using a Freight-Forwarder). The Freight Forwarder will take care of Customs Clearance and Duty. As I understand it, most big companies have their own customs broker and may even have a preferred Freight Forwarder. So I don't think the importation duties will be an issue.
Holding inventory is an incredible value-add in almost any business except one that requires an extremely high degree of customization. It makes all the difference in the world because you can deliver immediately. Now if all your competitors required 8+ weeks lead time that is different.

Customers make decisions not just based on machine's specs but also based on price and availability and if your product is only comparable to other products that are readily available without a lead time then you have no competitive advantage. Of course the customer might want to see the machine before they commit. I highly doubt anyone is going to invest the time and money to fly to Asia for a $40K (or even $100K) machine if they don't have to with your competitors.

As for size and weight of the machines, you are now providing new information that you didn't in your first post. How is anyone supposed to give you advice if you provide such little information? That may be a factor but given I have no clue about that given you said nothing about that. It could have been a desktop machine or the size of a huge truck. I still don't know.

Arranging shipping and paying duties and taxes is not the issue. Of course that can be facilitated. I do it all the time. You are missing the point. If your competition does not require that and your product is only comparable in features and price yet has a long lead time compared to the competition it is going to be an issue.

You seem to be too caught up in the logistics of getting the product to the customer. That's the insanely easy-peasy part. What you need to do is forget about all that for now and focus on a competitive analysis of the products (features & benefits, price, availability) in the marketplace, how you are going to fund the business any purchase requirements and how and whether you have the expertise yourself or can find the expertise to repair the product. Forget about the rest for now. Also, FYI, anyone can provide good customer support and hire good employees.

For what it is worth, I have dealt with a lot of Asian companies doing distribution in the US and Canada. They are typically a pain in the ass to deal with, offer the world and deliver little. They make promises and then don't keep them. They promise exclusivity but that does not always last long. If you don't do well you lose exclusivity. If you do well you may also lose it because they figure if one distributor can do so well imagine what 2 can do! Product issues take forever to resolve. That's the reason you see very few Asian companies make headway in the USA for complicated products. It's only when they are big enough to establish major operations in the USA and hire top level USA-based management and infrastructure that things change. That's not your situation.

So, I am wondering, given you appear to know nothing about the product, the competitive marketplace, payment terms either on the buy or sell side or about distribution, why are you being given this (dubious) opportunity?
Deal Guru
Aug 2, 2010
12906 posts
3223 upvotes
Here 'n There
Phoebus2 wrote:
Dec 1st, 2018 8:56 am
Thanks vkizzle

Thanks for the advice. I want to be the North American presence for this company and that means providing initial set-up and training, warranty repairs and other pre and post-sales support. The Chinese company wants to break into the North American market and knows they need either a subsidiary, distributor or agent in North America.

Do I understand you correctly when you say that Money is not an issue if the support and reputation is there that your company had no problem paying say 90% up front and the remaining 10% after installation?
Every business and product is different not to mention you are a start-up operation. Unless you have something insanely unique in the marketplace and, actually, even if you do, no customer is going to pay some no-name unknown brand new distributor with zero support history and zero reputation a single dime before delivery.

Again, your focus on logistics is incredibly misplaced. Focus on everything else I mentioned first. I've been offered many many distributorships for Asian companies. Few have worked out. That's the super easy part as they are always looking for customers which is basically what you are for them. Don't be so happy they have asked you to become a customer of theirs and provided you with the opportunity to give them money for their product. It means squat. The big question is this product competitive in the marketplace from a price, features and benefits and availability point of view. You have shown you have no clue about that and instead are obsessed with customer payment terms and shipping.
Deal Expert
Aug 22, 2011
23728 posts
10147 upvotes
Ottawa
Phoebus2 wrote:
Dec 1st, 2018 8:56 am
Thanks vkizzle

Thanks for the advice. I want to be the North American presence for this company and that means providing initial set-up and training, warranty repairs and other pre and post-sales support. The Chinese company wants to break into the North American market and knows they need either a subsidiary, distributor or agent in North America.

Do I understand you correctly when you say that Money is not an issue if the support and reputation is there that your company had no problem paying say 90% up front and the remaining 10% after installation?
Our procurement terms for this type of equipment purchases are generally negotiated for 24 months equal payments.
Deal Fanatic
Nov 17, 2004
6227 posts
785 upvotes
Toronto
You are jumping into the deep end of the pool offering 40k-100k machines. From a risk perspective, you might be able to weather 1 sour deal before you are forced to call it quits because the amount of money involved is so large.

For 40k-100k companies will litigate over that amount and companies will litigate you and not the company in china because litigating in china would cost more than the machine is worth.

Generally across most industries, a 30% markup is normal if you carry inventory. That is to say that if you burden risk, then 30% is the ballpark right figure. If you are burdening no inventory risk then I would guess 10-15% is about right.

This has cluster f*ck written all over it.
I workout to get big so I can pickup bricks and ****.
[OP]
Newbie
Aug 8, 2016
7 posts
1 upvote
Thanks to everyone for their advice. I appreciate and value what's been said.

Yes, I've got a lot to learn starting with researching the market and finding out what others in the market are offering. The Chinese manufacturer has information on the Chinese and European market but any advice on how one gets information on the North American Market is appreciated.
Deal Guru
Aug 2, 2010
12906 posts
3223 upvotes
Here 'n There
Phoebus2 wrote:
Dec 2nd, 2018 10:12 am
Thanks to everyone for their advice. I appreciate and value what's been said.

Yes, I've got a lot to learn starting with researching the market and finding out what others in the market are offering. The Chinese manufacturer has information on the Chinese and European market but any advice on how one gets information on the North American Market is appreciated.
Yes and this one is a gem which took me an incredible amount of time to research for you. (Yes, i am THAT giving of my own time!):

Click here for my extensive research

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