China Distribution Contracts
The Evolving Landscape of Doing Business in China
Over the past few years, China’s changing political, economic, and regulatory landscapes have posed increased challenges for foreign businesses. From escalating trade tensions to regulatory clampdowns, businesses have been navigating a minefield of risks in the country.
These uncertainties, compounded by the global shift in supply chain strategies and China’s evolving relationship with other major economies, have led many companies to reconsider their operational strategies in the region. As a direct result, my law firm has seen a big uptick in the need for China distribution agreements.
Many foreign entities are repositioning: they are reducing or relocating their manufacturing bases from China but still recognize the massive market potential China offers. These businesses aim to keep profiting from China by ensuring their products remain accessible in the Chinese market, even if they are not producing them there. This backdrop has made China distribution agreements more critical than ever before, serving as a bridge for companies that want to retain a sales footprint in China without the operational complexities.
Key Provisions in China Distribution Contracts
Last week I got an email from a China business consultant/friend, asking what issues need to be discussed with potential China distributors before setting them up as a distributor. In particular, he asked me to provide him with a list of provisions we usually include in our China distribution contracts, figuring these would be a good starting point for these discussions. The below is that list.
Our China distribution contracts typically provide for the following, among other things:
- An exclusivity provision, or not
- Whether the distributor can subcontract out distribution, or not
- The geographic and market territory given to the distributor
- The term of the distribution agreement and what must be done to renew or terminate it
- The specific products covered by the distribution agreement
- The methods the distributor can use to sell the products
- The pricing the distributor can use for the products
- Payment terms
- The distributor’s performance and sale requirements
- Ordering and shipping procedures
- Who is in charge of what when it comes to such things as defective products, advertising, warranties, technical support, obtaining permits, marketing materials, etc.
- Rights regarding new or modified products
- Whether the distributor can or cannot sell the products of others
- All sorts of things relating to intellectual property (trade secrets, trademarks, patents, copyrights, etc.)
- Non-competition during or after the term of the distribution agreement
- FCPA compliance. Anti-corruption compliance
- Damages for breaches
- Dispute resolution (venue, choice of law, etc.)
And as noted in China Trademarks and Your Chinese Distributor, our China attorneys also intensively focus on protecting our clients’ intellectual property even before the distribution agreement is signed.
Conclusion: Navigating the Complexities of the Chinese Market
China remains an irresistible market for many businesses. But with this great opportunity comes inherent risk. The provisions outlined above are the shields that protect foreign businesses from potential pitfalls and ensure that their interests are safeguarded. For any company looking to distribute in China, it’s essential not only to have a distribution agreement in place but to ensure that it is comprehensive, tailored, and forward-looking. In doing so, businesses can maintain a competitive edge, navigate the complexities of the Chinese market with confidence, and drive sustainable growth.
Further Reading on China Distribution Contracts
For more on what it is involved in distributing your product in China, check out the following:
- China Distributor Relationships: A Smart Choice in Today’s Geopolitical Climate
- China Distribution Contracts: The Basics
If you are looking to become a United States distributor for a Chinese company’s products, check out Negotiating Chinese Distributor Agreements (China to US).