Given that China is such a large market, most companies will either rely 100% of their Chinese market sales efforts on a channel partner network (distributors, agents, resellers etc.), or have a hybrid of direct and partner sales networks. However, here are some of the channel partner challenges faced by many companies:

• Many channel partners tend to over-promise and under-deliver sales results, with some cases delivering no sales results despite the claims they made;

• Channel partners selling at the lowest possible prices, which at times may cause serious price under-cutting for your direct sales force, as well as for other partners;

• Channel partners have no loyalty towards their principals, i.e. they will only warm up to you when your products and services are well in-demand, and deliver optimal levels of profits, etc.

    The actual list of challenges and complaints is much longer than this.  These are but just some of the most common issues companies faced when managing a channel partner network.

    To tackle the above problems, some companies in China have realised that a one-size-fits-all strategy to manage channel partners.  Instead, successful companies in China have implemented Partner Relationship Management programmes to customise the ways to develop and motivate each of them to deliver the best results.

Selecting the Right Channel Partner

      Traditionally, the criteria use by most companies to select channel partners is to look at their track record, i.e. does the channel partner has a good track record of delivering large volumes of sales revenue for your kind of products and services.  However, using such simple metric to select channel partners will have some inherent flaws, such as:

• It is unclear if the sales revenue will translate into healthy sales margins,

• It is unclear if the same track record will be applicable to your kind of targeted customers;  and

• It is unclear what strategies the potential channel partner to deliver results, and if such strategies match the way you do business

      Hence, to have a clearer picture of what your potential channel partners are capable of, here are some suggestions for you to observe their sales strategies, i.e. how they sell, and if those strategies are a good fit for your products and customers.  The 3 partner sales commonly identified are:

1. The Trader;

2. The "Mafia"; and

3. The Consultant

       Traders are those who rely on high sales volume and high trade discounts.  Besides yourself, they are also selling for a large number of other brands.  They don't do much of the selling, relying on customers enquiries and quoting the relevant prices instead.  Instead of advising customers what will be a better choice, they simply ask customers what brand or what budget they have.  Most industrial parts, retail and travel services channel partners belong to this category.

       "Mafia" here does not refer to people with organised crime background, but rather refers to channel partners who have generated lots of sales due to their very extensive personal networks.  These end-customer networks in turn become loyal customers for the channel partner based on the relationship or "guanxi" they have.  "Mafia" type channel partners specialise in products and services where the distinction between competitors aren't clear, BUT customers prefer to buy from someone they trust, lest something goes wrong after the sale.  Channel partners who use the "mafia" sales strategy may invest substantial amount of  time and resources in wining, dining and golfing as means to cultivate the relationship. 

      Consultants are those who help customers solve problems.  Even when customers don't have problems, they'll somehow unearth one.  Channel partners that are consultants tend to focus on complex products and services to solve complex problems for the customers, such as IT, infrastructure, engineering etc.  There are the people who use the term "selling solutions" as their middle name.  In some cases, channel partners who are pursue the consultant strategy may only carry a brand or a principal, such as some partners of SAP, Dell and Motorola.

Mapping Your Sales Strategies Accordingly

       If you are a foreign company trying to penetrate a market filled with low-cost competitors like China's, chances are you'd either look for the "mafia"s with the right connections, or for the consultants who can add value that a local low-cost competitor couldn't.  Unfortunately, most of the would-be channel partners you that are available in abundance are the traders, those who will let end-customers do their price shopping, and takes no effort to add value or provide good after-sales service.

       Does that mean that the traders would have no value to you at all?  Not really.  If you are a new brand in town, or if you want to increase the market share of certain (new or strategic) products, here's what you can do:

• Give a special discount on that product that will be close or even beat the prices of low-cost competitors; AND

• Give attractive payouts to the traders who are taking on your products

       Obviously, if you were to give huge discounts AND give good payouts, you are going to end-up with a loss leader.  However, if you are going to make huge marketing and promotional efforts anyway, you may want to make the best use of traders to flood the news (of your promotion) to the market.  Do note that for such strategies to work, you may need to have eventual access to the end-customer (via after-sales service and maintenance contracts perhaps) so as you can cross-sell higher-value items in future.

        The other type of potential channel partners that you will bump into quite a fair bit will be those people who claim to have lots of contacts and connections in your target markets.  Sometimes, they will even want to charge upfront fees so that you can tap into their "inner circle" of contacts.

        The thing you have to be aware is that there are the real "mafia"s, and there are those who simply make empty claims.  Here are some simple tips when selecting the right "mafia":

• If possible, get the channel partner to purchase upfront inventory at very attractive prices.  If their connections are so good as claimed, they will make money in no time;

• If the above is not possible, invite the potential "mafia" to bring along some potential end-customers to some wining, dining or golfing.  There key isn't about whether there will be people turning up (in some cases, people just turn-up to get a free meal), but to allow you to gauge if those end-customers are the people you want to sell to

        Generally, successful "mafia"s are very protective of their contacts, and will jump instantly if you are being perceived to poach their customers.  To them, the customers belong to, and only to them.  These are the contacts they have taken years to cultivate, and they will protect them with their lives.  Hence, whether you are providing pre-sales technical support, or post-sale maintenance contracts, be sure to communicate the benefits clearly, and put the "mafia"s at ease.  Also, be sure that your product and service quality is up to par when selling to customers of the "mafia", because you will lose the partner and all of their contacts if there are customer complaints.

       Consultants are the rarest of breeds, and are largely found only in the IT industry.  Even in the consulting or engineering industries where partners with the consultant sales strategies are badly needed, they are still extremely hard to find.  Channel partners who are using the consultant sales strategies tend to be ex-technical people who are sick and tired of being technical people.  They also believe that they can deliver better value and service than their previous employer, and that's why they are in business themselves.