A distribution agreement in China is a structural decision. It shapes how the product is presented, how pricing is managed, who owns the downstream relationships, and how much freedom the exporter retains to adapt the strategy later. The quality of that decision depends significantly on the quality of the due diligence done before signing.
Many NZ and AU exporters do less distributor due diligence than they would do for an equivalent business commitment at home. The distance, the language barrier, and the time pressure of an exhibition or buyer introduction can all compress the process. The result is sometimes a distribution relationship that looked promising and turned out to be a constraint.
What to look for in a potential distributor
The starting point is understanding what the distributor actually does in the market, not what they say they do.
Category coverage and depth. A distributor's claim of national coverage should be tested. What cities and regions are they genuinely active in? What channels do they serve - supermarkets, specialty retail, pharmacy chains, e-commerce, foodservice? Is their network concentrated or broad? A distributor with strong coverage in two or three key regions may be more commercially useful than one claiming national presence with thin execution.
Existing portfolio. What brands does the distributor currently represent? Are any of those brands direct competitors to your product? A distributor who carries competing products is not automatically disqualified, but it is important to understand how they manage portfolio conflicts and where your product would sit in their priority ranking.
Category expertise. Distributors who specialise in a relevant category - premium food, health products, personal care - typically have stronger buyer relationships and more relevant operational infrastructure than general importers. Category expertise also tends to produce better commercial conversations with the buyers and channels that matter for your product.
Track record with imported brands. Has the distributor successfully built international brands in the Chinese market before? What happened with those relationships over time? A distributor with a strong track record of building imported brands is a fundamentally different partner from one who has primarily distributed domestic products or operated in adjacent categories.
Reference checks
The most underused due diligence tool is direct reference checks with other international brands the distributor has worked with, particularly any that have concluded the relationship.
A reference check with a current brand partner will give a polished account. A reference check with a former partner, or a partner whose relationship did not develop as expected, will give a more commercially honest one. The questions worth asking include: How well did the distributor invest in building the brand? How responsive were they when issues arose? How was pricing managed? How was the termination or transition handled?
This type of reference check requires some effort to arrange and some directness in the conversation. It is consistently one of the most valuable steps in distributor evaluation and one of the most commonly skipped.
Contract structure essentials
Before entering a distribution agreement, several points deserve explicit negotiation rather than mutual understanding:
Performance milestones. What volume or revenue commitments has the distributor agreed to, and over what timeframe? Without defined milestones, an exclusive agreement with an underperforming distributor can be difficult and expensive to exit.
Exclusivity scope. If exclusivity is being offered, what exactly does it cover - geography, channel type, product line? The narrower the exclusivity, the more flexibility the exporter retains.
Pricing floor. Does the agreement establish a minimum consumer price or distributor selling price to prevent margin destruction?
Brand control provisions. Who approves Chinese-language marketing materials, promotional claims, and in-store presentation?
Exit provisions. Under what conditions can the agreement be terminated, and with what notice period? This is worth addressing clearly at the outset.
Using NZTE and Austrade resources
Both NZTE and Austrade provide in-market advisory support that can assist with distributor identification and evaluation. NZTE's China team has visibility across the market and can provide introductions to credible distribution candidates as well as guidance on what to look for in a particular category. Austrade's China offices offer a comparable service for Australian exporters.
These resources are most useful when engaged before the distributor conversation has advanced too far. Early engagement allows the advisory team to help shape the due diligence process rather than simply validating a decision already made.
Specific questions to ask in due diligence conversations
The quality of distributor due diligence depends less on the framework applied and more on the specific questions asked. Generic questions produce generic answers. Commercially useful due diligence requires questions specific enough that a weak candidate finds them difficult to answer convincingly.
A useful set of questions to ask directly includes:
"Which of the brands you currently distribute in our category have grown their market share over the past two years, and what specifically did you do to drive that?" This asks for specifics and distinguishes between distributors who have genuinely built imported brands and those who have simply managed existing volume.
"Walk me through how a new imported brand goes from first shipment to being listed in three or four key retail accounts in your network. What does that process look like and how long does it take?" This reveals whether the distributor has a real commercial process for brand development or whether their model is primarily logistics.
"What is your current inventory position in our category, and which brands are selling through fastest? What is the slowest-moving product in your portfolio right now, and why?" A distributor willing to answer honestly is demonstrating commercial transparency. One who deflects either has underperformance to hide or does not track sell-through data closely enough to know.
"If we set a minimum retail price for our product, how would you ensure that holds across all your downstream channels?" This tests whether the distributor has genuine channel control or whether their network is more informal than structured.
"Describe a distribution relationship that ended. What went wrong and what would you do differently?" Distributors with only positive answers to this question either have no failed relationships - which is unlikely - or are not being candid.
Red flags to watch for
Claims of national distribution without specifics. A distributor who describes their network as national but cannot name specific cities, retail accounts, or channel partners where they are actively working is likely overstating their genuine coverage.
Resistance to performance milestones. A distributor who is genuinely confident in their ability to build the product should welcome defined performance targets. Strong resistance to commercial milestones - or insistence on an open-ended arrangement - is a signal worth taking seriously.
Requests for broad exclusivity before demonstrating performance. A distributor asking for national exclusivity before they have proven commercial capability is asking for maximum protection in exchange for minimum proven commitment.
An existing portfolio with directly competing brands. A distributor who already represents a strong incumbent in the same category may have genuine reasons to add a second option, but the conflict of interest is real and worth discussing explicitly.
Vague answers about downstream brand management. If a distributor cannot explain clearly how they control pricing, manage in-store presentation, or handle customer-facing commercial issues, that vagueness will not resolve itself once the agreement is signed.
Background verification: what you can check
Business registration status in China can be verified through the National Enterprise Credit Information Publicity System, which records registered businesses, their legal representatives, registered capital, and operational status. Any competent advisor or legal firm operating in China can conduct this check quickly. For commercial agreements of significant value, this basic verification should be standard practice.
Registered capital is another useful data point. It does not guarantee performance, but registered capital significantly below what the distributor's claimed network and volume would imply is worth clarifying.
Reference checks with previous and current brand partners, as noted earlier, remain the most commercially substantive verification available. Former partners who speak honestly about the reality of the relationship provide a level of signal that no public database can replicate.
When the relationship is not working
Distributor relationships sometimes underperform even when initial due diligence was sound. Understanding when the relationship has reached the point where action is needed - rather than continuing to hope performance improves - is one of the more commercially important judgements exporters face.
Signs the relationship may need to change include: repeated sell-through shortfalls without credible explanation; pricing inconsistency the distributor cannot or will not correct; deteriorating quality and frequency of commercial reporting; signs the distributor is deprioritising the product in favour of competing lines; and a pattern of delayed communication on commercial issues.
Before initiating any conversation about changing the arrangement, review the contract terms - specifically the performance clauses, minimum commitments, and exit provisions. Understanding the legal basis for modifying or exiting the arrangement before raising it commercially avoids the risk of triggering contractual claims by acting without a clear basis. Specialist China legal advice at this stage is typically worth the cost.
Maintaining a working shortlist
A practical habit that experienced China exporters develop over time is keeping a live shortlist of two or three alternative distributors in any given category - not as a signal of disloyalty to the current partner, but as a normal part of market intelligence. The distributor landscape changes; companies change ownership, shift focus, or expand and contract their category coverage. Knowing who else operates credibly in the category means that if the existing relationship deteriorates, the business is not starting from zero when it most needs to move quickly. Regular attendance at industry events and periodic conversations with category peers are the most common ways this intelligence is maintained.
Many NZ and AU exporters do less distributor due diligence than they would do for an equivalent business commitment at home. The distance, the language barrier, and the time pressure of an exhibition or buyer introduction can all compress the process. The result is sometimes a distribution relationship that looked promising and turned out to be a constraint.
What to look for in a potential distributor
The starting point is understanding what the distributor actually does in the market, not what they say they do.
Category coverage and depth. A distributor's claim of national coverage should be tested. What cities and regions are they genuinely active in? What channels do they serve - supermarkets, specialty retail, pharmacy chains, e-commerce, foodservice? Is their network concentrated or broad? A distributor with strong coverage in two or three key regions may be more commercially useful than one claiming national presence with thin execution.
Existing portfolio. What brands does the distributor currently represent? Are any of those brands direct competitors to your product? A distributor who carries competing products is not automatically disqualified, but it is important to understand how they manage portfolio conflicts and where your product would sit in their priority ranking.
Category expertise. Distributors who specialise in a relevant category - premium food, health products, personal care - typically have stronger buyer relationships and more relevant operational infrastructure than general importers. Category expertise also tends to produce better commercial conversations with the buyers and channels that matter for your product.
Track record with imported brands. Has the distributor successfully built international brands in the Chinese market before? What happened with those relationships over time? A distributor with a strong track record of building imported brands is a fundamentally different partner from one who has primarily distributed domestic products or operated in adjacent categories.
Reference checks
The most underused due diligence tool is direct reference checks with other international brands the distributor has worked with, particularly any that have concluded the relationship.
A reference check with a current brand partner will give a polished account. A reference check with a former partner, or a partner whose relationship did not develop as expected, will give a more commercially honest one. The questions worth asking include: How well did the distributor invest in building the brand? How responsive were they when issues arose? How was pricing managed? How was the termination or transition handled?
This type of reference check requires some effort to arrange and some directness in the conversation. It is consistently one of the most valuable steps in distributor evaluation and one of the most commonly skipped.
Contract structure essentials
Before entering a distribution agreement, several points deserve explicit negotiation rather than mutual understanding:
Performance milestones. What volume or revenue commitments has the distributor agreed to, and over what timeframe? Without defined milestones, an exclusive agreement with an underperforming distributor can be difficult and expensive to exit.
Exclusivity scope. If exclusivity is being offered, what exactly does it cover - geography, channel type, product line? The narrower the exclusivity, the more flexibility the exporter retains.
Pricing floor. Does the agreement establish a minimum consumer price or distributor selling price to prevent margin destruction?
Brand control provisions. Who approves Chinese-language marketing materials, promotional claims, and in-store presentation?
Exit provisions. Under what conditions can the agreement be terminated, and with what notice period? This is worth addressing clearly at the outset.
Using NZTE and Austrade resources
Both NZTE and Austrade provide in-market advisory support that can assist with distributor identification and evaluation. NZTE's China team has visibility across the market and can provide introductions to credible distribution candidates as well as guidance on what to look for in a particular category. Austrade's China offices offer a comparable service for Australian exporters.
These resources are most useful when engaged before the distributor conversation has advanced too far. Early engagement allows the advisory team to help shape the due diligence process rather than simply validating a decision already made.
Specific questions to ask in due diligence conversations
The quality of distributor due diligence depends less on the framework applied and more on the specific questions asked. Generic questions produce generic answers. Commercially useful due diligence requires questions specific enough that a weak candidate finds them difficult to answer convincingly.
A useful set of questions to ask directly includes:
"Which of the brands you currently distribute in our category have grown their market share over the past two years, and what specifically did you do to drive that?" This asks for specifics and distinguishes between distributors who have genuinely built imported brands and those who have simply managed existing volume.
"Walk me through how a new imported brand goes from first shipment to being listed in three or four key retail accounts in your network. What does that process look like and how long does it take?" This reveals whether the distributor has a real commercial process for brand development or whether their model is primarily logistics.
"What is your current inventory position in our category, and which brands are selling through fastest? What is the slowest-moving product in your portfolio right now, and why?" A distributor willing to answer honestly is demonstrating commercial transparency. One who deflects either has underperformance to hide or does not track sell-through data closely enough to know.
"If we set a minimum retail price for our product, how would you ensure that holds across all your downstream channels?" This tests whether the distributor has genuine channel control or whether their network is more informal than structured.
"Describe a distribution relationship that ended. What went wrong and what would you do differently?" Distributors with only positive answers to this question either have no failed relationships - which is unlikely - or are not being candid.
Red flags to watch for
Claims of national distribution without specifics. A distributor who describes their network as national but cannot name specific cities, retail accounts, or channel partners where they are actively working is likely overstating their genuine coverage.
Resistance to performance milestones. A distributor who is genuinely confident in their ability to build the product should welcome defined performance targets. Strong resistance to commercial milestones - or insistence on an open-ended arrangement - is a signal worth taking seriously.
Requests for broad exclusivity before demonstrating performance. A distributor asking for national exclusivity before they have proven commercial capability is asking for maximum protection in exchange for minimum proven commitment.
An existing portfolio with directly competing brands. A distributor who already represents a strong incumbent in the same category may have genuine reasons to add a second option, but the conflict of interest is real and worth discussing explicitly.
Vague answers about downstream brand management. If a distributor cannot explain clearly how they control pricing, manage in-store presentation, or handle customer-facing commercial issues, that vagueness will not resolve itself once the agreement is signed.
Background verification: what you can check
Business registration status in China can be verified through the National Enterprise Credit Information Publicity System, which records registered businesses, their legal representatives, registered capital, and operational status. Any competent advisor or legal firm operating in China can conduct this check quickly. For commercial agreements of significant value, this basic verification should be standard practice.
Registered capital is another useful data point. It does not guarantee performance, but registered capital significantly below what the distributor's claimed network and volume would imply is worth clarifying.
Reference checks with previous and current brand partners, as noted earlier, remain the most commercially substantive verification available. Former partners who speak honestly about the reality of the relationship provide a level of signal that no public database can replicate.
When the relationship is not working
Distributor relationships sometimes underperform even when initial due diligence was sound. Understanding when the relationship has reached the point where action is needed - rather than continuing to hope performance improves - is one of the more commercially important judgements exporters face.
Signs the relationship may need to change include: repeated sell-through shortfalls without credible explanation; pricing inconsistency the distributor cannot or will not correct; deteriorating quality and frequency of commercial reporting; signs the distributor is deprioritising the product in favour of competing lines; and a pattern of delayed communication on commercial issues.
Before initiating any conversation about changing the arrangement, review the contract terms - specifically the performance clauses, minimum commitments, and exit provisions. Understanding the legal basis for modifying or exiting the arrangement before raising it commercially avoids the risk of triggering contractual claims by acting without a clear basis. Specialist China legal advice at this stage is typically worth the cost.
Maintaining a working shortlist
A practical habit that experienced China exporters develop over time is keeping a live shortlist of two or three alternative distributors in any given category - not as a signal of disloyalty to the current partner, but as a normal part of market intelligence. The distributor landscape changes; companies change ownership, shift focus, or expand and contract their category coverage. Knowing who else operates credibly in the category means that if the existing relationship deteriorates, the business is not starting from zero when it most needs to move quickly. Regular attendance at industry events and periodic conversations with category peers are the most common ways this intelligence is maintained.
