Case Study: Choosing a Distribution Model for the Chinese Market

January 2, 2015 Posted by China Briefing Reading Time: 4 minutes

When investing in China’s medical device industry, especially for those seeking to operate as medical device trading companies, one big question is how to make suitable arrangements for product distribution in China. Based on the diverging circumstances and objectives of investors, there is no one-size-fits-all model. Familiarity with the pros and cons of differing models can help you make the right choice for your business in China. To illustrate these, we have designed the following case study.

Scenario:

V is a medical device company registered in Europe, manufacturing wound care products and orthopedic implants. The company has conducted thorough market research and after careful consideration, decided to invest in China’s medical device industry. V has already registered a subsidiary in Guangzhou, China. (“V-FICE”), which has been set up as a foreign-invested commercial enterprise (FICE) and obtained all necessary licenses for operating in China.

V and V-FICE are now in the process of assessing the best possible model for conducting their import business. At the same time, they are considering whether to go it alone or contract the services of a local Chinese distributor, C, having good credit and connections in the medical device industry in South China.

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To analyze the different models of distribution available to V, we present the following chart, taking into account the pros and cons of each model in terms of their relevant corporate structures, costs, tax liability, Customs procedures and IP Risk.

Conclusion

As China’s population ages and its living standards improve, the demand for medical devices is only set to increase. Foreign companies looking to enter the Chinese market are well-advised to carefully consider the advantages of different distribution models.With our specialized knowledge and experience in the medical industry, Dezan Shira & Associates can help you to newly establish or grow your operations in China and beyond.

This article is an excerpt from the November issue of China Briefing Magazine, titled “China Investment Roadmap: The Medical Device Industry.” In this issue of China Briefing, we present a roadmap for investing in China’s medical device industry, from initial market research, to establishing a manufacturing or trading company in China, to obtaining the licenses needed to make or distribute your products.

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