With 12 years’ endeavor, Chitron officially engages in authorized distribution
Chitron, a national-known independent distributor, won brand authorization four times within one year. In 2008, a year of limestone, Chitron started its challenge in authorized distribution. Though the conversion from independent distributor into authorized distributor is not favored and full of challenges and current authorized business takes up only 1% of the total income, Chitron is still confident enough and plans to take unique strategies to face up to fierce competition.
Opportunity of engaging in authorized business
Some people hold a suspicious or negative attitude to the conversion from independent mode into authorized mode, with the reason that no enterprises have ever succeeded in the growth process of European and American markets in the past years because of mode differences. And at present, the several large distributors in the world also have no intention to convert their modes.
However, it is just such a background that outstand the feature of China market. Zhenzhou Wu, General Manager of Chitron Electronics Co., Ltd., claimed: “Independent distributors have the chance that European and American counterparts don’t have to become authorized distributors in China”. He declared that independent distributors take only 5-7% of the components distribution market in European and American markets and some mature markets, however, in China, independent distributors take almost the same market share as authorized distributors. Therefore, independent distributors have much growth space once entering into the authorized distribution field.
Likewise, China components market is much more progressive and mature, compared to that of ten years ago. In future, independent distributors will surely have narrower and narrower growth space, their market share will decrease with the maturity of authorized distributors, and the trend of increase and decrease will be increasingly obvious.
In addition, Zhenzhou Wu thought that components distribution industry is the most market industry in China. Experiencing fierce competition, independent distributors are more sensitive to market and much closer to customers than authorized distributors, and this is manufacturers appreciated agents.
In fact, Chitron is not the first independent distributors that add the authorized business, such native independent distributors as Interine, Northelec and Pioneer have been actively carrying out the business.
In addition to external ecological environment chance, Chitron is also actively creating internal enterprise chances. Zhenzhou Wu declared: “We are not impulsive to have the intention of taking the authorized distribution road; we have spent quite a long time preparing the organization and network. Now, it is not late to engage in authorized distribution; later, it is surely so.”
Meanwhile, years’ experience in international trade increases the chances and frequency for Chitron to conduct business with overseas manufacturers. “The agency of four product lines is the natural product in the process of international trade. Frequent contact will make manufacturers appreciate our efforts in helping them development China market.” said Zhenzhou Wu.
Years’ active preparations
It is said that Chitron, with 12 years’ development, has had national business network and customer foundation, and has established and improved the information sales platform. Till this year, the turnover has reached up to tens of millions Yuan, the staff number is over 200 and the storage area is 3,000㎡, all of which have laid a solid foundation for the development of authorized distribution, this is what we call “12 years’ endeavor”.
Zhenzhou Wu pointed out that Chitron has made years’ preparations for the development of authorized distribution, involving transforming business mode, establishing sales network, perfecting supply chains and adjusting organization framework etc..
Since 2004, Chitron has begun to purchase the residual inventories of end users in a systematic way and implement the transformation from customer-oriented trade business to product-oriented inventory business. Implementation of such business enhances the market analysis ability of Chitron and perfects the product-oriented business mode of focusing on inventory turnover.
With four years’ construction, Chitron, on the one hand, develops the inventory business, on the other hand, endeavors to develop two quasi-agency businesses: consignment and commission sales. “Relying on mature sales network and logistics system, Chitron actively carries out such businesses as supplier development, consignment for OEM customers and commission sales to save the expenses of storage and logistics for customers and expand their cash flows.” Zhenzhou Wu said, “30% of the 3,000㎡ Chitron inventories engages in goods consignment. Till now, the quasi-agency businesses, including inventories, consignment and commission sales, has taken up 1/3 of the turnover of Chitron.”
In terms of sales network, Chitron has established a network taking root in Shenzhen and covering Shanghai, Beijing, Chengdu and Xi’an. At present, all the staff has been in their duties and the operation is smooth.
In terms of improving the supply chains, Chitron has established three storages in Shenzhen, Hong Kong and America while emphasizing self-developed supply chain of information system management. Zhenzhou Wu emphasized: “Agency business must be based on powerful supply chains.” Therefore, Chitron reinforces the following supply chains businesses: 1. Improvement of logistics and storage system, including procurement of logistics, storage and detection equipment worth millions of Yuan and increasing process improvement; 2. Insure on the original value of globalized freight and storage to greatly decrease the risk of valuable IC products in the process of freight and storage; 3. A 50% discount of global express makes the freight expenses lower than those of small and middle distributors.
In organization framework adjustment, Chitron has established Product Department and Market Department. “We have invited professional product managers and successfully introduced their experience into the sales and procurement process of Chitron. Till now, the Product Department has been in smooth operation for one year, undertaking the procurement approval and sales pricing of all the quasi-agency businesses and endeavoring to develop the agency business of new brands.” he said. The Market Department was established in 2006, carrying out brand construction and managing market representatives of subsidiaries.
Future-oriented business mode
At present, the agency brands of Chitron include Tracopower, API Delevan, Suntsu and SSI. Though they are brands of secondary or tertiary grade and their products are mainly power and passive elements, in the long run, Chitron plans to take the agency route of comprehensive, multi-brand and general products, focusing on products of Europe, America and Japan, with products of Taiwan, Korea and Mainland as supplement.
Zhenzhou Wu claimed that the strategies of Chitron are to steadily develop trade business, actively develop quasi-agency business and greatly reinforce agency business, and the short-term objective is to make the agency business ratio take up 10% of all the businesses in the first half of 2009.
In view of the not too strong foundation of scheme design and capital operation, Zhenzhou Wu proposed “Future-oriented business mode”, which is based on the long tail theory, planning to occupy the small and middle markets temporarily neglected by large distributors with the operation of current trade mode, and then develop in the direction of middle scale and large scale. “The authorized distribution service provided for our customers still has the characteristic of independent distribution, short-safe-rapid business,” he said.
On the one hand, Chitron will extensively take the agency right of authorized brands, on the other hand, it will plan to steadily reinforce its technological strength. Meanwhile, he also said that the biggest challenge of developing authorized business is the thought pattern of manufacturers with the understanding that the business mode of independent distribution does not apply to authorize distribution, which is a big barrier for Chitron to open a new situation.
“Improvement of technology is not achieved in one day. We do not exclude the practice of allying with IDH or combining small and middle authorized distributors with great potentials to avoid our disadvantages.” Zhenzhou Wu released.
ESM China reported on Dec. 1st, 2008: With 12 years’ endeavor, Chitron officially engages in authorized distribution.