Century Pacific [CNPF 41.40, down 1.4%; 57% avgVol] [link] announced that it has appointed Shanghai Ikai International Trading (SIIT) to be a distributor in China. CNPF describes SIIT as an “omni-channel distribution company with capabilities in online, offline, and food service channels”. CNPF said that its appointment of SIIT as its distributor is part of a new strategy to embrace the distributorship model, and to move away from “directly servicing its customers via its China-based entities.” In line with this, CNPF has dissolved its China-based subsidiaries, Century International Company and Century (Shanghai) Trading Company. CNPF said that its export business to China accounts for “less than half a percent” of the company’s audited revenues and profits.
MB bottom-line: When a company sells products in a foreign market, it must decide whether it will take ownership of the sales cycle or whether it will outsource that ownership to a distributor. If the company takes ownership, as CNPF did up until this announcement, it gains valuable insight into the needs and wants of the market players “on the ground” and has complete control over how its products are marketed and sold in the jurisdiction. As you’d expect, this approach is usually more expensive, as the company is on the hook for establishing foreign subsidiary companies, setting up offices, filling the offices with staff and salespeople, and then handling the flow of product, plus it can leave the company blind to the nuances of the local market. Here, CNPF is trying to “optimize operations” (save money) by getting rid of all those foreign limbs and “leverage local expertise” (hire a distributor with market knowledge) to “accelerate growth in China.” If I were a shareholder, I’d probably consider this a positive change. Not one with immediate positive results, but one that may pay off over several years if the distributor can grow the share of the China-based business.
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