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Paper info: Distribution Channels of Philips Domestic Appliances and Personal Care Products in Chinese Economic Transition -- A Case Study


Distribution Channels of Philips Domestic Appliances and Personal Care Products in Chinese Economic Transition -- A Case Study


Don Y. Lee, Gangling Chao and Weiling Ye

Place of Publication

The paper was published at the 17th IMP-conference in Oslo, Norway in 2001.


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There is general agreement that the distribution channel is the key to any company's successin Chinese market. Nonetheless, distribution is always cited as one of the most seriousproblems for foreign companies (including joint ventures) that operate in China. One of thereasons contributing to the difficulties in managing channels in China is that they are sodifferent from western channels, thus difficult to understand. This teaching case providesdetailed information about distribution channels in China to business students, managers andscholars who are interested in marketing in China.The case illustrates distribution channels management of an international joint venturecompany in China's transitional economy, using Philips domestic appliances and personalcare products as examples. The case devoted considerable coverage of key channelmanagement issues, distributor selection, contract and incentive designs, monitoring andsocialization between the boundary personnel of the up-stream and down-stream. In addition,the case also shows the general management problems in the state-run distributioncompanies, particularly, inequitable reward systems. In line of transaction cost theory, thecase gives descriptions of Chinese distributors' opportunism (such as selling to otherdistribution territories); and exemplifies associations that distributors? opportunism mayresult from high uncertainty in market demand and legal enforcement of Chinese regulations,and from inadequate incentive design. Channel restructuring was the decision context. Aftersix years? successful cooperation with a Chinese distribution company which was Philips'sole distributor for its domestic appliances and personal care products in the Shanghaiterritory, Philips found that the distributor? performance was constantly declining. Philipsmanagers were therefore faced with decisions of whether or not to restructure the distributionsystem with consideration of the business environmental changes that had occurred in thepast six years in China.