Other BriefingsChoosing the Right Distribution Model for China Market Entry
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Understanding the key distribution models in China is essential for foreign companies evaluating how to balance market control, investment levels, and operational complexity. This overview compares D2C, D2R, indirect, and hybrid pathways to help businesses identify the model that best aligns with their product category, resources, and long-term strategy.
Selecting the right distribution model for a business is one of the most critical early decisions for foreign companies entering China. The type of model a company chooses will impact a broad range of legal and commercia matters, such as the required entity structure, import pathways, partners, operational resources, and the level of market control.
In this article, we look at three primary models for entry into the Chinese market: direct-to-consumer (D2C), direct-to-retail (D2R), and indirect distribution models, outlining which model best suits which type of business and the technical considerations for implementation.
Overview of the main distribution models
Direct-to-consumer model
The D2C model, also referred to as direct sales or direct supply, involves selling products straight to end consumers without relying on intermediaries. This typically involves setting up physical brand-owned stores, a localized e-commerce presence, or selling directly through cross-border e-commerce (CBEC).
The benefits of this approach are that brands can maintain a higher degree of control over customer experience and are better able to gather first-hand market insights and respond quickly to changing consumer demands. At the same time, this model requires significant upfront investment, particularly if establishing a physical storefront or building a domestic e-commerce distribution chain (however, e-commerce merchants selling directly to consumers in China through an international platform often don’t need a local legal entity to do this). Even when opting for cross-border e-commerce to sidestep some of these costs, brands still need to navigate language barriers, local regulations, and the nuances of the Chinese market.
Direct-to-retail model
Under a D2R model, manufacturers bypass wholesalers or distributors and sell directly to retail channels, such as supermarkets, specialty stores, large retail chains, or e-commerce platforms. While this is a form of indirect distribution, it differs from the indirect model in that the manufacturer still maintains some control over the distribution of the products, and still usually requires the company to have a registered entity in China. This approach creates a short, flat distribution structure that allows for faster response to market changes and closer collaboration with retail partners. By dealing directly with retailers, companies can maintain greater control over product placement, pricing, and inventory, while streamlining communication and operational oversight.
At the same time, D2R requires sufficient internal resources and logistics capabilities to manage multiple retail relationships effectively, and companies need to carefully plan their supply chains and regional operations to ensure consistency and reliability across the network.
Indirect distribution
In an indirect distribution model, manufacturers sell their products to distributors or agents, who then handle the import, warehousing, and supply of the products to various retail endpoints. This allows brands to use the distributor’s established networks and local expertise for faster market entry across the country while reducing the operational and managerial burdens. Compared with D2R models, indirect distribution typically requires lower upfront investment and fewer internal resources as companies do not need to establish a local entity. However, this model also has its drawbacks, as brands have less direct contact with end consumers, which can limit first-hand market insights. They must also rely on third parties for certain aspects of service quality, inventory management, and brand representation.
Many brands also choose a hybrid model, in which they supply key customers (such as retailers) directly while relying on distributors to reach smaller or more dispersed retail outlets or consumers. In China, this model is especially common for foreign brands, as it allows them to achieve broad coverage and sales efficiency without establishing an extensive local sales infrastructure.
Choosing the right distribution model: Which fits your business best?
When entering the Chinese market, selecting the most suitable distribution model is a critical early-stage decision. Companies must consider both basic factors of the business, such as its size, the type of product or service for sale, operational capabilities, and need for control, as well as external legal and logistical factors. These include the requirements for setting up a local entity, tax considerations, the location of target customers, and product- or service-specific regulations. Different models offer different trade-offs in terms of control, speed to market, operational complexity, and cost, and the choice should align with the company’s strategic objectives and available resources.
| Model | Best fit | Typical product types | Typical business size | Pros | Cons |
| D2C | Brands needing full control, niche or high-margin products, strong digital capability | Beauty, luxury, health supplements, tech gadgets | Mid-to-large brands with capital and data ambitions
Small-to-mid-size brands for direct CBEC model |
Full control over customer experience, direct market insights, and faster response to consumer demand | High upfront costs, resource-intensive, requires strong logistics and digital capabilities |
| D2R | Brands with stable supply chains and an appetite for retail collaboration | Consumer electronics, FMCG, appliances | Mid-to-large brands with strong category credibility | Short, flat channel structure, closer collaboration with retailers, faster response at the retail level | Requires significant operational resources, limited reach compared to distributor networks |
| Indirect | Brands seeking fast market entry, broad offline coverage, and limited local presence | Commodity goods; household items; mid-priced FMCG; industrial goods; pharmaceuticals and medical devices | Small-to-mid-size companies, companies in highly regulated industries; brands testing the market | Lower investment and operational burden, faster market coverage, and leverages distributor expertise | Less direct control over brand and service quality, weaker customer insights, and reliance on third parties |
| Hybrid | Brands wanting a mix of control and reach, supplying key accounts directly while leveraging distributors for wider coverage | A wide range of consumer and industrial goods | Mid-to-large brands balancing control and scalability | Balances control and reach, direct insights for key accounts, and scalable market coverage | Complex to manage dual channels, requires coordination between direct and distributor networks |
Technical considerations for D2C
Entity and structural requirements
For companies entering China via a D2C model, selecting the appropriate legal entity and operational structure is a key pre-entry consideration. Foreign investors typically need to establish a wholly foreign-owned enterprise (WFOE) to serve as the legal entity for domestic sales, either through physical stores or local e-commerce platforms. (Note that while China’s current Foreign Investment Law (FIL) no longer uses the term “WFOE” it is still generally used to enterprises that are 100 percent foreign owned.) Depending on the business focus, the WFOE may be structured as a trading entity (handling wholesale, retail, and franchising) or, less commonly, as a service or manufacturing entity.
Before establishing a FIE, companies must ensure their intended business activities comply with China’s Foreign Investment Negative List and Market Access Negative List, which restrict or prohibit foreign investment and private investment in certain sectors. Once established, the entity provides the legal framework to manage local operations, including import, sales, inventory management, and local customer support.
For domestic D2C operations, companies typically also need local warehousing, with stock located near any physical storefronts or target end consumers for faster distribution. These are often, but not always, near commercial hubs like Shanghai, Beijing, Shenzhen, Guangzhou, and Hangzhou.
For CBEC, foreign companies may sell to Chinese consumers without a domestic entity for certain product categories. This model leverages e-commerce platforms such as Tmall Global, JD Worldwide, or TikTok Shop, often supported by bonded warehouses in Free Trade Zones (FTZs) to facilitate storage and rapid fulfillment. Even in CBEC, companies need to maintain Chinese-language customer service and comply with product, labeling, and regulatory requirements (with certain relaxations), including service-sector restrictions under the cross-border services negative list. CBEC can offer logistical advantages and preferential import tariffs, but companies must carefully manage compliance, intellectual property, and evolving platform rules.
Import pathways
If physical products sold via a D2C model are imported from outside of China, companies need to carefully plan how they will be imported. Certain goods require specific import licenses, and all shipments are subject to Chinese customs clearance and compliance procedures.
Depending on the product category, testing and certifications may be required, such as China Compulsory Certification (CCC) for electronics and other products or the National Medical Products Administration (NMPA) approval for health-related products. Additionally, all products must meet certain labeling requirements, which include having Chinese-language labels, ingredient or material disclosures, safety warnings, and contact information.
Operational resources
Running a D2C operation in China requires dedicated in-house operational capabilities, including customer service teams fluent that are in Chinese and infrastructure to support online and offline sales. IT systems must also be adapted for local e-commerce platforms, with localized systems to handle inventory, orders, and payments efficiently. Companies also need to ensure compliance with Chinese data regulations, such as data localization requirements (note that data collected from consumers in China must be stored in China and is subject to strict data export controls under the Personal Information Protection Law (PIPL))., If the company is hosting a local website, it must also obtain an ICP license from the Ministry of Industry and Information Technology (MIIT).
Technical considerations for D2R
Entity and structural requirements
As with D2C, companies using the D2R model typically also need to set up a WFOE capable of handling imports, wholesale transactions, and issuing fapiao (invoices) to retailers. The focus is on managing retailer relationships and overseeing matters such as shelf placement and merchandising standards, rather than engaging directly with end consumers.
In a D2R model, either the brand or an appointed importer is responsible for customs clearance and ensuring compliance with Chinese regulations.
Operational resources needed
Operationally, D2R requires dedicated teams for key account management, retail execution planning, and demand forecasting to ensure inventory aligns with retailer orders and promotional cycles.
Retailers generally require products to be held in domestic warehouses, packaged according to both regulatory and retailer-specific standards, and supplied consistently to support restocking.
Partner considerations
Partnerships in a D2R model include both operational service providers and retail channels. On the operational side, companies may rely on import service providers to manage cross-border logistics, third-party logistics (3PL) firms to meet retailer delivery standards, and merchandising partners to handle the in-store product management.
On the retail side, selecting a partner will depend heavily on the product category. Companies selling consumer electronics often work with chains such as Suning, Gome, or JD Mall (offline store), alongside e-commerce retailers with strong appliance and electronics offerings. Meanwhile, brands selling consumer goods may target hypermarkets and supermarkets such as RT-Mart, Carrefour, Walmart, or convenience-store chains for high-frequency products. For health, wellness, and over-the-counter products, partnerships with national or regional pharmacy chains, such as Watsons or LBX, may be suitable, while specialty retailers such as maternal and baby stores, sports retailers, beauty chains, or home-improvement stores provide more targeted exposure for niche product categories.
Technical considerations for indirect distribution
Entity and structural requirements
In an indirect model, the distributor typically manages the full commercial chain, including imports, warehousing, and sales to downstream retail channels. This means a foreign brand often does not need a local entity during the initial phase. Some brands later establish a small representative office or a WFOE to oversee marketing, compliance, or distributor coordination, but this is optional. Structurally, this model shifts operational responsibility to the distributor while the brand maintains a governance and brand-management role.
Import pathways
The distributor normally acts as the Importer of Record (境内收货人), and is responsible for handling customs declaration and clearance, product filing or registration, and any required testing or certifications. Because regulatory liability sits with the importing entity, the brand must confirm that the distributor holds the correct import rights and is fully qualified for the product category, especially in sensitive areas such as food, OTC products, cosmetics, or medical devices. Even when outsourcing importation, brands benefit from maintaining visibility into documentation practices and regulatory updates to mitigate downstream compliance risk.
Logistics considerations
As the brand either does not have or has a minimal presence in China under the indirect distribution model, matters such as warehouse locations, fulfillment processes, and inventory management are controlled by the distributor. The brand should nonetheless periodically review these facilities to ensure they conform to regulations or requirements, such as storage conditions, temperature control, and hygiene standards, depending on the product category. Companies may also have multiple distributors in order to capture different parts of the market, for instance, with distributors located in northern China and southern China in order to avoid overlapping channels and maximize coverage.
Operational resources
Compared with direct models, operational requirements are minimal. The brand’s primary responsibilities include partner management, performance monitoring, and ensuring that there are contractual guardrails in place to protect the brand’s pricing integrity, compliance standards, and channel strategy. Internal resources tend to focus on marketing alignment, regulatory supervision, and periodic audits rather than day-to-day logistics or sales execution.
Partner considerations
Given the number of responsibilities that are outsourced to the distributor, selecting the right partner is crucial for the success of the band in China. Brands should evaluate a range of technical and logistical matters, such as the distributor’s import rights, national or regional distribution coverage, category expertise, and financial reliability. Many distributors specialize in certain sectors, such as FMCG, beauty products, electronics, industrial goods, pharmaceuticals, and so on, so matching the partner’s strengths to the product category is essential.
Brands may also choose distributors based on their preferred downstream channels and how products ultimately reach the end consumer. Some distributors specialize in supplying large-format retailers such as hypermarkets, supermarkets, and regional grocery chains, while others focus on convenience-store networks or specialty retailers aligned with particular product categories. Others may instead supply to third-party logistics (3PL) companies that then handle warehousing and last-mile delivery.
Beyond traditional retail, certain distributors have strong penetration into O2O delivery ecosystems, enabling same-day or next-day delivery through partnerships with platforms like Meituan or JD Daojia. Others maintain B2B and institutional sales channels, including hotels, restaurants, clinics, corporate buyers, and educational institutions, which can be critical for products used in professional or semi-professional settings. In categories that require controlled storage or specialized handling, distributors may offer temperature-controlled logistics, bonded warehousing, or compliance-oriented storage solutions.
Considerations for choosing the right distribution model
Choosing between the D2C, D2R, or indirect distribution models ultimately depends on how much control, operational involvement, and speed a brand is looking for in its China market strategy.
D2C is best suited to brands that view data ownership, consumer proximity, and brand oversight as critical to their success. Companies that are willing to invest in local setup, compliance, and ongoing operational management are best positioned to adopt this model, and it works particularly well for higher-value or specialized products where the direct the profit margins can offset the higher operational costs.
The D2R model is a better fit for brands that need strong in-store execution and predictable supply into key retailers. It supports categories where retailers expect direct coordination on inventory, marketing, or category management, but still allows brands to avoid the full burden of running local commercial operations. This model works when a company already has stable forecasting and can support consistent replenishment.
Indirect distribution provides the fastest and least resource-intensive route to market entry. It works best when broad coverage matters more than tight brand control, or when the brand does not yet have the resources to set up a local entity, hire staff, or implement the local compliance structure needed to operate directly. A good distributor can handle many of these requirements on the brand’s behalf, enabling rapid market penetration with limited investment.
In practice, no single model will perfectly fit any given brand. The right choice depends on the product’s regulatory requirements, margins, category, and other complexities. Many brands also change models or use a hybrid structure as their China business evolves, starting with an indirect model for entry speed and shifting to a D2R or D2C model once a market presence has been established. The key is aligning market-entry structure with the company’s long-term strategic intent and operational capabilities.
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China Briefing is one of five regional Asia Briefing publications. It is supported by Dezan Shira & Associates, a pan-Asia, multi-disciplinary professional services firm that assists foreign investors throughout Asia, including through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Haikou, Zhongshan, Shenzhen, and Hong Kong in China. Dezan Shira & Associates also maintains offices or has alliance partners assisting foreign investors in Vietnam, Indonesia, Singapore, India, Malaysia, Mongolia, Dubai (UAE), Japan, South Korea, Nepal, The Philippines, Sri Lanka, Thailand, Italy, Germany, Bangladesh, Australia, United States, and United Kingdom and Ireland.
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