Seven biggest threats for supplement firms planning to launch exports to China

Supplement exports from Australia, New Zealand and the West to China have significantly increased in recent years due to the nation’s burgeoning middle class and rising awareness of health and wellness issues.

According to the Australian Trade and Investment Commission — Austrade — the Chinese health food market, which includes vitamins, dietary supplements, animal and herbal extracts, and traditional Chinese medicine (TCM), is currently valued at RMB200 billion (US$30 billion), and is projected to grow by 10% every year until 2025.

We recently revealed the five top market trends​ driving this growth, as outlined in Austrade's Complimentary Medicines in China​ report.

But where there are opportunities, there are also challenges. Here are the top seven threats and risks that have been identified for firms looking to launch their supplements strategies in China.

1)  Failure to secure trademarks

Trademark rules in China follow a ‘first to file’ principle, not ‘first use’, which means the first party to file an application will generally be granted trademark rights.

According to Austrade, registration is inexpensive, with charges from US$800 per mark.

“If an application goes smoothly without any objections or opposition, the process from filing to registration usually takes about a year,”​ it adds.

Companies that fail to register their brand as a trademark in China run the significant risk that another party will register it instead.

“This can be accomplished regardless of whether the products are the same as the original brand, whether the brand is used internationally, or any other consideration.”​

2) Forgetting Chinese trademarks

Austrade says a common and serious mistake made by international companies is failing to register Chinese versions of their trademarks, with many companies assuming they don’t have a Chinese name unless they have created one themselves.

“Every product sold in China — from Coca-Cola to semiconductors — gains a Chinese version of its name. In some cases, the unofficial Chinese name becomes much better known than the official one,”​ states the report.

For these reasons, companies should be proactive and create a Chinese name that aligns with product and company brand values.

3)  Beware of squatters

As more and more international companies enter the Chinese market, trademark squatters are more frequently registering Chinese names for products.

“Although it is generally possible to ‘rebrand’ the Chinese version of a product, it is likely to be expensive, create market confusion and delay building a business in China.”​

4) Distributor relationships can be rocky

While the distributor model is less popular than the cross-border e-commerce route, there are important considerations to take into account if companies need to scale up.

“When dealing with distributors, several issues are worth considering,”​ notes Austrade.

It recommends avoiding exclusive distribution deals, even in an individual province, maintaining a high-level of engagement, and having a clear exit plan.

“Put in place a termination or exit strategy before signing a contract to avoid getting caught in an unsatisfactory arrangement later on, especially if China has become a vital export market. Ensure any contracts provide a means to regain control of market distribution or, in the worst case, exit the market.”​

5) Advertising and labelling scrutiny is increasing

Consumer rights are very much on the rise in China and failure to abide by the rules can be very costly. 

For example, using absolute or superlative terms such as ‘highest grade’, ‘state-of-the-art’, ‘unique’, ‘best’, ‘first choice’, ‘top’, ‘favourite’, ‘the biggest’ or ‘No. 1’ are prohibited.

Furthermore, “health foods are prohibited from being compared to other supplements or drugs; (from) having wording that implies or asserts the product is necessary to maintain a level of health, or claims that the food prevents disease or can be used to treat a disease.”​

6) Endorsements can be risky

Endorsements are commonplace among supplement brands, but the new Chinese Advertisement Law, which came into force in 2015, has specifically forbidden the use of endorsers to recommend or testify on behalf of health foods.

“As a workaround, some brands in these categories have used celebrities to endorse their brand rather than a specific product, but it is not yet clear whether this is permissible,”​ the report adds.

7) Be wary of the professional claimant / shopper

The introduction of consumer protection law resulted in a large number of people or teams who earn their living by purchasing goods with labels or advertising that breach the Chinese Advertising Law, then suing the seller for compensation.

This means it is vital for companies to have correct and up-to-date labelling. We recently reported on strategies for dealing with professional shoppers here​.