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Overseas distributors: picking the perfect partner

For many would-be exporters, identifying effective and appropriate local representation is a vital factor in breaking into a new market, and has already been mentioned in this column. However, such is its importance, it is worth looking at in more detail. The most common route to market is probably via a local distributor, though there are a number of other options, including use of agents (who negotiate sales on your behalf for a commission), licensing, franchising, joint ventures, strategic alliances or direct investment. The best option will vary from business to business but all should be considered before committing to any agreement.

Distributors buy products on their own account and sell them on to their customers. Distributors will usually have an established customer base, can provide after-sales service and are a single point of contact in the market. Against these benefits you will have to weigh what they require from you. As part of an agreement, a distributor may want control of your brand in their market, will often insist on exclusivity, may stand between you and your customers, and may even use their market knowledge to your disadvantage.

But you should have a clear idea of your ideal distributor before the search begins. Factors to consider might include size and shape, sectoral experience, customer base, geographic reach, product portfolio, technical capability, market positioning, financial standing and language skills. Draw up a detailed profile and assess each candidate against this template.

To meet the next challenge - finding a distributor who matches the profile - there are a number of avenues you can explore:
  • Word-of-mouth recommendation: an effective method if backed up by independent third-party corroboration
  • Advertising in local specialist trade journals that you are seeking business partners
  • Attendance at trade shows: excellent venues for meeting companies looking to expand their product portfolio
  • "Marriage brokering" services offered by consultants to potential exporters
  • Through UKTI, using British embassies, high commissions and consulates-general, which can be effective intermediaries in identifying appropriate local contacts.

Locksbottom firm Selectamark manufactures and exports SelectaDNA, a virtually invisible synthetic DNA solution for securely marking personal property. The firm's recent growth, which saw it more than double export turnover in under a year, was based on identifying a suitable distributor in target markets. Managing Director Andrew Knights, an experienced international trader, drew on market intelligence services and contacts delivered by UKTI's international network.  

"It's such an advantage to be able to tap into this," said Andrew. "We don't have the time and resource to find overseas distributors on our own. Market intelligence reports also helped us launch products and arrange market visits. Without UKTI, we wouldn't have moved at the speed we have."  

Selectamark Sales Director James Brown added that last year's UKTI-backed security mission to Mexico "represented the type of support that can help a company like ours realise its global potential. UKTI set up top-level meetings with police, army, navy and air force; and identified a number of potential local distributors for our security solutions."

Once suitable distributors have been identified, they need to be carefully vetted, in the same way you might assess candidates for a senior management position in your company. Much information can be gathered by desk research, use of the Internet, correspondence and networking, but there is no substitute for a market visit and face-to-face meetings. Take the time necessary to make the right choice.

Agreements and ongoing relationships
When a suitable distributor has been found and mutually acceptable terms negotiated, a formal agreement should be drawn up, spelling out what is expected of both parties. Essential points to cover might include time frame covered by the agreement, products and services, territory covered, whether the agreement is exclusive or non-exclusive, agreed sales targets, pricing/discount/terms of payment, after-sales service, marketing budget, complaints procedure, regular reporting and termination. Get hold of a standard Distributorship Agreement and take professional legal advice to adapt it to your requirements.

Signing an agreement is just the start - the ongoing relationship needs to be carefully managed. An action plan will need to be put in place covering such essentials as ordering for stock, training provision for sales staff, a detailed marketing plan, product launch, etc. Your company could be just one of many suppliers for the distributor, competing for a share of their attention, so do everything you can to command that attention. Frequent communication and active support (including regular visits), efficient, professional service, with deliveries on time and technical back-up, will set you apart from other suppliers and elicit more effort for your products.

Monitoring performance
Distributorship agreements will be devalued if performance is not monitored. A good distributor would expect to provide regular reports on sales activity, significant enquiries, planned promotions, market trends, new product development needs and competitor activity.

Following all this advice will give the relationships you forge the best chance of being successful and long lasting. However, if things do go wrong, every effort should be made to resolve problems amicably. Termination of the agreement should always be seen as a last resort, since it will usually cost you time and money, may damage your brand and reputation, could potentially embroil you in expensive legal wrangling and may even expose you to claims for compensation. If termination is the only option, try to part on good terms so that there can be an orderly handover to any new distributor - a messy divorce brings no winners.

Top 10 tips for success:
  1. Consider all options for your route to market - if the best is via distributors, then:
  2. Have a clear idea of your ideal distributor profile
  3. Get it right first time - a mistake can be costly
  4. Don't concede exclusivity cheaply - it may restrict your sales potential
  5. Put any agreement in writing; take professional legal advice
  6. Set realistic targets and monitor performance
  7. Support and work closely with your distributor
  8. Communicate regularly - be an active partner
  9. Learn a little of the local language
  10. Termination of the agreement should always be a last resort.
 

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