When choosing a distributor in an export market, prepare for a close relationship.
Many small and medium-size enterprises use overseas distributors to extend their reach to potential customers and gain access to resources and distribution channels beyond their own.
But experience with distributors varies greatly, from high satisfaction to disasters. Why is it that some distributors are successful and others not?
The key to a distributor relationship is an acceptance that the distributor has his or her own business to run. That business has a life of its own outside any relationship you might have with it.The management and shareholders have their own objectives and will look at your proposition in the light of their agenda, not yours.
Generally the approaches of "I want to sell you something" or "I have something you can sell" are a mistake. The only successful approach that I found was "I want to work with you to make you more successful".
Success for the distributor needs to be in their terms. Unless your business proposition can truly align your objectives with theirs, the relationship is probably not going to work.
Selecting a distributor means finding a business whose efforts in representing your product makes you both succeed.
The less effort they have to expend to achieve success and the less risk they face in achieving the levels of business you require, the more likely they are to be successful and thus the better fit you are likely to achieve.
The better distributor, therefore, is likely to sell to the same sort of customers, use the same selling techniques or channels of distribution, sell products of a similar value and/or sell products that are complementary to yours.
It is worth doing some due diligence on potential distributors. Use government trade bodies and the local embassy's commercial advisers to get a list of potential distributors. Talk to other firms that use them, ask for customer and supplier references and credit reference agencies.
Working with distributors is a very personal activity; loyalty and effort are often related to the quality of the relationships you build with the owners and the staff assigned to your products. Make it personal. You need to spend time getting to know them and working with them on your activities.
Distributors are fickle. If they are not achieving success after some reasonable level of effort, they will abandon you. There are, however, some things that you can do to ensure that you get a fair chance.
No one wishes to make an investment without having a reasonable chance of achieving a return. You need to build a case that shows them that the investment is worth making.
There are things you can do to increase your probability of success:
- Each party must share some of the risk in the venture.
- You need to show some level of commitment.
- They need to demonstrate a commitment. This could be a marketing budget, dedicated sales effort, resources allocated to a training program and so on.
- Your success must be based on their success.
- There needs to be a problem resolution process and an escalation process for problems not resolved at the operational level.
- The agreement must be fair and equitable for both parties.
- The relationship should be built to last and not subject to early termination if mutually agreed targets are achieved.
- There should be an understanding that it is going to be a long-term relationship, in which each party will make an investment in the joint success.
Relationships that are built on strong foundations of mutual respect and alignment of interests can last a long time and be effective. I had several distributors that stayed with me through three different businesses over 15 years.
I spent considerable time at the start of each agreement working with the distributor to bring in the first sales and to ensure that customer references were positive. Once the distributor could see that the effort they were making was resulting in a deal flow, I could leave them to continue.
But I had to make sure our support staff understood that the distributor was our partner, not our customer. We needed to see them as an extension of our own business and treat them like they were part of our family. The underlying premise was that we only made money if they made money.
Not all distributors will work out. The risk you face is the loss of opportunity. It takes a long time to find the right one and even longer to make them effective. It is worth doing the homework to give yourself the best chance of success.
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