EXPORT EXPERTISE: OVERSEAS AGENTS AND DISTRIBUTORS
You’ve done your research and picked your export market. But could a partner help you gain a foothold? The Institute of Export & International Trade sets out some options.
Establishing an international sales operation can be both costly and time-consuming.
One effective way to avoid this process while still reaching international customers is to appoint a sales agent or distributor for an overseas market.
An agent is a representative you hire to find customers and in some cases they’ll even negotiate and conclude the final sales contract. They will charge commission at a prearranged rate for every paying customer they source. This typically takes between 2.5 and 25 per cent of the money earned by your offering in the market.
Distributors are entities that buy your product to sell on to their own customer bases. They will add their own margin to cover costs but will use their greater in-market resource - marketing, export documentation, stocking and labelling - to sell your product. A distributor usually takes between 25 and 60 per cent of proceeds of sales of your product in the market.
Working with an agent is to effectively sub-contract your overseas sales function to people with in-market knowledge and experience, while a distributor is a customer in the market who will sell on your offering.
Should I use a sales agent?
In most cases, you provide sales agents with materials to sell and market your product on your behalf and receive the revenue minus the commission.
Working with agents allows you to ultimately manage the final sale to the end-customer, should you so wish. However, the management of agents can require some time and effort. You need to ensure they properly understand both your offering and the sales and marketing materials. You also need to ensure they’re giving adequate time and attention to finding customers for you, as they will often represent a number of companies.
Before appointing an agent, you should go through due diligence. Establish what experience they have in finding customers for products similar to yours, and make sure they are operating in the territories you are targeting.
Finally, always seek legal advice on the terms you agree, as it’s often not easy to terminate a commercial agent contract. It’s important that you specify the country of law for any contract, as it can otherwise default to the country local to the agent.
Should I use a distributor?
A distributor functions as your sole point of contact for your product’s performance in that market.
Distributors take on all the marketing and delivery requirements when they buy the distribution rights, making them an easier option than agents. They are usually much larger outfits, using their own warehousing capacity and resources to sell your product.
Distributors will often sell a broad range of products, so it’s key that you form a relationship to ensure your product is being prioritised. If you’re a goods exporter, an indicator of their interest in your product is how much they’re prepared to invest in stocking it. If they don’t want to stock much, they’re not going to be able to distribute much either.
Always look at which competitor products they sell and whether they’ll have the technical resources or skills needed to sell your product successfully. For example, if your product requires specialist setup and maintenance, do they have installation or repair skills? If not, your brand and reputation could be impacted in that market.
Getting the most from an agent or distributor
The thing to remember when working with either an agent or distributor is that it’s your show; your product, your name on the line.
Many people worry about whether to appoint someone on an exclusive or non-exclusive basis.
A non-exclusive basis allows you to hire other representatives concurrently, and so test the waters with different partners. However, it’s unlikely agents or distributors will be properly motivated to sell your product in this arrangement on a long-term basis.
Exclusive terms make the appointed representative the only entity able to sell your product in that market, preventing even your own business from doing so. When hiring someone in this way, you must be sure they properly buy into your business ethos.
It’s usually advisable to ask an agent or distributor to ‘earn’ your trust first. A good starting point may be to hire them as a ‘sole’ representative. This allows them to sell your product but means you retain your rights to sell into that market.
How do I go about finding one?
The big question for anyone starting out is how to find agents and distributors who want to sell your product in your selected market?
Here are three quick tips:
- Do your competitor analysis to find out who is distributing or selling your competitor’s products in your selected market.
- Attend relevant trade shows for your sector in the market and try to generate and follow up on relevant leads there.
- Remember that in many markets it’s vital you go out and meet the people you’re working with. Person-to-person interaction is key across all parts of business, especially when it comes to deferring the selling of your product to someone in an overseas market.
Remember that these relationships only work when there’s trust.
The Institute of Export & International Trade provides education, training and practical business support services aimed at maintaining professional standards of trade management and enhancing the UK’s export performance.