Does the following scenario
sound familiar? An American
company exhibits at a U.S.
trade show. The booth is
visited by a number of
foreigners. Some are well
dressed, know the industry and
-- most important -- speak
English. They ask for
exclusive distribution rights
for the American product.
The American marketing
manager attempts to check out
the foreign company through
industry sources and credit
checks. Some information
results. A lengthy
questionnaire is sent but
never returned. Meanwhile, the
foreign company clamors for a
contract. It points out that
important sales are being lost
by delay. The American company
has its hands full worrying
about the U.S. market. It
agrees to give distribution
rights on a trial basis to the
foreign company. The new
distributor begins to buy. The
American company is pleased at
the Additional"
sales it has generated
overseas. Sales volume grows.
A distribution agreement is
signed for a longer period.
Sometime thereafter --
months or years -- the
American manager has occasion
to visit the foreign country.
The distributor is covering
only a fraction of the market.
Sales of the American product
are increasing but market
share is declining, because
the competition knows what it
is doing. The American product
represents a small and
unimportant part of the
distributor's business. Other
local companies could have
done a far better job of
sales, promotion, and
distribution.
Here is a checklist for
avoiding some of these
mistakes.
1. Estimate market size
and market potential. I am
amazed at the number of
companies that make overseas
distribution commitments with
only the vaguest idea of the
market. If the market is
vital, it is worth an
investment in market research.
2. Rank overseas markets.
Some markets can be set up by
mail. Some are so important
that you must visit them
before picking a distributor. The
key question: what is the cost
of a mistake in terms of lost
sales, lost market access and
time wasted?
3. Determine the key
elements of market success.
You know your business and
your products. What (exactly)
will it take to succeed in
this market? How well does the
competition do these things?
Product quality? Number of
salespeople? Low-cost
distribution? Customer
service? Product image? Each
product or service has a
different profile. Each market
can be different. Who are the
customers? Exactly what do
they demand? Can you and the
distributor supply? How much
will it cost to do these
things better than the
competition in this market?
4. Set some specific
written goals for the market.
Dollar sales? Market share?
Remember that goals must be
specific and measurable.
5. Construct an
"ideal distributor"
profile. Based on your
goals and on the key elements
of success, write down your
requirements for an
"ideal" distributor.
6. Determine the ability
of the potential distributor
to cover the market,
geographically, by market
segments and distribution
channel. Who are the
distributor's existing
competitors? How big is the
sales force? Do the
salespeople know how to sell?
7. Find out the nature
of the distributor's business.
How does the company (really)
makes its profits? Does it
handle competing lines? What
is the company's own business
strategy?
8. Estimate the
importance of your business to
the distributor. What
profits can the distributor
expect to make from your line?
For how long? If you compare
this to the rest of the
company's business, you will
get a good estimate of the
effort this distributor will
expend. Remember the story of
the distributor who signed
agreements with two competing
rental car companies so
he could push only one?
9. Determine markups or
commissions current in the
market. What will
distributors expect? What will
this do to the price of the
product?
10. Think about physical
distribution. Should it be
combined with sales, or
separated? Should it be under
your control, or the
distributor's? What are
customs duties and other
barriers of entry?
11. Ask the distributor
specifically what he can do
for your product. Ask for
sales estimates. Hold the
distributor to these
(flexibly). What other support
-- promotion, warehousing
service -- can the distributor
provide?
12. Look closely at your
company's commitment to the
distributor. Estimate the
cost of support and
motivation, communication and
travel, promotion, product
modification, distributor
training. Does your company
really have the necessary
commitment, resources and
flexibility to deal with
market and cultural
requirements?
13. Check the company's
financial standing. This
is what everyone thinks of
first. It is only one of many
issues. Sometimes it is
difficult to determine.
14. Know the
distributor's local reputation.
In some countries this may be
the best indicator of
reliability. Use the telephone
or a visit to check the
company's reputation with
customers, with suppliers,
with others in the industry --
even competitors.
15. Be aware of possible
parallel distribution. In
some markets antitrust laws
prohibit exclusive
distributorships. Some
countries are famous for
informal, uncontrolled
"gray market"
distribution of products
bought in the home market or
in third countries. Be sure
potential distributors
understand the practical
limits on your ability to
police exclusive arrangements.
16. Know local laws of
termination. In some
countries it is very
hard/expensive to get out of a
distributor or agency
arrangement.
17. Anticipate external
events. Multinational
corporations report that 70%
of their profits are dependent
on economic or political
changes outside their control
(exchange rates,
protectionism, changes in
demand, raw material, labor
cost, etc.). Look outside your
industry to identify factors
that might trip you up.
