Within the internationalization strategy of a company, the first step will be to decide the way to penetrate a new market. The most commonly used by SMEs is indirect exports, which involves using an intermediary (agent or distributor) to act on our behalf in the local market.
Agent or distributor?
Agents represent our company in the local market in exchange for a commission or salary. The company retains ownership of the products and covers all local marketing costs. The customer portfolio belongs to the agent and possible indemnities for the same must be taken into account if the commercial relationship between agent and company is terminated.
On the other hand, distributors tend to specialize in a market where they represent several complementary products. They require higher distribution margins from agents but assume greater responsibilities. They buy the company’s products and then resell them to their customers, adding a commercial margin, import and store the products.
The advantages of a distributor over an agent are as follows:
- assistance with import formalities
- maintenance of product stock at destination
- can provide local financing
- provide after-sales services
- contribute to the costs of local marketing and promotion of products
- manage a single customer per market
- shared risks in the local market
The disadvantages include:
- shared commercial margin
- limited access and contact with end customers
- less control over pricing
- need for investment of time and resources for distributor management
- dependence on the distributor for access to market information, consumer trends, competitor information…
- dependence on the distributor’s resources and dedication, which will determine the pace of development of
- our products in the market.
- dependence on the distributor for the brand image he/she conveys of our products.
If we finally decide on the distributor formula, a fundamental part is the search for the most appropriate distributors for our company. We need them to market our products in the different markets, complying with certain requirements, such as experience in the distribution of our type of products, the size and dedication of the distributor to the marketing of our brands (which will depend in part on the breadth and depth of its catalog). Several distributors will be necessary to satisfy the demand of different geographic areas.
Choosing the right distributor to work successfully with our company can be a challenge. To do so, we must start with clearly defined objectives and criteria, as well as choose the appropriate contract model to protect us from possible contingencies and, at the same time, be able to take advantage of the full sales potential of the market in question.
In a future post, we will discuss the most appropriate ways to select the right distributor, based on our interests.
Avantia International Consulting helps you in the search and selection of the most appropriate distributors for your company in your target markets. Shall we talk?