It takes a long time to build meaningful trust between a manufacturer and a distributor. Way back in the early 2000’s the advent of the newly transparent internet made US manufacturers wary of their products being gray marketed in overseas markets. Not having a coherent policy on gray marketing could undermine that trust. It was easier for customers to see multiple distributor contacts on a manufacturers’ web site. The end user could then price play one distributor against another. The distributor doing the missionary sales work could lose out to a second distributor selling over “the web.” The motivation of the local distributor’s sales force was at risk. The manufacturer sales team then gets notified that it needs to referee “a situation between two distributor partners and an end user.” This situation needed to be prevented.
Being the diligent American business partner what does one do to prevent this ugly potential situation? Ahhh!-have the distributors sign a business agreement to put the onus of the sales efforts on local distribution.
Our company had successfully been doing business with Tom Parker, his sons and his company for more than 20 years. We had a great business and relationship. The family was visiting us in the US for some a business review. It was a good time to discuss a business agreement. I worked with our attorney to develop a boiler plate business agreement between the two companies. (Full disclosure-Tom Parker had never violated the implied territory agreement (sales in UK only) between our companies).
Fast forward to our meeting in Minnesota. Tom had decided to attend the Minnesota meeting with his three sons. Tom was a mentor to his sons and the strategic binding force between its suppliers, its customers and the entire Tom Parker Ltd organization.
Tom Parker-“What do you have on the agenda for us today Jim?”
Jim-“We have four issues on the agenda Tom. We need to discuss:
1. Medical customer targets in Ireland,
2. On site sales training in Preston,
3. The proposed business agreement,
4. The upcoming trade show in England.”
Tom-“What topic will be the hardest? Let’s get to that one first.”
Jim-“That would have to be the proposed business agreement”
Tom-“Why do you think the business agreement will be hardest?”
Jim-“Because we have been doing business for over 20 years and have not had0 a written agreement in place up to this point.”
Tom-“Do you have a copy of the business agreement?”
Jim hands it over.
Tom-“Do you have a pen?”
Tom signs the agreement and hands me the pen.
Tom-“now Jim you know this means I trust you will all my heart and all my soul?” Don’t let me down!”
I was never going to let Tom Parker down!
1. Start every overseas relationship with a statement of the primary roles and responsibilities of each partner. Keep it simple. Document it-live it!
2. Never allow a legal remedy to trump a straightforward business solution.
3. Do the hardest things first-You may have to break them down into smaller tasks. The “hard stuff” needs resolution and is usually easier than you imagined. Don’t let procrastination slow down your momentum.
4. Never and I mean never let down Tom Parker!
A small manufacturer with a global marketing presence: trade show, web site, YouTubeube, white paper, testimonial may sometimes get product requests from outside the USA. This is a compliment to your marketing department. How do you respond when a lead requests to sell your line of products in another market? Does the benefit of increased sales outweigh the risk of non-payment? Loss of end customer control? Possible trademark or product liability issues that may result?
You usually need more information to make this decision. Most exporters would send back a quick request for more information or distributor application to better qualify a distributor as a business partner. Remember distributors are not customers-they are part of the supply chain to get to the end user. The purpose of the application is to screen and qualify potential distributor candidates. I have built past distributor applications to determine does this channel have similar traits to other successful distributors (home or abroad) that have a proven history. Any distributor who does not complete the application is clearly not willing to devote significant efforts to win more market share for your products.
I would typically collect this information from any potential distributor and attempt to follow up with them in the future. It is always good to have back up distributor source or one with an alternative path to market. It also helps you to balance or validate market/competitive situation you hear from your
primary source of information. I had a larger growing distributor in Turkey file for bankruptcy during the summer of 2011 and was suddenly without a two step path to market for important customers. Thank goodness I had met with Mr. Dogan several times since 2008 and was able to transition our business smoothly. As one of my mentors once told me-Jim, you never want to double park your car outside the bank late on a Friday afternoon to cold call a commercial lender. Build those relationships before you need them.
What are typical elements of the application?
1. Contact information
2. Organization chart
3. Complementary product lines and suppliers
4. Competitive product lines
5. Local marketing programs
6. Inventory requirements
7. Import license, experience and capabilities
8. Credit and banking contacts
9. Sales coverage and statistics
10. Geographic focus
If you need assistance to build your initial distributor application I can help develop one for you. It is a fairly easy task and a good business process to have in place.