Using agents and distributors
At the recent Business Show in Olympia, James Gillespie from UK Trade and Investment (UKTI) explained the difference between agents and distributors and why they are invaluable to growing your business abroad.
Agent – an individual or group to whom you have given the authority to negotiate on your behalf; they won’t hold stock and you’ll probably pay them in commission
Distributor – they hold stock and are essentially a customer – they buy from you, but they also represent your brand in that region
Many businesses hire agents and distributors to help mitigate risk overseas – they like to have expert advice on hand. Another benefit is that it can help reduce costs, as you do not need to travel personally to all your target markets, or pay for hotels to send employees. However, there are certain risks that you must be aware of before you enter in to this kind of arrangement.
- Sometimes performance of your agents or distributors may not be quite right – this can be due to poor sales performance or language barriers
- Territory – don’t give away massive territories. Just because an agent performs well in China is no reason to give them the whole of Asia without proper testing
- What other interests do your agents/distributors have that might conflict with yours? They might have a cosy relationship with public officials for example, so you need to think carefully about how this might effect implications of bribing if that is a market you are looking to target. You should also examine whether they have an unhealthy closeness to another distributor or a competitor
- Your IP – make it clear who owns the IP; it definitely shouldn’t be the agent or distributor, but it does no harm to ensure that is understood on both sides
- Paying in different currencies – currencies shift and over a multi-year contract this can make quite a significant difference
- Relationship breakdown – you will need to develop a personal relationship with your agent or distributor, and obviously these relationships can sometimes go south
- Unforeseen costs – make it clear who’s paying for samples, shipping, trade shows and so on.
Questions to ask yourself
Hring an agent or distributor to enter or expand overseas should to some extent be viewed the same way as hiring any employee, but there are certain questions you should be certain to address:
- How effective and alive is their network of contacts? They should have a list of potential clients to show you but you need to know those clients are still active.
- How credible is this individual? Look for previous examples of their work with statistics on previous projects.
- Compatibility – are we compatible, can we work together? It can be quite a personal relationship and you need to know you have the same attitude.
- Performance – why is he looking for work? Ideally you want someone already happily working in that territory.
- Are they a stable company? Do the due diligence on their financial stability.
- Product alignment – do they understand your product and sector?
- How will this relationship work logistically? Is their warehouse accessible for you and for shipping?
- Are they competent enough to keep you abreast of that marketplace? They need to help you develop your products in that area, they are your representative in the marketplace and must feed back intelligence and market data.
Upfront due diligence
Before you agree any contract, ensure you have discussed the following: key responsibilities, how long the contract is for, the specific territories and products/services covered, who owns the IP (make it clear that you do), how you will be measuring performance. Lastly, a word of warning: make it clear that your business owns the customer data, but ensure a system is in place whereby this is fed through to you monthly. If the relationship goes sour, you won’t see a digit of that data otherwise.