A lack of support in handling the risks of entering new markets is one of the reasons behind the decline in exporting overseas for UK SMEs. Yet, working with a good distributor could save you time and money, allowing you to grow your turnover and market share faster, says Emmanuel Bisi, founder and managing director of Expandys, a consulting firm that helps companies expand internationally.
This is because distributors typically have established relationships with potential customers, as well as a knowledge of the local culture, language, rules and regulations. But they can vary in what they can provide, so it’s important to know what you’re looking for and what to expect in your search. Here we speak to Bisi, Sarah McCartney, Founder of perfume company 4160 Tuesdays and Phil Ward, Director of radiator manufacturers Eskimo Design on how they went about finding and working with international distributors.
What is the role of an international distributor?
An international distributor acts as an intermediary between your business and its end-customers, in specific geographies. They typically purchase your products from you, stock them and then resell in one or more overseas markets.
Distributors often buy in bulk, handling storage and inventory control. Sometimes they ask for exclusivity of your products for a period of time. They often share in marketing costs and provide after sales support to customers.
How much do international distributors cost?
An international distributor typically makes money through a markup on your product and this percentage can vary widely depending on your industry, target country and the agreed responsibilities of the distributor. For example, a distributor in the clothing and apparel sector may charge 15 to 30% and in the electronics sector, 3 to 7% (range source here).
In addition to factoring in added margin there are other costs a business should factor in when considering whether or not to work with a distributor. We speak to UK SME exporters to find out their experiences of distributor costs, when they are worth it and when to push back.
Product marketing and promotion
McCartney has been hand-making perfumes in London since 2011 and she now sells her scents around the world, using distributors in South Korea and Australia. McCartney provides her distributors with free samples and bottles, as well as photographs and text for marketing brochures, though she doesn’t foot the bill for printing. Eskimo Designs has a similar arrangement, with the distributor picking up the costs of brochure printing and delivery. Ward says the total costs involved in providing this marketing material range from £5,000 to £20,000, shared equally between his business and the distributor. Ideally, that should be enough material to last a distributor about 2 years.
Before selling products in another country you first need to ensure that they are compliant with that country’s rules. This can get expensive, as third parties sometimes need to be hired to test your products and confirm that they meet the requirements. Ward says it cost £10,000 for a single electrical product range of towel warmers to be tested for Australia. He suggests finding a distributor who can work with you to obtain compliance and share in the costs. “We usually go 50:50 with the distributor in some way and we ask them for as much assistance and guidance as they can give us, for example the standards our products need to comply to,”. Ideally, the distributor would access those standards, share them and tell you what you need to do to meet the rules.
You can be imaginative in how you share the costs of compliance with a distributor. In Australia, Ward covered the costs of third party testing and in return the distributor was required to purchase a certain amount of stock. “Essentially, the gross margin on that stock covered the costs of testing, so the distributor gets stock they can sell and for all subsequent orders we were back to normal and making a decent margin on future products,” says Ward.
How to work with a distributor for international expansion
Step 1: Ask these 6 crucial questions
Expandys founder Bisi says there are six crucial questions you need to ask any distributor you engage with to ensure you find one that has relevant, proven experience in your sector and who can support you.
- Does the distributor know and serve my industry and target clients? Look at their track-record and history to see how established they are in your chosen market and the breadth of experience they have in your industry.
- Does the distributor distribute other products or services in my ecosystem? Look at the product lines they already sell to see if your product is a good fit.
- How structured is its sales team? Ask about the size and experience of their sales team, how they are managed, what incentives they are given and their track-record.
- What is the geography they cover?
- Do they have warehousing and logistic capabilities?
- Do they have resources to manage training or after-sale services? Distributors are often responsible for addressing customer sales enquiries, warranties, guarantees and any training and repairs associated with the products.
Step 2: Be sure they love your products
It’s so important to ensure the people representing your company understand and appreciate your products or service. McCartney learned this the hard way after discovering a salesperson working for her US distributor disliked her fragrances, refusing to showcase them to customers.
Avoid this by regularly speaking to the sales teams who are responsible for selling your products. Get them engaged in what you're doing by giving them a sense of ownership. Ward says his staff connect daily to their distributor’s sales teams, fielding questions and capturing feedback. For example, helping them to address customer or technical enquiries or to act as a sounding board for new ideas. “We sell a technical and often bespoke product, so they’ll be asking us if we can do a certain finish or size,” says Ward. “We tailor a lot of our products to suit our distributors and as they get to know us and our capabilities, they come to us with more and more enquiries”
Step 3: Set transparent terms
Distributor agreements should always be in place, with sales targets that distributors largely set themselves for what they feel their market should deliver, says Ward. For example:
- Geographic area covered.
- Products or services covered.
- Exclusive or non-exclusive. Exclusivity means you will only be able to work with one distributor in an agreed territory.
- Duration of the agreement
- Sales targets.
- The responsibilities of each party. This should include marketing arrangements as well as how returns or product failures are handled.
- Intellectual property
Step 4: Review your partnership
Ward doesn't require distributors to send regular reports as his business is seasonal and contract-driven, which means sales fluctuate a lot by season and if a large contract is won. Instead his teams produce reports internally, looking at expected sales volumes against agreed KPIs. An annual roundtable then brings his sales teams together with those of his distributor, where they assess progress, share learnings and agree the best way forward for the year ahead.
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