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What the Future May Hold for International Agents & Distributors

By Justin Grensing

In an increasingly global economy, companies could be at a significant disadvantage in their marketplace if they don't have an international presence.1 This is true for small and medium enterprises (SMEs) as well as for large corporations. But the cost of entering these large global markets includes the regulatory, financial, and logistical complexity of conducting business in a variety of jurisdictions spread across vast geographies.

To assist with the challenges of international distribution, many companies utilize the services of international agents and/or distributors. Understanding how these agents can facilitate international distribution, along with the current trends and future expectations for the industry, can provide valuable insight for SMEs and others in a wide variety of industries.

 

Comparison of International Agents and Distributors

 

First, it's useful to understand the distinction between international agents and distributors. While they serve similar functions, they are distinct and operate differently.2

 

  • An international agent is a representative hired to help find customers in foreign markets.3 They can even assist with negotiating and closing contracts with international counterparts, and ultimately exist to facilitate the sale of their client's goods to a third party.4
  • An international distributor, by contrast, is an entity that buys the goods directly from a supplier and then sells them in the foreign market.5

Another option for facilitating international trade is e-commerce marketplaces.6 These are website or mobile app platforms that facilitate the sale of goods between widely dispersed buyers and sellers.7 A well-known example is eBay, which, although less full-service than a traditional international agent, does assist with some basic logistical challenges of overseas commerce.8

 

Payment Structures of International Agents & Distributors

 

International agents and distributors make their money in slightly different ways but the result from a financial standpoint—if not a logistical standpoint—is essentially the same.

 

  • An international sales agent will typically charge a commission as a percentage of the value of the goods sold.9 For example, an agent supporting the international distribution of laptops which sell at a retail price of $1,000 might charge a 10 percent commission, so they would keep $100 from the sale of each laptop.
  • By contrast, an international distributor makes money by marking up the price of goods purchased from the supplier.10 Their profit can come from either negotiating a bulk discount from the supplier and re-selling the goods at the standard retail price, or from purchasing at the retail price and charging a higher re-sale price.

Depending on the commission or markup, international agents and distributors can end up making about the same amount of money as a percentage of the retail price of the good. However, the distributor typically bears more risk, since they could end up purchasing goods they aren’t able to resell.11

 

In terms of cost, both international agents and international distributors can see wide ranges of commissions or markups for their services, depending on a number of factors. These include:

 

  • The complexity of doing business in the host country;
  • The degree of specialization of the product being sold and the customers looking to purchase;
  • And other factors that contribute to risk.12

In general, international distributors cost more than international agents, because they tend to provide more services and assume greater risk.13

 

Future Trends and Expectations

 

International trade is complex and influenced by a number of driving forces, including geopolitical events and trends as well as consumer tastes and local and global economic factors. Two trends in particular are worth noting. The first is the potential for increased trade complexity brought about by ongoing international trade disputes.14

 

The second major trend with the potential to impact the role of international agents and distributors is the continued growth of e-commerce platforms in the industry. As noted above, these online tools effectively act as international agents.15 As their size and sophistication grows, they have the potential to displace traditional international agents and distributors.

 

Opportunities for SMEs with International Agents and Distributors

 

International agents and distributors can offer multiple benefits to SMEs. These entities have knowledge of local trade conditions around the globe that SMEs can leverage to help understand and tap into international markets.16

 

Additionally, they can help reduce the risk of international trade for SMEs.17 In the case of international agents, the agent does the legwork on the ground—often with a physical presence in the destination country—and doesn’t get paid unless the supplier sells its products. In the case of international distributors, the risk is arguably somewhat less, for the supplier is dealing with a relatively small number of customers—perhaps even one—to which it sells high volumes of products. The international distributor then bears the risk of selling the products locally. Even if they are unable to offload all of the supplier’s products, the supplier has already been paid.

The

Takeaway:

For companies willing to navigate the complexities of international finance, logistics, and regulatory and legal compliance involved in international distribution, rewards in the form of larger markets and increased revenues can be significant. Partnering with an international distributor or agent is a common way to outsource those complexities to entities that are experienced in, and familiar with, all aspects of international distribution, removing some of the stress of doing business globally.

Justin Grensing  - The Author

The Author

Justin Grensing

Justin Grensing is a freelance writer, MBA and attorney who covers topics ranging from finance, marketing, human resources, legal/compliance, and general business.

Sources

1. “5 benefits of international expansion,” The Business Journals; https://www.bizjournals.com/bizjournals/how-to/growth-strategies/2017/12/5-benefits-of-international-expansion.html
2. “4 key differences between trade agents and distributors,” The Right Social Media; http://therightsocialmedia.novertur.com/international-trade-2/4-key-differences-trade-agents-and-distributors/
3. “Export Expertise: Overseas Agents and Distributors,” International Business Festival; https://www.internationalbusinessfestival.com/blog/export-expertise-overseas-agents-and-distributors
4. Ibid.
5. “4 key differences between trade agents and distributors,” The Right Social Media; http://therightsocialmedia.novertur.com/international-trade-2/4-key-differences-trade-agents-and-distributors/
6. “E-Commerce Marketplace,” Export.gov; https://www.export.gov/article?id=eCommerce-Online-Marketplace
7. “What Are Online Marketplaces And What Is Their Future?” Forbes, https://www.forbes.com/sites/richardkestenbaum/2017/04/26/what-are-online-marketplaces-and-what-is-their-future/
8. “eBay’s Global Shipping Program: Pros, Cons and Alternatives,” WebRetailer; https://www.webretailer.com/lean-commerce/ebay-gsp-alternatives/
9. “4 key differences between trade agents and distributors,” The Right Social Media; http://therightsocialmedia.novertur.com/international-trade-2/4-key-differences-trade-agents-and-distributors/
10. Ibid.
11. Ibid.
12. “International sales agent commission rates and export agent fees;” Alliance Experts https://www.allianceexperts.com/en/knowledge/managing-a-sales-agent/
13. Ibid.
14. “Trade uncertainty could hurt economic development worldwide,” World Economic Forum; https://www.weforum.org/agenda/2019/07/how-trade-uncertainty-is-impacting-the-global-economy/
15. “What Are Online Marketplaces And What Is Their Future?” Forbes, https://www.forbes.com/sites/richardkestenbaum/2017/04/26/what-are-online-marketplaces-and-what-is-their-future/
16. “Export Expertise: Overseas Agents and Distributors,” International Business Festival; https://www.internationalbusinessfestival.com/blog/export-expertise-overseas-agents-and-distributors
17. Ibid.

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