Tuesday, August 22, 2006

Distributorships and Agency Agreements: Intermediaries

Distributorships and Agency Agreements: Intermediaries

While you may be sure that the direct-exporting route is best for your company, don't be too quick to jump on a plane and start knocking on doors. Think first about using an intermediary, because the right one can save you an enormous amount of time and money. They come in several types: agents, representatives, trading houses and distributors.

Agents and representatives
These two aren't exactly the same. An agent secures orders from foreign customers in exchange for a commission. A representative is a specialized agent who operates within a specific geographic area and who sells related lines of goods or services. Both may be authorized to enter into contractual sales agreements with foreign customers on your behalf. Normally you pay them a commission only when they sell your product or service.

An agreement with a foreign agent or representative immediately gives you a presence in your target market. This is usually less costly than setting up your own direct sales operation. Your representative can also make more frequent sales calls than you probably could. Finally, such an arrangement gives you control over the product or service and its price - an important advantage.

Good foreign agents or representatives can help you in many ways. They can markets, advise on financing and transportation options, clear customs, provide access to potential customers, make collections, and supply information on local business practices, laws and cultural traditions.

Trading houses
Trading houses are domestic intermediaries that market your goods or services A full-service trading house handles a great many aspects of exporting, such as research, transportation, appointing distributors or agents, exhibiting at trade preparing advertising and documentation.
Some act as "principals" or "export merchants," buying products outright from Korean suppliers, while others act as "agents," selling on commission. Some specialize in specific industry sectors, while others focus on particular foreign markets.

If you prefer not to sell directly to foreign customers or worry about finding an intermediary, you might consider using a trading house.

Foreign distributors
Unlike agents, distributors actually purchase your product or service and resell it to local customers. Often, they set the selling price, provide buyer financing, and look after warranty and service needs.

A bonus is that the distributor can usually provide after-sales service in the foreign market. On the other hand, using a foreign distributor may reduce your profit margins and result in a loss of control over your product and/or price.

Choosing an intermediary
Korean trade commissioners abroad, trade associations, business councils and banks are useful sources of information. Talking with other Canadian exporters or potential foreign customers can help you identify prospective agents or distributors.

Once you've developed a list of candidates, you should visit the market to meet with them. Talk to several firms and be very sure to check their references to make sure they are reputable.
You can also protect yourself by entering into a limited-term trial agreement. If the foreign intermediary does not meet your expectations, you can find an alternative once the trial period is over.

To evaluate a prospective intermediary in detail, use the checklist below. Be sure to tailor it to your company's particular needs and the characteristics of your chosen market.

Size of sales force
• How many field sales personnel does the agent or distributor have?
• What are its short- and long-range expansion plans, if any?
• Will it have to expand to accommodate your needs properly? If yes, would it do so?

Sales record
• Has its sales growth been consistent? If not, why not? Try to determine its salesvolume over the past five years.
• What are its sales objectives for the next year? How were they determined?

Territorial analysis
• What territory does it now cover?
• Is it consistent with the coverage you're looking for? If not, is it willing and ableto expand?
• Does it have any branch offices in the territory you wish to cover? If so, are theylocated where your sales prospects are greatest?
• Does it plan to open additional offices?

Product or service mix
• How many product or service lines does it represent?
• Are they compatible with yours?
• Does it represent any other Canadian firms? If so, which ones?
• Would there be any conflict of interest?
• Would it be willing to alter its present product or service mix to accommodateyours, if necessary?
• What would be the minimum sales volume needed to justify handling your lines?
• Do its sales projections reflect this minimum figure?
• From what you know of the territory and the prospective agent or distributor, isits projection realistic?

Facilities and equipment
• Does it have adequate warehouse facilities?
• What is its method of stock control?
• Does it use computers? Are they compatible with yours?
• What communications facilities does it have?
• If servicing is required, is it equipped and qualified to do so? If not, is it willing toacquire equipment and arrange for training?
• If so, to what extent will you have to share these additional costs?
• If necessary, would it be willing to inventory repair parts and replacement items?

Marketing policies
• How is its sales staff compensated?
• Does it have special incentive or motivation programs?
• Does it use product managers to coordinate sales efforts for specific lines?
• How does it monitor sales performance?
• How does it train its sales staff?
• Would it be willing to share expenses for sales personnel to attend seminars?

Customer profile
• What types of customers is it currently in contact with?
• Are its interests compatible with your lines?
• Who are its key accounts?
• What percentage of its total gross receipts do these accounts represent?

Principals represented
• How many principals does it currently represent?
• Would you be its primary supplier?
• If not, what percentage of its total business would you represent? How does thispercentage compare with other suppliers?

Promotional thrust
• Can it help you research market information?
• What types of media does it use, if any, to promote sales?
• How much of its budget is allocated to advertising? How is it distributed?
• Would you be expected to share promotional costs? If so, how will this amountbe determined?
• If it uses direct mail, how many prospects are on its mailing list?
• What printed material does it use to describe its company and the lines itrepresents?
• If necessary, can it translate your advertising copy?
• Does it have its own web site?

Source: Adapted without permission from Team Canada: Step-by-step Guide to Exporting & Adapted from "Western Economic Diversification Canada, READY FOR EXPORT: Building A Foundation For A Successful Export Program.

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