Cheryl Lockhart

Article Summary:

Distribution is often the most challenging aspects of exporting and one that exporters spend the least amount of time on, often with disastrous results.

Evaluating Distributors: How to Avoid Distribution Problems

It happened again. I ran into an old friend while registering for the World Masters Games last month and as we were catching up, she complemented me on a necklace I was wearing. When I told her I bought it in South Africa on my last trip there, she exclaimed, "You have to start importing these. You'd make a fortune!"

The Great Import Plan
This is a refrain I've heard over and over again and while there is some truth in it, you can make money being an importer, there is a certain amount of naiveté in the plan.

First of all, most people don't take into account the shipping costs, tariffs and insurance involved - though some do sneak through customs with suitcases brimming. But the biggest flaw in the Great Import Plan is distribution. For example, Canada is a vast but sparsely populated country. In order to sell necklaces, or whatever, you need some method of getting it to the people of Lunenburg at one end and Nanaimo at the other.

Even if you are only targeting your local market, you need exposure to lots of customers to make the venture profitable. Do you open a retail store? Hit the Farmer's Market? Find a distributor? Before I go on, I bet you're thinking, "I thought this article was all about exporting?" Well, it is. This little scenario is exactly the same dilemma facing exporters - getting your product to the people that need it and will buy it.

After in-depth market research you may be 110% convinced that everyone in Italy will be clamoring for your product and you may have it all figured out with respect to shipping but the big question is, how do you get it into the hands of your customers? Finding an effective market entry method that meets your needs is probably one of the most important and time consuming methods of exporting, yet, in my opinion, it is one that companies concern themselves with the least. I've seen companies make mistakes in foreign countries equivalent to giving a mom and pop shop in Flin Flon, Manitoba exclusive, nationwide distribution rights to sell African jewelry. Sure, they might sell a few pieces but it's not likely they are going to penetrate major urban centers. And as far as I can tell, the only reason companies make this error is because they are lazy in conducting their their due diligence.

Star qualities of a distributor
Don't sign an agreement with the first person to approach you (I call it "accidental exporting" and there are a lot of unscrupulous people out there that do just that - then never deliver, waiting to be bought out of a contract). Be active in finding a distributor that meets your needs and avoid the temptation to sign an agreement with a distributor merely because they are the biggest, most persistent or super-enthusiastic.

At a minimum, consider these qualities when evaluating a distributor:

  • Proven track record in a similar line, but no conflicts of interest with competing products.
  • Mix of product lines that complement your product. Check to ensure that they actually do represent those products.
  • Established distribution networks and strong contacts with key buyers. You may have to appoint several distributors in a country like Italy where business is done regionally and there is little consolidation.
  • Solid financial history (be sure to do a credit check) and sufficient cash flow in order to extend credit to customers, as well as a willingness to invest in your line.
  • Appropriate staff (in terms of numbers but also marketing savvy) to promote your product.
  • Storage facilities, showrooms, shops, service workshops and after-sales service as required by your product.
  • Knowledge of local import procedures and regulations.
  • References from other suppliers and customers.
  • Personal rapport. This may end up being the most important factor in your success!

Finding a distributor
Finding a distributor that meets all of your criteria can be difficult. I suggest that you interview at least five potential partners (preferably in-person) before you appoint a distributor.

Unfortunately, there is no one way of finding an overseas partner and it is a time consuming process. Many companies have good luck approaching government Trade Commissioners in their target market, though results can vary from country to country and I always caution that this should be only one source of information. Other options include chambers of commerce, asking for referrals from other exporters, checking with your end customer to see who their distributors are, trade associations and trade shows. Also, your local library will have books such as "The International Directory of Agents, Distributors and Wholesalers."

Show me the money!
It's not always possible to sign-on with the largest distributor in a country. Sometimes it is necessary to work with a smaller partner, with the agreement that they will grow as your company grows. It's like the movie "Jerry Maguire" when Cuba Gooding Jr.'s character, Rod Tidwell, signs on with Tom Cruise's agency, even when no one else would take the chance. By the end of the movie, when Tidwell's football fortunes were rising, so were Jerry's - they grew together. Plus, Jerry was able to devote all of his time to Rod. Wouldn't that be great for your product?

The important thing is to have a systematic method of evaluating each prospect. At a minimum you should prepare a detailed questionnaire that addresses all of the issues I identified above. Companies that take the time to fill it out will be serious. You would be amazed at what a great filtering tool this is and it will help you to more objectively evaluate prospective distributors.

Cheryl Lockhart is the owner of International Strategies Ltd. She specializes in assisting small and medium-sized companies enter foreign markets with their products and services. With her proven process, your company will avoid the common mistakes first time exporters make and realize export sales more quickly than going solo. Expand your business internationally with less risk, less uncertainty and less expense by working with Cheryl Lockhart. For more information about International Strategies, to set-up a free initial consultation, and to read more export-related articles, visit www.intl-strategies.com.

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