| Many Companies operate through distributors and | | | | Distributor to secure within 12 months, 3 years |
| stockists. There can be many reasons why a | | | | and 5 years? |
| Company chooses this route to market. | | | | * How will the Distributor achieve this? |
| Some Suppliers do not have the ability to serve | | | | * What does the Distributor need to do to make |
| the wide and varied market place, and it makes | | | | this happen? (Employ more people, create new |
| sense for third parties (Distributors) to offer their | | | | cost centre, attend exhibitions) |
| products. In others it is used as a strategy to | | | | * What does the Supplier have to do to support |
| secure business in overseas markets, or places | | | | the Distributor? (training, collateral, sales visits etc) |
| market sectors that are remote from the | | | | * What stock commitments should the distributor |
| Supplier. | | | | make? |
| So, how do Distributors come about? | | | | * An agreed plan of action (by whom, by when |
| Many have been past friends, or friends of | | | | etc) |
| friends! Others have come as a result of an | | | | * What preferential terms should the Supplier |
| Exhibition meeting, answering an advert, or some | | | | make available to ensure the distributor is |
| simple research. A few have been placed by | | | | incentivised and is profitable? |
| seeking Commercial Attaché services provided | | | | * An agreed statement of expectation from both |
| by the Government. | | | | sides. |
| What is a Distributor? Ideally, it is a company | | | | * A formalised means of reporting and |
| operating in a sector that is key to the Suppliers | | | | communication from both sides. |
| target market (or one of the key markets). They | | | | * An adoption of the Suppliers minimum Quality |
| will have a vested interest in selling proactively (i.e. | | | | procedures and requirements. |
| not a passive sale), keep stock, and will not sell | | | | * Performance targets & clauses. |
| any competitive products. In many instances, | | | | * Get out clauses and exit routes. |
| they will sell complimentary products. Their | | | | * An understanding of the financial commitments |
| territory will be defined geographically and/or by | | | | that each will input. |
| market sector. The Supplier will have little control | | | | ... And so on! |
| over the distributor, but with good management, | | | | If a potential Distributor does not take these |
| can exert quite a lot of influence over them. | | | | discussions seriously, then it is likely that the |
| And for a Supplier considering whether | | | | future will be full of misunderstandings and under |
| Distributors are for them, what are the pitfalls, | | | | achievement. A marriage made in hell. |
| and what are the alternatives? | | | | How does one go about finding a good |
| The main pitfall is that the Distributor is a | | | | Distributor? |
| separate legal entity, and will always be the | | | | First, decide what you want: |
| deciding factor over the success or failure of the | | | | "Our products are sold to Biotech companies and |
| sales potential. | | | | the Nuclear Sector". Therefore, in any |
| Alternatives can be a stockist, an agent, a joint | | | | geographical territory, there may be a distributor |
| venture, an acquisition, a subsidiary, a franchise or | | | | for each sector. |
| a license agreement. Each will need proper legal | | | | "How big should the company be that distributes |
| preparations and up front due diligence. And cross | | | | our products?" (A very LARGE player may in |
| border arrangements will need consideration of | | | | some cases be eliminated from all possible |
| the legalities in both the Suppliers country, as well | | | | business, so a lower tier supplier may prove |
| as the target country. | | | | better). |
| A stockist is a fairly static and passive partner. | | | | "Should they already be selling complimentary |
| They may also stock competitive products | | | | products?" |
| alongside yours, and have no real vested interest | | | | "Should the Distributor be expected to employ |
| in making yours successful. | | | | dedicated staff to look after our product?" |
| An agent will work on your behalf, and take a cut | | | | "Where do we want to grow Geographically?" |
| of profits. However, the supplier will have little | | | | Once you have decided upon what the Distributor |
| control over how he/she operates, and cannot | | | | should be, or look like, the Supplier can then |
| dictate the priorities or strategy. | | | | concentrate on researching the market/territory |
| A joint venture is where two 'complimentary' | | | | for potential Distributors. However, this can be |
| businesses join force, add capital and time to a | | | | very expensive and time consuming. Without local |
| 'new entity' with its own identity and direction. | | | | knowledge there can be many cost and time |
| Here the supplier will have an element of strategic | | | | consuming 'blind alleys'. Consultants in the territory |
| influence, normally commensurate with the share | | | | with specialist and local knowledge can provide |
| holding of the entity. Drawbacks here are that this | | | | great value for money in the search, selection, |
| can be costly, and good management will be | | | | due diligence, introduction and negotiation of new |
| needed to avoid the partnership becoming hostile | | | | Distributorships. Suppliers are often blinkered by |
| as the business grows. | | | | their own limitations and perceptions. A consultant |
| An acquisition is where the supplier has bought an | | | | will approach the discipline without these |
| existing business in order to further their own aim. | | | | constraints, creatively and professionally, and can |
| This can be a quick route to establishing a | | | | ensure that the foundations are sound before a |
| 'subsidiary' company, and the supplier will now | | | | deal is done. |
| have full control. Drawback is that this is likely to | | | | Once a deal is done, and business starts to role, |
| be the most costly scenario, but can be highly | | | | Distributor management skills become key for the |
| lucrative. | | | | Supplier in order to exert positive influence. The |
| A franchise can be applicable, particularly where | | | | Supplier must always remember that the team at |
| the business model, or delivery model can be | | | | the Distributor are not the Suppliers employees. |
| easily replicated across many areas and | | | | They must be treated with respect and an |
| demographic divides. The drawback is that many | | | | appreciate that the Suppliers objectives may have |
| of these fail due to the lack of commercial nous | | | | been 'watered down' by the time they have |
| of the franchisor, franchisee, or both. | | | | reached the Distributors sales team. Often, if the |
| A licensing agreement can be lucrative, where the | | | | Distributor is a long way from the Supplier, the |
| manufacturing rights can be granted to a partner | | | | local Consultant (as used in the search and |
| company against an original fee and an ongoing | | | | selection process) can become a good |
| royalty against sales. Drawback is that you may | | | | independent 'go between' to ensure that all |
| lose the close control over quality, unless the | | | | ongoing Distributor commitments and targets are |
| partner applies diligence to their processes equal | | | | met. This will further reduce the Suppliers cost |
| or better than you apply in your own activity. | | | | and time commitment. |
| All of the above need time, effort and resource | | | | Monthly updates from both sides will 'lubricate' the |
| applied to make them work well, and provide | | | | relationship, with a formal update from both sides |
| profits. Therefore the strategy needs to be | | | | (ideally no less than quarterly) being essential. |
| precise. | | | | Nowadays many web enabled systems can allow |
| Frequently distributorships are not well thought | | | | real time reporting with multi access, and ensure |
| through. Often due diligence and 'digging the | | | | information transfer without delay. |
| foundations' are not treated with the respect | | | | Key points to ongoing support include:- |
| they should be, which is important before any | | | | * Regular communication |
| agreements are made. A good set of 'foundations' | | | | * Sharing of experiences |
| will include setting the 'ground rules and | | | | * Two way support |
| expectations' of both parties, both short, medium | | | | * Realistic commitments and targets |
| and long term. | | | | There is much more to managing Distributors, and |
| For example: | | | | I will explore this further in my next article. |
| * What business does the Supplier expect the | | | | |