It has often been said that the choice of local representative is the single most important decision in exporting success. It’s certainly true that the local representative will be the face of your business and products in their market, so they have a crucial role to play. Tim Hiscock looks at how an exporter should go about finding a representative and how they decide what the correct method of representation is?
It’s important to mention at the start that successful exporting doesn’t always have to involve having local representation at all, and for some the age of digital technology can make it possible to develop markets and manage customer relations from their home country. And while agents and distributors remain the most common solutions, there are numerous other ways to get your products or services to the marketplace. Some manufacturers use joint ventures with local partners to produce the goods locally or perhaps undertake just some of the final assembly in the market. Others licence the manufacture or use of technology and profit from the venture by royalties. Some exporters establish a local branch or subsidiary in order to retain control.
But a majority still use an agent or a distributor, so let’s take a quick look at what they are. An agent is a local sales representative who negotiates business on the exporter’s behalf, introduces the customer to the exporter, supplies the order directly and collects payment. The agent earns a commission on the business. Agency agreements tend to be most popular with high-value products, especially if they are bespoke, and also with long-term projects such as construction or IT projects.
A distributor buys and retains local stock, and resells it to customers (or sometimes to retailers or sub-distributors). He makes his money from the margin on sales. This model tends to work much better for faster moving products and mass market consumer items where the ability to supply quickly is important.
Exporters need to take care to consider the individual characteristics of each market and how best to meet the needs of their end users. The decision needs to be made strategically and with full knowledge of the market in mind. What works in one place might not necessarily be the right method in another. Start the process with a blank sheet of paper and an open mind.
Exporters should not allow themselves to be rushed into making a decision. It’s true that we are invariably under pressure to produce results and it can be tempting to take a chance on someone who makes a good impression, but the costs to a business of making a poor choice can be substantial, and in some cases might even lock them out of a market for a very long time. Take time to investigate the market for yourself, seek advice widely from experts such as the commercial section of the local British Embassy or Chamber of Commerce, potential end users and other interested parties. Even competitors are often willing to talk, but consider their motives!
Make sure the decision of how to approach the market is yours and not imposed by anyone else. When you find a potential partner who meets the needs you have identified, discuss the way forward in detail. Ask them about past experience, their local knowledge and what they know about competitors. Also, check out their ability to deliver what they promise. How big is their sales team? Can they really cover the whole territory? What other products do they already carry and do they have the resource and the motivation to really do justice to your products? It’s a good idea to draw up a specification and profile like you might do if you were recruiting an employee.
Expect your agent or distributor to work independently and on their own initiative, but also be proactive. Managing an agent or distributor is one of the most difficult jobs in management. The people you are seeking to manage are both very remote from you physically and also are not employed by you. It’s crucial to set goals and expectations, and take a sufficiently close watch to ensure that expected progress is being made.
It’s often sensible to agree initial steps in terms of a specific, time-limited plan. A Heads of Agreement document is sometimes an effective way to agree initial steps without immediately making a long-term commitment. This can also focus everyone’s mind on the immediate future and ensure that action is taken within a manageable timeframe. Ask them about their plans and expect some detail. They may be wary of giving away too much and that’s something to respect. But you need to be confident you’re making a good choice.
The first 90 days of the relationship will typically be crucial. In this early period, the exporter should be very present. This needn’t mean being physically present, although spending time with the representative in the early stages is crucial. It also means, in the nicest way, being on their back. Keep the contact positive, enthuse about their achievements and plans, and never let them forget about you. Keep a close watch on agreed milestones and deadlines. Contact them ahead of key dates and ask them how it’s going, is there anything they need? Tell them about the successes and challenges elsewhere. Find out about your representative, what kind of people they are and what they do outside of work. If they support a football team, follow the team’s progress. Send him a message of congratulations when they do well. Develop a positive and friendly relationship wherever you can, but one in which it’s clear that the achievement of the initial milestones is really important to you personally.
By getting to know your agent or distributor, you will begin to understand how the work and what motivates them. Remember that they are rarely just one individual, but part of a team. Make sure you get to know other key players in their organisation and give your colleagues a chance to get to know them, too.
Measure and review the progress during the first 90 days carefully and on an ongoing basis. Has everyone done what they said they were going to do? Has it delivered what we expected? If not, why not? Did we do the wrong things, or did we just not do them well enough? What more do we need to do? This period will usually be long enough to find out if you can develop a positive working relationship and should also give an indication of the prospects of success in this market. When the heads of agreement is coming to an end, be sure to take the initiative in proposing the next steps. It might be appropriate to consider a formal distribution contract now. Be careful to consider all implications in detail and take qualified legal advice to ensure that your contract is enforceable and doesn’t have any unintended obligations or consequences.
Keep agreeing targets with your representative. Try to make those targets challenging but realistic. In the early stages, such targets are often a bit of a guess, but make them anyway, and agree what each party is going to do to meet them and when. Remember that your representative is not usually just working for you, so you need to motivate them and give them reasons to give your products priority. Find ways to help and motivate them, such as inviting them to your head office for training. If they have a sales team, offer to supply a small prize for the best performing team member.
Above all, act to make the representative a key part of the business. Tell them about the successes and failures elsewhere, about what is happening at your head office, changes to key personnel, etc. The biggest factor in long-term success is building a team ethos.