There are many important aspects to building a successful relationship with an international distributor or local distributor in a different country. Managed correctly, this can be a win-win method of expanding sales of your products into foreign markets while saving you significant time and resources. Here is our list of tips and expectations for you to consider.
1. Have a good contract.
This is obvious but extremely important. Business relationships across geographic, linguistic and cultural borders function much more smoothly if all parties thoroughly understand and have agreed upon detailed key terms prior to beginning sales or operations. Many companies will use contracts containing parallel versions of English, and the local language. But be advised, this can sometimes present issues with discrepancies in translation and specifics of local law. In any case, we highly recommend using an experience lawyer with direct experience in the local country. For example, if your doing business in China, use a good lawyer on the ground in China.
2. The distributor generally buys your product outright, takes title, and assumes re-sell risk in the local country.
When products or commodities are shipped to distributors across international borders, it usually involves large volumes and considerable time and money to arrange logistics, transport, customs, documentation, etc, and thus makes it very expensive and difficult to send things in reverse. Your distributor generally and assumes all re-sell risk, and sets the mark-up they will earn from re-selling your product locally.
3. The distributor should take on all tax liabilities in the local country.
A local distributor should be an “independent contractor”, and thus incur related tax liabilities and credit risks in the local country. Generally, tax liabilities will vary by country, and it is very important to understand that as a seller that you are responsible for abiding by the law of whatever country you are selling into. In general, we strongly recommend stipulating in your distribution contract that the tax liabilities and responsibilities for meeting them will all fall to the local importer/distributor, including import, sales, and other taxes. Being local, they are much more aware of local laws and regulations, and exponentially better prepared to deal with them. Although this may seem like a given, it can be a critical issue and should not be overlooked.
4. Determine if the distributor will have exclusive distribution rights.
This is a key part of your distribution agreement, and should be considered carefully. There is no one-size-fits-all approach to this question. In any case, you should protect your interests by ensuring that in any exclusive relationship, the distributor is responsible to meet agreed-upon volume requirements, over a set term, in a specific territory. To start, we recommend using a non-exclusive relationship or a shorter term length, to make sure you and your distributor can work together successfully and meat your sales targets. Don’t feel pressured to concede exclusivity right away, as you can often benefit from using multiple distribution channels, and often times there are markets within markets that are better served by different distributors.
5. The distributor will stock the product in their local warehouse.
Distributors will be responsible for having products on hand in their local warehouse, handing sales inquiries, selling, and distributing products to the local market. Before signing any distribution agreement, we recommend thoroughly vetting your distributors to make sure they meet legal standards and have adequate facilities, systems, and employees for the sales and distribution of your product according to the terms of your distribution agreement.
6. The distributor will market and promote your product locally.
A distributor will be responsible for actively promoting and marketing the products via all appropriate online and offline marketing channels. Generally, local methods may be different from what you are used to, and the distributor’s marketing experience and awareness will be critical to the successful achievement of your sales targets. This may also require the creation or translation of a wide variety new marketing materials, and it is important reasonably assign people and responsibilities in order to develop a working relationship that can execute and effective marketing strategy. This will likely require significant flexibility to cater marketing materials and promotion to the local market.
7. Regular communication and progress reports are key.
As the supplier, you can choose the frequency with which a distributor reports sales or market updates. This should be included in the contract, but generally we think the most important thing is to maintain regular, active, and even casual communication, that maintains an interpersonal relationship between key people involved on both sides. This will enable healthy discussion and tuning of your sales strategy, timely feedback of local market trends, and the ability to share ideas regularly, such as adjusting the marketing strategy or the possibility for expanding into new products.
8. Clarify expectations for after sales support and service.
It is important to determine who will be responsible for after sales support and service of your product. Generally, the distributor will have this responsibility, but depending on the product, there will be different things to consider, including warranties, guarantees, technical issues, troubleshooting, training, repairs, and even replacement parts and components. These considerations should all be considered and included in your distribution agreement. You should make sure your distributor possesses the capacity to fulfill the agreed upon support obligations.
What do you think? Feel free to contact us!