Answer: When a company decides that its most attractive export channel is an agent or distributor channel, it must then initiate a screening process to choose individual agents or distributors. Finding good foreign distributors and agents is a major problem for manufacturers and demands considerable attention and effort.
The screening process to choose a foreign distributor has four phases:
- Drawing up the distributor profile.
- Locating distributor prospects.
- Evaluating distributor prospects, and
- Choosing the distributor.
The distributor profile
The distributor profile lists all the attributes that a company would like to get in its distributor for a foreign target market. It includes the following specifications:
- Trading areas covered.
- Lines handled.
- Size of form
- Experience with manufacturers or similar product line.
- Sales organization and quality of sales force.
- Physical facilities
- Willingness to inventories.
- After-sales servicing capability.
- Knowledge/use of promotion.
- Reputation with suppliers, customers and banks.
- Record of sales performance
- Cost of operations
- Financial strength credit rating.
- Overall experience
- Relations with local government
- Knowledge of English or other relevant languages.
- Knowledge of business methods in manufacturer’s country.
- Willingness to cooperate with manufacturer.
Screening distributor prospects:
It is the second step of choosing the distributors. After listing the distributors profile, manufacturer need to obtain information on prospective distributors in a target country from numerous sources.
Sources of collecting information:
- Government agencies
- Manufacturers exporting complementary lines.
- Trade association
- Trade publications
- Transportation agency
- Freight forwarders
- Trade fairs
- Advertising agencies
- Chamber of commerce
- Unsolicited inquires
After collecting information, the manufacture should look for prospects that appear to match his profile. Now the next step is to send a letter to each prospective distributor, asking about his interest in handling the manufacturer’s product line and information relating to the items I the distributor’s profile.
But some letters may not be answered, because distributor may not interested in the manufacturer’s product line or he may already handles a competitive product line to increase the number of non-responses, distributors should be a sales letter that promotes his product line by citing its competitive advantages and sales potential in the distributor’s country.
Now the manufacturer needs to evaluate the responses to the first letter and checks with banks and supplier reference and other information providing the basis for a second screening.
Next, a follow on letter can be sent to the remaining prospects asking each distributor to outline the marketing plan.
After getting information about the marketing plan, the manufacturer is able to determine a limited number of best prospects. But it will be wise that manufacturer makes his final choice only after a session of personal interviews with all the best prospects. The final choice of a distributor is well worth the time and money for personal visits. There is an old saying in the export business “your line in only as good as your distributor or agent.”
Negotiating the distributor contract:
The ultimate choice of a distributor is the outcome of a negotiation in which the distributor chooses the manufacturer. This is particularly true of goods distributors who already handle the lines of several reputable manufacturers and are frequently asked to take on new lines. Consequently, the more precisely the manufacturer knows what the distributor wants form him, the more prepared he is to negotiate viable agreement.
The distributor’s profile of an ideal supplier will contain the following points;
- Differentiated, well-known, prestige product with good sales potential.
- Functional discounts that allow high markups.
- Exclusive distribution rights protected by the manufacturer.
- Contractual obligations assumed by the manuafacturer for a lengthy period, with indemnities paid for any cancellation by the manufacturer.
- Right of the distributor to terminate the agreement without indemnities.
- Right to design and implement to marketing plan without interferences or control by the manufacturer.
- Generous credit terms.
- Full support by the manufacturer—inventory backup, quick order servicing, technical and sales training, advertising allowance, special discounts, and so on.
- Product warranties.
- Freedom to handle other lines, whether competitive or complementary to the manufacturer’s line.
- Paid visits to the manufacturer’s headquarters or to regional meetings.
- Obligation to provide only minimum information to the manufacturer.
Even if the manufacturer could meet all these conditions, he would be foolish to do so; he would have only a marginal influence on the marketing plan and he would assume costs that would make the channel unprofitable or less profitable than an alternative channel.
The negotiation process may be viewed as a reconciliation of the manufacturer’s and the distributor’s respective profiles. In most negotiation, both sides will compromise on some issues.
The distributor contract:
The manufacturer’s agreement with a distributor should take the form of a written contract. The written contract is particularly important when things go wrong. Moreover, it provides the foundation for cooperation in designing and carrying the marketing plan. Although it should be adaptable to circumstances, every distributor contract should clearly define all rights and obligations so that both parties fully understand them. The key elements in a distributor contract are as following;
- General provisions:
- Identification of parties to the contract.
- Duration of the contract.
- Condition of cancellation
- Definition of covered goods
- Definition of territory or territories
- Sole and exclusive rights.
- Arbitration of disputes.
- Rights and obligations of manufacturer:
- Conditions of termination
- Protection of sole and exclusive rights
- Sales and technical support
- Tax liabilities
- Condition of sale
- Delivery of goods
- Order of refusal
- Inspection of distributor’s books
- Information to be supplied the distributor
- Advertising/ promotion
- Responsibility for claims/warranties
- Inventory requirements
- Rights and obligations of distributor:
- Safeguarding manufacturer’s interests
- Payments arrangements
- Contract assignment
- Competitive lines
- Customs clearance
- Observance of conditions of sale
- After-sale services
- Information to be supplied to the manufacturer.
For most manufacturers, the three most important points in the contracts are:
- Sole and exclusive rights
- Competitive lines
- Termination and cancellation.