Place refers not only to the target market for your goods but to all the variables involved in selecting the best way (or distribution channel) of getting your product to the buyer. At some point the responsibility for placement, marketing and promotion of your products will shift more to your partner’s area of responsibility. Therefore, selecting the best distribution channel is a very important part of any marketing process. This is even more so in a foreign market where you will need to rely on all of your market intelligence when coming to the vital decisions regarding the appropriate market channel. Some the main questions you will need to start asking yourself include:
Are you going to try to sell directly to the consumer or are you going to use some sort of “middleman”?
Will you be using a Sales Representative, Export Agent or Broker?
Will you be delivering directly to an importer/wholesaler or importer/retailer?
There are several types of distribution channels or ways to get your product to the buyer. Some are more direct than others. Depending on which channel is chosen, your company will have varying degrees of responsibility for the transfer and selling of the product ranging from minimum (if sold to an importer, wholesaler, or retailer), to maximum involvement (if the company tries to sell directly to the consumer.). In all but one case, the selection of a channel will involve the services of a so-called “middleman” or representative. In many cases the most common route to market is moving the product from the factory to an agent or importer, from the agent or importer to the retailer and on to the consumer. How do the services of these different representatives vary?
The Importer and the Agent
The main difference between an agent and an importer is in the level of ownership they take of your goods during the transaction. The importer, whether wholesaler or a retailer, takes title of the product and assumes the risk of selling and advertising the product once the agreement with your company has been made. The Importer/wholesaler then sells the product to the retailer who in turn sells it to the consumer. Importer/retailer intermediaries for consumer products typically are large department stores such as the Sears, HBC (the “Hudson’s Bay Company”) or Holt Renfrew in Canada, Wal-mart, Target or Saks in the USA or large retail chains such as the Gap, Sports Experts, Bata Shoes, etc.
The Agent Intermediary
The Agent Intermediary, on the other hand, aids in the transfer of the product but does not take title (or “buy”) the product from you; he/she does not take possession of the product. Instead the agent works on commission, usually a percentage of sales, and is generally authorized to enter into sales agreements on your behalf. They are normally responsible for warehousing and other issues related to the proper distribution of your goods in-market. An agent usually handles a number of similar but non-competing lines. They are also known as manufacturers’ agents, purchasing agents or even brokers.
Forms of Payment
Freight Forwarders
Freight Forwarders are often well placed to look after several aspects of the export process and for a price can offer specialized services associated with packaging for export, the handling of customs requirements at the market end, transportation and, of course, document preparation. Freight forwarding services are commonly retained simply as part of a more typical distribution system.
Piggybacking
Piggybacking means adding your product to the export activities of a larger cPiggybacking means adding your product to the export activities of a larger company in your own country. This of course only works if the larger company wants to add your product to its product line. In this case, the other company assumes all of the work and responsibility for getting the products to market. (This style of distribution is more common in sectors such as the food/condiment industry.)
Export Consortium
An export consortium is usually comprised of a group of like-minded companies, often SME’s, who get together to form a cooperative agreement to share the work, risk, responsibility for export activities, thereby sharing their expertise and the cost.
Bird-dogging
An export consortium is usually comprised of a group of like-minded companies, often SME’s, who get together to form a cooperative agreement to share the work, risk, responsibility for export activities, thereby sharing their expertise and the cost.
Trading Houses
Trading Houses also offer specialized export services related to buyer identification, product and packaging specifications, price negotiations and shipping. Trading Houses, like agents, usually work on a commission basis. They tend not to specialize in specific product lines, like agents, but deal in more generic categories such as spices or agricultural commodities.
Note: In Canada, investigate at Canada Business Network.
Partnership/Joint Venture
Forming a partnership or joint venture with a local company in the target market is sometimes the only way to sell into some markets. These business ventures are very common in countries such as the Peoples’ Republic of China where the local company provides the land, resources, and the labour and the export company brings to the partnership, technical know-how, management skills, and export marketing expertise.
Choosing an Agent or Partner
Often companies have a desire to “cut out the middleman”, attempting to get product to market in the most direct manner possible without intermediary handling in order to save the cost of commissions or fees. However, depending on the market and who your client is, this can be an erroneous assumption. Direct buyers (importer/retailers) are usually the larger retail chains and they can be exceedingly demanding. Due to their considerable purchasing power, they have wide discretion in filling their sourcing needs and a long line of suppliers waiting to fill those orders. Given the high demands of direct selling, you should also consider the agent or other partnering option as a good way to get a foothold in a new market.
A good agent or importer usually has extensive knowledge of the target market. They know the best ways to promote and advertise the product, where and how your product should be positioned, how the wholesale and retail systems work, all of the laws and regulations (trade regulations, product standards, etc.) governing the entry and sale of the product. They also understand and can deal with specific and complex issues such as packaging and labelling requirements, packaging for shipping, transportation, storage, financing and insurance.
If you cut out the middleman, the full responsibility to comply with the whole export process and all of the specifications will fall to your company. Serious consideration should be given prior to any such decisions.
In countries that have very different business practices from your own, it is very difficult or even impossible to do business without having a local agent who has useful personal connections in the sector of interest and who is intimately familiar with local trade regulations, the issuance of permits, and other legal issues.
So what kind of partner should you be looking for? And how can you determine what kind of agent is best for your company in the target market? The answer will depend partly on the size, capacity and experience of your own company; the type of product (for instance, a commodity, large or specialized machinery, or consumer goods) and the characteristics of the market.
Finding your way to a good agent can be difficult especially if you do not visit the market often. In many cases you can seek assistance from foreign trade representative at your Embassy abroad. These officials often maintain lists of pre-screened agents in several sectors. Alternatively, they mat be willing to do some of the research for you. The sources of information to draw from to create a list of potential representatives/agents would include:
Chambers of Commerce;
Trade and industry associations;
The Trade Department of the local bank where the Embassy does its banking;
Directories of importers;
Trade journals and catalogues of specialized trade fairs (including on-line).
Evaluating Credit Worthiness
The agent or buyer will likely be as interested in your credit and financial history as you are in theirs. With this in mind it may be worthwhile to set a positive precedent of goodwill in terms of free flow of information exchange by providing them with as much detail regarding your company’s background and credit history as possible. They should then be more willing to reveal there history to you as well.
To assess their background or track record, the potential agent should be able to provide you with details on the following:
Degree of specialization
Experience with your product
Location
Agencies for competing products
Functions (commission? Importer or on own account?)
Specialized facilities if necessary
Exclusivity considerations
You can check and establish the credit worthiness and track record of the potential representative by consulting with your country’s trade representative (the Trade Section of your embassy in Ottawa or Consulates in Toronto, Montreal, and Vancouver etc.) and reports from local banks. You may wish to check with your nearest Canadian Embassy, High Commission or Consulate’s Trade Office to see if they can help you locate information on the company. You can find their locations and contacts at http://www.international.gc.ca/cip-pic/embassies-ambassades.aspx?lang=eng.
Performing a simple internet search (google.com, for example, is quite reliable) on a company is a good idea as you may come across some hits on things such as court/legal proceedings, Trade Shows they have attended or otherwise participated in, etc.
Purchasable reports regarding a company’s credit and other business background information may be found from:
Dun and Bradstreet Reports (Canadian and international companies)
https://dnbexpress.ca/ReportSearch.asp or, for non-Canadian companies;
D&B Reports via EDC Export Check (See below) or;
EDC Export Check Reports (International – Non-Canadian buyer information)
http://www.edc.ca/EN/Knowledge-Centre/Pages/Search.aspx?k=check reports&r= (Click on “EXPORT Check”)
Finally, once a good representative has been identified it is important to put your business arrangements in writing. These agreements can take many forms from a simple letter to an extensive agreement touching on every possible eventuality. The following is a checklist which could be used as guide in drawing up such an agreement (Note: these are just suggested items, not all of which would necessarily be included, depending on the complexity of the agreement).
Agency Agreement Checklist
Statement of parties to agreement
Purpose
Description of goods
Territory to be covered
Duties of the principals
Duties of the agent
Exceptions, reserves or restrictions
Method of quoting price-CIF, FOB
Method of Purchase/ Sale by agent
Goods on consignment
Cost of communications
Force majeur
Options or permissive clauses
Commission
After-sales service and warranties.
Cost of promotion
Books of account
Periodic repairs
General conditions
Duration
Breech of agreement
Assignment
Additional ‘P’s” of International Marketing
The following are some final, additional components of the Marketing Plan. They are all important consideration when approaching a new market.
Payment – How will you ensure you get paid (related to Credit issues discussed above)
Personnel – Do you have the necessary skills in the organization? The right people in the right positions?
Planning – Have you planned your business, export marketing, financial expectations?
Paperwork – Are you familiar with what is required?
Practices – Have you considered differences in cultural and business practices?
Partnerships – Have you selected one or more to penetrate your target markets?
Policies – What are your current and planned policies
Positioning – How do you want to position yourself in the market? (based on pricing strategy)
Protection – How will you protect your intellectual property / patents?