If you’ve decided that a distributor is the best option for your company to expand into overseas markets, then you need to consider whether you want to be working with an exclusive distributor or not.
Usually, for most small and medium companies a distributor is the most cost effective and beneficial option, but you have to clarify the question of whether they will have formal (or even informal but de facto) exclusivity or not.
Let’s look at the pros and cons of an exclusive distributor.
Table of Contents
Pros:
Quality Over Quantity
Being exclusive usually means that a distributor is prepared to focus more on your brand and products. The relationship that you develop with them will be deeper (you’re not spreading your time and energy across multiple partners) meaning they’ll get to know your brand more deeply, in turn helping them achieve listings & collaborations that align with your brand and values.
Managing multiple distribution partners in a market is tricky to do well without them seeing one another as competitors and cannibalising your sales instead of focusing on doing better than the competition.
It means that you don’t have to repeat yourself several times in your discussions about the market and meetings can be more streamlined and therefore cost-effective.
Expert Guidance
If you are working with the right partner for your brand, they can guide you towards opportunities you might not even be aware of. Their expertise in the market will help you leverage your product and brand knowledge to grow sales. In the end, you have to be sure that you are building a solid foundation in the market as you don’t want to just be a “flash in the pan” who sells today and withdraws from the jurisdiction tomorrow.
It can also be better in countries where your product has to be registered for you to have one official importer who takes care of such procedures. Especially with complex products this can be a great advantage.
Leverage Relationships
Working with an experienced and well-regarded distributor means that you can tap into their circle of connections, built up over the years. It can be really tough working out who are really the decision makers in your chosen distribution channels so having someone on the ground who already has those relationships can both speed things up as well as increasing your chances of success.
Negotiation Skills
Working with an exclusive partner in the marketplace means that the buyers are not tempted to play one distributor off against the other to see who will offer them the best conditions. Of course, a distributor is also invested in getting the best deal as their margin represents a percentage of the sales generated, so the better the conditions which are achieved for the selling side on your brand, the higher the total a distributor can expect to earn.
Timesaving
You can focus on what you do best – providing an amazing quality product and brand – while they handle the logistics, contracts, day to day retail management, bureaucracy, and most importantly getting paid by the retail clients.
This isn’t the only way that you save time though by having a single distribution partner. Think about all the back office administrative tasks & also front facing work that are involved in “running a distributor”:
- Ensuring the account is kept up to date in the CRM system.
- Visiting the partners (& writing the minutes of meeting)
- Budgeting and planning
- Negotiating contracts
- Training and coaching their teams.
Don’t forget either that if you have more than one distributor in a market, chances are that at some point, you’ll have to invest time and energy to mediate in some kind of conflict between the two (or more) of them. Not always, but this is mostly the case. For example, if you have 2 partners divided geographically, which of them manages national accounts or online platforms?
Credibility
Being represented by a reputable distribution partner adds a layer of credibility and can help you progress faster with your sales. Although it does need to be the right partner of course, not all distributors are created equal.
If you are working with more than one distributor, you additionally have to consider how to ensure they are accepted as the “official” partner for their region or sales channel.
Readiness to Invest in Marketing
If a distributor has the certainty that an exclusive contract brings, then they are more likely to be not only more invested in your brand, but also more likely to be prepared to invest in marketing.
If you divide for example Vietnam into a “north” & “south” region, chances are that neither partner will be willing to invest that much into marketing which may bring his rivals for your attention some benefit.
Managing Pricing
If you work exclusively with your partner in the country then you can agree with him or her a unified pricing policy. This doesn’t mean in any way that you are dictating prices to the market, but simply that you can more easily have a cohesive strategy without several partners trying to undercut one another or compete on conditions.
You can focus on gaining ground against the competition rather than “internal cannibalism”.
Cons:
Limited Control
You’re essentially putting all your eggs in one basket. If the relationship sours or the distributor doesn’t perform to your expectation, it can be a setback that costs you months of sales. This is the main risk of working exclusively with one partner in a market.
Do they really have the coverage?
This can be an issue especially in larger markets such as Brazil, the USA or China where working with an exclusive distributor may not make sense. Does any single company really have the connections to work equally successfully across the whole country?
In such huge countries it may be interesting to divide the country into regions by geography or by sales channel. The other option is to ensure that your exclusive partner has a strong network of sub-distributors (however that means checking whether the product calculation allows for an additional stakeholder who needs a margin).
Margins
Exclusive distributors take a slice of all the pie, so if you go exclusive they will expect any business that you previously handled directly to be passed to them.
This of course is manageable – you can agree on a number of possible solutions. For example to continue with some direct shipments if there is a reason to justify this eg if you have a regional listing agreement with a key account, the conditions may be fixed already. In this case you may have to consider allowing your new exclusive partner to handle the local logistics and physical distribution, even if the margins are considerably lower for them than they would otherwise receive.
If the customer you are delivering directly is rather small (after all you are appointing an exclusive distributor either to broaden your distribution or increase sales) you might agree to hand deliveries over to the exclusive partner, perhaps after an agreed handover period.
You could also just agree with the partner that you will continue to deliver to the client (or stop working with them entirely) but neither of these options are usually that great.
Strong distributors may not be willing to collaborate with you
If a distributor has a strong portfolio of brands they may not be willing to accept to distribute your products on a non-exclusive basis, so you may have to decide which is most important to you.
Beware of Trophy Hunters!
Make sure that if you give a company exclusivity that they will actually focus on your brand. You don’t want to be just another logo on the wall of the meeting room and website!
There are also distributors who will try to get the rights to your products so that they can effectively block you from progressing on the market, so make sure you look at the portfolio of any partner to check for competitive brands.
Brand Alignment
Your exclusive distributor is your extended sales team in a market so you need to make sure you are entrusting your company reputation to a partner who will treat it with the respect it deserves.
Getting into “reputational hot water” in a market can put your brand back by years.
Make sure you know the terms up front
Ok, let’s imagine that you’ve weighed up the pros and cons of an exclusive distributor and are seriously considering going exclusive. Before you sign anything, make sure that you discuss the full scope of business and agree on which tasks you expect that distributor to take care of. You can find a whole long list of Qs that can be used to qualify partners in my blog post here. The process of exclusive distributor selection is key to your long term success.
Don’t leave things to chance, just because it can be uncomfortable to address difficult questions before you’ve even started working together.
Exclusivity Terms
Being an exclusive distributor for a brand brings both privileges and obligations – make sure that these are crystal clear to both parties
How will the product calculation look?
How much margin are you giving them & what do you expect in the way of activities in return?
Duration of Contract.
How long are you tied down for, what is the notice period? This goes both ways of course. There are companies who operate on a handshake but many are very much more formal and rightly so.
In many jurisdictions, the very fact of you working together with a partner forms an agreement – as you have terms that you’ve mutually agreed to work on even if those have never been poured into a contract. Consequently, it’s usually better to have an agreement in writing so that both sides are clear on their responsibilities.
Who Else is in the Portfolio?
You probably don’t want to be working with a partner who is working with your biggest rival, but they also should haves a clue about the sector that you are in. If they have no previous experience selling in your preferred sales channels, you shouldn’t be offering them exclusivity straight off – they first have to prove that they are able and willing to really manage this.
Marketing Support.
Will they help build your brand? If the answer is yes, what does that look like & how much do you expect them to invest from their margins? Working with an exclusive distributor means that you can have this kind of expectation.
How much business can you expect?
Whilst I don’t like tying a new distributor into concrete sales expectations in the first year of business, you do need to discuss where you both think it’s realistic to be in 1, 3 & 5 years.
Dedicated teams?
Make sure that there are sufficient sales people to support your brand properly. This is the very basic requirement, however on top of that you might have additional requests such as a dedicated brand manager (probably shared in the beginning) or perhaps a dedicated sales rep if your product demands a specific sales channel different to the other brands your partner represents.
Geographical Scope.
Are they really able to cover the market? Beware of companies who come to you asking for exclusivity for eg Asia or South America without ever having proven that they can sell a single piece of your product
Ending the collaboration.
What happens if you need to end a contract? Which steps need to be taken to ensure that consumers experience as little disruption as possible and there is a smooth handover to a new partner. This can be tricky with product registrations, retail listings etc if one company has exclusivity.
Conflict Resolution.
If things go pear-shaped, what’s the process for resolving disputes? This is tough to talk about at the beginning of a collaboration when everything is “rosy” in the relationship, but it’s better to lay the ground rules whilst you are on good terms than wait until there’s a crisis
References.
Can they provide testimonials from other brands? Better still can they give you a list of the companies in their portfolio and you choose who you want to talk to?
What’s Unique About Their Service?
Every distributor is different and although the majority of basic services offered will be the same across the board this is a great question to ask.
Working with an Exclusive Distributor is often a Strategic Decision
In many companies, at least in Europe, the decision about working mainly with exclusive partners will be taken at the top at the start of their exporting journeys. Even if you have a general policy of working with just one partner per country (which often makes sense in Europe where most countries are rather small) there can always be exceptions.
On the other hand, within the EU, the wording of “exclusivity clauses” in contracts is tricky because you can’t go against the principle of the free movement of goods. This usually results in companies forbidding their partners to actively sell to other territories, although you can’t forbid them responding to enquiries – this is usually more of a “gentleman’s agreement” that they won’t do such things but hand the enquiry over to the appointed partner for that region.
Just because any text book will tell you not to appoint an exclusive partner for China or the US, it doesn’t mean it’s a complete no go. Whilst any marketing course will probably tell you NOT to do that for those bigger markets especially, it’s up to you as a brand to decide whether to go ahead and do it anyway. I’ve worked with exclusive distributors in several markets that according to text books you shouldn’t and it mostly worked out fine as long as the practicalities could be managed.
It’s a 2 way street and there are not just advantages of being the exclusive distributor
Both parties need to remember that exclusivity brings both obligations and privileges & act accordingly.
If you’re going to divide by sales channels and have more than one partner, just don’t give anyone the entire rights for online sales as this is not practical to control now that many retailers have their own web shops.
If you’re not sure whether or not to confer exclusivity in a market, you have a couple of options:
- Find a reasonable way to divide the territory and see which partner performs the best, making it clear that you’ll decide on exclusivity after a certain time (this can be risky as they will be focused on competing with each other during this trial period though rather than your competitors)
- Offer a partner a trial period contract with the promise of exclusive rights if milestones and targets are met and you feel that the collaboration has potential for the long term
- Give just a short term exclusive contract so that you review the situation regularly eg annually.
Most distributors will push for a long term exclusive agreement, however you shouldn’t sign one of those unless you have a proven track record of success with that particular partner.
Remember that times, markets and companies change. Your ideal partner 5 years ago might not be suited to growing your business in the next decade so you don’t want to be tied into a long term exclusive agreement with the wrong company…
Most importantly, discuss what working exclusively will be like. When it works it’s a wonderful partnership, but when it doesn’t it’s usually because a detailed discussion wasn’t had at the start of your collaboration.
Thinking that working with a consultant would accelerate your international expansion?
If you’d like to learn more about working with me for support on your internationalisation projects or personal export knowledge, you can book a 30 minute international clarity call here.
If you haven’t already signed up for my free e-book about how to select which international market to enter next, you can do so here, or using the form below.
If you enjoyed this content please share it on social media or recommend it to your network.
Pin this post for later!
If you are interested in working with distribution partners in your export markets, you might find these posts also interesting:
- Define Your Ideal Distributor Company Profile to Succeed Internationally
- Carrying out an Annual Distributor Performance Review
- Are you a great supplier?
- Factors to Consider when Deciding on Payment Terms
- Advantages of Working with a Distributor in Export Markets
- Making the Best First Impression in International Business Meetings
- Finding the Perfect Partner: Distributor Dating in a Hybrid World
- Store Checks in International Sales: a Retail Audit Example
- How to Make an Export Plan Part 1
- How to Make an Export Plan Part 2
- Starting to Think About Your International Distribution Agreement
- An International Distribution Agreement Checklist Part 1
- A Distributor Contracts Checklist Part 2
- The Legal Requirements in an International Contract 3
- Types of International Distribution Channels
- International After Sales Service
- 55+ Questions to Ask When You’re Looking for International Distributors
- International Customer Service in Korea: Dealing with Media Crises
- Why an Integrated Business Planning Framework could Improve your Exports
- Export Pricing Strategy in International Trade as a Key Factor of Product Market Fit
- Why and How should you Enhance Distributor Loyalty in Export Markets?
Kathryn firmly believes that business is done between people, and therefore places her focus on building strong relationships that form a solid foundation for doing business.
When she's not travelling around the world, Kathryn enjoys playing clarinet in her town's wind orchestra or sharing her love of the outdoors with her Scout group.