(Practical Solutions to Difficult Problems) Go it alone? or With a Partner? - Jeremy Gray

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​You have done your research, you have the funds, the people in place. You have assessed the demand for your product and the capability of the competition. Everything looks good. You are ready to start planning your market entry. You are about to become an International Entrepreneur.

In today’s show we will consider whether you should go it alone, or use an agent or distributor.

I will focus on working with a partner in our target market but do not dismiss entering the market with a company from your home country. 

If you know of a company that has complementary products, maybe consider forming a Joint Venture to enter the country together. Much of the research you have done will be applicable to your potential JV partner. You may even have identified that you will have a higher degree of success if you can bring a more complete package to the marketplace. But the financial resources, the robustness of their business and the capability of their people you need to assess carefully before agreeing to a Joint Venture. More importantly does their enthusiasm for the project match yours? Remember there will be setbacks and unless their commitment is as strong as yours troubles lie ahead.

For marketing your products or services there are three common approaches:

• Set up your own in country sales organization
• Use an agent
• Use a distributor

What is the difference between a distributor and an agent? Put simply, a distributor is your customer, an agent finds customers for you. A distributor should have the capability to buy, store, market, and as the name implies the ability to distribute your product to the end user. An agent has none of this infrastructure, an agent finds customers who want to buy your product, the customer places an order directly on your company and the agent gets paid a commission on the sale.

Setting up your sales team:

Advantages

• Gives you better insight into the marketplace
• Helps you identify opportunities
• Can focus on the long term - distributors and agents may take a short term view
• Increased credibility with customers - shows commitment to the country
• No need to share profits with agents or distributors.

Disadvantages

• You have to do everything yourself
• Hiring staff requires a good knowledge of labour law and practices in the target country.
• Will likely be considered a Permanent Entity making you liable for taxes and statutory filings

An alternative to your own in-country sales team or a distributor or an agent is to use your home based sales staff as international sales representatives. Not my favourite approach, part time effort equals part time results. There may be tax implications for your staff depending on how long they stay in the country.

Using an Agent
A sales agent acts on your behalf by finding you customers which you supply and invoice directly. The agent receives a commission on the sale. 

Agents who are already selling complementary but not competing products, or agents who have a well established reputation within your customers industry are often good choices.

Advantages:

• Simplicity and speed. An agent can be promoting your products within days of a contract being signed.
• Benefit from the agents industry knowledge and experience.
• No recruitment costs or tax liabilities
• Flexibility. Contract can be for one year or less, allowing either party to terminate the contract if it is not working.

Disadvantages:

• An agent does not hold inventory. This will impact your time to delivery. If your competition holds inventory in country they can deliver in days rather than weeks.
• You take on the credit risk
• After sales service can be challenging

Would a distributor be better for you?

Advantages:

• Holds inventory
• Market and sells your products to end customers
• Manages distribution
• Takes on the credit risk

Disadvantages:

• Will expect large discounts and extended credit terms
• Long term commitment required
• Loss of control of your marketing strategy

Caveat for agents and distributors. Make sure you understand anti corruption legislation both globally and locally. Make sure agent or distributors contracts include clauses requiring compliance with all applicable laws.

Joint ventures are an alternative. Partnering with a local company. Keep in mind ownership and control are not the same thing. You can have control with a minority stake. 

Being a minority shareholder can improve your company’s financial statements if you can book the income but not the sales. Earnings as a percentage of sales improves.

You can contact me via the following links:
mailto:jeremy@business-in-asia.org

Or schedule time via Calendly:
https://calendly.com/3-continents-consulting

My websites include:
https://business-in-asia.org/
https://thedentistscfo.com/

My LinkedIn URL
https://www.linkedin.com/in/jeremy-gray1

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