Exporting directly into a foreign market requires attention to detail and command of your logistics because you must deal with many unknown factors.
Follow these steps to establish your representation in your target market:
- prepare a list of potential agents or distributors
- screen the candidates to arrive at a short list
- interview those candidates who have been short listed
- select your agent or distributor
- establish an agent or distributor contract using a lawyer familiar with the market
- provide technical and marketing support to your representatives
- communicate with the agent/distributor on a regular basis
- keep the agent motivated and informed about your merchandise
- provide assistance to the agent in solving problems
A foreign distributor orders goods and resells them to wholesalers, retailers or end users in his own country at prices they set themselves. Distributorships are usually granted for a specified territory and the distributor provides after-sales service and technical support.
Your distributor may also agree to develop a market for you with his or her sales force, appoint dealers, and handle all promotions. If a distributor is appointed on an exclusive basis, he or she receives sole rights to sell in a given territory. A distributor usually handles a number of similar product lines.
A sales agent (or representative) in a host country generally works on commission in an exclusive territory. The agent seeks business, enters into legal contracts with the purchasers on your behalf and conveys the purchase order to your Canadian base. You then ship to the purchaser directly. In many instances, the exporter relies on the agent's judgment regarding credit risk. Agents often provide some collection support.
An agent may be an individual sales representative who works on his/her own in a specialized product area, or may be a large manufacturer looking for a product to complement its product line.
Agents may provide a variety of support services, including carrying stock, promoting services, advertising and repairing goods. When selling through an agent, you have more control over the market activities than selling through a distributor.
Another form of "agent" is a manufacturer's representative. Selling via a manufacturer's sales representative is appropriate where there are more customers to be called on than your sales staff can economically handle. Manufacturer's reps usually carry very focused, vertical product lines and have the advantages that they already know the market and customers; you only pay them when they make a sale.
Direct Sales to Final Buyer
Direct sales to a buyer is ideal for technical products requiring technical service and support. You must have the ability and resources to be involved in all aspects of marketing and after sales service. When selling directly to a buyer, you retain a high degree of market control. However, the marketing costs may be high.
Selling direct is appropriate when the depth of knowledge or expertise essential to sell your products can only be provided by your own sales staff. It also might be appropriate if you have relatively few potential customers or where your potential customers are concentrated in a relatively small geographical area.
This is a firm or individual working on a straight commission as agreed to by you. Brokers usually specialize in bulk commodities. They bring together a buyer and seller and helping negotiate agreements or contracts.
When an exporter is faced with prohibitive production costs at home, low-priced competition abroad, transportation problems, or high tariff barriers, a licensing agreement can be an alternative to market development. The holder of the license then produces the product in the foreign country; finances and builds manufacturing facilities; and uses the exporter's trademark, patents, technical know-how, or training, in return for payment of a royalty or fee. Franchising is another form of a licensing agreement.
The main advantage of licensing is that market penetration can be achieved without direct investment by the exporter. However, a disadvantage is that a licensee is a potential competitor upon the termination of the licensing agreement.
Exclusive agreements on sales territory and rights may be included in a license. Laws and regulations governing license agreements vary from country to country and the licenser's lawyer should review the foreign country's regulations covering the types of rights which can be licensed legally. Be sure to investigate your legal recourse to enforce the foreign licensee's agreement to pay the royalties and the legal if either party should break the agreement.
A joint venture is a step beyond licensing. Here, the exporter invests money along with a foreign investor or investors to produce the product in the host country. Joint ventures entail many technical considerations and are often covered by special legislation.
Therefore, before entering into a joint venture, it is important to retain a lawyer with a thorough understanding of all host country's relevant laws.