Common Pitfalls in Recruiting International Distributors
The sad truth is that most international channel partners do not actively sell the products they represent. In order to succeed you need to have a careful selection process to identify and qualify the best prospective partners
When a company decides to take its first steps towards international expansion, the road to success can seem deceptively simple. Many times they do not even have to make the decision, as it appears as if the world is, after all, beating a path to their door. For a lot of companies, their international launch was triggered by one or more of the following events:
“My cousin Vinnie knows somebody at work who has a brother-in-law that runs a computer business in France”
“I met someone at a tradeshow from Korea, and he really liked my product”
“A company in Italy found my product on the Internet and wanted to be my distributor”
“We sold a license to Ford, and they want to install our product at their plant in Brazil”
As a result, a firm will often find itself with a network of 10-15 channel partners around the world, and very little in the way of revenues. Signing a distribution agreement does not, in and of itself, generate sales. The ad hoc approach followed by so many companies illustrate some of the common pitfalls in the recruitment process:
They like us, they really like us. Not necessarily. Just because they contacted you all the way from Italy, doesn’t mean that they are in love with your product. Unsolicited inquiries from international resellers are quite often the result of a request from one of their existing clients for a certain type of product. After doing a quick search on the web, they find you, sell one license, and lock up a long-term distribution agreement that might never produce another sale.
We are dealing with the owner. That’s fine, you want to negotiate with the owner, since he is the one that has to make the decision to carry your product. However, the owner is rarely the person who will be responsible for selling the product. He is going to send the product on to Pierre, or Johan or Gianni in the sales department, and they won’t feel the same obligation to sell a product they aren’t familiar with. In fact, since their compensation is in large part based on commissions, they will have an incentive to continue selling their current products, rather than invest time and effort in something new.
We’ll use their distribution agreement. It can be expensive to have an attorney draft an international distribution agreement, and if a company is just starting out, it can be tempting to use a contract that the distributor “uses with their other U.S. vendors”. This is a very bad idea, because the version you see will most likely have been drafted by a local attorney, and will be governed by local law. Having several different contracts with different governing laws is a recipe for disaster that could make it virtually impossible for a company to recover and build an effective international presence. At the very least, have your own attorney review the agreement.
They represent a lot of other U.S. vendors. International distributors will often have a portfolio of 30 or more products, of which only two or three are strategic products that generate 80-90% of their sales. The other products are “nice to have”, in case a client asks for something that does that. We know a distributor in Australia who built his business on one successful product from the U.S. Since then he has been contacted by dozens of other vendors to be their distributor, and, despite being a one-man operation, he now represents 57 products, of which he is making money with two.
They are in good financial shape. In this business, financial statements are almost meaningless. For one thing, outside the U.S., banks usually require annual, not quarterly, financial statements. All it takes is for a distributor to lose one of his strategic products because the vendor set up his own operation, or sold out to Computer Associates, and a distributor’s financial condition will change overnight. This will sometimes lead to a desperate search for replacement products, but without the financial means to make them successful.
A successful network of resellers and distributors can give a company a terrific boost in revenues, but building a quality network takes time, patience and a systematic approach. In the same way that you would never consider hiring a senior salesperson without a thorough search process, finding distributors who are really committed to selling your product should not be left to your cousin Vinnie.
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