One of the first decisions to be made when choosing to sell into a new market/region internationally is how to go to market. From one end of the spectrum, there is the allure of selling Direct to Retail (DTR), establishing a selling relationship directly with a key retailer, and on the other end of the spectrum, the completely hands-off method of utilizing an Export Management Company (EMC), where a 3rd party handles all aspects of exporting. In between are more typical methods of selling into a market such as utilizing a distributor (local supply chain) and/or a sales representative agency (local sales team). The amount of resources one’s company is willing to allocate to international sales will likely be a large factor in determining which sales channels to utilize. Other factors include tolerance for risk, the nature of one’s products, business conditions in the selected overseas markets, and previous exporting experience and expertise.
Selling Directly to Retail
Upon receiving an inquiry from a new and important retail chain, a natural first reaction is to agree to sell directly to that retailer for purposes of efficiency and to maximize margin. Without a 3rd party in between, profits will be maximized and communication will be direct! However, upon receiving the retailer’s Terms & Conditions, this direct sales route may not be as simple as originally anticipated. There may be delivery terms that are unattainable without local supply. There are also likely marketing, advertising, new store opening, and promotional rebates as well as late/wrong delivery chargebacks that quickly begin to erode that once robust margin. There may also be program merchandising requirements that necessitate a local presence with frequent store visits.
Therefore, it is first important to ascertain whether one’s company has the financial and logistical capability for an own sales and distribution presence locally to manage the DTR relationship(s), or whether a 3rd party might be needed for one or more aspects of the retailer relationship.
Using a Distributor
There are several advantages to using a local distribution company if a supplier’s point of distribution is distant. Typically, one can sell to a regional distributor at a net-net price, and all local costs of distribution and retailer support are borne by the distributor. Therefore, there is a known (albeit lower) price and therefore margin to be expected. Also, a good distributor typically has existing relationships with most key retailers in the region, so a manufacturer only need supply the distributor, and let them manage the retail distribution relationships. The local distributor will also know the retailer expectations with regards to labeling, pack size and delivery. Additionally, the local distributor can manage all local product warranty and/or return issues, rather than attempting to manage these returns from afar. Finally, a distributor will likely be able to purchase in larger (container) quantities for local storage and supply, minimizing shipping costs to the region, and then turn retailer orders around in a matter of days rather than weeks.
It is recommended to have a written contract with a distributor, covering such points as geographic territory (and channels) to be covered and whether there is exclusivity, a clear indication of what costs are borne by the distributor versus the supplier such as for samples, travel, local trade exhibitions, how product returns are to be handled, and the anticipated markup of products to maintain price competitiveness in the market.
Using a Sales Representative
If DTR distribution is chosen, it still may be advantageous to have a local 3rd party sales representative if an own presence is not possible. This sales representative, the equivalent of a manufacturer’s rep in the U.S.A. or Canada, will act as a local sales team finding buyers for the supplier’s products, have a good and close relationship with the key retailer(s) in the local market, and meet with the retail buyer(s) on a more frequent basis than a long-distance supplier could manage. A sales representative assumes no risk or responsibility for a supplier’s products.
A written contact with any sales representative is recommended, covering territory/channels, whether there is any exclusivity, rep’s responsibility to supplier, rules on competing/complementary product lines, percent of commission on sales, who bears the cost of literature and samples (including courier costs), what if any travel expenses are covered by the supplier, whether the sales rep will have any merchandising responsibilities, and very importantly, a clear termination clause.
An additional factor to consider when developing direct to retailer pricing is whether you might have to add a sales rep or distributor into the relationship in the future. Adding that margin buffer at the beginning when determining a pricing structure will be much easier than attempting to squeeze in that extra layer of margin later.
Using An Export Management Company
For a supplier new to export and looking for a turn-key approach that minimizes any need to know the myriad of import regulations globally, manage export shipments and paperwork, find overseas customers, obtain overseas payments, etc., indirect selling through an Export Management Company (EMC) or an Export Trading Company (ETC) could be a way to start. An EMC typically purchases product from a supplier domestically, and then manages all aspects of export to foreign territories. This immediate access to foreign markets is one of the principal reasons for using an EMC because establishing a productive relationship with a foreign representative may be a costly and lengthy process. This is a very simple and easy way to gain access to foreign markets, but also puts all control (of customers and profits) in the hands of the EMC rather than the supplier.
Selling Directly to the Consumer
Using large online marketplaces such as eBay, Amazon, and Alibaba is another selling channel that is gaining popularity. Increasingly, these players are offering distribution centers in other countries where one’s products can be closer to customers. In such cases, these sellers may even offer to handle all the paperwork, customs, and logistics – for a fee. Using Amazon as an example, they have opened offices in the UK, Germany, Mexico and India and are open to listing products. Trading terms may be similar with that of Amazon USA and digital assets can often be shared for efficiency. Selling through an online marketplace can often give suppliers insight into which products are of most interest to local consumers. Of course, developing e-commerce pricing that works hand-in-hand with any brick & mortar channel distribution pricing is key.
In summary, routes to market for consideration:
- Sell directly (can be high maintenance)
- Use a Sales Representative
- For product supply
- For sales
Export Management Company
- Turnkey export
- Hands over control
Direct to Consumer
- Insight into consumer preferences
- Requires appropriate pricing strategy
The appropriate sales channel can be different in different regions, depending upon market and resources. It is important to determine the right sales channels, keeping a long-term perspective in advance, so that suitable pricing structures may be generated before offering selling prices to any customer.
The International Business Council is a special interest group of IHA members, dedicated to helping its membership market and sell their products internationally by sharing information, providing networking opportunities and offering programs to assist, support, and educate. Membership is free to all regular, IHA members – visit the IBC website to learn more.