How to find a good distributor to partner with when expanding overseas

When expanding overseas, the first thing that worries any company is probably, “How do I develop a market in an unfamiliar place?”
At times like these, a “distributor” can act as an intermediary in local transactions to ensure the process goes smoothly.
In this article, we will introduce the role of distributors, their advantages and disadvantages, how to find them, and things to look out for.

What are overseas distributors?

As we’ve mentioned in previous articles, there are two ways to expand overseas: direct trade and indirect trade.
Direct trade is when you deal directly with your target overseas customers without going through a trading company.

Indirect trade, on the other hand, involves having your products indirectly imported and exported through a trading company or agent that has expertise in the target country or region.

The distributors we’ll introduce here are a form of indirect trade. They involve signing a contract with an overseas agent or retailer to sell your products overseas. By using a distributor, you can demonstrate your competitiveness in overseas markets where you don’t know your left or right, and hope to gain market share.

Let’s take a look at the specific models that are available below.

Sales rep

A sales rep is someone who does not purchase the product themselves, but only acts as a sales agent and receives a commission for success. It is an abbreviation of sales representative, and is sometimes called a sales agent.

This is a form of sales agent where the sales agent acts as a sales agent for the local product and receives a commission of 10% or more of the product price from the sales. The point of a sales rep is that they do not own the manufacturer’s products themselves. They only act as a sales agent and receive a commission from the manufacturer as a success fee.

This is a style that is often heard in large areas such as the United States and China, where a person in charge is decided for each state and makes sales to retailers. There are various types, such as people who work individually and those who operate as an organization.

Agent

As the word means, it is an “agency”. It is a form similar to a sales rep, but the range of support provided varies depending on the agent, such as not only acting as a sales agent, but also collecting sales and providing customer support.
Since their stance is “We will work on your behalf to sell your products overseas,” for example, the margin is often “fixed costs + expenses + xx% of sales,” which is the cost incurred + labor costs.

Distributor

The style of a distributor is to purchase products themselves and resell them while they own them, and they are what we call “retailers.”

After purchasing the product as their own, they sell it to the end user, who may be an individual or a company depending on the product.

From the manufacturer’s point of view, the transaction is completed when the distributor sells the product to the distributor and collects the payment. However, even if the distributor sells it to the end user for several times the manufacturer’s price, the manufacturer has no right to say anything.

Local advertising and sales expenses are also borne by the other party, so there is often not much local information available. However, since they are a professional group that already has sales channels, it is no exaggeration to say that if you can find a distributor with sales power, you are half successful. Some companies exhibit at overseas exhibitions to find distributors.

Recently, more and more companies are developing services that are a combination of a “distributor (retailer)” and an “agent (agency)”.

For example, a distributor has a sales channel and will advertise and conduct sales activities, but will not purchase the products and will require a margin of “fixed costs + expenses + xx% of sales”, while an agent will provide regular feedback of local information and sales reports, collect money, and provide thorough customer support.

In most cases, the contents of the contract are decided through negotiations with each company.

Advantages and disadvantages of overseas distributors

Advantages

The biggest advantage of an overseas distributor is that it is easy to build a relationship of trust with local customers and to entrust them with tasks close to the customer. In addition, since you can advance overseas without establishing a new local company, you can reduce initial investment in terms of personnel and equipment.

In addition, distributors can hold inventory locally, so they can centralize the flow of goods such as inventory management and storage and meet customer delivery date requests.

In addition, it is also important that they collect fees. When it comes to money, there are business practices and manners unique to the local area, so in many cases it is better to leave it to a local distributor who is familiar with such circumstances.

Disadvantages

On the other hand, there is also the view that relying too much on a distributor can be a disadvantage.
Since you will be doing business without being 100% aware of overseas business practices, laws, regulations, and rules that are completely different from those in Japan, if you cancel the contract, your company will not have accumulated knowledge, which can be a risk.

In addition, since you will be building quality and production management and a sales system through the distributor, it may take more time and manpower than expected.

Points to consider when searching for an overseas distributor
When searching for a distributor to partner with overseas, first think carefully about what kind of skills you are looking for in the other party. The following two points are particularly important.

Language skills

Do you have employees who are fluent in the language of the country you are expanding into? It is very important to know to what extent you can communicate in a foreign language. In order to reduce misunderstandings in communication, if you are worried about your foreign language skills, it is advisable to look for an overseas distributor who can speak Japanese well. You can also narrow your search to Japanese companies.

Business scope

Next, the business scope and experience of the distributor are also important points. The skills required of a partner will change depending on the product you are selling.

For products that require specification meetings depending on the client, such as industrial machinery, the distributor must have a certain level of understanding of the technology in that field.

Also, when selling large quantities of uniformly standardized products, just like in domestic business, strong sales power is important. Be aware of looking for distributors who specialize in the products you want to sell and distributors with plenty of experience.