Debunking the Top Ten Myths About International Distribution Agreements
[Editor’s note: This is the second in a series of ten articles debunking some common misconceptions about international distribution agreements, from a lawyer who has negotiated hundreds of crossborder agreements involving distributors in more than 75 countries.]
Joe, the VP Sales at a PVC fencing and garden products company, was eager to start exporting products. He went to a trade show in Europe with the help of a state grant, and came home with business cards for three different distributors who really liked the products. Joe spent a lot of time and expense sending samples (heavy and costly to ship overseas) and boxes of promotional materials, and made numerous phone calls. He sent them his form distribution agreement, but got no response. Communication dwindled, and things never progressed to a contract with any of the three.
Why did things go so wrong?
First, Joe allowed distributors at the trade show to recruit him, rather than the other way around. Many may ask:what does that have to do with the distribution contract?
It matters because the best foreign distribution agreements start long before sitting down with a written document.
A supplier with a distributor recruitment process has thought pretty carefully about its objectives for its distribution business. These objectives can be clearly articulated, which leads to discussions with distributors that are more productive for both companies. They see mutual interest right from the outset of the relationship (or the lack of real interest becomes clear very quickly).
The contract negotiation process is consistently smoother when suppliers do a lot of the contract pre-work by thinking carefully about what they want in their distributors, envision what a great distributor looks like, and then go find those distributors.
Second, Joe didn’t do any real due diligence, or investigation, into his potential distributor partners. Due diligence also helps create better agreements because it weeds out distributors that are bad fits long before wasting time finding that out through a painful contract negotiation process.
Suppliers often have no real idea who the new potential distributor is—particularly in foreign countries. Take the time to utilize government and other private due diligence resources, as well as the internet, to learn as much as you can about your new potential partner. This process also shortens and focuses the contract negotiations—think of partner recruitment and due diligence as pre-contract preparation.
Third, Joe never asked any of his potential distributors for a business plan. Getting even a basic business plan from a potential new channel partner is another great way to make sure they’re serious about helping build your business. Discussions about this plan also shorten and simplify the contract process.
Each of these three steps—partner recruitment, due diligence, and a business plan—will not only get your international distribution contract agreement negotiated and signed more quickly, but will like result in distributors that are longer-term partners and sell more of your product.
Doris Nagel is principal and founder of Blue Sky Consulting (www.blueskyconsultingservices.com), and has 25+ years of hands-on global experience, focusing on strategic partnering, market entry strategy, compliance, training, and risk management. She’s a frequent speaker and author, and is currently working on a book on international distributor networks.