Many companies begin their journey into international markets through country representatives or distributors. Oftentimes these representatives seek out your company at trade shows or online and approach staff with offers to represent your products in their home country.
The distributor gets a discount in pricing from your company in exchange for their sales and marketing efforts in the foreign market. With incoming orders from foreign representatives, the international distribution network grows along with the company’s international footprint.
The international representative expansion business model works well as an initial approach if a majority of the following is true:
- Your staff is inexperienced in international markets. This includes language and cultural capabilities, experience working in other countries, and making the necessary adjustments such as VAT calculations, currency conversions, and international travel.
- The international markets are places where personal connections and network are required to make inroads into the market, and your company does not have that network.
- Your products and their value are easily explained. International reps like products that nearly sell themselves since they burden the costs of any marketing and sales efforts.
- International reps work best when they represent related products into the same market. For instance, a healthcare product would be sold alongside other offerings to a hospital’s purchasing department.
- Ideally, the representative already has established relationships with potential customers. To continue the last example, the rep would already have hospital clients.
- And lastly, your company is at low risk for intellectual property theft. This includes product attributes making it difficult to reverse engineer. It also means registering any key trademarks in China (even if you don’t do business there) and any important markets for your products. For more information, please read my article on IP protection.
Signs You've of Outgrown the Rep/Distributor Model
While I have seen well-managed and profitable international networks that reached 60-plus international distributors and 40% of company sales, most companies reach a point where this is no longer the optimal entry mode. Here are the signs:
- It is clear that while the market potential is there, the reps are just not reaching it.
- Your company’s own in-country experience, knowledge and customer contacts are expanding.
- Evidence of intellectual property theft by a current or past representative is no longer an isolated incident and your company needs more direct control.
- Any single overseas market is at least 10% of total company sales, and there is still further potential for growth.
- The costs of discount rates and the company resources to support the international network are greater than your products’ profit margin.
Alternatives to an International Rep Network
All other market entry modes are more direct and profitable than using international representatives. They are also generally greater risk. Options include:
Sell your products directly into the international market from your home country. This may involve internet-based sales and ordering or sending out direct sales staff to the foreign customer.
In-Country Sales Office
Set up a small foreign office with local sales staff. This is best in high-opportunity markets and requires heavy training and oversight.
Partner with a foreign company already present in that market that sells a compatible product to yours. Partnerships can also pave the way for a future potential merger or acquisition.
Depending on your cash situation and size of the market opportunity, you can also consider mergers, acquisitions, joint ventures and wholly owned subsidiaries. All of these international modes are resource intensive, but may be appropriate if the opportunity and strategy align.
For help assessing which approach may be the best for your company and industry, please contact me through my website. I wish you all the best in your international business efforts!