Selecting an intermediary for overseas trading
How to ensure you find the right agent or distributor
If you want to distribute your product via an intermediary, rather than selling to customers directly, there are several options to choose from.
You can choose to use an agent, a distributor or an export management company, and all three carry obvious advantages. They will take many of the more time-consuming aspects of overseas trade out of your hands, provide a local point of contact for your customers, and can draw on first-hand knowledge of your target market.
On the other hand, an intermediary will usually demand a commission, a salary or a share of the profits made your product. They may also wish to take control of marketing your product in their local market, so you could lose control of your brand image. And, if they don’t fully understand your product, they could end up mis-selling to your clients, and damaging your company’s reputation in the process.
Below we have outlined the most common types of intermediary for overseas trade, and listed the benefits and disadvantages of each one – so you can make an informed decision about which is best for you.
Using a commission agent. This involves finding a buyer working on behalf of a foreign firm. A commission agent can be a private company, a government agency, or a purchasing mission.
- Pros: You won’t have to pay this person any form of commission, as they are working for the customer rather than you.
- Cons: A commission agent wants to find the best price possible for their client, so they’ll try and drive you to as low a price as possible.
Using an export management company. An export management company (or EMC) is specifically set up to sell producers’ goods overseas, and they typically work on either a commission or a salary basis.
Some EMCs will provide instant funding by buying your goods off you and then selling them on themselves, or providing export finance – however, only the bigger firms can usually afford to do this.
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- Pros: EMCs usually specialise on particular sectors or markets, so they’ll have great knowledge in that area, and they’ll have strong relationships with customers.
- Cons: EMCs will often want to take control of a client’s marketing and communications strategy in their market – if you want to keep close control over your brand image, this may not be the option for you.
Using a sales agent. In this case, you will hire the agent yourself and they will work for you; hence they’re trying to secure the highest possible price for your product, rather than the lowest one.
- Pros: An agent may secure a higher price for your product than you might secure yourself, and they will know the local market inside out.
- Cons: The Ebsi Export Academy (www.ebsi.ie) recently published an article which claimed that only 20% of sales agents are successful in their attempts to win business – so you may have to hire and fire several agents before you find a good one.
Using a distributor. A distributor will typically buy your product from you and sell it on to their clients, using their local knowledge to handle the sales process.
- Pros: You’ll receive money for your product upfront, without having to wait for payment from a customer, and you won’t have to worry about issues such as shipping, customs and publicity – the distributor usually takes care of these.
- Cons: You won’t have control over where your product ends up – so the distributor could sell your product on to a dodgy or disreputable company. It’s likely they’ll also expect generous discounts and credit terms.
How to choose the right intermediary
It’s crucial that you find the right intermediary for your job. Whether you’re hiring an agent, distributor or EMC, you need to make sure they know the local market, will maintain your reputation, and can get a good price for your product.
Initially, you can test out their market knowledge by asking them some questions about local business conditions; maybe ask them who your competitors will be, and whether the market has potential for growth. You’ll soon find out if they know their stuff or not.
It’s also crucial that you find out whether the intermediary has the resources to service your product effectively. Do some research on the company; find out how many staff they have at their disposal, and whether their staff can offer English language, technical and after-sales skills. Find out whether they possess full trading rights for your target market, and, if possible, get some details on their financial background.
You can also ask the intermediary how they plan to sell your product, and how they’ve promoted similar products in the past. If possible, take a look at their existing customers – if they’re selling to firms with bad reputations, you may want to steer clear of them.
Don’t forget to take a good look at how they promote themselves – if they can’t sell their own product, there’s a good chance they won’t be able to sell yours. Examine their website, they marketing literature, their business cards and the way they structure their correspondence with you. If they look sloppy or unprofessional, don’t use them.
Never be afraid to ask questions – before you make your final selection decision, you need to have all the facts and figures at your disposal, and it’s unlikely that an intermediary will be offended if a potential client asks about their business.