In the famous scene from Indiana Jones and the Last Crusade, the Grail Knight urges Dr. Jones to “choose wisely” in selecting the true Holy Grail cup.
The advice applies equally to choosing the right markets — it’s one of the keys to your export success with distributors. The best distributor in the world may not be able to help you grow healthy export sales if you have chosen inappropriate markets for your products.
Many companies make the mistake of expanding into markets simply because an enthusiastic distributor has approached them with exciting sales growth plans.
These distributors are often signed up because the companies think, “why not?” – after all, if these distributors sell even a little, it’s better than no sales, right? This results in a distributor-first approach, rather than a market-first approach. In our nearly 100 years’ collective experience finding and managing foreign distributors, this almost always results in a poor return on your investment.
You may get really lucky and find that this approach takes you to outstanding markets for your products, but the world is a big place, and it’s pretty easy to guess incorrectly.
Consider the costs
If you don’t know where your top opportunities are, you will not know if you are well-served diverting limited time and resources to Honduras and Indonesia, rather than Canada and Korea, or vice versa. We often help clients quantify these, and help them see just how much this approach costs.
For the companies who think, “why not,” we’ve also found that most companies do not have a clear idea of how much it costs to support many small-volume distributors.
There are the very real expenses of managing these distributors and responding to their requests (many of them last-minute and unusual), often for small or irregular sales orders. For example, one of our clients had a Saudi distributor who was constantly calling, asking for special pricing, making sure the company understood all the various government tender requirements, asking about re-exporting to other Middle East countries, and so on, only to order less than $500 worth of products over a 2-year period!
Clearly, there are the costs of people’s time trying to respond to all those requests. Often forgotten, however, are the huge opportunity costs – for every hour you spend with the time-wasting or small-order distributor, or every fraction of your limited budget you spend training or visiting one of these distributors, there are now fewer remaining resources to focus on potentially better markets.
Size up the competition
Do some upfront homework on the markets you pick. It’s not just about where you think your products might have appeal, it’s also about sizing up the competition both local competitors and global competitors who might have gotten there before you, as well as understanding how your products are sold and marketed in your target markets.
One area often overlooked is indirect competition.
An example of this? Let’s say your company makes inexpensive shoes. If you look only at local and other international shoe companies, you might miss the local preference for shoe repairs, which are also competing for the same consumer purchases.
Similarly, you’ll want to do some homework as well on market pricing for your products, including local preferences for quality over price. Make sure that you’ll be able to make a profit at the prevailing pricing. If you price your products too high, your distributor will lose interest in trying to sell them. If you price them too low, you may leave substantial margin on the table as well as convey the wrong message about your products.
Where you can find information
Start with an industry sector report, many of which are free online, or from trade associations. That will give you a directional sense of the top countries that import your type of products. From there, pick 5-8 countries to study in detail.
Learn about each country’s demographics, local and foreign competitors, the regulatory, legal, intellectual property protection, and credit environment. Find out as much as you can about how products like yours are marketed and sold there.
Much of this information is available online. If the data is overwhelming (and the issue today with the internet is not lack of information, but too much information to distill), consider having a customized market research report prepared for you. We often provide this service for our client.
After you’ve investigated your top possible markets, prioritize them. Start with no more than 3 markets – perhaps even just one. As you get your processes in place and gain confidence, you can always plan to add more.
Choose your market wisely, according to your objectives and plan, your chances of success there will be much higher.
If you simply sign up distributors who approach you, you’ll often find that you, unlike Indiana Jones . . . chose poorly. And if you saw the movie, you know how that turned out!
Get more tips on how to improve the ROI of your distributor export business by downloading our eBook: “10 Sure-Fire Ways to Ramp Up Your International Distributor Sales.”
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