Myth #10: We’ve Invested So Much in This Relationship – We Can’t Give Up Now!
A specialty foods company was locked in negotiations with a Swedish distributor. They went back and forth on terms for months. The discussions were getting increasingly acrimonious, and most of the original goodwill between the parties had disappeared. There was always some new issue on the table, and even old issues kept popping up in a new form.
More than a year later, they signed a contract, only to find new issues continued to crop up. Eventually, with few sales to show for their enormous investment of time and resources, the distributor terminated the relationship.
Two key morals to this story: (1) always know your walk-away point, both with respect to important terms in the contract, but also whether the relationship is ultimately worth pursuing. and (2) closely related: always have Plan B.
Whether in contract negotiations or in long-term business relationships, human psychology is definitely at work. Companies on both sides of the table often feel like they’ve invested so much already that they need to slog through and finish the negotiation or continue the relationship.
A contract negotiation is not the ultimate necessary conclusion of a lon
g, hard negotiation — it is simply the last chance both parties have to make sure they really are right for a business partnership.
If the contract negotiations are very difficult and too frustrating, it may be a strong signal that you either have the wrong partner, or (and companies hate to admit this one!) they simply do not have the skills (or patience, or mindset) to be successful in that particular market.
If the contract negotiations are that frustrating while still in the honeymoon phase, you should worry that the ongoing relationship might be even more difficult.
This same advice applies throughout your distributor relationship. All too often, suppliers keep distributors around whose poor results suggest they should be replaced.
If you are clear about your exit strategy (even if that strategy evolves over time), it will guide you to a decision about whether it’s time to put in place a direct sales force, find a new distributor, or leave a market altogether if certain results aren’t met over a specific time.
Similarly, having a backup plan (again, it’s OK if that plan morphs over time) helps you keep you’re your walk-away point clearly in focus. If you don’t have Plan B, human psychology again will come into play, and you’re likely to settle for sub-par results because making change is hard and requires focus.
Having a backup plan is important almost everywhere in today’s business environment. Technology changes, mergers and acquisitions, and factors have accelerated the pace of change. Having Plan B is especially important in emerging markets. Huge currency fluctuations, political unrest, and sudden regulatory changes can happen, and a once-attractive market no longer is.
Being flexible and adaptable is one of the most important attributes for success in global markets.
Your distribution business will be more successful if you always keep your walkaway point in mind, and know when it’s time to pull the plug, regardless of the investment made already—that’s a sunk cost that can’t be recovered.
Know when you want to exit, and how you want to exit by being prepared with a backup plan.
Doris Nagel is managing partner of Globalocity, and has over 25 years of hands-on global experience, focusing on strategic partnering, indirect sales channel management, and market entry. She’s a frequent speaker and author, and is currently working on a book on international distributor networks. Get a free excerpt from the book here.
Note: This is the final installment of a series of ten articles on Debunking The Top Ten Myths About International Distribution Agreements, originally published in Global Trade Magazine. Check out the previous articles in the series: #1, #2, #3, #4, #5, #6, #7, #8. and #9.
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