The alternative ways to grow export sales: sales agent, distributors, and own sales force. Agents and distributors are common solutions for companies willing to grow exports without investments in fixed assets or personnel.
A sales agent is a person (or a company) that is in charge of promoting the sales of a company to specific users within a given territory. Agents use the company’s brochures and samples to introduce the product range (or the service range) to potential buyers and solicit business from them. It is common that a sale agent handles multiple complementary product lines that are not conflicting to optimize logistics. Sales agents may operate on either an exclusive or a non-exclusive basis in a specific territory
The sales agent is normally compensated on a commission basis, takes over no risk or responsibility, cannot bind the represented company to contracts with third parties and is under contract for a well defined period of time (which can be renewed by mutual agreement with the principal). The sales agency contract defines the products, the territory, the terms of sale, the compensation (commissions and bonuses), the reasons and procedures for terminating the agreement, and other details that rule the relation between the sale agent and the principal.
The term sales agent has been largely replaced in the last years by the term “sales representative”, especially in the US.
The distributor is an individual or a company that purchases goods from a manufacturer or exporter (taking the title of the goods by buying at a substantial discount) and resells it at a profit. The distributor has to provide support and service for the product, via adequate facilities and personnel, on behalf of the manufacturer. The distributor generally carries an inventory and a sufficient supply of spare parts. Distributors typically deal with a range of non-competing and complementary products to offer a wide range of commodities to their customers (from stock). Other players as retailers and dealers buy in turn from distributors and sell to the real end users.
THE DIFFERENCE BETWEEN AGENTS AND DISTRIBUTORS
Small and mid-sized enterprises (SMEs) rely on agents and distributors to do business in foreign markets. But very often the distinction between agents and distributors remain blurred and varies in different countries and industries, while it is extremely important to understand their differences. Indeed, selecting the right and reliable trade partner (whether agent or distributor) and making sure that he will take on all expected activities, is a key success factor on international markets – So you should confirm those details in a contract.
- Agents: Agents do not take ownership of goods. They have a role of representative of the supplier in the foreign market, and this supplier can be a manufacturer as well as a service provider.
- Distributors: Distributors purchase goods and resell them to local retailers or consumers. Therefore, they take the title of the goods. They may also sell to other wholesalers, who then sell to retailers and other end users. In addition to this selling role, they generally provide support and after-sale services.
- Agents: The agent is paid by the supplier (exporter) through a commission on the sales value generated. The exporter sets the selling price, with inputs on the local market by the agent.
- Distributors: Distributors add a margin on top of the products’ prices and these fees are generally higher than agents’ fees. This margin affects directly the way you set the products’ prices. Suppliers often have to absorb the distributor margin in order to remove the risk of having a price to the end user which is too high.
- Agents: Customers’ orders come to the exporter through the agent, but they will then deliver, invoice and collect payments directly from the customers. On market operations of the agents are mainly sales activities and sales’ network development.
- Distributors: Distributors take care of inventory – they hold stock in the market which reduces order lead time. They also extend credit to customers. They help pay and undertake marketing and promotion for the product abroad. They provide backup services to clients. Overall, they carry most of the in-market risks and provide more services than agents, which is why there fees are generally higher than agents’ fees.
- Agents: Agents usually have smaller product ranges than distributors as they are the sole proprietorship or small structures. This means that they can provide more focus on your products. You also have more control over their sales technic and can more easily train them in order to sell your products better.
- Distributors: Most distributors represent and sell multiple products. As a consequence, it is difficult to identify distributors with 100% complementary product ranges (you may face some cannibalization). As they have other ranges of products, the distributors’ attention might be distracted from your product. In addition, you may not control their sales force and sales staff easily.