“One of the mistakes exporters talk about trying to later unwind is turning up with the wrong partners in market,” says Catherine Beard, executive director at Export New Zealand, a national exporter membership organisation. “If you get a distributor who says all the right things but then doesn’t deliver, have you locked yourself into that agreement and how easy is it to get out of it?”
One pitfall, warns Anton Blijlevens – an intellectual property lawyer at AJ Park – is leaving IP protection to the distributor. “In China, and many other countries, the ‘first to file’ rather than the ‘first to use’ a brand has the rights to own the registered trademark,” he says. For that reason, allowing your Chinese partner to sort out your IP protection can make it very expensive to fire a distributor if and when needed. “Don’t give away your IP as a loss leader just to be able to sign the distribution agreement or to be able to sell the first shipment of products. “A company’s IP can have value well beyond the profits made from that first shipment.”
But working with a distributor isn’t all downside. The upside comes when you find a partner who acts as a true brand advocate who can help navigate some of the idiosyncrasies of the market and the flow of information. The right distributor can also harness the value of their pre-existing relationships and the brand value they bring to the table, saving an exporter potentially large amounts of time and resources in developing those networks on their own. “Growth and success is really in finding a distributor that’s passionate about your business,” says Andy Doherty, chief executive at Besgrow, a bark and moss company which exports around the world.
Besgrow works with a range of distributors, and says the relationship is often particularly successful when Besgrow is a large part of the distributor’s business. “Ideally [the distributor] is totally focused in your market, and essentially your business is their business.” Even so, plenty of due diligence needs to be done up front before signing on the dotted line. Jorge Forteza is an economist and NZTE Beachheads advisor in Buenos Aires. His advice for narrowing in on partners in the sometimes-difficult South American environment is appropriate in any region.
“There needs to be an enormous amount of research on their real capabilities. Who they are, who are the owners, what are their characters, do they have alliances already, what has been the track record?” he says.
Before negotiations start, do plenty of research on your potential partner's capabilities and strategic presence – not forgetting their character and business practices, he says. Best discover the scary bits now, not during talks – or worst of all when they’ve signed.” At Hamilton-based Canary Foods, a value-added butter products manufacturer and exporter, director James Gray says new distributors are often referred by other contacts, and then evaluated against a set of internal criteria to help determine how well they’ll fit.
“Many distributors might tick a number of the boxes but we aren’t satisfied they are going to stick to what they said they were going to do,” he says. In new markets, Gray says research often starts from a blank piece of paper. “We do a lot of collaborative work with NZTE. They will, on our behalf, research the market and identify potential distribution options and come up with a list of people to consider. We do our homework and that’s often followed up by an in-market visit where we go through the evaluation process.”×