Since 2020, international sales became much more difficult. Foreign travel is hardly possible and major trade shows are expected to resume in 2022 or later. Those who could shifted from offline to online, but in business-to-business, where personal relationships matter, most companies could only build on existing contacts.
Now is the time to focus again on growing your global sales, by finding new distribution channels and managing the existing ones better. Your competitors are restarting their efforts.
– do you want to lag? In this document we have bundled our experience from working with hundreds of companies who wanted to increase their exports.
We have written this whitepaper for companies:
Which country to go to?
How to find out in which market you have the best chances?
Don’t forget the last step, to see what competition you can expect. As a foreigner, you often have a disadvantage in production costs or delivery times. And except for the case where there is substantial growth in the market, you will have to convince either your distributors or your end-customers to let go of another product, that may be local.
One key question is how fragmented the competition is. For example in our research for cutting tools like drills and taps we found that the Dutch market is extremely fragmented, no brand had over 10% of the market. This was different in Romania, where there was one clear leading competitor. Chances of entering the market successfully were therefore much better in the Netherlands.
The product development curve
Even for a category where there always is a demand, like furniture, there is differentiation in the product quality. In large parts of Cambodia, the only thing you may be able to sell is a cheap plastic chair. In Kazakhstan there is more buying power and a nice leather chair may be in reach of a large part of the population. While with a luxury massage chair you may have to target Western-European countries, the USA or Japan to reach some volumes.
A good proxy for buying power is the GDP ppp per capita, which is the Gross Domestic Product of a country, corrected for the general price level, per inhabitant. That’s because with 100 euro you can buy more in Thailand than in Japan or Australia
When the GDP ppp per capita rises, the demand for more luxury goods grows, the demand for necessities like detergents remains stable, and the demand for basic products may even decline, e.g. with rice since it’s being replaced by bread, fries or pasta.
So with basic products, you may target countries with a lower GDP per capita, with high-end products, you may have to target more wealthy countries, or just the wealthy regions in a country. In a huge country like India cities like Delhi and Mumbai have an extensive upper class, and in China cities like Hong Kong and Shanghai may be more interesting than countries like Belgium or Austria.
Countries to exclude from 200 to 50
There are about 200 countries in the world, and that’s a lot of options to consider. Therefore we recommend to narrow down the selection based on a few simple metrics:
Country size: Every country needs its own approach, and even may have its own language. Regulations may be different and distributors mostly are not active across borders.Therefore, it is useful to focus on countries with at least a certain size, let’s say 5 million people or more. This doesn’t mean that you should always avoid Luxembourg, but as a first country in Europe you may choose Belgium or France instead.
Buying power: We already mentioned GPD ppp per capita as a proxy for buying power. And what counts for consumers, mostly also counts for businesses. A company in Italy is more likely to buy an extensive personnel management application than a company in Tunisia, if only because automation makes more sense when wages are higher. For most goods produced in further developed countries, we use 10,000 USD per capita as a minimum.
Ease of doing business: the World Bank keeps a list on ‘Ease of Doing Business’, which is an indication of the regulatory performance of a country. In 2020 Somalia and Eritrea were at the bottom of the list, while Singapore and New Zealand had the least administrative hurdles for companies to do business. And although there seems to be a correlation with wealth, even relatively well-to-do countries like Argentina and Brazil are in the lower half of the list, and in that respect to be avoided.
Nice fact: in the past few years China has climbed from somewhere in the middle to the top 25%, surpassing even Switzerland, France and Austria. Only the language may remain an additional barrier.
Combining the three criteria above, we have come to a list of 50 countries, big and rich enough to do business, and with not too much administrative hurdles…
|Country Name||Population||GDP per capita||Ease of doing business||Urbanisation||Ageing||Internet usage|
|ppp in USD||1=most friendly||% in cities||% above 65||% of people|
|United Arab Emirates||9.770.529||70.089||16||61||1,2||99|
Know the market
How would a Japanese be able to sell successfully to the USA if he has never been there? Or how could an Italian sell his products to Congo without jumping on the plane to Kinshasa? The first step of selling your products in a specific country is going there, or if you can’t travel due to restrictions, to watch documentaries and read about the country.
Although I lived in Singapore and already knew a bit about Asian culture, my first business visit to Indonesia was a lot of trial and error. And I was just there to give a training. After six hours in a van and hitting the first cockroaches out of my hotel room, I found out that sometimes it takes asking the same question three times again to be sure about the answer. Not to speak about the confusion caused by my interpreter, whose knowledge of English was not on the highest level.
- Read about the country and its history. What happened in the past tells a lot about how people think. Germany has always been composed of independent cities and counties, none of them had a lot of power, so people are used to seek consensus. France has always been ruled from out of Paris, so it is organized much more top-down.
- Visit the country, if even on a holiday. I discovered in Kuala Lumpur a shopping mall of 12 stories with a complete roller coaster This shows something about economic progress and the will to stand out. In Hangzhou in China I was surprised that all scooters were electric. In the Netherlands it is taking years to get petrol-driven scooters of the streets.
- Talk with other entrepreneurs in the country who have the same cultural background as you. What did they encounter, where did it (almost) go wrong? Also ask about what’s culturally sensitive, are there big gaps between rich and poor, are there racial issues?
- Orient yourself on the market by visiting relevant outlets or talking with a few potential clients without pushing your What is important for them?
Set your ambitions
|What is a reference group that you know the size of (e.g. population, number of businesses etc)?||A|
|What percentage of this group could be a user of your services?||B|
|How often would they use your product per year (if less than once a year, the figure will be a fraction)||C|
|Total available market||D=AxBxC|
|What percentage of the available market uses an alternative?||E|
|What percentage of the market can’t afford the product?||F|
|Total served market||G=Dx(1-E-F)|
|What is the market share of the biggest player in the market?||H|
|What is your current market share in your home market?||I|
|Expected market share in the new market in the next few years||J < H and I|
|Expected volume in the new market||K=GxJ|
|What is the average spending per customer/purchase?||L|
|Expected turnover in the new market||M=KxL|
|What percentage of gross margin do you make on your products?||N|
|What percentage do you expect to spend on sales, commissions or distribution costs||O|
|Expected yearly additional margin in the new market||P=Mx(N-O)|
- Importers, resellers and distributors typically buy the products from you and sell them They can combine your product with their own offering and are free to set the sales price.
- Franchisees or dealers pay for using your brand. This can be a direct payment or commission on their sales, or they are bound to buy products exclusively from you. They often get extensive marketing support from the franchisor.
- Agents (and resellers in case of software-as-a-service) promote your products and close the deal for you, but the client buys directly for you. The agent gets a commission on the sales from you.
We have written this guide for companies who have a tangible product or software that does not need too much customization. This makes the sales process easier, since your partner can sell the product without consulting you first.
It’s not the most important that you partner already sells similar products. The most important is that your local partner has good connections with the end-customers that you target, and that your product is of added value for him.
- Business model: Which partners possesses the competences that I lack to be successful in the market? What else does the company do? Is there an overlap in activities or in other products that they sell?
- (Contractual) Basis: Is the company willing to enter into a long-term partnership? Does it suit their strategy? Can we agree upon a suitable form?
- Balance between partners: How is the relational „click‟? Is it a party with a comparable culture and corresponding priorities? Is there scope for trust in this collaboration? Will I retain sufficient influence in this collaboration and is it possible to preserve the character of my company?
Q. Company profile
Q. What distinguishes this company in its market?
Q. Proposed split of revenue and costs
Q. Characteristics of the desired partner
Q. Benefits for the partner
Q. Ambitions for the next three years
Who are you?
Different countries, different emphasis
- Stability and strength
- Innovation and product development
- Success in other markets
- Marketing and sales support
If you come in, who goes out?
Supermarkets have limited shelf space, clothing retailers have limited rack space, warehouses have limited square meters and even a website has a limit how much products they can effectively show to a visitor. Also in B2B, a salesman can push this product or another, but not both, in order not to lose a client.
If we drill down to the case of a supermarket chain, a category manager has:
- A potential opportunity to select products for the categories assigned among about 500.000 SKUs
- She/he needs to select products for a store that can keep only 1.000/3.000 SKUs on the shelves for her/his assigned categories (4.000 for a small supermarket – 10.000 for a medium – 000 for a large supermarket)
- A shopper buys an average of 400 SKUs per year.
- A basket in a single shopping trip is composed by 30 – 60 SKUs.
And a category manager knows that only 1% of new products launched in the supermarket survives more than 1 year…
Decision maker of other distribution channels will face similar difficulties. This means that if you become the new supplier, that another perhaps long-standing relationship will be terminated or at least reduced in volume. This is a difficult choice for any distributor or reseller. And if you can help him with this, that helps a lot.
Information to convince your distributors
In order to convince your distribution partners to choose for you, make sure that you have the following prepared:
- Knowledge of their market segment and their current portfolio
- Where would your product be positioned in their portfolio? What new customers would it bring them? How can they reach those customers?
- What pricing do you suggest? And how much margin can they get?
- What current part of their offering competes most with your product. Should they abandon this? Make an estimate of how much margin that product brings to them now.
- What is your estimate of the market potential? How quickly will this be realized and what investment are necessary?
- What comparable data do you have from other markets?
- How are you going to support them in introducing your products? Have you already marketing materials or channels (like social media) lined up for this?
So if you look at the partnering profile document that we described, point 5, the benefits for the partner, is actually one of the most important points.
Many may say: I expect the distributor to tell my chances in the market! But the distributor is no market research agency and also not providing free advice. You will have to convince them to take on your product, they will not have to convince you how successful your product can be.
Make it personal
The margin battle
Not all distribution margin is profit
Average retail margin and distribution margin
|Fast moving consumer goods||3-10%||8-40%|
|Clothing and apparel||15-30%||20-50%|
|Electronics like mobile phones||3-7%||3-7%|
|Electrical equipment and lights||5-7%||15-25%|
What is the role of the retailer in distribution?
A retailer sells goods to the public in relatively small quantities for usage or consumption rather than for resale. A retailer can for example be a supermarket, preferably with multiple outlets. The retailer is the last shackle in the distribution chain and has the best information on what sales price is still acceptable.
The actions of most retailers are aimed at maximizing the margin on their assets. And their most important asset is shelf space. So they will multiply the volume of your product with their margin to see how much they can earn and compare it with other products that they could have on the shelve.
What is the role of the distributor?
The distributor is the middle men between the manufacturer and the retailer, or between the manufacturer and businesses that integrate the product or use it for their own consumption. There can be a chain of distributors, for example a global distributor who sells to specialised distributors for certain industries. In B2B markets, e.g. for desks, complicated machinery or cleaning services, you generally have no retailers.
The main assets of a distributor are his sales force, transportation means and storage. He will try to optimise the margin he can get with these assets. So it helps if you create an easy ordering process for him, with packaging that he can easily split and handle, and good documentation for his sales force.
Distributor price and retail price
Your distributors and retailers should be able to cover their costs and make a small margin. Therefore, the next step is to list their activities and add a value to it. These activities could include:
- Packaging and unpackaging
- Sales, either in personal sales or by putting the product in their shops
Adding up the estimated costs of these activities will give you a good basis for negotiations. Discussing the list will also help to clarify expectations, which is especially important if you work with foreign distributors.
Available retail and distributor margin calculation
- The process begins with determining the cost of your goods. Be clear about which units you sell your products in, and be consistent in you calculations to take that as a basis.
- The next step involves establishing a MSRP (Manufacturer suggested retail price). You must configure your MSRP by considering the profit earned across all your sales channels and the product competition in the Also take into account applicable taxes, like VAT.
- Distributors and retailers typically get discounts on the MSRP in exchange for selling your products on behalf of you. Distributors usually command large discounts due to the bulk of their orders, and the number of retailers ordering from them. They don’t usually need too much support, except for notifications of new promotions and progress of the prices on your products.
- Also anticipate hidden costs. Damages or product losses could occur during To avoid this, you should ensure quality containers which would require additional costs. Include it in your calculation of unit sales to adjust your margins. Most distributors and retailers would also ask for as many samples of your products as possible. Reasonable margins for your distributors should be computed only when all costs (including hidden variables and miscellaneous) are known.
Closing the deal
The essence of any negotiation is to get to an outcome that is acceptable to both parties. And this is important to keep in mind: you can try to maximize your share, but if that means that your distributor accepts the deal but hardly puts any effort in promotion, then you have gained nothing.
Closing the deal with distribution partners is also realizing that just with this deal the battle is not won. It is the beginning of an ongoing relationship, where the goal is to sell as much as possible on an ongoing basis.
Contracts forms may differ from country to country. Typically, a distributorship is form-free, while agency arrangement and franchising are much more regulated, mostly to protect the agent or the franchisee.
You can see a distributorship just as a series of sales of your product and agree on one of the Incoterms for delivery conditions. This way there is no complexity and the only party who may claim damages if your product does not comply to quality standards or local regulations is your importer or distributor. But most distributor contracts also contain clauses on how to support the sales of the product with marketing efforts, discounts or sampling. And this is where it turns into a longer-term relationship.
Before you start negotiating, always check shipping costs and applicable import duties. We once had a case where import duties on a specific HS code were over 30%, thus making it impossible for a high-end brand to compete with cheaper local alternatives. Eventually they found out it was possible to categorize the product under a different HS code with only a few percent import duties.
When you negotiate, please note that hierarchy is valued different per country. Check who is on the negotiation table, and make sure you present a fitting counterpart, especially in the last stages. There are many resources on cultural differences per country, and it can do no harm to read something about this in advance.
Distributors are like employees and customers in one. They represent your company and sell your items like an employee while having extremely demanding requirements of a customer.
Difficult technical problems are usually handled by suppliers while trivial technical issues and support are covered by the distributor. Ideally, there should be a good rapport between the distributor and the supplier to optimize distributor performance.
If you use your own sales force, distributors and online sales in combination, then you may get channel conflicts. Your distributor may feel uncomfortable if sales is moving to online, especially if he has put in a lot of effort to open the market. This requires good financial agreements but also a good relationship with your distributor.
Ways to enhance your distributor relationships
- By sharing your vision, practices, and resources with your distributors, you can create a link of trust that could harmonize mutual benefits. This could also keep your distributors interested in the support you can offer to them.
- You should be willing to help your distributor’s business succeed in their endeavors. To achieve this, you should know your distributor’s company like the back of your hand to create an impact on your trade relationship.
- Feedback from end customers is essential in creating a harmonious relationship between you and your distributors. As a supplier, this feedback could improve your products and delivery methods, which in turn increase the sales and the positive image of your distributors.
- The relative market share, based on the estimated market potential. We have discussed this in chapter 2 and 3 already. What are the drivers for your product and how does it differ in each market? Whether it’s the number of people over 80 years old of the number of secure internet servers, publicly available data will help you to compare markets.
- How long has the distributor been active for you? Especially with B2B products, with longer sales cycles, it takes time to grow the business. But also with consumer products there is something like brand awareness that may grow over time.
These two aspects may be set out against each other in a graph and quickly show which distributors are outperforming and which are staying behind. But this is only the beginning of the optimization process. The next step is to sit with the distributor to find out where the problem is. Or, if your relationship is more distant, to have a local representative sit with the distributor to have a more open and relaxed discussion.
When working with international distributors, it is necessary to learn about the culture and traditions of your distributor to avoid being intrusive or seem dictatorial to them. And mutual understanding of cultures can also lead to more forgiveness for any mistakes.
One practical way to enhance cultural understanding is for both sides to go through the following list and per aspect choose for opinion 1 or opinion A. Then parties can compare the outcomes and in the discussion at least create knowledge, if not understanding, on the other party’s view.
|Opinion 1||Aspect||Opinion A|
|We always start meetings on time||Meeting start||It’s no problem to be 15 minutes late for a meeting|
|In case of potential problems I tell my boss as soon as possible||Reporting||I’ll keep negative information with me until I really have to report it|
|You should tell people exactly what to do||Management||Tell people what the goal is and they will find the right course of action|
|We all do our best and should be rewarded in the same way||Bonuses||People that have achieved specific goals deserve a bonus|
|I don’t need to know what my colleague does at home||Familiarity||If you know a colleague personally you can work better with him or her|
|Do let me know what I do wrong, so I can improve it||Feedback||If you want to tell me what I can do better, do it gentle and privately|
|New or lower placed personnel should listen and learn first before they comment||Hierarchy||Everybody has the right to express his or her thoughts|
|We always try to get the best out of a deal||Negotiation||It is important that we can work together in a positive atmosphere|
|I always say what I want, if others have a problem with that, they can tell me.||Directness||It is better to bring opinions in a subtle way, so you can test the response|
|I first need a signature from my boss||Empowerment||Of course, I can decide to make that exception!|
|Practically all our managers are male||Women emancipation||We have a lot of women in important positions|
|Last year we got a metal ballpoint as a Christmas gift. That was a luxury!||Spending||Yeah, of course we’re flying business class from London to Frankfurt|
|If you’re functioning o.k., you’ll hear nothing, and otherwise you’ll hear it directly||Management||In this company you get a lot of style positive feedback (although they also tell you what’s wrong)|
|When I can offer my colleague assistance I will and we will leave the office together||Teamwork||My results (and bonus) are the most important. If it’s not too much trouble I will help others.|
|Of course, you put 20% on your price when you know your client is in a hurry!||Integrity||All customers should be treated as I want to be treated.|
|If we want to deliver quality, we have to control everything ourselves||Partners||Let’s find partners for what we can’t do ourselves properly!|
What Brand Growth Solutions can do for you
Starting in a new market is always a challenge, even if your company already has extensive export experience. Brand Growth Solutions in collaboration with Alliance Experts is active in over 30 countries with local experts, who know the market, know the culture, have extensive business experience, and speak the local language. They can support your export team in entering a new market with less risks, less hassle and much faster.
One of our team members will serve as your local export developer, who will set up your distribution channels, get your sales going and expand your coverage. You can see him or her as a part-time employee, for a few months or for longer.
If you already have a proven offering and your export processes are in place, we will help you apply it in new countries. Agents or distributors, dealers or franchisees are essential to get exposure in the market. We will not only find them, but also make sure they will sell for you.
In the beginning you will pay us on a monthly fee or project fee with clear deliverables. When our relationship continues, we can (partly) work on a commission basis. Just contact one of our specialists close to you, and he or she will advise you on the best approach.
START WORKING WITH US TODAY!
The team at brand growth solutions is here to help. Contact us today for a free, no obligations discussion about your brand.