Graeme McRae thought he had mastered the art of finding overseas distributors. After all, the president and CEO of biopharmaceutical maker Bioniche Life Sciences Inc. has plenty of experience: his Belleville, Ont.-based firm works with about 25 distributors in almost as many countries, and exports account for 80% of its $54 million in annual revenue. But Bioniche hit a snag in the U.K. four years ago. Its British distributor had a strong record selling the firm’s urology products, so McCrae expected similar results for a new rheumatology product, Suplasyn. But sales were weak from the get-go and never improved. Despite the lacklustre performance, Bioniche was stuck: the distributor refused to relinquish a five-year deal. McRae estimates that so far the arrangment has cost the company more than $1 million in lost sales.
The fact that someone who knows distribution as well as McRae does could make such a costly mistake shows how challenging it is to get it right. You need to do your homework on the markets you’re targeting and where to find potential partners. Of course, researching and getting to know distributors takes time and money-resources that are stretched even thinner when your candidates are thousands of miles away. Luckily, Ottawa provides all kinds of free help. Start by visiting a Canada Business Service Centre to study the culture, business practices and market in your target country. Another handy tool is the Trade Commissioner Service, which has commissioners in 12 Canadian cities and 140 worldwide, offering free market research to Canadian companies. Trade commissioners in your target country will do a ton of research for you-and even interview distributors to come up with a short list.
Although government can provide useful intelligence, nothing takes the place of visiting the target market yourself. Bill Jermyn of Toronto-based William Jermyn & Associates recommends contacting potential customers there to ask whom they prefer to do business with. Also a good idea, says Jermyn, a former trade commissioner in Ireland and Canada, is to attend local trade shows and scour the Net for distributors specializing in your sector. He advises finding out whether those on your short list complement your business. You don’t want someone whose products compete with yours, but you do want someone whose business is small enough that your account will be an important one.
For McRae, business plans are key to choosing a distributor. Before talking with potential partners, he uses the government’s services to study the market’s size, potential customers, pricing, competition and possible market penetration. Next, McRae devises a business plan and asks shortlisted distributors to do the same. He then compares notes with each candidate, selecting the one whose thinking best matches his own.
After you pick a distributor, you’ll have to invest time and money to build a relationship. In the early stages, that may mean visiting every few months. Those first meetings may not involve any business talk at all, which is where your research about the local culture will come in handy. “It’s better to wait six months and go through all these steps,” says McRae. “Some companies just charge into Europe and sign 20 contracts, and then nothing ever happens.”
Jermyn warns not to get hung up on the paperwork when you’re making a deal. If you can’t afford the legal fees to enforce a written agreement, don’t bother with one; at least the absence of a contract means you can turf your distributor as easily as they can turf you. But if you do sign one, be sure it contains escape clauses. That’s where McRae went wrong. Until the problem in the U.K. arose, his five-year distribution deals didn’t include an escape clause. Now all of them allow Bioniche to terminate the contract if the distributor isn’t performing.
Try not to let it get to that stage. The keys to a good relationship are chemistry and communication. Don’t undercut your distributor. If you find a client in that market, turn it over to your partner; never make the sale yourself.
And keep the promises you make to your distributors, respecting their culture and business practices. “If you do everything right but you’re not able to build a relationship with one person in particular,” says Jermyn, “then all the rest goes to waste.”
© 2004, Claire GagnÃ©