Identifying partners and potential customers
Most firms rely on agents or distributors to represent their business in international markets.
There is often confusion about the roles of agents and distributors, so it is important to understand the difference between the two before you enter into any discussions.
The definition and responsibilities of agents and distributors can also vary depending on the country or industry, so when dealing with prospective overseas representatives it is essential that you always confirm their specific roles and responsibilities.
Food Trade Affairs can advise on the role that is applicable to your business.
The role of an agent
Agents do not take ownership of goods but act as a representative of the supplier. They are also engaged by exporters of services to represent them in overseas markets.
An agent is generally paid by the exporter based on a commission of sales value generated. The exporter receives orders for customers from the agent but then delivers goods or services directly to customers, invoices the customers, and collects payments from the customers. The exporter is also responsible for setting the selling price, although the agent will likely provide input on local market conditions to help the exporter decide on pricing.
Agents are generally based in the export market and often represent several complementary product or service lines. They may operate on an exclusive basis, as the sole agent for a company’s goods or services in a specific export market, or as one of a number of agents for the exporter in that market –that is, on a non-exclusive basis.
The role of a distributor
A distributor buys goods – that is, the distributor ‘takes title’ of the goods – and then resells the goods to local end users who may be retailers or consumers. In some cases, the distributor may sell to other wholesalers who then sell to local retailers or end users.
Distributors may carry complementary and competing lines and usually offer after-sales service.
Distributors are paid fees by adding a margin to products, and their fees are higher than those of agents because they usually carry inventory, extend credit for customers, and are responsible for marketing.
Because a distributor has more responsibilities in selling your product in market than an agent, they require a higher margin. This may impact on how you price your product; you will probably need to absorb the distributor margin otherwise your pricing to the end customer will be too high. Some exporters find that they are unable to use a distributor as their profit margin is too small to provide enough margin for the distributor and a competitive price for end users.
Food Trade Affairs Advisors can help you decide what method is best for your business.