Direct Sales Team Versus Distributor: Which One Is Better For An International Market?

If you are looking to expand your sales into new markets, then there is a great question to ask yourself: do I build a direct sales presence or do I use a distributor? Each method has its advantages and disadvantages, but we are going to make a strong case for using one method over the other in almost every case.

What is the difference between direct sales and distributors?

A direct sales presence means that your business establishes, manages and pays a sales team of one or more people in the target market.

A third party agent is any entity that will sell your product in exchange for a service fee. An example is a sales representative, who sells your product in exchange for a percentage of the sale. A distributor is similar to a representative, except that they would buy products from your company and sell them directly to the end customer.

Is direct selling better?

For most companies expanding into new markets, especially international markets, hiring a distributor is a better decision, at least until there are enough profit from the market to justify building a direct sales presence.

Sure, there is a great advantage to having a direct sales presence check. Control over the daily activities of your sales staff is attractive to most business owners. But this control comes at a high price. To get started, you’ll need to spend time hiring someone in that market, then training them, and then equipping them with sales and management supplies, if not office space and equipment. These costs are prohibitive for most small businesses looking to expand internationally.

And there are even more costs that we haven’t mentioned yet. Each market has its own unique laws, cultures and customs that it is essential to master if your business is to establish a successful sales presence. Japan is a classic example of a market with unique legal structures and business customs that, if not followed, guarantee the failure of any sales effort. It’s hard to pin down an exact monetary value for this apprenticeship, but ask yourself this: Can you afford to set up, manage, and pay a sales force in a foreign country for at least a year while learning things and not generating income?

What about a dealer? Are you a better distributor for new markets?

Distributors are a profitable means of successfully entering a new market. These are just some of the reasons:

• No overhead: Unlike running your own sales team, a distributor will take care of recruiting, managing, paying, and optimizing your channel. He just borrows their distribution, while they do the maintenance.
• Established channel with local knowledge: a good distributor will already know all the laws and customs of the market he is entering. You don’t need to reinvent the wheel; You can use someone who already has valuable local knowledge.
• Understanding market pricing and purchasing power – Along with knowledge of laws and customs comes knowledge of the most successful ways to price and market your product locally.
• Profitable – Since you won’t be paying for items above, dealer relationships are much more within reach for a small business trying to enter a new market.

There are some disadvantages to using a distributor as well, but these can be minimized by establishing a good relationship with a distributor.

• Not your own people – you won’t be able to directly manage every step of the process. While it may make you nervous to lose some control over the sales process, you can manage risk by establishing a transparent relationship with your distributor with constant updates and feedback from both ends.
• The distributor has many products to represent – you may not be the distributor’s top priority at any given time, and you want to make sure your product doesn’t carry over to the end of the line. Again, a well-established relationship with constant contact will ensure that your product receives the attention it deserves.
• It’s not a “turnkey” solution – you can’t just hand over your products to the distributor and hope for success. You will have to manage the relationship. This takes time, but is less expensive than trying to set up a direct sales team from scratch.

So what do I do next?

If you are not convinced that a distributor would be better for your organization than establishing a direct sales team, seek the help of a consultant who has experience establishing a presence in new markets. A consultant can use their experience to analyze your opportunity and recommend the best course of action.

Before choosing a dealer, you should know …

Choosing the wrong dealer will set you up for failure. The wrong distributor simply won’t generate sales, and you will have wasted at least a year finding and establishing an unprofitable relationship.

There are certain things to look for in a dealer and they are different for each market. The best thing to do is find a professional, one with experience in dealer relations, and hire that professional to help you find and identify the right dealer.