Selling overseas through distributor channels is the most popular way for small businesses to trade internationally. You normally sell to the distributor at a discount and he adds a mark-up for the end user price.
Some years ago in a company supplying bespoke equipment to a niche sector of the chemical industry, we were seeking a distributor in northern India. Along with one German and one French competitor we were regarded as European leaders in what we did.
Not long after we started our search we were approached independently by an Indian distributor interested in being our partner. He called us from London, introduced himself and his son who was also in the business, and asked if he could visit.
The agreed day went exceptionally well and he seemed to offer everything we needed – product and industry knowledge, a database of current industry contacts, a sales network in northern India and beyond, and a commitment to get quick orders at acceptable prices.
He was eager to get moving and asked if he could sign an exclusive distributor agreement before leaving “to demonstrate commitment from both parties“. Having a signed distribution agreement is important for the long term in most cases.
You can either sign one when you’re starting out with your new distributor partner, provided you have a two-way get-out clause included in case it doesn’t work out early on. Or you can agree by exchange of letters for example, to sign one after a specified trial period – often when the orders begin to roll in.
Not accustomed to rushing into key decisions like this in a day, I opted to delay an agreement to enable a business relationship to build up. After all, we hadn’t even sorted out payment terms to our satisfaction.
Over the next several weeks, we didn’t hear much about sales development from the Indian contact although we had been prepared to go out and support him. Something wasn’t quite right!
Two months later I got into general conversation with our French competitor at a Paris trade fair. The chat got around to India and how they’d appointed a new partner a few months ago.
You guessed right – it was the same distributor who came to visit us!
The competitor gave the impression he was as surprised as I was – he might well have been! The Indian had used his own initiative to try and meet us and acted like he wanted to partner us. What could he achieve by doing this?
He’d heard from his local market community that we were looking for a distributor partner. He saw it as an opportunity to delay our selling activities by stringing us along for as long as possible. He achieved about two months delay – not significant in the grand scheme of things but annoying, all the same.
While he didn’t get our actual end-user prices, he got a ball park idea. He also learned a bit about our products and our overall strategy.
Was it disastrous for us in India before even starting out?
No – we ultimately did ok, but it could have been more difficult if we’d stuck with him for longer before catching on to his ruse.
Was it ethical of him?
To be frank, I didn’t really care and neither should have anyone else at the time. We’re all grown-ups and these things happen in some parts of the world more than others.
While we might describe the action as unethical, he was just trying to gain business advantage. The key is to have a healthy suspicion of the less-than-usual and keep on guard for situations akin to this, especially in overseas markets.
Could the same thing happen now? It’s less likely – but not impossible. This event happened about the time that the internet was getting established so the mass of information available today wasn’t immediately available to research then.
Could we have performed better?
For sure. We could have virtually given no information away on the day and done a check on the distributor through available channels at the time. It would have taken about a week compared to a few hours or so today and still might not have told us what we needed to know. We just saw an opportunity too good to miss on the day.
The important outcome was that it was one of those lesson learned, never to be forgotten.
Stuart Allcock – Owner of Applied Business Support