When multinational companies expand into new and emerging markets, they usually hire a local product distribution franchise to minimize their exposure. This works in the beginning, often resulting in increased revenues, but after some time, the revenues begin to plateau or drop. This happens because the local distributor might be underperforming as they ran out of ideas. Besides, the solutions that companies come up to resolve this issue ends up creating new problems that emerge in the long term. The purpose of this article is to investigate the important rules of international distribution; read on to know more about them.
Choose Distributors On Your Terms
When foraying into international markets, make decisions based on sound market assessment. However, this is not the case; often companies make decisions based on the proposals from potential local distributors. This happens because the marginal cost is low, and the local distributor assures to bear most of the risk. But, after a short while because of the difference in operating procedures between the two partners, the sales drop. The best way to avoid this is to first identify the country, and then finding a local distribution franchise that fits the bill.
Find Distributors Who Can Develop Local Market
When companies look for local distributors, they often choose those that serve prominent clients or the ones that are most eager to sign a partnership. This can be an asset, as well as a liability. Firstly, they represent the status quo of the market; secondly, they might be serving the competitors as well. So, when choosing a local distribution franchise, look for a partner with whose strategy you are comfortable with. This includes investment, training people, and the support they can give. This might lead you to partners with the least experience or smaller infrastructure and may appear risky.
Treat Local Distributor As A Long-Term Partner
When foraying into a new market, it is important for international companies to partner with a local distributor that can help with long term market development. In most cases, it is done either by giving exclusive rights for a distributor at the national level or providing incentives for achieving strategic goals. However, in the first case, problems may arise if a conflict of interest develops between the two parties, and this may lead to a drop in market share.
Commit Enough Resources For Market Entry
Multinational companies need to commit corporate and financial resources when they are entering new markets. One of the best ways is to do minority acquisition in autonomous local distribution companies.
These are the important things that companies must do when foraying into international distribution.