By Ian Smith, Chief Executive Officerat Access USA Pty Ltd (www.accessusa.com.au)
USDistribution Debunked
For any of you that have read myprevious blogs you will be sick of me banging on about the importance ofsegmenting the US market, both by geography and industry! But the most commonmistake people make is thinking of the States as one market – It is in factmade up of many markets (all significant in their own right) and companies notonly need to carefully consider segmentation, but also what distribution modelthey will set up to achieve successful market entry. In this month’s Business Success in the US blog I lookat some of the mechanics of setting up successful US distribution.
Whatare the common types of distributorships in the US?
Standard Distributorship – Buys andresells
Agency relationship/Manufacturer’sRepresentative – Generates sales but does not buy and resell
Isit important to enter into written agreements?
YES – The US is a common lawjurisdiction and parties should therefore include all important terms andclauses in their contracts. In general, courts will only enforce what is in thewritten agreement signed by both parties.
Exclusiveor non-exclusive?
This will be highly dependent on thenature of the product or service offering, the market share the potentialpartner offers and the competitive environment. In general, it is not advisableto offer exclusivity, particularly not across all geographies and segments –Remember that an exclusive means that you are completely reliant on your newpartner for all sales in that territory! Consider the pros and cons of eachbefore rushing in.
Whatperformance requirements should I set?
Any agreement entered into should setout the minimum performance standards required of the distributor. In the caseof exclusives, this is often an enforceable part of the contract. These mayinclude (in no particular order):
· - Valueof initial order
- Minimumpurchase requirements (generally set by mutual agreement taking intoconsideration market dynamics and stage of product development)
- Marketingbudget
- Minimumpurchase requirements (generally set by mutual agreement taking intoconsideration market dynamics and stage of product development)
- Marketingbudget
· - Minimuminventory levels
Itgoes without saying that all distribution agreements should be a two-way streetand should outline your commitments to the distributor as well. For somereason, many Australian companies think that appointing a distributor is theend point and do not provide adequate in-market support to help to drive sales.Remember that you are dealing with the most competitive market in the world andyour product runs a real risk of being lost amongst the other 1000 SKUs your newpartner has if you don’t push hard!
Is it advisable to use a law firm?
Withover 500,000 lawyers in the US it is not hard to see why it is one of the mostlitigious countries in the world. Seeking legal advice is just part of doingbusiness in the US and seeking advice on distribution agreements is top of thelist. A good lawyer will be able to assist with indemnification, limitations ofliability, IP (trademarks, copyrights and patents) and termination of contractsjust to name a few.
Make no little plans. They have nomagic to stir men’s blood and probably will not themselves
be realized.” Daniel Burnham
Ian Smith
