Changing Distributors in Emerging Markets

This is a follow-up post on the distributor management in Emerging Markets. From recent experience, I want to share my main takeaways with you, on what you should bear in mind when you want to terminate the current distributor and go for a new one/go direct.

  • First of all, make clear that the market is YOUR market, not the distributor’s: put in time and effort to identify end customers in your market. If the distributor does not cooperate, this is a first good reason to put him under more pressure.
  • Convince the new distributor to make a deal with the old one. It is a good test and usually they will happily do this for you. If you play it well, perhaps the old distri wants to be subdistributor.
  • Consider taking over some key employees. You don’t want to lose the network your distributor has. Put some money apart to hire the key commercial or technical employees.
  • If above does not work, consider ending the existing contract. Keep an eye on all formalities! Most distributor contracts will have a termination clause – are there any serious termination reasons where you can apply the contract? Is a simple written notification enough to stop the automatic prolongation of the contract?
  • It is never as easy as you and your new partner think it will be. Even if you comply with all formalities of the contract, you can still have lawsuits and payments you did not foresee, usually based on the ‘common practice’ of the country, which exceeds the contract arrangements. Happens also in EU!
  • Make a good presentation to both the old and the new distributor WHY you want to change. It is never a change for the sake of it. Both for the learning of the counter party, to frame discussions and as a preparation of a potential lawsuit for indemnification, you might want to prepare all the right reasons why the change is done. Tell everybody this is a business discussion and they need to leave the lawyers at home.
  • Seek ample local legal advice. Is there a contract in place? Prepare for an indemnification to be paid. Who owns the product registration? Who does service? How to avoid parallel import? Do they have big projects in the pipeline? Do they still owe large amounts of money?
  • Contact the end customers together with the new distributor, make a road trip introducing him.
  • Take care of your internal PR. Prepare a worst and best case scenario. Communicate the worst case scenario internally. As this is a process that can take months, you might want to imply this in financial forecasts & budgets.
  • Know the rules and legislation on distributor management and payouts in countries other than their own market. (e.g. UK bribery act applies to all companies in EU)
  • With the new distributor: organize ongoing proactive performance management. Monthly or quarterly dashboards, plan visits, appoint a ‘relationship manager’ in the contract. Go through their sales prospects together, product phase-in and phase-outs, big tenders coming etc.

These were the main points I would think of, let me know if you have any additions.

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About curiousmanager

In life there are generalists and specialists. Although your job pushes you down towards a certain specialization, I feel it's important to keep your eyes and mind open for new stimuli. And I want to share my journey through arts, literature and sciences with other knowledge workers and managers. You don't have time to read. Let me do that for you and present only the best of the best in my blog!
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