International distribution is an understandable consideration for many companies. After all, new markets equate to untapped opportunity. According to the US Department of Commerce, more than 300,000 US-based companies were participating in export activities last year. With 98% of those companies categorized as Small to Medium Sized Enterprises (SMEs), international distribution isn’t just a game for big players. No matter the size of the company, the challenge – as always – is in how to do it right.
In the course of our businesses, we’ve spent time in more than 60 countries. We’ve worked with distributors, manufacturers, retailers, marketers, and sales teams in consumer goods categories like automotive, food, hardware, and sports, as well as industrial products. Along the way, we’ve taken note of how US brands succeed – and fail – in other countries. We’ve seen European brands take on new markets in Asia as well as Latin America. And we’ve studied the entry of international brands into the US market. From the front lines, we’ve built a personal database of what works and what doesn’t.
During a recent trip to Cuba, we started talking about the common themes that often led to failure or success for companies looking outside their home markets. We believe there are lessons to be learned from both.
Here are five common decisions that often lead to failure in international distribution…
- Conducting international business on a transactional basis. This often happens when said company goes to a trade show. An attendee walks up to the company’s stand and asks to be their distributor for X country. If there isn’t a current distributor, sometimes the bar for acceptance is very low. The vetting process often is just down to an assessment of whether or not the prospect can pay for the goods. The relationship starts and stops with the sell-in transaction.
- Not taking the time to understand the market and success requirements. Some companies assume that their relative success in their home market will readily translate into another country. The differences in market structure, distribution, consumer access, customer needs, regulation, competition, and law should all have a bearing on market entry strategy. Ignore those at peril.
- Picking the wrong partner. Amongst the myriad of decisions to be made in entering a new country, the choice of distribution partner is perhaps the most important. A fantastic product or well-known brand can languish under the control of the wrong distribution partner. Unwinding failed distribution relationships can be difficult even without a contract in place. Often, country regulations protect local distribution partners on issues such as commission payments, notice of termination, and compensation upon termination.
- Setting up the wrong relationship structure with partner. In a transactional relationship, the structure is often just a purchase contract. Purchase quantities and payment terms offer little in the way of building a business in the new market. Too often, distribution agreements lack specificity in how each party will interact to achieve long-term goals.
- Selling to too many countries at the same time. Without screening and prioritizing markets, companies often end up in too many places on the map but too few places in each market. The resulting stretch in resources can limit their ability to function in any market very well. While opportunity size may vary by category and country, going global is also a decision about complexity. Going to too many countries may bring an out-sized load of complexity and an underdeveloped prize.
The most successful international companies take a much more thoughtful approach to their global distribution goals. Here are five decisions that catapult their growth...
- Build international capability within the business. Global savvy always pays off even in the decision-making phase. Knowing where to go, when, and how are invaluable. If international business experience isn’t already part of the team, the most successful companies look to rent or hire the skillset. Most important, they then bridge that international outlook to the rest of the company rather than keep it in one functional silo.
- Selective about markets to enter. Building long-term, sustainable revenue from international operations is almost always a function of making conscious choices. Rather than taking any or all comers, the most effective international leaders evaluate markets and take time to understand the consumer, competition, distribution, market structure. They then prioritize and pursue distribution in the markets that meet their criteria and say no to other opportunities not on that list.
- Understand success requirements in local market and have a plan to execute on them. As noted earlier, the characteristics of each market are unique. Those attributes should inform the product assortment, distribution plans, marketing, resources, timing, and expectations. That includes the means of entry – direct or through a distributor. Put simply, the most effective competitors understand the game they’re about to play and have a route to win.
- Selective about partners they choose. Whether the entry strategy is to go with a direct operation or through a distributor, companies identify key relationships and choose wisely. Distribution partners should be considered for capability, market access, finances, priorities, culture fit, and product portfolio. The right partner opens the market for your company giving the benefit of local knowledge, customer relationships, and reach. They also have money.
- Form partnership with distributor. To be sure, this one involves a contract, progress milestones, and – like a marital prenup – dictates the terms of a split. More important, though, an effective partnership should involve alignment of interests, clarity of roles, expectations, and the operational terms of the relationship. Ideally, the company’s objective should be to get a disproportionate amount of time and attention from the distributor. The way to do that is to share the burden such as a split of the marketing investment, have a mutual say over the annual business plan, regularly spend time in the market, and deliver added value by serving in a consultative role to help the distributor grow.
Getting international right has enormous benefits. Red Bull quickly outgrew its Austrian market and thoroughly executed a global strategy with local implementation by understanding each market. UK-based Innocent Drinks became Europe’s top smoothie producer by addressing local market needs. Nutcase Helmets leveraged their European business to fuel domestic growth. WD-40 built a global distribution model that now results in more than 50% of sales outside their home market and accelerates multi-country growth of new products. We cover more in our Going Global Podcast below.
While going global has probably never been easier, it’s still not easy to get it right. We believe that success rides on making conscious choices. We urge clients to take the time to research the markets, vet the opportunities, prioritize, and define a global distribution plan before taking the leap.
Mike Irwin is an advisor, mentor, operator, and strategist. Drawing from his past as a startup co-founder/President, executive officer of a $1+ billion market cap company (WD-40), public company CFO, VP Marketing, global chief strategy officer, head of sales, and board member, Mike uses his diverse background to help companies grow sales, improve profitability, and scale up. He serves as an advisor, consultant, fractional or interim CEO/GM/MD, and on boards of directors. Follow him at BottleRocketAdvisors.com, get in touch at email@example.com or connect on LinkedIn.
Tim Forrest is the #1 food marketing and channel expert in the US. With 20 years as an industry-leading innovator, he’s an in-demand advisor, author, consultant, and speaker on issues related to creating and growing food companies in the US and abroad. He’s worked with one third of the Fortune 50 including clients such as Borden, Hershey, Keebler, M&M Mars, Smithfield, and Tyson. He serves as an advisor, consultant, investor, and on boards of directors. Follow him at TimForrest.com, get in touch at firstname.lastname@example.org or connect on LinkedIn.