Business Success in the US # 5: US Distribution Debunked

For any of you that have read my previous blogs you will be sick of me banging on about the importance of segmenting the US market, both by geography and industry! But the most common mistake people make is thinking of the States as one market – It is in fact made up of many markets (all significant in their own right) and companies not only need to carefully consider segmentation, but also what distribution model they will set up to achieve successful market entry. In this Business Success in the US blog I look at some of the mechanics of setting up successful US distribution.

What are the common types of distributorships in the US?

• Standard Distributorship – Buys and resells
• Agency relationship/Manufacturer’s Representative – Generates sales but does not buy and resell

Is it important to enter into written agreements?
YES – The US is a common law jurisdiction and parties should therefore include all important terms and clauses in their contracts. In general, courts will only enforce what is in the written agreement signed by both parties.

Exclusive or non-exclusive?
This will be highly dependent on the nature of the product or service offering, the market share the potential partner offers and the competitive environment. In general, it is not advisable to offer exclusivity, particularly not across all geographies and segments – Remember that an exclusive means that you are completely reliant on your new partner for all sales in that territory! Consider the pros and cons of each before rushing in.

What performance requirements should I set?
Any agreement entered into should set out the minimum performance standards required of the distributor. In the case of exclusives, this is often an enforceable part of the contract. These may include (in no particular order):

• Value of initial order
• Minimum purchase requirements (generally set by mutual agreement taking into consideration market dynamics and stage of product development)
• Marketing budget
• Minimum inventory levels

It goes without saying that all distribution agreements should be a two-way street and should outline your commitments to the distributor as well. For some reason, many Australian companies think that appointing a distributor is the end 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 and your product runs a real risk of being lost amongst the other 1000 SKUs your new partner has if you don’t push hard!

Is it advisable to use a law firm?
With over 500,000 lawyers in the US it is not hard to see why it is one of the most litigious countries in the world. Seeking legal advice is just part of doing business in the US and seeking advice on distribution agreements is top of the list. A good lawyer will be able to assist with indemnification, limitations of liability, IP (trademarks, copyrights and patents) and termination of contracts just to name a few.

"Make no little plans. They have no magic to stir men’s blood and probably will not themselves be realized.” Daniel Burnham

Author:
Ian Smith
Chief Executive Officer
Access USA Pty Ltd
ian@accessusa.com.au
www.accessusa.com.au