The right overseas agent or distributor is crucial to exporting. Domini Stuart looks at the factors behind some export success stories, and where you can find help to access international markets.
Few Australian business owners could consider exporting without an overseas agent or distributor. While the terms are often used interchangeably, an agent sells your products on your behalf and receives a commission on sales, while a distributor buys products from you and sells them on to make a profit.
Both methods have advantages and disadvantages. For example, while you have more control over an agent than a distributor, having an agent will mean paying more to maintain stock. Nevertheless, both can help you to access international markets, and finding the right one is critical to your success.
"The biggest agent or distributor isn’t necessarily the best choice," says Auckland-based senior trade commissioner, Ian Chesterfield. "In a small market like New Zealand, a small company will often be more dedicated to pursuing sales for your product or service. It is important to understand the effective coverage of your distributor, and know the distribution range. Here, for example, some will distribute into the North Island only."
Similar culture, systems and a shared language makes New Zealand a popular market for new exporters. By contrast, China is a hugely complex business environment, often very different from Australia or other western markets.
"Strong in-market representation will help and enable you to understand the idiosyncrasies of the market, marketing and distribution channels, buyer identification, product support and relationships with key government agencies in the market," says Peter Osborne, Austrade's Beijing-based China manager/senior trade commissioner. "Here, you should be very wary of people and companies that promise the world, constantly say they have good relationships and connections–"guanxi"–with senior Chinese officials, and are overly pushy to seal a quick arrangement to represent you. Also, China is a very large and diverse market and it is virtually impossible for one Chinese company to cover the whole market. You should consider a number of different in-market representatives covering different parts of the market –for example, north, east, central, and southern China."
Austrade (austrade.gov.au) provides assistance and a wide range of services to Australian companies looking to export. "This is a core part of Austrade's role, using our extensive network and contacts to identify and assess potential companies for Australian exporters," says Osborne.
Another is helping to check the bona fides of your potential in-market representation.
"Australian companies can also use commercial credit checking agencies, such as the Australian firm Global Credit Solutions to undertake credit checks, as well as Australian banks and other service providers," says Osborne. "Our advice is to obtain a number of different opinions and background views on potential partners before making your decision. It's also vitally important to spend time face-to-face with your potential in-market partners, you need to get to know them, understand their objectives and drivers and look for a good fit between both businesses."
Chesterfield says that being able to work effectively together is key to the most successful relationships. "Even though it is only a short hop over the ditch to New Zealand, if you don't have the right communication and rapport with your agent and distributor this can limit or destroy your success. It pays to visit the market regularly," he says.
Every territory has a different regime of local laws which may affect your agency or distributorship. It is vital to avoid informal agreements, such as an exchange of emails which may lock you in without nailing down any details. More problems are caused by misunderstanding than by deliberate shady dealings; get proper, independent legal advice before signing any contracts and you’ll know that everything possible has been done to ensure your products or services will be marketed effectively.
Most exporters will start by engaging a local company to be their agent or distributor. Then, as the business develops, they may consider appointing a full-time local employee. Some companies feel more confident sending someone from Australia to run their overseas business–though the likely success of this strategy depends on both your product and your business development strategy. For example, if you sell highly technical products or services and a new employee would need long and involved training it might make sense to a start out with an experienced member of staff.
The key factor is ensuring that you have someone who knows the market very well.
Energy Products' goal is to produce the most appetising snack and convenience foods with the highest nutritional value made from the best of natural ingredients. Using macadamias from their own plantation in the foothills of Byron Bay, along with other local ingredients, they manufacture a range of high-quality health food products including Wallaby Health Bars, Wallaby Brown Rice Treats, Wallaby Macadamia Oil, Wallaby Macadamia Nut Butter and Wallaby Chocolate Macadamia Spread.
In 1990, founders Tony and Peta Heeson established a purpose-built, export-grade manufacturing facility. The Wallaby brand now has a strong presence in Europe, Asia, North America, and Australasia.
"We began exporting when a local man moved to the UK and wanted to import our range," says sales manager, Karen Hirst. "That didn’t work out in the long term, but it did give us a chance to test our relevance in the market and to establish interest. In fact, we were really fortunate in that we were approached by a representative who was already distributing health products and had established systems in place. Tony went over to meet them, did due diligence, and formed what proved to be a long, solid relationship."
The company has used more orthodox channels to get into other territories, exhibiting at trade fairs and calling on Austrade’s help in establishing initial contacts and doing due diligence.
"These days, websites can be really helpful in determining whether the company you’re talking to is serious," says Hirst. "In the European market you can even download spreadsheets showing potential alignments and competition. Local tax authorities can also be helpful. If a business is up-to-date with tax, that’s a good sign. Austrade helps us fill in any gaps."
Hirst cautions would-be exporters to be sure distribution relationships are set up properly from the start. "When we were starting out, some possibilities did fizzle out for us because we didn’t take the proper steps in the early days," she says.
They have also learned a lesson about succession planning. "We’ve had a couple of distributors pass away," she says. "That was very sad on a personal level, but the fact that they didn’t have any kind of succession plan left us totally in the lurch. It’s an important business issue, but not one you’d necessarily think to ask about."
James Estate is situated in the Upper Hunter Valley NSW, an area renowned for its quality vineyards. In 2001, an employee moved to the US to set up a branch company – a bold move given that the US wine market is dominated by a handful of big names.
In North America, all alcoholic beverages are regulated by both federal and state governments. In most cases, wine must be distributed using licensed wholesalers or distributors, and licences are available state by state unless you’re selling to supermarkets–a very competitive arena.
"We got an import licence for California and have been mode
rately successful there, selling through a licensed broker," says CEO, Rick Hodgson.
The same employee moved on to set up an office and warehouse in London with the aim of selling James Estate across Europe. His successes included a distribution deal with Waitrose supermarkets in the UK, and exporting small quantities of wine to France, Denmark, and the Netherlands.
"It was our strategy to have someone over there," says Hodgson. "It’s much easier to hold stocks and dispatch wines locally than to send them from Australia."
The company has also recently expanded into China, launching one red and one white wine at a major wine show in Shanghai in mid-2006. "One mistake we made at the beginning was taking too wide a range overseas," says Hodgson. "Now we stick to the two entry point wines plus our flagship multi-award winner."
Over the past 30 years, James Estate has grown into a fully integrated manufacturing and bottling facility with oak maturation storage facilities for more than 600 barrels. Bulk wine storage capacity exceeds five million litres, and the bottling and labelling line is capable of producing some 1,500 bottles per hour.
"There’s no point in considering exporting unless you have the infrastructure in place to cope with increasing sales," says Hodgson. "You must also be able to afford it– exporting can mean a huge financial investment."
Financial help may be available through the Austrade-administered Export Market Development Grants (EMDG) scheme, set up to help Australian businesses promote Australian goods, services, industrial property rights and know-how internationally. The EMDG reimburses up to 50 percent of certain eligible expenditure beyond $15,000. The grants are lodged annually, and you can qualify for as many as seven per market up to a total of $150,000. For more information visit http://www.austrade.gov.au/ExportGrants or phone 13 28 78.