Q1 March Newsletter - bdo singapore

Finding Overseas Partners - Know Thy Distributors Well
Before “Tying the Knot”
Exporting overseas remains a challenge for SMEs
wishing to venture into international markets. In
the latest 2008 DP Information Group SME survey,
companies stated that the top success factor was
being able to find “the right partner overseas”. Hence,
it becomes imperative for our local businesses to
possess the relevant knowledge on how it can go
about finding and securing the right distributors in a
systematic manner.
In this article, we examine some of the key issues on
how ideal distributors can be secured in terms of their
identification, evaluation and selection. In essence,
the entire process can be organised in five key steps
and they are:
• Know What You Want First
• Understand Your Markets
• Evaluate Your Potential Distributors
• Do Your Due Diligence
• Secure The Deal
Step One – Know What You Want First
Before a company embarks on finding its ideal
distributors, it has to know what it really wants.
This entails a thorough understanding of its own
market position, product and service portfolio,
target customers, key competitors and the strategic
outcomes it hopes to achieve via distributorship in
each market. These inputs should translate into a
desired criteria list that encompasses the financial
and human resources, image and reputation, market
access and network and preferred credit terms of the
distributors in each country.
Step Two - Understand Your Markets
Simultaneously, one should also assess the current
political, economic, social and technological
environment in each target market. In addition, a
holistic understanding of the relevant industry’s
market size, consumer spending, competitive
landscape, distributor channels and future trends
should be achieved.
Having determined the viability of distributorship in
these markets, a list of potential distributors could be
developed via one or more of the following ways :
• Company and relevant trade association websites
• Local and foreign investment trade agencies
• Insights from other local industry players and
business associates who have ventured into the
same markets
• Seek professional advisory services
Step Three - Evaluate Potential Distributors
This step represents the climax of the entire partner selection
process itself. How should one benchmark an interested
distributor? We advocate that it would be beneficial to adopt
a methodical approach which duly evaluates a distributor
using a combination of both hard and soft factors as
suggested below:
Focus Criteria
Management Profile
(Who is Your Distributor?)
Firm Resources
(What does Your Distributor have?
Market Access
(Where can Your Distributor Bring
You?)
Commitment
(Which way does Your Distributor
do Business?)
• Experience in same and/or
similar businesses
• Responsiveness in sending
necessary information
• Image and reputation
• Similarity of vision and business
goals
• Market knowledge
• Turnover
• Employment
• Strength of Business network
• Similar products carried by
distributor
• Countries with distribution
operations
• Cities with distribution operations
• Retailers distribution
• Annual order size of goods
• Credit terms
Undertaking a benchmarking exercise compels a company
to approach and customise their distributor analysis
according to their strategic needs. It allows for the
evaluation and ranking of potential candidates in order of
preference which saves time and resources when deciding
who to approach first when securing the all important
“breakthrough first deal”.
Step Four - Do Your Due Diligence
Due diligence of the distributors should be conducted to
validate the information provided by them. It reassures
the company that it will be dealing with both reliable and
reputable parties. Required information that could be
obtained on a best endeavour basis includes:
• Audited company financial statements
• Key customers references
• Independent credit bureau and agency ratings