Many companies have often found themselves in a dilemma on whether to use export agents or distributors when they decide to venture overseas. This is therefore not a problem constrained to ABLE Limited only. This dilemma often arises from the inability to distinguish between the functions of export agents and distributors. Even with complete knowledge of roles that agents and distributors play in the import and export business, companies still find it challenging to choose the channel to use for distribution of their goods.
Perhaps the first step to coming up with a decision on whether to use agents or distributors would be to address the advantages and shortcomings of each. This paper seeks to differentiate agents from distributors which will help in making proper choices when venturing into the export business. Export Agents An agent by definition refers to a person who acts on behalf of a person or company in return for an agent’s fee. Similarly, an import/export agent acts on behalf of a company to organize import and export deals with customers and suppliers in overseas markets.
Import/export agent are at times said to work like brokers only that they serve to bring two parties together for mutual trade benefit. The agents do not engage in physical contact with the goods and their major objectives are to market the principle’s products, get customers and connect them to the principle who in turn executes the sale directly. To achieve these objectives, an agent usually conducts surveys, negotiates with buyers, undertakes promotional activities and handles any documentation and logistics involved in the sale of goods.
It is the duty of an export agent to develop market strategies in targeted countries, introduce potential customers, make contacts and also place orders for the principle’s goods. When a deal is sealed, the agent receives a commission for sales made in addition to the deposit paid when the agent was hired. The principle also undertakes payment of all the expenses incurred by the agent in marketing and formalizing the deal which involves administration and tax settlements with the foreign government.
Before entering into a contract with an agent it is important to establish their affordability, their knowledge of the overseas markets and networks; whether the agents offer their services to a competitor and whether they sell direct to end users or to companies. It is also important o sample sale deals they have made for other companies to establish their ability to benefit the company. The advantage of using an agent is that it saves the company from undertaking the rigorous export procedures. In other words, the company only needs to part with the agent commission and it is assured that their goods enter the overseas market.
This is in addition to the fact that the agent knows the market well which is better than starting afresh in an unknown country. The agent undertakes almost all the work so that it is relatively easy for the company. Due to their vast knowledge of the target market, agents prove best when venturing in new overseas markets. As indicated earlier, agents take it upon themselves to advertise the company’s product so as to make sales and hence earn a commission. This is likely to make them work harder which is of mutual benefit to the company when its sales increase.
Another advantage that the company stands to gain by using agents is that the company may choose to control the agent’s operations such that it can limit the agent to desired territories. The company can also set the agent free to execute the deals to the best of his knowledge to maximize sales. When using an agent, the company gets to control the prices of its goods in the market since it will deal with customers directly after they are introduced by the agent. There are however disadvantages associated with using agents. Firstly, agents may prove expensive to hire and their commissions may highly reduce the company’s potential profits.
Secondly, the company bears any market risks and credit risks when dealing with the customers who are introduced. Agents do not purchase from the company directly and neither do they undertake delivery and after sales services. This means that the company may need warehousing facilities as goods await delivery in the overseas market. It must also undertake the provision of after sales services. Export distributors Distributors are companies that buy the firm’s product for resale in their countries. The distributor acquires possession or title of the good undertakes the risk of resale.
This indicates that a distributor acts like a retailer or wholesaler and undertakes the distribution of the goods aiming at obtaining profits from the sales by selling the goods at a higher price the he bought them from the company. The distributor takes responsibility for the shipment of goods to their premises, undertakes the paper work so that the company does not have to bear these costs as opposed to using an agent. The company can appoint distributors available in the market from a list of distributors usually available in international directories.
A company can also make use of agents to select distributors to undertake sale of their products. In the appointment of a distributor, the company needs to look out for the warehouse management skills and procedures of the distributor; knowledge of technical characteristics of the company’s goods; ability to handle marketing campaigns; credit worthiness and their ability to form a constant market for the firms’ products. Export distributors are advantageous to the company because they bear all the risks involved in the distribution process in the overseas country.
These include tax liability, instances of loss and credit risk. They are convenient in that they provide any necessary after sales services that the goods may require such as installation and delivery. Since distributors aim at making more sales, they are likely to get involved in marketing campaigns which help to expand the firm’s competitiveness in the market. Warehousing expenses are eliminated because distributors normally have well established inventory warehouses for their merchandise. In many cases, it has proved less expensive to use distributors rather than deal with the customers directly.
The distributor handles all the shipment charges and formalities which offers simplicity to the company. Further, the firm does not have to incur agent costs and other costs associated with distribution such as transport costs, logistics and tax liabilities. The absorption of market risks by the distributor is especially advantageous to the company. Since a distributor is likely to offer credit to customers, more customers are attracted to the distributor which increases customer base. The disadvantages of using distributors is that the company is unlikely to exert strict control over their operations.
It is upon distributors to act in a manner that is most profitable for them and how they market sell the product cannot be limited. Anti-trust laws in certain countries prohibit companies from dictating prices such that the company may not have control over the prices that the distributor sets. Any mistakes made by the distributor represents the company and this may impact in the company’s product demand. Finally, distributors are often known to demand heavy discounts and credit terms since they claim that they are eliminating many trade risks for the company.
Conclusion Having identified and scrutinized the applicability of the two methods of selling overseas, it is upon the company to make a decision on which one to take based on the characteristics identified. It is notable that the difference between an agent and a distributor is that the agent is a representative of the company to the customers but does not undertake physical distribution of the goods. The company therefore sells to the customer directly once the agent has convinced him to buy form the company.
A distributor on the other hand buys goods from the company which are in turn sold to customers at a profit. There are advantages and disadvantages of using either method of distribution and it is the firm’s requirements that will determine the choice that ABLE Limited makes. Word Count: 1349 Bibliography Jansson, Hans. Industrial products: a guide to the international marketing economics model. UK: Haworth Press, 1994 Johnson, Thomas. Export/import procedures and documentation. New York: AMACOM Div American Mgmt Assn, 2002