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Friday, 15 April 2011

Tips on Controlling Agents & Distributors

Good management practice prescribes that one needs to check ‘what was done is what one originally wanted to be done.’ Easy to say but particularly difficult when doing business with partners in remote locations. It is further complicated by the nature of overseas operations – arguably business being done through agents should be easier to control than that being transacted through distributors.

Using Agents

If using an agent, you retain direct contact with end-customers as the agent is selling on your behalf and selling at your price. The task is to control salesmen who act like any other salesmen throughout the world. The core requirements are to ensure the agent is:

•calling on all suitable customers
•spending the right amount of time with each customer
•selling the appropriate range of products
•gaining the correct size of order
•seeking new business
•feeding back competitor and market information
In other words, each order you receive from the agent is a direct measurement of his performance and can be evaluated by traditional sales productivity criteria i.e. in a given sales period:

•Number of orders, by customer
•Number of products sold, by customer
•Average order size and value, by customer
•Orders received this year to date, versus last year to date, versus this year’s planned forecast
•Customer retention
•New customers
•Spread of customers across assigned territory
Using distributors

Dealing through distributors is more difficult. They sell stock purchased from you to their own customers in their own way at their price. Legally you cannot control their margin or their sales-out price. The problem is you may not know to whom and how well they sell.

If you subscribe to the view that ‘I give my distributor the best price and expect him to get on with it’ then this article is of no value to your business. If, however, you believe overseas business is best developed by nurturing partnerships please read on.

There are three main elements:

1.Key result areas
2.Reporting methods
3.Making market visits
Key result areas

The main issue is the reporting of in-market sales. At the outset the exporter only knows what is shipped to a distributor, but has no idea where these products are sold in the market. In-market sales provide the actual measurements of performance and the basis on which future marketing and sales decisions can be made. Additionally, information on distributor stock inventory is of particular value in assessing the distributor’s ability to order the right quantities at the right time to satisfy future demand.

Examples of basic reporting will include:

•In-market sales by product & variant/packing
•Key trade sector in-market sales
Then dependent upon the level of distributor sophistication and cooperation:

•Stock inventory by product & variant/packing
It may be of commercial benefit to understand more about how this business was achieved, similar to assessments made on an agents’ performance:

•Distribution of product, by outlet and/or trade channel
•Salesmen coverage and number of visits.
•Number of salesmen employed full or part-time on sale of exporter’s products
Reporting methods

It is critical that the distributor provides a series of regular reports. This level of formal reporting will be supported by informal and regular contact on current issues. The two basic requirements should be, at least, the provision of a regular report, say monthly and an ad-hoc market research questionnaire. It is recognised that this requirement can often be a contentious issue between both parties with the distributor either not able or not wishing to provide information. This article cannot address the management skills required to handle this but a number of rules must be agreed at the appointment stage of a new distributor.

Recognising that many distributors sincerely believe it is an intrusion into their own business, the exporter must be clear on what and why he requires regular reporting and find an early amicable solution to the issue. If not, he will operate remotely and in the dark. The basic requirements of a regular report would be to:

•Measure performance against standards, targets and objectives
•Obtain feedback
•Prompt corrective action as required
As a minimum, the distributor should possess the necessary internal systems to report on:

•Actual in-market sales this year
•Cumulative sales this year to date
•Actual sales for same month last year
•Cumulative sales for last year to date
•Sales performance versus budget
Ideally he could also provide:

• Sales by customer & trade sector
•Stock and sales
◦Opening stocks
◦Shipments received during reporting period
◦Market sales
◦Closing stocks
◦Forward orders
Again the matter of inventory management is potentially a complex issue in that the exporter cannot dictate what a distributor should purchase to his own account, yet must ensure he is ahead of the business in terms of production and shipping planning. The less reactive the exporter is in the supply of product, the more proactive he can be promoting in-market sales effort.

Market visits
Whilst there are no set rules with regard to frequency, the exporter must ensure regular market visits are undertaken. Nothing can replace ‘seeing is believing’ and benefits both agent and distributor arrangements. Recognising that making visits are costly both in time and expense, the exporter must be clear on setting specific market visit objectives which could include a number from the following list: The bottom line must be that the visit must generate future business.

• To present new products, advertising plans and promotions
•To review sales performance - achievement against current plans and programmes
•To provide feedback on company and general distributor performances i.e. comparisons with other markets
•To resolve administrative problems arising from communication restraints
•To concentrate the distributor’s focus onto the exporter’s products
•To motivate by resolving any distributor problems in generating business and ensure the visit is not perceived as wasting the distributor’s time
•To review status of distributor’s overall business
•To review skills and training needs of distributor team and provides solutions
•To generate business and goodwill.
•To plan annual (or other periods) sales and marketing programmes
•To set action plans to counter deviations from plan and to handle new objectives
In summary, the main dilemma for any exporter is how much does he need to know about the sale of his products in each market and how can he find out? This requires the setting of practicable performance measurements, agreeing formal methods for regular reporting and the actual checking in-market to see what is being done.

Written 4th April 2011 by Dick Brentnall - S&H LLP Associate/ Trainer

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Managing Agents & Distributors

Introduction to Export Marketing and Sales

Improving Export Sales Performance

Incoterms 2010

Friday, 1 April 2011

UK/ EC Export Documents & Procedures

Exporting to countries outside the European Community (EC) can be daunting so a planned, structured appropriate is essentials. Strong & Herd LLP are publishing some key points to help in the practical movement of goods, to ensure you are compliant and, also, to ensure key elements of the international trade agreement are not forgotten.

Exporting doesn't end with the order being received, practical issues must be addressed such as which documents do we need: what information must go on the forms, do we need anything special, have we organised the transport in a cost effective way, are we using an Incoterm that helps us rather than cause us problems? All of these issues are covered in our Export Training courses.

Here are a few tips:

1. Check the trade relationship between the EU and your clients' countries. The EU has negotiated preferential trade agreements with lots of overseas countries which allow goods made in the EU (which meet the qualification rules) to enter these countries at a reduced - often zero - rate of customs duty. This gives EU/UK manufacturers an advantage over non-EU companies. The new Free Trade Agreement coming into for on 1 July 2011 is the EU-S.Korea FTA.

2. Make sure the Incoterms rules in the contract, eg FCA, FOB, CIF, DDU, DAP, are clearly understood and that you don't do more than you are legally obliged to do. Also, makes sure you understand the full implications of what your company has agreed too - ie DDP requires you to be registered in your customers' countries so you can organise the import customs clearance and pay relevant duties and taxes.

3. Clear description of goods on the paperwork is essential. Most shipments move internationally under cover of an invoice, and this document is important because it will be seen by all parties in the supply chain. Just having part numbers or abbreviated descriptions is not helpful - at the very least there should be a plain language general description.

4. A lot of companies use system generated invoices which includes pre-loaded commodity codes (aka tariff numbers). EU Customs require a 8-digit commodity code (called the Combined Nomenclature - CN) to be made on the export declaration. Some companies show the 10-digit EU import commodity code (TARIC) on export paperwork. Remember only the first 4 or 6 numbers will match the code numbers applicable in other countries. This is under the Harmonised System (HS) Codes. Be aware that if you show full UK/EU commodity codes on the invoice you may get questions from the customer's country.

5. Value of goods - you must always show the true value of the transaction on an export invoice. Do not be tempted to under declare a value because an overseas customers says "it will help the goods get through customs quicker". There is some confusion when goods are shipped free of charge; following the WTO/GATT valuation rules for imports if there is no charge you must still price the goods at a true costs, following the principles of a) indentical pricing (not being sold this time); b) similar goods; c) cost of materials/overheads and profit.

6. Evidence of export. Under UK VAT rules you are allowed to VAT zero-rate an export, but you must be able to provide evidence that the goods have left the UK. This evidence must be in the exporting companies name (or cross-reference to them as the supplier) and show that the goods left the UK within 3 months of despatch or payment received (whichever is first). This can cause problems to exporters if they sell ExWorks as the overseas buyer is then in control of the export.

7. In the UK HM Revenue & Customs (HMRC) use an electronic export customs presentation system called NES (the National Export System) based on EU SAD Form which replaced the paper C88 Form. NES links to the customs computer CHIEF and records all exports. It is recommended that exporters receive a copy of this declaration from freight companies.

8. Indirect exports from the UK, via other EU member states, to non-EU countries must be tracked on the electronic system with a Movement Reference Number (MRN) issued on the Export Accompanying Document (EAD). Exporters who ship goods, for example, by road to Switzerland, Russia, Ukraine, etc must ensure they receive the MRN. This can be check on the Europa Database under Export.

9. Don't confuse "origin" of goods with "preference" - though preference rules use origin as a starting point the qualification regulations under preference are more than just that the goods were made in the EU. Additional rules of preference include a percentage of EU components, materials requiredin the manufacture, a named process to take place in the UK/EU, a change of commodity code between materials and finished goods or a combination of all three. The preference rules depends on the customer country and the commodity code of the goods.

10. Export licensing controls affect the supply of certain goods - though only about 5% of exports from the UK are controlled there are embargoes and sanctions to check. If your goods are of a high capability or technology level that could be used in a military, nuclear, space environment or have been specially designed, modified or reconfigured for millitary/ defence use then you will have to check the export licensing regulations . And, if your technology or goods originate from the USA you may also require US Department of Commerce or Department of Defence approval to re-export.