SETTING UP A DISTRIBUTOR NETWORK IN THE USA A Case Study

After trading successfully in many parts of the world, my company decided to enter the US market. Whilst this market offered the obvious benefits of size it is also fraught with many commercial dangers. Potential issues ranged from controlling this vast market through to addressing the numerous legal barriers both at Federal and at State level. We exported consumer products and our target market in the US was primarily the Asian-American consumer. Demographically the main areas of population were found in the ‘Chinatowns’ and ‘Little Vietnam’ neighbourhoods in prime cities such as San Francisco, Los Angeles and New York. A number of secondary cities such as Chicago, New Orleans & Atlanta were also identified. California was by far the key state by not only possessing the highest share of this consumer group but was also the first point of entry for successive generations of  immigrants. Of the many issues to be resolved when entering this market, distribution was a key factor. A number of options were considered. Agency arrangements were quickly dismissed as we required stock inventory to be placed in-market and to be freely available for trade purchase. Our main competitors were US and we could not afford to be out of stock. We required a distributor arrangement where our products were purchased, stored and supplied in-market. We then had to decide upon the most effective distribution arrangement. We considered and discarded a state by state appointment of distributors. We believed a high number of reporting lines into our UK head office were undesirable and difficult to control. In particular there would be a danger locally of ‘range wars’ where one party sells into another’s designated territory.  US anti-trust laws place a particular pressure on distributor/principle relationships in that the exporter cannot, in any way, directly influence the distributor’s price or his margin. Yet pricing is, in itself, a key issue in successfully marketing consumer products so the only solution was to develop very strong relationships with the distributor to ensure both parties were working to the same end. This would be very difficult to achieve if working with a number of partners in the same market. So the conclusion was to appoint a national distributor wholly responsible for all US business. This decision then raised other potential issues such as how to ensure all major priority areas received the same degree of attention and focus locally. This was not just in terms of product supply but in sales and marketing effort to ensure there was appropriate market development. There was the additional matter of ensuring that we capably handled the ethnic requirements locally. We therefore decided that we would set up sub-distributor arrangements in each key location, each being managed and serviced by our national distributor. The basics of such an arrangement are: Each sub-distributor is in contract with the national distributor Each sub-distributor purchases stock from the national distributor The price of that transaction is set by the national distributor The national distributor forgoes part of his profit margin in his price by passing it onto the sub-distributor We then set out to locate a suitable candidate for the national role who was based in our prime market of California. Space prohibits discussion on the selection process except that it took over three months from selection to appointment. Our appointee was non-Asian but highly experienced in consumer product distribution and sales. At the outset the idea of a sub-distributor arrangement did not appeal to all but our chosen partner already possessed experience in this process. As important he showed an early willingness to work closely with us and saw our business as an incremental opportunity to both grow his business and develop his influence in other states. He was based in the Bay area of California so we supplied product to him via Oakland port. We agreed a launch plan which consisted initially of the two Californian conurbations to be followed by New York 6 months later. With California being a highly litigious state, the drafting of a contract including the sub-distributor responsibilities was a drawn out-affair but nevertheless was successfully completed... We agreed, as part of our support for the initial launch into California, to run a special training programme for his sub-distributor appointees. This was ultimately carried out in Las Vegas, a highly motivational location for Asian Americans. Once the sub-distributorship arrangements were in place, the launch was initiated. The timing coincided with a West Coast trade show so we jointly hired a stand for ourselves, the national and sub-distributors to exhibit. Generally in the US, attendance at Trade shows is high and much business is done through them. It proved to be the same for our business. Our new direct and indirect business partners were successfully able to promote both their business and our products to existing and new trade customers. Whilst there are many facets to any product launch, focusing on the product supply and trade distribution aspects our launch was successful. Within the target launch period we were able to achieve our distribution targets that had previously been set with our trade partners. During our Las Vegas meeting we had agreed on the numbers of key trade outlets to be sold to such as Asian-American specialists, supermarkets, wholesalers etc. in San Francisco and Los Angeles. Naturally there were teething problems with the launch but the fundamental strategy of using national and sub-distributorships was sound. The main benefit to us, being based in the UK, was the ability to manage the business locally through one contact point After 6 months of successful trading we all agreed to move to the next phase which was New York. In terms of product supply we set up a new arrangement to overcome the logistical problem of servicing the East from the West coast. Once the new sub-distributor was selected and appointed, we would supply their product requirements direct albeit on behalf of the national distributor.

The US remains both an opportunity and a potential problem for many exporters. For us we spent much time at the outset considering the pros and cons of distribution in this market, we found an appropriate solution.