Do opportunities exist for reps with overseas manufacturers?
As managing partner of a marketing consulting company that works with non-US manufacturers with a US focus, we have helped numerous manufacturers find, recruit and work with independent manufacturer's agents in the United States. So how does the concept of US manufacturer's reps work with overseas principals?
The results of our efforts have been mixed. Some manufacturers have successfully recruited and are working with quality agents. In other situations, the relationships soured, often quite quickly. The purpose of this article is the discuss profit opportunities for US reps with small to medium sized non-American manufacturers for sales in the US market.
They always ask me "WHAT'S A REP"?
On a regular basis, I meet with senior managers of non-US companies interested in US marketing. We usually discuss US marketing options and evaluate the pros and cons of various methods of distribution. Quite often, part of the discussion leads to reps.
Without question, I can state that the majority of the exporters we meet have - at best - only a vague idea of what a US rep is, does and expects in a relationship with a manufacturer. This includes companies with exports to the USA. The results of such discussions have been similar with exporters from Europe, Asia and the Middle East. Canadian exporters to the US, however, usually have a far better understanding.
At least twice a week, I explain the difference between distributors and reps.
At least twice a month, I explain that "REP" is short for "REPRESENTATIVE".
We often need to explain that the rep does not typically do the marketing work for the manufacturer - that reps depend on their principals' support to generate sales leads for the rep force through trade shows, advertising. p.r., direct mail, Internet sites and other methods.
We frequently discuss that reps expect to be exclusive in the selected market segment in their territory. Sometimes the manufacturers have difficulty accepting this concept.
The question of whether commissions are paid upon receipt of order or after the principal gets the actual customer payment is always interesting. We have rarely found a non-US manufacturer who wasn't shocked at the idea of paying commissions before receipt of payment.
In general, we have found there to be a low level of awareness among non-US manufacturers about how to work with reps, even among those already selling in the USA.
Is this a problem? Or an opportunity?
THE NEED FOR A US OFFICE, SALES MANAGER, AND WAREHOUSE
Many non-US companies companies, in fields ranging from high tech, industrial components, medical equipment, security systems, telecommunications, software and consumer products, have high quality, competitively priced products. The technology is top of the line, production methods are state of the art and the senior managers have superior skills and education.
What they often lack is a sales office, staff and a warehouse in the USA.
There is a major psychological and (sometimes) financial barrier for the non-American manufacturer to set up shop in the United States. It is perceived as a very big step - some feel it is only appropriate for the largest and strongest companies. While in many cases, I disagree with that attitude, many companies have justification for this caution as the expense and commitment required in the US market is significant.
"WHO NEEDS A US OFFICE:
LET'S JUST WORK DIRECTLY WITH REPS!"
The non-American company that wants to sell in the US but does not have a US operation may initially feel they have "found the Messiah" when they learn about reps. The marketing manager sees that he can recruit these sales agents who cost him nothing unless they sell. A great deal! And if they sell, the manager reasons, commissions are well worth paying. Such overseas managers often find reps willing to work with them directly from their non-US base.
Unfortunately, this scenario often does not succeed. This is because a US rep force needs management and support in the United States. Some reps who try and work with an overseas company directly from the US become frustrated very quickly. The manufacturer expects the reps to do all the work, not understanding that marketing management is the responsibility of the manufacturer. Communication is difficult even if both sides have e-mail. Thus the reps receive few or no sales leads from the manufacturer, waste a lot of time trying to get answers to questions and thus lose interest quickly, ultimately dropping the line, despite its potential.
The non-American company that does not have a US office will have a hard time managing and motivating the reps. Functions such as overseas shipping, warehousing, processing credit applications, shipping of goods in a timely manner, sending invoices, collections, customer service, product service (when applicable) and sales promotion are difficult to perform by remote control from overseas. Thus, in a normal manufacturer/rep relationship, neither the rep nor the manufacturer will prosper unless the overseas company has at least a very basic US sales office.
On the other hand, with a bit of planning, cooperation with an overseas manufacturer that lacks a US office may also be possible if the rep is interested in something more - in becoming a "master rep".
WHAT'S A MASTER REP?
Recognizing the problems outlined above, an enterprising rep who sees a good overseas product line might be willing to take on at least some of the marketing management functions of the non-American company in the US. We call such a rep a "master rep". The master rep can be a regular rep who has a special relationship with the manufacturer and is interested in managing a great product line with little or no competition in the US. Master reps I have recruited also include independent marketing consultants with experience in the relevant industry.
In return for performing functions such as rep recruitment and management, certain marketing functions and sales promotion assignments funded by the manufacturer, the master rep typically receives extra compensation in the form of higher commissions, a monthly retainer, a year end bonus or a combination of these incentives. We have seen this situation work, when each side recognizes that it is a temporary situation. Once the operation begins to work, the manufacturer should establish its own independent sales office in the US and the master rep becomes a regular rep or might become a full time national sales manager. But in the early stages of US marketing, the master rep structure can reduce the risk for the manufacturer, providing the rep with an opportunity for increased income. If planned carefully, it can work and benefit both sides of the agreement.
When working under this arrangement, we typically recommend that the overseas manufacturer handle logistics (import, warehousing, credit checks, billing, shipping and collections) via someone other than the master rep. We have found that reps like to sell and even do some marketing but are reluctant to provide logistical support.
The master rep structure can be represented as follows:
* Note that the regular reps work only with the master rep and not with the logistics office.
* The master rep and the logistics office must interact on a frequent basis. They both work directly with company management overseas.
WHERE EXACTLY ARE THE OPPORTUNITIES?
US reps can profit from working with non-American companies in the following ways:
Working with companies that already have US sales offices and have begun working with reps.
Representing non-American companies that have a US sales office (typically with only a few employees who can not possibly cover all territories and markets) but are not yet working with reps. As a rep, you might have entry to segments not currently being targeted by the foreign manufacturer. Untapped potential probably exists.
Finding a high potential non-American company that does not yet have a US sales office. If you are interested in working as a master rep, many overseas companies with a US market orientation may have great interest in cooperation. While such opportunities can sometimes be found at US trade shows, reps can often find attractive opportunities by networking with overseas consultants, trade organizations and other insiders in the particular country.
If you are considering representing a non-American company - working directly with overseas management - we would recommend carefully evaluating if the arrangement is workable. Our experience has been best when the rep agrees to take on extra responsibility and act as a Master Rep and is compensated accordingly.
Non-American manufacturers worldwide offer a wide range of quality products that have not been exposed in the US market. Since many foreign companies are relatively unfamiliar with how reps work, US agents should carefully evaluate if the company has a US a office and warehouse as well as what type of marketing program and support the manufacturer is offering.
There is no question that major opportunities exist. However, both the non-American manufacturer and US rep need to understand each other's perspective in order to maximize profit opportunities. Individuals who understand the business environment in both countries can make a significant contribution in facilitating communication in the early stages of such relationships.
We would be pleased to hear comments and experiences of US reps and their non-American principals on the issues raised in this article.