SELECTING A DISTRIBUTOR OR AGENT IN SOUTH AFRICA
Having operated in the industry for the past 20 years, we have come across many foreign companies that have had trouble finding the right distributor or agent in Africa. For foreign companies to succeed in Africa, the key is to find a distributor partner or agent in South Africa that can assist them with establishing a strong route to market while building brand credibility of the product that has newly entered the African market.
For a successful market entry strategy, the foreign company will need to invest time and effort into identifying the right distributor partner or agent whose strategy and goals are aligned with that of the company. I’m, sure, as many of you reading this have noticed, that in Africa, the issue isn’t the lack of distributors or agents, but rather the lack of trustworthy, credible, and skilled partners. Unfortunately, the truth is that it’s easy to get your fingers burnt in Africa if you’re not careful.
Before we continue, it is important to note that the term Distributor and Agent mean two very different things. Let’s start by defining what the functions of each are:
What is a Distributor?
Distributors purchase products from foreign suppliers and hold a certain amount of stock locally to be resold to their customers. There are two types of distributor agreements, exclusive and non-exclusive. In the case of exclusive distributors, the distributor is the only party that is responsible for the resale of the products in a certain territory. The distributor will not be permitted to engage in the distribution of any other products. In the case of non-exclusive distributors, the manufacturer can hire multiple distributors in a specific territory who engage in the distribution of the same products of the supplier.
What is an Agent?
Agents negotiate sales on behalf of foreign suppliers and earn a pre-agreed commission. The supplier ships their products directly from their premises to the customer. The agent keeps the agreed commission, and the supplier received the rest of the funds due to them. In legal terms, an “agent” is a representative who, for and on behalf of the foreign supplier, introduces a third party to the supplier’s products by soliciting orders from the third party or concludes contracts with the third party on behalf of the foreign supplier. Agents usually charge between 3 – 25% commission, depending on the value of the goods.
CHECKLIST TO SELECTING THE RIGHT DISTRIBUTOR OR AGENT
The key to successfully entering a new market lies in finding the right partners to work with you to develop the awareness of your product in the African market that you plan on expanding into.
- Be clear on what you expect
Developing a clear idea of whom you are looking for gives you the best chance of finding the right partner. When selecting a new distributor/ agent, it is essential that you establish a list of requirements before meeting with potential distributors or agents.
- Select your preferred territory and sales channels
If a product is suitable for more than one channel, you could always choose to use multiple channels such as listing your product online and making use of a distributor simultaneously. This increases your exposure to the African market and could result in increased sales.
- Select the right distribution strategy for your business
Finding a partner that is willing to support your business as a newcomer to the African market is very important because if the distributor or agent doesn’t think the product will generate long-term growth, a lack of interest and support, sharing of information and inclination to grow the business will occur.
- Marketing support
Find a partner that is serious about marketing the products that they have on hand either through social media or email marketing. This is important because it will ensure that your products reach a broad market of potential buyers. Marketing starts with the foreign supplier providing the distributor or agent with sufficient marketing material. This includes high-resolution images of the products and detailed product specifications/information.
- Pre-determine the commission structure
Commission structures in South Africa for distributors or agents depend upon the contract concluded when entering into business with the distributor or agent. The commission is usually charged as a percentage of the total value of the sale. These rates can range from 3 to 25 percent (%) commission per concluded transaction. Companies sometimes pay a retainer fee plus costs and an incentive scale on deals.
- Seek distributors or agents with modern solutions
As African B2B trade starts to evolve, foreign suppliers/companies should be adamant about going into business with a distributor or agent who is proactive, build networks with your relevant target market and is focused on building a route-to-market strategy. The partner that you choose should stay ahead with modern trends such as having an eCommerce platform from which they market your products to a wide target audience.
- Financial stability
Financial stability is obviously of great concern for many companies doing business in Africa. Foreign suppliers need to ensure the distributor has the financial capability to take the business on. We cannot stress this enough, as this is a trap that many foreign suppliers fall into, please ensure that you receive your money before letting go of your goods.
- Investigate the credibility
It is imperative that before doing business with any distributor or agent you investigate their credibility. Consider their existing capability on route to market, whom they partner with and how the company goes to market with new products. You can also request that full due diligence is conducted on your potential partner before entering into an official agreement.
In conclusion, to succeed in Africa, you need a reliable partner that you can trust with a solid market entry strategy. The best chance for a foreign company to succeed in Africa is to have a local presence and a partner that understands your local target market. So, if you are looking at expanding into Africa or struggling to find a suitable distributor or partner, you may want to consider bringing in an expert consultant who specialises in African strategy such as InterGest South Africa.
InterGest South Africa has been assisting foreign companies successfully enter the African market for the past 20 years. We offer you unparalleled support in designing the perfect and affordable market strategy. We can assist with sourcing the appropriate distributor or agent as well as alternative market entry services such as Go2Africa or our B2B wholesale platform, Enterprise Africa.
For more information, please send an email to contact@intergest.com
