4 key differences between trade agents and distributors
Most small and mid-sized enterprises (SMEs) rely on agents and distributors to do business on foreign markets. But very often the distinction between agents and distributors remain blurred and varies in different countries and industries, while it is extremely important to grasp their differences. Indeed, selecting the right and reliable trade partner (whether agent or distributor) and making sure that he will take on all expected activities, is a key success factor on international markets – So you should confirm those details in a contract.
Here are 4 key differences between agents and distributors:
1. Ownership of goods
Agents: Agents do not take ownership of goods. They have a role of representative of the supplier in the foreign market, and this supplier can be a manufacturer as well as a service provider.
Distributors: Distributors purchase goods and resell them to local retailers or consumers. Therefore, they take title of the goods. They may also sell to other wholesalers, who then sell to retailers and other end users. In addition to this selling role, they generally provide support and after-sale services.
2. Revenue model
Agents: The agent is paid by the supplier (exporter) through a commission on the sales value generated. The exporter sets the selling price, with inputs on local market by the agent.
Distributors: Distributors add a margin on top of the products’ prices and these fees are generally higher than agents’ fees. This margin affects directly the way you set the products’ prices. Suppliers often have to absorb the distributor margin in order to remove the risk of having a price to the end user which is too high.*
*The distributor model is impossible to apply for some exporters as their profit margin would be too small to give enough margin to the distributor and to have a competitive price for the end user.
3. In-market operations
Agents: Customers’ orders come to the exporter through the agent, but they will then deliver, invoice and collect payments directly from the customers. On market operations of the agents are mainly sales activities and sales’ network development.
Distributors: Distributors take care of inventory – they hold stock in the market which reduces order lead time. They also extend credit for customers. They help pay and undertake marketing and promotion for the product abroad. They provide back-up services to clients. Overall, they carry most of the in-market risks and provide more services than agents, which is why there fees are generally higher than agents’ fees.
4. Product sales and risk of cannibalization
Agents: Agents usually have smaller product ranges than distributors as they are sole proprietorship or small structures. This means that they can provide more focus on your products. You also have more control on their sales technic and can more easily train them in order to sell your products better.
Distributors: Most distributors represent and sell multiple products. As a consequence, it is difficult to identify distributors with 100% complementary product ranges (you may face some cannibalization). As they have other ranges of products, the distributors’ attention might be distracted from your product. In addition, you may not control their sales force and sales staff easily.
There are multiple advantages and disadvantages of working wither with trade agents or distributors. Overall, it is your own strategy, based on a deep analysis of the market, which will help you decide for one or another option.
You can find more information on the difference between agents and distributors on this article by the Australian Trade Commission.