India - Using an Agent to Sell US Products and ServicesIndia - Using an Agent
Remember the Scale of India and Consider a Regional Approach:
Creating a local presence in India is strongly advised, but if your company is not ready to establish a branch office or a subsidiary, you can get this on-the-ground presence by appointing an agent, representative, or distributor. It is vital to remember that India is a huge and diverse country, with over 30 regional languages. As such, it is strategically important to consider taking a regional approach. If your product has a wide market appeal, finding regional representatives and distributors is recommended.
Defining the Terms:
An agent may only procure business and will be paid through a commission. A representative normally works on a retention fee plus a commission on the sales generated. Also, a representative is similar to an indenting agent, where the foreign company deals directly with an Indian importer and then an agent consolidates all the imports, taking a commission from the foreign company. A distributor acts as an importer and typically purchases the product on his own account and stocks the products before selling it to the end user. Due to the risk of stocking the products, the distributor’s compensation is higher than that of an agent or a representative.
Use Caution when Establishing Critical Relationships:
The Indo-American relationship is strong, and Indian firms are eager to buy U.S. products and services. As a result, U.S. exporters will find strong interest from potential representatives and distributors for a broad range of products. However, the enthusiasm of potential partners must be weighed against several factors before a relationship is considered. Carrying out appropriate due diligence procedures is critical in evaluating whether the partner will truly add value, before establishing a relationship, no matter how positive initial meetings may be.
When evaluating a distributor or agent, the Indian firm’s business reputation, financial resources, willingness and ability to invest, marketing strength, regional coverage, industry expertise, and credit worthiness should be considered. An ideal distributor will have an extremely good banking relationship to enable the extension of credit and also have the capacity to market a full range of products and services. It is important that the agent or distributor have solid infrastructure and facilities such as warehouses, service workshops, showrooms, and competent staff to meet and exceed the expected volume of business.
U.S. companies should be careful not to be influenced by the eagerness and persistence of a distributor or his representative. Sometimes, Indian firms represent so many companies that they have little time or interest in developing new markets. The Indian firm may not have the vision to go beyond the existing list of contacts that it has nurtured over time. While in the short run, this can still provide very positive returns, the real edge will be in the areas that are currently underdeveloped. Therefore it is critical to measure objectively the ability, willingness, and aggressiveness of the firm in developing new networks, contacts, and areas of business. By checking multiple professional references, a U.S. company can gain broad insight into an Indian counterpart.
Be Mindful of these Pitfalls:
The long list syndrome:
U.S. companies should exercise pragmatic skepticism when the potential representative offers a long list of foreign clients. These lists may be outdated and the relationships may no longer exist. On the other hand, if all of these relationships do exist, the distributor or agent may not be able to fulfill all obligations and commitments to your product based on the time, financial, managerial, or logistical constraints of building the new relationship. U.S. companies should confirm that the distributor or agent is able to represent the product along with the products of current clients.
The no follow-through syndrome:
U.S. companies should ensure that their distributor or agent is fully committed to promoting their product. Very often the distributors or the agents project a professional image backed by qualified staff, widespread distribution network, and a countrywide presence. U.S. companies should make sure that such representatives do not leave the distribution of their products or services to the distribution network. It is imperative that U.S. companies carefully consider all factors prior to making the final selection of a distributor or agent.
Other Issues to Consider:
Advantages of a small distributor:
A small distributor may be ideal for implementing a flexible distribution strategy. That India is a vast nation of diverse states poses a logistical challenge to a distributor or to an agent. A small distributor having a presence within a region of India where customers live may be more advantageous, as knowledge of the local market may be competitive advantage. A small distributor with good product knowledge and marketing skills is often more desirable than a big distributor who leaves the marketing of the product to a section or department of their larger organization. U.S. companies should consider appointing multiple representatives for different products where this is possible.
Due diligence checks:
India is a rapidly growing economy. As such, simple and traditional methods of validating the credentials of a potential partner are less reliable, and a thorough due diligence study is critical. Before signing a representative’s agreement, a credit check of the proposed partner is imperative. The U.S. firm should check with the distributor or agent’s bank to determine the potential partner’s financial health, reputation and credit worthiness, and seek additional details from accountants, lawyers, industrial associations, and other sources. For technical products, U.S. companies should also ensure the technical expertise of the distributor, the condition of the facilities, and the experience of the technical staff. Due care should be taken in finalizing the details of the contract or memorandum of understanding.
To identify agents and distributors, U.S. companies can take advantage of the Initial Market Check (IMC), International Partner Search, Business Facilitation Service (BFS), Gold Key Service (GKS) and Single Company Promotion (SCP), the services offered by the U.S. Commercial service through its seven offices in India. To assist with due diligence background checks on local agents and distributors, U.S. companies can take advantage of the International Company Profile service.
India Trade Development and Promotion