preview

Advantages And Disadvantages Of A Distributor

Decent Essays
A distributor is considered a long-term partner as it makes a substantial investment in inventory and in training its employees and considers itself involved for a long period of time. In selecting a distributor, the exporter may use a various criterion such as: its ability to represent the exporter and its product accurately, its ability to invest in the exporter's products, the ability to sell and provide after-sale service of the product, its knowledge of the industry and has a common objective with the exporter. To find a distributor in a foreign country is mainly thru trade shows, trade missions and commercial contacts of the exporter's country's consulates.
An exporter may use a distributor as a strategic decision for the following situation:
…show more content…
First, some countries do not allow agents at all or to represent a foreign manufacturer an additional requirement may be imposed by the countries such as a physical after-sale service presence. Second, many governments make a substantive distinction in the way agents and distributors are considered by their judicial systems. Since agents tend to be individuals or small businesses many countries place them under their labor law. This may affect termination notice period on the part of exporter and restrictions on the number of hours worked, taxation, certifications, licenses,…show more content…
Since a subsidiary is incorporated in the foreign country, the importer of record as far as the government is concerned, and the "export" takes place between two legally separate entities but under the same organization at a transfer price. All sales made by the marketing subsidiary are considered domestic sales.
The cost of having a marketing subsidiary is higher and most of it is being fixed. Some of the cost that will be incurred are rent of buildings, inventory, recruitment, and training of employees and the costs of establishing the business in the foreign market. A company may opt for a marketing subsidiary should they want to retain control over its sales in that foreign country when a firm is challenged with any of the following situations:
• When a company expects a market potential and there is a substantial growth and sales or profit
• When the product is technology driven, with substantial intellectual property content
• When the product is complicated to sell
• When the company expects to be in for the long run and will introduce new
Get Access