The strong euro makes Europe a draw for U.S. manufacturers, but the area's complexity means you may have to change how you deal with distributors
Q: My manufacturing company just did a successful trade show in Germany, where we were approached by several enthusiastic distributors and dealers. What concerns me is that they want to use our name as their business name with the addition of "-Europe" on the end. When I bring on U.S. distributors they have their own business names and market our brand as one product they carry. These European distributors also want our company to fund their attendance at all the European trade shows and provide them with display products gratis. Are they asking for the world, or is this a cultural difference I just have to accept? —M.S., Chicago
A: The requests you've described are probably less cultural and more operational differences that reflect the risk these businesses perceive in selling and distributing American products in Europe. Given the complexity and the smaller size of the various markets, it's not unusual for these distributors to request more incentives from you than your domestic distributors do, says Nicolas Robbe, vice-president for strategic marketing at ILOG, a software firm with headquarters in France and Silicon Valley.
"There are additional barriers to success, so you don't want to underestimate the incentives that you have to offer," says Robbe, who has worked extensively with European distributors. "There are risks for them, including language differences, resistance from the customer over whether they are going to get the support they need for a product that is manufactured in such a remote geography, and the smaller size of the markets. They will need extra incentives to go the extra mile for you."
He makes the point that despite the European Union's economic strength, the various countries and regions of Europe are separate markets and need to be treated strategically. "There are so many differences in business culture, language, and economic cycles from one country to another. Some are mature economies, others are emerging. Some European countries have specialty industries. There are a lot of factors that you need to look at when you're establishing partnerships or distributor networks in Europe," Robbe says.
First, figure out where your products will sell best and face the fewest barriers to market entry, and then engage distributors or partners in each. Start in just a few places and then expand as you achieve success. Vimal Mahendru, president for corporate affairs at Indo Asian, an international energy-management company, recommends that you not permit these distributors to use your business name. "Your name belongs to you, and the EU has strict laws about anyone using your name without your permission," he says. Robbe agrees: "Don't let a specific reseller use your name. You don't need that level of commitment. But you might create a marketing program or certification program for your products that will give your distributors some marketing mileage."
When it comes to requests like funding for trade shows and providing sample products, that will depend on your relationship with these distributors. A manufacturer's relationship with its distributors varies depending on whether they are selling to retailers and end consumers or selling industrial products to business users, Robbe says. If your distributors will mostly be in a fulfillment role, relying on you to pull in customers through your own marketing and branding efforts, you won't expect them to do much beyond taking orders and securing product. In turn, they shouldn't demand a lot from you. On the other hand, if you expect these distributors to build up your brand overseas, push your products into the markets they sell, and create demand from new customers, you'll need to give them more support and consideration.
If your products are not expensive, consider giving your distributors free samples, Mahendru says. If they are expensive, give the distributors a "concessional" price and have them use the products as saleable display models. Negotiate on the subject of funding for trade shows. "Paying for exhibitions is not customary, but it is increasingly popular," he says. "Distributors expect companies to support their market development, especially in the initial years."
Your timing is good, given the favorable exchange rate and strong euro (BusinessWeek.com, 3/20/08). "This is a huge moment for trying to make things happen" for U.S. companies interested in expanding overseas, Robbe says. But you'll need to do a good deal of due diligence to make your foreign foray successful, and you'll need to put additional time—including face time—into developing your European distributor relationships. "Bringing a company to a new geography is a business challenge but also a human adventure. Don't forget that relationships matter a great deal in Europe—even more so than in the U.S.," Robbe says.