Practical Tips – Choosing the Right Distribution Partners

Mining technology companies who are interested in the Latin American market will need to decide on the best way to service the region. The choice often comes down to whether a company will work through partners or sell direct to the mines.

Last week in our blog post, we explained that based on our experience, one of the best indicators to determine whether a company should work through partners is by looking at the actual solution being offered.  Specifically, you need to look at the complexity of the product/solution being offered to help you decide whether to use a partner or to sell direct.

• Higher complexity – Includes technology that requires a consultative sales process to convey the value add, whether the technology requires a change in behavior from operating staff, whether the technology could have an impact on downstream or upstream production processes, and/or requires a high level of support both to implement and to provide after-sales support.
• Lower complexity – Includes technology or products that have been in the market for some time, technology or solutions that can be sold based on features, technology that is already well accepted and known in the industry, and lastly, technology that has low degree risk for the mines in terms of impact on operations.

Technology or solutions that are considered high complexity require longer sales cycle, require more on-the-ground support for the implementation, and typically mining clients want to know there is technical support in the region that speaks the same language. In these cases, it is often better to go directly to the mine.

Technology or solutions that are considered low complexity often compete on features and price. They do not require the same level of technical know-how and do not carry the same risk. In these cases, it is often about showing why your features are better than competitors. Solution with lower complexity can be sold more easily by partners.

Lower Complexity – Selling through Local Partners

If you see that your product or solution is of lower complexity, then it is often a viable option to work through local partners. This will reduce the complexity and costs of entering a new market. It also means that your success is based on what your partners can deliver. For this reason, the search for partners is extremely important.

When choosing a partner, it is important to take your time to find the right one. This is a classic example of when it is better to measure twice and cut once. We suggest not rushing through these preliminary stages since you are making a long-term investment in whoever you decide to work with.

Some of the important areas to consider as you meet different companies are –

• Cultural and Language – Can they communicate with you easily, can they understand technical terms, do they communicate well (respond to emails, send updates frequently), do they have similar values, etc.
• Experience – Do they already sell to areas of the mine where your product is used, do they have a good reputation with clients, do they have the technical teams, what successes have they had already, can they provide after sales support, etc. 
• Locations – Latin America is made up of different countries and within those countries there is different mining areas.  It is important to understand if the partner can really service the territories that you are potentially giving them. There are large distances to cover in places like Peru where mines can be high up in the Andes.
• Products and Resources – What other companies do they represent already, how much time and energy will they invest in your product compared to others, how easy is your product to sell compared to the other products they represent, are they able to invest in stock, etc.

Large or Small Distributors?

• Large distributors have larger product lines means that your product is in competition for the time that salespeople dedicate to offering your solutions. The more complex and longer sales cycle your product has, the less likely the salespeople will focus on it. It is human nature to sell what is easiest.
• Smaller distributors do not have the same financial capabilities so you need to be careful about credit terms that you may provide to them. One day they can be good and the next they disappear. Small distributors will also have less “financial” runway so if there is a longer sales cycle and/or they have no other revenue then they will certainly be in a difficult situation.  
• The key is to find a balance. Personally, we prefer small distributors that represent a handful of companies and already have on-going revenues from products they have introduced. This way they can dedicate time to pushing a new product but have revenue from other products that keeps them going. 

How to Support your Partners?

• Support your local partners with all marketing materials that are properly translated. Get your partners feedback and make sure they have everything they need to introduce your product.
• Ensure you have proper communication channels and respond timely to your partners. They will need help with quotes, technical details, product information, etc. Just like your partner needs to have good communication, so do you with them. Make sure there is a dedicated person who can support them – preferably in the same language.
• Sales meetings – Set expectations from the beginning about what you expect from your partners in terms of providing reports, etc. Have regular catch ups, review the pipeline, and make it a team effort. Make sure there is a dedicated person who can support them.

Ax Legal Practical Advice –

• It is important to do your due diligence. Visit clients with your partners, talk with other companies they work with, review their financials, do a credit check, ensure they have no lawsuits, etc. Do not skip this step because potential partners will always talk about themselves in a positive light, but you need to do your due diligence to really verify if what they are saying is true. Always have a healthy level of skepticism.
• We see a lot of Chilean distributors who will say they have an office in Peru, but there are no people based in the country. Instead, they send people from Chile which is not the same as having Peruvian staff who have local contacts and experience. It is common for foreign companies to have multiple partners in the region or even in the same country. In very few cases will a partner be strong enough to support you in multiple jurisdictions.
• Do not give too much, too soon. Partners will ask for exclusivity or want large territories. Make them prove themselves and as they show their capabilities and results then you can give them more.  Trust and confidence are built over time.
• Enter the relationship knowing that it will take time to get the first sale. We often have unrealistic expectation to how fast we can grow which is setting are partners up for failure. While you should not expect immediate sales for most technology solutions, the partner should be able to provide detailed reports on the sales pipeline, who they are meeting, and how they are advancing specific opportunities.  You might not see sales, but you should see advancement.
• Protect your intellectual property – ensure you have strong agreement that protect your trademarks, have clear guidelines on how they can use your branding, and have confidentiality agreement to protect your information, etc. These all need to be as per local laws so that you can enforce them if needed in the future.

Conclusion

Working with local partners can be a cost-effective way of entering a new market but it also carries risk for foreign companies. The most common mistake is setting up a partner without doing a proper due diligence on them. Companies end up wasting time and energy on a partner where sales either do not come or are they are extremily underwhelming. 

The key to being successful is putting in the upfront time to ensure we are choosing the correct partner. Once we have found them, we now need to properly support them as they introduce and represent the solution in the local market. 

Ax Legal is an advisory firm that works with foreign companies in Latin America. Our team of legal and commercial advisors have a distinguished track record of helping foreign technology and services companies to grow and operate in Latin America. Over the years, we have worked with starts up, mid-size businesses, and publicly listed companies. The one common factor that connects our clients is that they are leaders in their field, providing innovative technologies and services to the industrial sectors.

To better understand how we can support you in the Region, please contact Cody Mcfarlane at cmm@ax.legal