Building International Distribution Networks

Distribution Strategy: Models and Partner Types

Vietnamese exporters must first determine their distribution approach—direct versus indirect models, and if indirect, which partner types align with product characteristics, market conditions, and resource availability:

Direct vs. Indirect Distribution Trade-Offs:Direct distribution (exporter → end customer) offers maximum control over pricing, brand positioning, and customer experience, plus higher margins without intermediary markups and valuable direct customer relationships providing market intelligence. However, direct models require substantial capital investment (sales force, distribution centers, inventory), slow market entry timelines (6-18 months building infrastructure vs. 2-4 months with partners), significant market risk in unfamiliar territories, and operational complexity managing multiple countries simultaneously. Vietnamese electronics manufacturer going direct in USA might invest $2-5 million in sales team, warehouse, and inventory before first dollar of revenue—substantial risk for market testing. Conversely, indirect distribution through partners (exporter → distributors/agents → customers) enables fast market entry leveraging existing infrastructure, lower capital requirements (partners invest in facilities/inventory/staff), shared risk with partners absorbing much of market uncertainty, and inherent scalability adding partners across geographies. Trade-offs include reduced control over customer experience and positioning, lower margins (distributor takes 30-50% markup typical), indirect customer relationships limiting market feedback, and dependence on partner performance. For most Vietnamese SME exporters, indirect distribution through carefully selected, well-managed partners provides optimal balance—especially for initial market entry.

Exclusive vs. Non-Exclusive vs. Selective Distribution:Exclusive distributionappoints single distributor with exclusive rights in defined territory (country or region). Partner benefits include exclusivity justifying significant market development investments (hiring specialized sales staff, carrying large inventory, intensive marketing), maximum distributor commitment and focus, and tighter control over pricing and positioning versus multiple competing distributors. Risks concentrate in single partner—if distributor underperforms or fails, entire market suffers with difficult/costly correction. Best for products requiring substantial market development support (complex technical products, new-to-market categories), early market entry when establishing foundation, or markets where exclusivity norm. Non-exclusive distributionallows multiple distributors in same territory competing for customers. Advantages include broad market coverage through multiple channels, reduced dependence on any single partner, competitive pressure improving distributor performance and pricing, and flexibility easily adding or removing partners. Disadvantages include potentially lower individual distributor commitment (knows competition exists), price competition between distributors potentially eroding positioning, and complexity managing multiple relationships. Best for mature markets with many potential partners, simpler commodity-like products not requiring intensive support, or established products with proven market demand. Selective distributioncombines approaches—multiple distributors allowed but limited to those meeting specific criteria (capabilities, reputation, service standards)—common in automotive parts, premium consumer goods, and professional products where brand control important but broad coverage needed.

Typical Distribution Margins by Product Category:Distributor margins (difference between their buy price and resale price) vary significantly by product type, competition, and value-added services required. Consumer electronics typically command 25-35% margins (competitive category, limited value-add, often price-transparent to consumers). Industrial equipment sees 35-45% margins reflecting technical sales support, installation assistance, and longer sales cycles. Pharmaceuticals and medical devices reach 40-60% margins justified by regulatory compliance requirements, specialized storage/handling, and technical consultation. Fashion and apparel ranges 50-100%+ (keystone markup—2x cost—common in fashion retail reflecting high marketing investment, showroom costs, and style obsolescence risk). Commodity products (basic materials, standard components) achieve only 10-20% margins in competitive markets with limited differentiation. Vietnamese exporters must understand typical margins in their product category and target market—offering insufficient margin makes recruiting quality partners impossible; excessive margin surrenders unnecessary revenue. Research competitive margins through market intelligence, partner conversations, and industry benchmarking before negotiating pricing.

Partner Selection: Identification, Evaluation, and Due Diligence

Defining Ideal Partner Profile

Systematic partner selection begins with clearly defining required partner characteristics before beginning search—preventing wasted time evaluating incompatible candidates:

Strategic Fit Requirements:Define territorial coverage needed (nationwide, specific regions, major cities only), customer segments partner must reach (retailers, wholesalers, end consumers, B2B industrial buyers, government/institutional), compatible product portfolio (complementary products creating synergy, avoiding directly competitive lines), aligned business model (growth-oriented, quality-focused, service-intensive matching your positioning), and growth ambition (partners seeking to grow aggressively align with your expansion goals while mature satisfied partners may lack motivation). Example Vietnamese furniture exporter targeting USA: requires partner with nationwide coverage (or strong presence in CA, TX, FL, NY major markets), established relationships with furniture retailers and interior designers, compatible home goods product portfolio (not competing furniture lines), premium/mid-premium positioning, and growth ambition expanding account base 10-20% annually.

Capability Requirements:Specify minimum capabilities across: sales force (size appropriate to market—50+ person sales force for USA nationwide coverage, 10-20 for regional, specialized by customer type), customer base (existing relationships with your target customers—retailers, contractors, distributors), warehousing (facility size, locations, warehouse management systems, cold storage if needed—electronics distributor needs climate-controlled space, furniture needs large volume capacity), logistics capabilities (transportation assets, delivery coverage, last-mile delivery capability, reverse logistics for returns), after-sales service (customer support staff, technical service capability, returns processing, warranty administration), marketing capabilities (local market development capacity, promotional expertise, digital marketing), and financial strength (revenue size indicating scale typically $10M+ for significant market coverage, profitability demonstrating business health, working capital to finance 60-90 day inventory investment). Document minimum acceptable levels for each capability—enables objective candidate screening.

Partner Identification and Preliminary Screening

Generate robust candidate pipeline through multiple sourcing channels, then conduct preliminary screening narrowing to manageable number for detailed evaluation:

Multi-Channel Candidate Sourcing:Industry associations and directories (major associations publish member directories searchable by specialty and location—search for distributors in relevant product categories), international trade shows and exhibitions (attend major industry events in target markets—meet dozens of potential partners efficiently, assess professionalism firsthand, gauge interest level through face-to-face conversations; example: Vietnamese electronics exporters attend CES Las Vegas, IFA Berlin, or Mobile World Congress Barcelona meeting hundreds of distributors), embassy and trade promotion resources (Vietnam Chamber of Commerce and Industry VCCI provides market intelligence and introductions, embassy commercial sections in target countries offer distributor identification services, trade promotion organizations like VIETRADE conduct matchmaking missions), online research (LinkedIn Advanced Search identifying distribution company executives by location and industry, company websites reviewing capabilities and product lines carried, industry databases like Kompass or Dun & Bradstreet), advertising for partners (place announcements in industry publications stating “Seeking distributors in [market] for [product category],” post on industry trade boards and forums, announce on company website), and referrals from network (ask existing partners in other markets for referrals—often know distributors in adjacent territories, contact customers operating in target market for distributor recommendations, ask suppliers, freight forwarders, and banks for introductions). Cast wide net initially generating 15-25 potential candidates.

Preliminary Screening Criteria:Conduct rapid initial assessment narrowing to 5-7 finalists: verify business registration and legal status (confirm company legally registered, check incorporation date confirming years in business, review any legal issues or judgments via public records), review online presence (professional website indicating modern business practices, LinkedIn company page showing organizational scale, industry reputation via online reviews and mentions), conduct initial conversations (30-minute phone or video call gauging basic fit, interest level, and professionalism), request preliminary information (company profile overview, recent annual sales figures, customer count, facility locations, product lines currently represented), and apply simple scoring (rate each candidate 0-10 points across four dimensions—strategic fit, apparent capabilities, experience/reputation, responsiveness—total 0-40 points; advance candidates scoring 25+ points to detailed due diligence, eliminates clear mismatches efficiently). Preliminary screening typically completed within 2-3 weeks.

Comprehensive Due Diligence Process

Detailed evaluation of finalist candidates through information gathering, site visits, and reference checks before final selection:

Information Package Request:Ask finalists to provide comprehensive documentation: company information (complete corporate history, ownership structure showing all shareholders/parent companies, detailed management team biographies with experience/education backgrounds, organizational chart showing reporting relationships and departmental structure, facility information—locations, sizes, capacities, employee count by function, territory coverage maps), financial documentation (audited financial statements for past 3 years—balance sheet, profit & loss, cash flow statement showing financial health trends, credit reports from agencies like Dun & Bradstreet or local equivalents, bank reference letters, total annual sales volume, product line sales breakdowns, working capital position and credit line availability, payment performance history), operational details (sales force profile—total count, territories covered, experience levels, training, customer base analysis—total customer count, customer types, top 10-20 accounts, acquisition and retention rates, warehouses—square footage, location, layout diagrams, equipment inventory, warehouse management systems used, transportation capabilities—owned fleet size/type, carrier relationships, delivery coverage area, average delivery times, IT systems—ERP platforms, CRM systems, inventory management systems, e-commerce capabilities, service infrastructure—return centers, repair facilities, customer service team size, technical support capabilities), and performance metrics (sales trends past 5 years showing growth trajectory, market share estimates in relevant categories if available, customer satisfaction scores or testimonials, on-time delivery performance percentages, inventory turns and fill rates, awards or recognitions received). Quality partners provide comprehensive transparent information; hesitation raises concerns.

On-Site Visits:Conduct facility visits assessing capabilities firsthand (cannot be adequately evaluated remotely): tour warehouse and distribution facilities (observe organization and cleanliness—professional well-maintained facilities indicate management quality, examine inventory systems and controls—barcode scanning, lot tracking, expiration management, assess equipment condition and technology level—modern forklifts, automated sortation, WMS systems, evaluate security measures—fencing, cameras, access controls, climate controls), visit sales offices and headquarters (meet management team in person assessing professionalism, communication skills, cultural compatibility, strategic thinking in discussions, meet sales staff and key operational personnel gauging team quality and motivation, observe daily operations and activity levels providing insight into company culture), and customer visits (ask to jointly visit 2-3 of their customers—observe partner’s customer interactions and relationships, hear direct customer feedback on partner’s service quality, reliability, responsiveness). Site visits typically require 2-3 days in market—substantial investment but essential for major partnership decision. Warning signs: partner reluctant to arrange visits, facilities significantly worse than represented, poor employee morale evident, customers express dissatisfaction.

Comprehensive Reference Checking:Contact multiple references gathering candid feedback: current supplier principals (speak with 3-5 companies partner currently represents—most valuable references as they have direct working relationship; ask specific questions: How long have they represented you?, What is their annual sales volume with your products?, How do actual results compare to expectations/plans?, How would you rate their sales effectiveness, professionalism, communication, payment reliability? [scale 1-10], What are their greatest strengths?, What areas need improvement?, Have there been any significant issues or disputes?, Would you choose them again knowing what you know now? [most telling question]), customers (request introductions to 2-3 customers purchasing through this partner—customer perspective reveals service quality, reliability, responsiveness; ask: How long have you purchased from them?, How would you rate product availability, delivery reliability, technical support, responsiveness to issues?, Do they add value beyond product supply?, Would you recommend them?), industry contacts (speak with industry association executives, trade show organizers, market analysts who may know partner’s reputation), and financial references (contact banks provided as references confirming financial relationship, payment performance, credit lines). Document all reference feedback, look for consistent patterns (both positive and negative), be cautious if partner unable to provide recent references or references provide lukewarm endorsements.

Distribution Agreements and Performance Management

Essential Distribution Agreement Provisions

Comprehensive written distribution agreement prevents disputes and provides framework for successful long-term partnership—invest in proper legal drafting:

Critical Contract Terms:Territory and exclusivity definitions (specify exact geographic coverage using precise terms—”United States of America excluding Alaska and Hawaii” vs. vague “USA;” define exclusive vs. non-exclusive vs. selective status clearly; address online sales—can distributor sell online? Geographic restrictions on online sales? Your direct online sales rights?), product scope (list specific product lines covered—by SKU, product family, or general category; process for adding new products to agreement—automatic inclusion, requires mutual written agreement, or distributor right of first refusal; explicitly exclude any products not intended for this partner), appointment and authorizations (appoint distributor as “authorized distributor” for territory and products; grant limited trademark license for marketing—usage must follow brand guidelines; clarify distributor not manufacturer’s agent, cannot legally bind you, must identify as independent distributor), duties and responsibilities (exporter obligations—supply products at agreed prices/terms, provide reasonable technical support and training, supply marketing materials, notify of material product changes, process orders within stated lead times, honor warranty obligations coordinating with distributor; distributor obligations—purchase minimum volumes or achieve minimum sales targets, maintain adequate inventory levels typically 60-90 days sales, actively market and promote products in territory, employ qualified sales force, provide customer service and technical support, comply with all applicable laws and regulations, maintain facilities meeting specified standards, submit regular sales reports and market intelligence quarterly or monthly), payment terms (ordering process—how distributor places orders, minimum order quantities MOQ, standard lead times, pricing structure including any volume-based discounts or rebates, payment terms typically Net 30-60 days from shipment or invoice date, payment method—wire transfer most common for international, late payment consequences—interest charges 1-2% monthly, can suspend further shipments), and performance requirements (annual or quarterly minimum sales targets—graduated scale year 1-3 accounting for ramp-up time, consequences for missing targets—loss of exclusivity, territory reduction, or termination rights, market development investment commitments—hiring sales staff, carrying inventory, marketing spend, quarterly reporting obligations—sales data by product/customer/territory, inventory levels, market feedback, competitive intelligence). Additional essential terms: initial term duration (1-3 years typical allowing sufficient time to establish market), renewal provisions (automatic renewal vs. affirmative action required), termination rights (for cause—material breach uncured within 30-60 days, bankruptcy/insolvency, failure to achieve minimum sales two consecutive periods, illegal conduct; without cause—either party can terminate with 60-180 day advance written notice), post-termination provisions (inventory buy-back—often you agree to repurchase current, unsold, salable inventory at original price less 15-25% restocking, transition assistance for customers, return of confidential information and marketing materials, survival of confidentiality and IP restrictions), confidentiality obligations (define what’s confidential—pricing, customer lists, product information, business strategies, technical data; duties to protect, non-disclosure term typically 3-5 years surviving termination), intellectual property protections (you retain all IP ownership, distributor gains no rights except limited trademark license, distributor must protect IP and report infringement), marketing and branding requirements (distributor marketing investment commitments, your marketing support—cooperative advertising funds typically 1-3% of sales, materials provision, brand guideline compliance requirements), dispute resolution (choice of governing law—ideally neutral jurisdiction or your home jurisdiction; international arbitration preferred over litigation—specify arbitration body like ICC, SIAC, HKIAC; require good faith mediation before formal proceedings), and general provisions (force majeure excusing non-performance for uncontrollable events, assignment restrictions preventing transfer without consent, amendment procedures requiring written agreement signed by both parties, entire agreement clause superseding prior understandings, severability preserving remainder if clause invalid). Engage experienced international distribution attorney for drafting/review—$3,000-10,000 investment protects far greater partnership investments and market opportunities. Avoid generic online templates lacking market-specific and jurisdiction-specific protections—penny wise, pound foolish.

Performance Management Framework

Structured performance monitoring and management maximizes partnership success rates:

KPI Dashboard and Reporting:Implement shared performance dashboard tracking agreed metrics: sales performance KPIs (total sales revenue and units by product line, sales growth vs. prior year quarter-over-quarter and year-over-year, actual sales vs. annual targets showing percentage achievement, new customer acquisition count and revenue, sales pipeline value and conversion rates), market development metrics (geographic penetration—percentage of target territory covered by active customers, customer segment coverage—percentage of target segments penetrated, product mix breadth—sales across product portfolio vs. overconcentration in few SKUs, marketing activities executed—trade shows attended, promotions run, demonstrations conducted), operational excellence measures (inventory turnover ratio—annual COGS ÷ average inventory indicating efficiency typically 4-8x healthy depending on industry, order accuracy percentage, on-time payment percentage—invoices paid within terms, reporting compliance—timely accurate submission of quarterly business reviews), and customer satisfaction indicators (Net Promoter Score or equivalent satisfaction surveys, complaint rates and resolution times, product return rates and reasons, service quality ratings). Establish quarterly formal business review meetings: agenda includes performance review vs. KPIs identifying strengths and gaps, market dynamics discussion covering trends/competitive developments/regulatory changes, opportunity identification discussing new customers/segments/products/initiatives, challenge problem-solving addressing obstacles and constraints, action planning for next quarter with specific commitments and accountabilities, financial review if needed, relationship health candid discussion. Annual strategic planning sessions conduct comprehensive year review, set next year targets and growth plans, assess contract terms determining needed modifications, and evaluate partnership health. Performance dashboards should be accessible real-time to both parties (cloud-based portal or integrated systems) creating transparency and accountability preventing surprises.

Managing Underperformance:Address issues proactively: early identification through KPI monitoring (watch for declining trends—sales declines, slowing growth, increasing inventory, falling market share), independent market intelligence (conduct periodic market research validating partner’s reported market conditions and competitive landscape), and customer feedback (occasionally speak with end customers gauging satisfaction and gathering unfiltered feedback). When underperformance identified, diagnose root causes collaboratively: is issue partner execution (inadequate sales effort, poor customer service, insufficient inventory investment) vs. market conditions (unexpected economic downturn, new competition, regulatory changes) vs. product issues (quality problems, uncompetitive pricing, missing features)? Develop performance improvement plan: specific actions addressing root causes (hire additional sales staff, increase inventory, enhanced training, adjust pricing), clear responsibilities (who does what by when), measurable milestones (interim targets showing progress), support commitments from you (additional training, marketing investment, pricing adjustments, more frequent visits), and defined timeframe (typically 90-180 days for meaningful improvement). Monitor progress closely through more frequent reviews (monthly vs. quarterly). If no improvement despite good-faith efforts over defined period, escalate: reduce exclusive territory opening portion to additional partners while leaving partner some protected area incentivizing improvement, convert exclusive to non-exclusive allowing you to appoint additional partners throughout territory, or terminate agreement per contract terms providing required notice. Fair process important: document performance issues and communications, provide reasonable opportunity to improve with clear expectations and support, obtain legal counsel before terminating ensuring contractual compliance and minimizing legal risk.