Let me share some of my experiences in the import business and what risks could evolve as business plan progresses.

When I started my import business, I focus on bringing quality products to the New Jersey market, from well established suppliers with a long history of being market leaders in their segments, and with strong brand recognition.

Whe I started importing product "A", I had the option to have the supplier rename the brand to my own brand, however I thought, Product A"" is well known in Peru, is the market leader and almost all peruvians living in New jersey knows the brand and associates with quality from a respected supplier. My brand name was only known to me. Then I decided to keep the status quo, and bank on the brand name. So far so good, sales are doing fine, marketing campaigns in local newspapers are giving me the visibility I need and, future looks very promisory, so why am I complaining?

Actually my concern comes from bad experiences sufffered by other importers I met at the Chamber of Commerce. I have the exclusive rights to sell product "A" in New Jersey, the agreement is for two years, which could be renewed or not at discretion from each party.

Some of the problems faced by these colleagues were when the the sales started growing exponentially, the actual supplier will take over once the agreement is due and they won't renew the agreement. In other words, suppliers were simply using them to open up the markets, and when sales were reaching attractive levels, it was time to send them the thank you notes and let them go.

This problem is more brutal inside Peru, where manufacturing companies, opens manufacturing plants in outskirts of city, and build a network of wholesalers to distribute their products on their allocated territorry, after sales improves in certain areas, and shows prospects of improving. The supplier will take over and setup their own shops and start managing the sales themselves.

This is really an abuse from part of the supplier. Opening a market for a well known brand takes lots of time and efforts and dedication, usually the first years the profits are very low, as the money is reinvested in marketing campaigns, more assets, warehouse space, delivery trucks and the like to support the future growth, so when the time has come, to harvest the efforts from your hard work (the time of the big sales), you will see somebody else cashing in the work done by you. Not fair, but a trick commonly used by manufacturers.

My approach to minimize the risk of being taken over by supplier is through diversification and building a strong relationship with them. I can not rely on only one supplier, if that thing happens to me I will cease to exist. So I have signed up aggrements with 4 more suppliers and plan to extend to 4 more by end of 2007. Having more products also give me additional advantages not realized at first, but I will leave that for another topic.

I wonder if some of you experienced this type of problem when reselling somebody else brands. if so please share your experiences, through that we could learn how to handle that situation and be prepared and minimized risks.

Vicente

Quoting from [Vicente]:


Let me share some of my experiences in the import business and what risks could evolve as business plan progresses.


When I started my import business, I focus on bringing quality products to the New Jersey market, from well established suppliers with a long history of being market leaders in their segments, and with strong brand recognition.


Whe I started importing product "A", I had the option to have the supplier rename the brand to my own brand, however I thought, Product A"" is well known in Peru, is the market leader and almost all peruvians living in New jersey knows the brand and associates with quality from a respected supplier. My brand name was only known to me. Then I decided to keep the status quo, and bank on the brand name. So far so good, sales are doing fine, marketing campaigns in local newspapers are giving me the visibility I need and, future looks very promisory, so why am I complaining?


Actually my concern comes from bad experiences sufffered by other importers I met at the Chamber of Commerce. I have the exclusive rights to sell product "A" in New Jersey, the agreement is for two years, which could be renewed or not at discretion from each party.


Some of the problems faced by these colleagues were when the the sales started growing exponentially, the actual supplier will take over once the agreement is due and they won't renew the agreement. In other words, suppliers were simply using them to open up the markets, and when sales were reaching attractive levels, it was time to send them the thank you notes and let them go.


This problem is more brutal inside Peru, where manufacturing companies, opens manufacturing plants in outskirts of city, and build a network of wholesalers to distribute their products on their allocated territorry, after sales improves in certain areas, and shows prospects of improving. The supplier will take over and setup their own shops and start managing the sales themselves.


This is really an abuse from part of the supplier. Opening a market for a well known brand takes lots of time and efforts and dedication, usually the first years the profits are very low, as the money is reinvested in marketing campaigns, more assets, warehouse space, delivery trucks and the like to support the future growth, so when the time has come, to harvest the efforts from your hard work (the time of the big sales), you will see somebody else cashing in the work done by you. Not fair, but a trick commonly used by manufacturers.


Vicente

Dear Vicente,

There is a very insignificant clause added in such agreements, which becomes most important.

The clause staes,"Upon this agreement not renewed before expiry of this period, neither of the parties will have right to sell Brand"A" in territory of ............. for three years.

Or the NCND clause of not selling to any dealer of Yours( Agency with exclusive rights) for a period of three years.

Sixer

Replying to [Vicente]:

Dear Vicente

I echo with your concern.

There are always a chance of supplier selling directly. We have also faced same problem when we were dealing in chemicals.

As sixer mentioned there are solutions through some clause in terms and conditions.

I would like to add to it. Many companies will not agree with this type of clause in one go. So you can put it both way. If you add a clause as sixer suggested in your favour. You can also give supplier target sale and mile stone which if not achived on time, gives supplier authority to discontinue the agreement.

This will add to his contant and in exchange you can convince him to add some clause for your safety.

I always like to suggest that we should create a win - win situation.

You also understad that going into such an agreement cost put a big opportunity cost at stake for supplier, also his name is also at stake.

So, your mutual association will reduce the unsecurity from both ends.

Also, if you are successful with one or more brands, you will develop a good image in market further strengthening your position.

Madhur Agarwal

Quoting from [Madhur_Agarwal]:


Replying to [Vicente]:


Dear Vicente


I echo with your concern.


There are always a chance of supplier selling directly. We have also faced same problem when we were dealing in chemicals.


As sixer mentioned there are solutions through some clause in terms and conditions.


I would like to add to it. Many companies will not agree with this type of clause in one go. So you can put it both way. If you add a clause as sixer suggested in your favour. You can also give supplier target sale and mile stone which if not achived on time, gives supplier authority to discontinue the agreement.


This will add to his contant and in exchange you can convince him to add some clause for your safety.


I always like to suggest that we should create a win - win situation.


You also understad that going into such an agreement cost put a big opportunity cost at stake for supplier, also his name is also at stake.


So, your mutual association will reduce the unsecurity from both ends.


Also, if you are successful with one or more brands, you will develop a good image in market further strengthening your position.


Madhur Agarwal

Dear Madhur,

Minimum Sales target clause is almost always there when you enter into such agreements with manufacturers, hence a clause should menton that if marketer is able to achieve target, agreement is automaticaly renewed.

Sixer

Replying to [Vicente]:
Great lesson for me.

Replying to [sixer]:
Well i was going to add my 2 cents worth....... but since Sixer has answered the question perfectly ........ I guess i am just superfluous!

Vinc, Sixer has the perfect answer. Get the clause inserted

Might I suggest that you tie up not just NJ but the Tri State area instead (assuming the costs work out).... How many NJ customers do you sell to who might be driving over the bridge and selling at an even better profit in Manhattan? I generally consider NJ and NYC as a single market....... However it can be hard to get NJ and just NYC, you usually have to take all of NY which sucks ... but that's the way it goes........ I think having the right to NYC would be well worth it! depending on cost of course!

(I also assume you already thought of that ....... but just in case)

Replying to [Vicente]: Basically u r into trading,and face the attendant risks. As u are saved the ones of production. So it is no point cying foul.
Sourcing is a choice made at the start, having looked at the target group and the choices available to them at that moment.
The fact that u chose to retain the brand-name, hints at local-competition, an advantage u got over them.
Well, it is payback time, unless u were smart enough to look at local production and establishig a market under your brand-name, during that time.

Replying to [sellwell]:Dear Selwell
Yes, you have a point, I decided to go with their brand because of much stronger recognition. However notice that manufacturer did not consider to open up the market in the first place because for them is going to be very expensive, setting an international shop, and rely heavily on consulting companies for marketing and distribution advice.

Well this forum has given me some positive ideas to consider, when moving forward. The manufacturer is not losing money, they keep selling me at their regular price, I invest my time and effort to find the right distribution channels and right media to launch promotional campaign with better results.

I would say in this time they have pocketed profits from all the order I made. I have been reinvesting the profits to enlarge the distribution facilities and logistics. So if they don't want to renew the agreement, I will be at disadvantage. I need to protect my investment wisely and be prepared for worst case situation to happen.
Vicente

Replying to [Foow]:Dear Foow
Thank you for your comments. Yes, Sixer is ahead of the game, he has provided the most clear option for me to negotiate moving further.
About opportunities to do business in NYC. Sad to say this, but New York is really a * territory.

All the grocery stores and commercial business in NYC is pretty much a chain of stores, and to do business with them, I need to negotiate with their headquarters, and pretty much all of those store chains have outsourced the purchasing to a controlling group. Any new entrant application has to be reviewed by the existing providers and they will have a strong say if your application continues or gets kicked out. Also if I get accepted to keep my company as a vendor, I need to give them "gifts" as an appreciation for their help.
So I am not ready for that, I tried to find independent stores but they are usually located away from the commercial area I would like to see my products. So NYC is not on my agenda yet.

Even though NYC is only 10 miles away from my location, I can not enter yet. NYC market is a very good market, profit margins in NYC goes to 100% easily, even more, compared to 30 to 40% in New Jersey. Well, I believe each market has its own variables, it is just a matter to know your market better to make more educated strategies.

Vicente