Signing up overseas distributors at trade shows can be painless. Some distributors will even pay you in advance. But, seller beware: Those easy orders can lead to major obstacles down the road.
Scott Montgomery, marketing chief at Cannondale, a Bethel, Conn., bike manufacturer, recalls his struggle to control distribution when he started Cannondale Europe, in 1989. Sales raced to $1.5 million the first year, but margins slipped. The same distributors that placed large orders and paid with letters of credit also resorted to discounting. "When your products are being dumped," says Montgomery, "you lose control of your pricing and positioning."
To reestablish his authority, he bought out the contracts of his European distributors and agents in 1992, for an "embarrassingly expensive price"--about 5% of the reps' annual commissions. Says a wiser Montgomery: "You can do okay with agents and distributors if you protect yourself. You should overstate that you're signing a short-term agreement, otherwise you may still have to pay. It's not like in the United States."
Montgomery has since set up a sales force, opened an office in the Netherlands, and built warehouse space. Cannondale Europe's annual sales are now pedaling along at $60 million.