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2016 PARTNERING WITH AGENTS AND DISTRIBUTORS FOR INTERNATIONAL SUCCESS IN EAST ASIA INTERNATIONAL CHANNEL PARTNER MANAGEMENT newzealand.com/business

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Page 1: NZTE Managing International Channel Partners

2016

PARTNERING WITH AGENTS AND DISTRIBUTORS FOR INTERNATIONAL SUCCESS IN EAST ASIA

INTERNATIONAL CHANNEL PARTNER MANAGEMENT

newzealand.com/business

PAGE 1

Page 2: NZTE Managing International Channel Partners

THE PATHWAY TO MANAGING AGENTS AND DISTRIBUTORS FOR INTERNATIONAL SUCCESS

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CONTENTS

INTRODUCTION 1

Introducing active management 2

The Channel Partner Lifecycle 3

Types of Channel Partners 4

Agents and Distributors 5

Finding a Channel Partner 6

Assessing a Channel Partner 7

Appointing a Channel Partner 9

Relationships and the ‘Asian Contract’ 10

MANAGING CHANGE 18

Handling problems with Channel Partners 19

Exiting a Channel Partner relationship 21

What does success look like? 22

Appendix 23

MANAGING A CHANNEL PARTNER 11

Active management 12

What does active management involve 13

The transparent relationship 14

Supporting your Channel Partner 15

Exclusivity and segmentation 16

Managing performance 17

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INTRODUCTIONMany New Zealand companies rely on a variety of partners in-market when exporting – including agents, distributors, joint ventures and licensors. (For the purposes of this document, we’ll call them Channel Partners.)

The success of your export business relies on your Channel Partners doing a good job, so managing them well is vital. Get it right, and your business prospers – get it wrong, and you can find yourself wrestling with serious problems that absorb your time and energy, and take you away from running the rest of your business.

This guide looks at several core concepts and skills that will help you to actively manage your Channel Partners. By using these concepts and skills in a structured, strategic way, you’ll be better able to develop and maintain successful relationships with Channel Partners – and work with them to get superior results for your business.

As you read through this guide you’ll find five core concepts that will help you manage your Channel Partners:

Active managementChannel Partners need training, support and performance management, which means ongoing attention and engagement to get the most out of your relationship with them. This is the central principle of success with Channel Partners, and impacts all the other concepts and ideas in this guide.

The Channel Partner lifecycleAs your company grows and evolves, your relationship with your Channel Partner will also change – which means knowing when and how to adjust the relationship, and make changes.

The transparent relationshipTo succeed in an export market, you need to get to know the Channel Partner’s end customer just as well as they do. This requires clear trust and commitment, going both ways.

Supporting your Channel PartnerYou need to be important to your Channel Partner if you want them to focus on growing your business. This means supporting them and becoming an essential part of what they do – going well beyond just the margins or revenue they earn from you.

Performance management – the ‘dashboard’Working successfully with Channel Partners means monitoring performance, setting reachable targets, and having a shared commitment to identifying problems and solving them. Having a clear ‘dashboard’ is a good way to keep performance visible and top of mind.

The ideal state of a Channel Partner relationship is for you and your Channel Partner to both become essential parts of each other’s business – working in tune to grow sales, market share, revenue and profit. Getting to this point, and staying there, involves time, effort and commitment – but working in a planned way towards it can make a huge difference to your business growth and performance in-market.

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The heart of active management is the simple concept that Channel Partners need training, support and performance management – just like employees or teams within your own business. Getting the best results out of a Channel Partner means constant and sustained attention to those needs.

Active management covers the full spectrum of performance-related activities that make up how a business operates. Sometimes this means helping your Channel Partner overcome barriers to performance. For instance, you might provide training in solution selling, systems, or inventory management.

At other times, active management involves performance management – not just developing sales targets and scoring your Channel Partner against them, but fully understanding the opportunities for growth, the costs of achieving them, and the threats that exist in the marketplace (and how they will be overcome).

Once you have a shared understanding of the market, you can set mutually agreed goals, with an understanding of how much they will cost to achieve and how long it will take to achieve them.

Active management involves treating your Channel Partner as an essential part of your export business, from training and product support through to shared goals and performance measures. In return, it gives them the confidence to treat you as essential to their business – which means they can put in maximum effort to make your product or service a success.

INTRODUCING ACTIVE MANAGEMENT

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When you start working with a Channel Partner, sales will usually increase over time through the start-up and growth phases. In most cases, this growth will slow and potentially level out, as the relationship reaches maturity.

After maturity, sales might stagnate or even drop over time – leading to a period of chaos, choice and change, where you’ll be faced with some choices about your relationship with your Channel Partner.

Making the right changes at this point may start a new trajectory of growth – while making the wrong choices (or just doing nothing) might see your sales and market presence decline, or even lead to an exit from the market.

Understanding that the Channel Partner you start with may not be the most suitable partner at all stages of your sales growth cycle is important to managing the problem later. Some companies build a relationship with the first importer that places an order, at the possible expense of future growth, since the partner that gets you into a market may not be best placed to grow your business 3 – 5 years later, let alone 10 years into the future.

One problem often reported by exporters is that their growth in a market has plateaued and stalled. They report an excellent relationship with their Channel Partner; sales are constant and significant every year, but aren’t growing. The question of what to do often arises from frustrated exporters. They don’t want to

lose the business they have, but through many meetings and sometimes years of discussion with the Channel Partner, the business is still not growing.

In many cases the exporter’s growth aspirations have exceeded their Channel Partner’s capacity – although their current customers are loyal, the Channel Partner has reached the limit of the new prospects they can influence, or doesn’t have the right sales force, logistics or finance to grow the market further. With the right support, you can sometimes help a Channel Partner to get past these challenges, and move the relationship back into growth mode.

However, at other times, you might find your partner simply no longer has the ability or the resources to keep pace with

your growth needs. At these times, it’s important to remember that although changing Channel Partners can be risky, and potentially cost you current business, there’s also an opportunity cost to staying with the wrong partner (in foregone sales and growth opportunities).

The key to handling the Channel Partner Lifecycle’s ups and downs, and keeping your business in growth mode, is to have a strong active management relationship with your Channel Partner. This will give you the information you need to spot problems early, and work with your Channel Partner to fix them and keep your shared business growing – or to know when it’s time to move on, and find a new partner that will meet your needs into the future.

THE CHANNEL PARTNER LIFECYCLEThe first step to working successfully with a Channel Partner is to understand that the relationship isn’t static – it will change and mature over time, and pass through several distinct stages. Understanding these common stages and how they work is important so that you can correctly manage the relationship, identify problems and know when it is time for change.

Over time, most Channel Partner relationships fit somewhere on the Channel Partner Lifecycle. This is a simple tool to help you see where you are on the maturity scale of your relationship with your Channel Partner.

Sales

Time Startup

Growth

Maturity

ChaosChoiceChange

Beginningnew chapternew trajectory

Beginningnew chapternew trajectory

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DistributorsThe key feature of a distributor relationship is that your Channel Partner will directly take title to your goods in market – meaning the end customer actually buys the product from the distributor, not from your company. A distributor performs sales and marketing functions, concludes contracts in their own name, and takes full risks – including inventory (stock), credit, foreign exchange, warranties and so on – as well as managing in-country activities and route-to-market decisions.

Limited risk or ‘last mile’ distributors often hold little or no stock, only ordering from you when they themselves get orders from end customers. They may also have a reduced range of other functions compared to a full distributor, depending on what you agree with them.

Some distributor relationships work on a licensee model, where you (as a licensor) grant the Channel Partner permission to sell products in a defined territory using intellectual property that you own, such as your brand or trademarks.

AgentsUnlike a distributor, a sales agent doesn’t directly take title to goods – the end customer does not buy anything directly from them. Sales agents maintain close relations with distributors, and build local knowledge on channels and consumers, but are essentially intermediaries, with limited functions and risks. Depending on what has been agreed, they may sign contracts on behalf of another enterprise.

Commissionaire agents typically conclude contracts on behalf of another enterprise, and often have more limited functions still than a full sales agent. This type of agent is most often found in Japan.

Joint ventureA joint venture (or JV) is a cooperative business agreement between two enterprises, in which the parties agree to establish a new entity by contributing equity. The parties of the JV exercise control over the entity, and consequently share revenues, expenses and assets. A JV can sometimes act in much the same way as a distributor or agent as outlined above, depending on the agreed functions it performs, the risks it assumes and assets it owns.

TYPES OF CHANNEL PARTNERSThe term ‘Channel Partner’ includes many types of representation for an export business to choose from when entering a new market. This section takes a brief look at the most common types of Channel Partners for New Zealand companies in East Asia, and a few pros and cons to consider.

Please note that this isn’t a comprehensive list – you should consider professional advice, tailored to the market you’re targeting, if you’re unsure which type of Channel Partner will suit you best.

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Most Channel Partners for New Zealand companies in East Asia are either agents or distributors. Below is a short guide to some of the differences between the two, and how the relationship generally works.

IMPORTANT: Choosing the right representation model for your business is very important – if in doubt, please seek help from a trusted advisor or professional.

How does the relationship work? Agent Distributor

You control your product’s price and terms of sale in market.

Yes No

You can control which customers your Channel Partner sells to – they are effectively ‘your’ customers.

Yes No

You can exert close control over the marketing and branding your Channel Partner uses.

Yes Depends on the relationship and agreement

The Channel Partner carries the risk of any unsold stock. No Yes

You’ll pay your Partner via a performance linked commission. Yes No – although bonuses may be agreed

Your partner will get compensation from you if your agreement with them is terminated or expires.

Yes No – but payment is sometimes offered as an ‘exit package’

Your partner will have a relatively high risk of competition law issues. No Yes

You’ll have a relatively simple tax position for income you get from your Partner.

No Yes

Your Partner will directly take title to your goods before they reach the end customer.

No Yes

If the end customer doesn’t pay their bill, you, not your Channel Partner, carry the risk.

Yes No

AGENTS AND DISTRIBUTORS – PROS AND CONS

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Before you start looking for a Channel Partner, understanding the market you are approaching is essential. In fact, to develop a business plan, allocate resources, and set performance targets, you need to know almost as much about the market as your Channel Partner does.

This may seem contrary to the main reason for using a Channel Partner in the first place – they know where the customers are in an overseas market, and can sell them your products. But depending on a Channel Partner’s market knowledge, without developing your own, puts you at a huge disadvantage and reduces your options when problems arise or growth doesn’t happen.

The major advantage of using a Channel Partner is that you can avoid the expense and commitment of resources that you’d need to set up your own operating entity in the market. Using a Channel Partner avoids the investment of capital and the management of corporate functions and people, as well as the general removal of HR, legal and tax liabilities.

In a Channel Partner relationship, the partner carries many or all of these costs and responsibilities. They also know where the buyers are, represent your product and act as your channel to market – but you need to be very knowledgeable about the market as well.

Market knowledge allows you to:• Understand your value proposition to

the end customer – what they need, what they value and what they’re prepared to pay for

• Understand the potential market size

and key market trends, pricing, and margins through the value chain, as well as regulations, tariffs and barriers to entry

• Identify potential customers and competitors

• Forecast market demand

• Allocate marketing and support resources

• Set market penetration and sales KPIs, for both you and your partner

• Identify and manage underperformance by your Channel Partner.

If your Channel Partner owns the customer and the channel to market, they own your business in that market – and you’ve lost a lot of control over your future growth. The more independent knowledge you have about the market, the better prepared you’ll be to negotiate if any problems come up.

Be prepared to spend significant time doing research in a target market before signing any contracts. You can seek help with this process from professional agencies and consultants, from other companies already active in-market, and from NZTE.

Once you have a solid base of information, conduct a SWOT analysis of your competitors so you know where you truly stand.

Looking for Channel Partners You can search for Channel Partners in a variety of ways:

• Talking to retailers or end customers, to find out who they work with and can recommend

• Going to trade fairs to find notable distributors or agents, or their end customers

• Reading trade magazines

• For packaged goods, looking at similar products (or ones sold in the same places) for distributor or agent information

• Using social ties and networks – backed up with formal due diligence.

NZTE, along with professional research companies, can help to identify companies active in your sector and market and provide a list of potential Channel Partners for you to review. In some markets you may find consulting businesses or business matching websites that will offer to connect with Channel Partners.

With all of these options, it’s still important that you conduct your own due diligence, both independently and through a professional advisor.

FINDING A CHANNEL PARTNER

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ASSESSING A CHANNEL PARTNEROnce you’ve identified a likely Channel Partner, it’s time to work through the process of assessing them to make sure that your businesses can work successfully together.

This involves both confirming that the Channel Partner is a good strategic fit for your business (including your product, end customers, and culture), and doing the necessary due diligence to confirm that they’re financially and legally sound, and have a track record of real results.

Strategic alignmentWhen considering potential Channel Partners, you need to consider the alignment of your business to theirs:

Sales• How big a percentage of their business

will you represent – too small to hold their attention, or too big for their resources and capability?

• For distributors – how much stock will they purchase and hold?

• How many sales staff will they apply to your products?

• How proactive are their marketing and promotional efforts?

• What channels do they sell into, and how do these align to growth opportunities?

• Are your growth strategies aligned?

Management• Is management committed to growing

your business?

• Will they invest in your success in the market?

• How strong is the CEO to CEO relationship?

Culture• Is your business culture aligned?

• Will this Channel Partner respect your values and represent your products as you would like?

• Do you feel comfortable with this Channel Partner representing your company in the market?

Family business dynamicsIn many East Asian markets, you may find yourself working with family run businesses which work in different ways to businesses based in Western countries. These businesses can be excellent long-term partners, but it’s important to understand the dynamics before confirming a relationship:

• The founder or owner of the business may serve as a patriarch or matriarch - the head of the family as well as the company. Others in the business will defer to them, and it’s important to maintain their ‘face’ and prestige

• These businesses may not share the same Western-style governance structure you are used to elsewhere. Decision making may be relatively hierarchical and ‘top down’

• CEO to CEO relationships are vitally important – this is where trust is generated and decisions are made

• Even relatively large businesses may not have the level of sophistication you’d expect for similar businesses in other markets, including logistics, stock management, risk control, health and safety and so on. This is especially apparent in emerging markets

• You may find your partner lacks Western-style formal HR processes

• Succession planning may work along family lines, or there may not be a formal succession process at all – be aware of the risks this may pose over time.

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Due DiligenceOnce you’ve confirmed a strategic fit, and understand the culture and processes of your potential partner, it’s time to formally confirm that they are a capable, reputable business and can follow through on any commitments they make to you.

Remember that you’re forming a strategic partnership, so be prepared to share a similar level of information about your business with your Channel Partner.

Basic information• What is their turnover?

• How many employees do they have?

• What products do they handle?

• Do they sell or represent any competing products?

• Are they a public company? Can you see their financial accounts?

• What is their credit record – do they pay their bills?

Dun and Bradstreet and Veda Advantage offer international credit reports that can provide valuable insights into the creditworthiness of your potential Channel Partner. NZTE can also access local credit information providers in market - it is well worth the investment.

Detailed information• Who are their customers?

You need to know what products and channels your Channel Partner is strong in, what customers they reach, and who they can’t reach. Few agents or distributors can reach the whole market, and you may need a strategy of different Channel Partners on the basis of customer or segment (making sure they understand that they’re not competing with each other)

• What do their suppliers or bankers have to say?

Get references and talk to some of their existing customers to reference check and find out what their experience has been like. See if you can also talk to their bank (with the Channel Partner’s permission).

• What is their English language capability?

Find out if the CEO or owner speaks English and how many employees have English language skills

• How skilled are their sales staff?

Ask for copies of the sales staffs’ CVs. Do they have the technical expertise to sell your product?

• What is their logistics capability?

Find out if they have their own warehouse, sales fulfilment and logistics systems

• What are their normal payment terms?

• What is their attitude to bribery or corruption?

Be aware – New Zealand law requires you to conduct appropriate due diligence with your partners or agents, to avoid bribery and corruption. You can still potentially be held liable in New Zealand for what your agents or intermediates do overseas, even if you don’t directly employ them.

Once you have all of the above information, you should complete a full risk analysis and mitigation plan.

Some Channel Partners may be nervous about discussing these points, but explaining why you’re doing this - as part of a structured process, to maximise your chances of success and minimise future misunderstandings and problems – should help to settle their concerns.

Proper due diligence not only protects you, but it communicates important information to your future partner about the approach and commitment you are making to enter the market:

• You are long-term oriented

• You are prepared to make the investment in time and money to do things right

• You are committed to making the relationship successful.

ASSESSING A CHANNEL PARTNER

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It is imperative that at this stage you have:

• Developed a strong relationship with the owner and/or CEO, and key decision makers

• Set clear expectations about how you want the relationship to work:

– Transparent relationship

– Active management

– Agreed sales and marketing support

– Clear performance expectations (KPIs)

– Clear exclusivity and market segmentation

– A defined territory that the agreement will cover

– Ownership and protection of IP

– A clear arrangement for stock and sample holding

– Payment terms

– The duration of the agreement – when it starts and ends

– Clear arrangements for setting and controlling the sales price

– Commission and margins

– Reporting – including sales, warranty claims, losses and wastage, product expiry dates, forecasts, consumer trends and insights, etc

– Dispute resolution – including processes for arbitration

– Termination processes – including reasons for termination, arrangements for repurchase of stock, settlement of outstanding payments, notice of termination and each party’s responsibilities.

When you appoint a Channel Partner you are generally entering into a legally binding agreement.

Documenting your agreement in writingFinally, capture the Channel Partner Agreement in writing.

This is a critically important document – it is legally binding and encapsulates your agreement with the Channel Partner.

If there is a dispute, this is the document you will go back to, so it is vital you have a mutually agreed record of your Channel Partner contract.

The complexity of the agreement generally reflects the risk to your business.

You’ll find an appendix with common terms used in Channel Partner agreements at the end of this guide.

APPOINTING A CHANNEL PARTNER

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RELATIONSHIPS AND THE ‘ASIAN CONTRACT’In Asia, as everywhere in the world, developing relationships involves investing time and resources. Good relationships are not won easily, but once developed can be worth their weight in gold. In short, relationships are slow, but doing business is fast.

In traditional Asian thinking, the weight of a contract is not seen as important as the strength of the relationship – a strong relationship comes first, and contracts come second. Little value is placed on a contract that merely structures a bad relationship. Western business thinking differs on this point. The key here is not to judge, but to be aware of different thought processes that will affect how you work with Asian Channel Partners.

In a contract-driven scenario, the contract defines how situations are dealt with. There may be winners and losers, and this is understood to be the nature of business. In a relationship-driven scenario, it’s understood that the parties will get together to work out the best possible result for both parties - which might or might not match what is written in the contract.

This approach can be seen in a traditional Asian contract, which may contain a clause that reads “If circumstances change the parties agree to discuss…”,

or similar wording. To Western thinking, this may defeat the purpose of a contract, but to Asian thinking it highlights the need to take the other party’s situation into account, which can often work for your benefit as well as theirs.

Many, if not all, Asian Channel Partners will be used to doing business on a contract basis, but be prepared to negotiate every line of a long and complex Western-style boiler plate agreement.

The ‘Asian contract’:

• Is built on trust and maintaining relationships

• Can make it difficult to negotiate a Western-style boiler plate agreement

• Includes the idea that “if things change we agree to talk” – explicitly, or implicitly

• Does still allow for strong performance management.

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Why management mattersFinding an Channel Partner is a relatively easy first step – but getting results and maximising them is a lot more complicated.

More often than not, companies put the majority of their efforts into finding a Channel Partner, but very little effort into managing their performance. The Channel Partner is simply left to their own devices and expected to produce results.

The value of an export market can be thought of as a triangle with three main supporting points – market opportunities, pipeline or value chain, and available resource.

Actively supporting your Channel Partner is a key part of your resourcing for tackling any market. Without a properly resourced partner, the potential for growth collapses, even if the opportunities are significant and the Channel Partner and their value chain are rock solid.

Market Pipeline/ Value Chain

Channel Partners ResourcesChannels available

(bricks & mortar, eCommerce, own stores)

NZ Company Resources

TimeMoney

Support of the Channel Partner

Market OpportunitySize

CustomersCompetition

In Market Success Factors

Research agency Bain & Co recently conducted a study of 2,000 successful sales organisations, tracking their sales growth over 10 years. Only 25 percent of companies were able to achieve growth rates over 5.5 percent a year – the rest followed a ‘conventional’ path, with some common features:

• Targets spread across territories

• Market selection based on trends or hot markets

• Channel Partners depended on as ‘rainmakers’ to generate sales.

In order to achieve sales growth, companies that took this approach had to increase sales resources or add new markets, which in turn added cost. The result was lower profitability and less resources for growth over time.

The 25 percent with superior sales performance took a more structured approach to working with their Channel Partners and growing their business:

• Identifying the most promising customers

• Customising products to meet customer demand

• Putting priority resource into key segments

• Having a systematic sales and marketing process

• Having clearly structured performance management

• Aligning sales metrics to maximise sales.

MANAGING A CHANNEL PARTNER

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Active management is simply the concept of being actively engaged in your business with the Channel Partner. Channel Partners provide access to a lot of valuable information and resources – including existing customer bases, networks and contacts, detailed local knowledge, regulatory understanding, and logistics support. However, none of this means that they will automatically understand your product and be best placed to sell it – or that their sales force will always be motivated to sell your products.

Just like your own employees, Channel Partners need guidance, training and support to get the best outcomes for your business. If they have to carry on alone without help, but are simply expected to ‘get on with it’ and get results, you’ll never see sales reach their full potential – or you may never see any sales at all.

Too many exporters believe that profit on sales, or commission, is all the motivation a Channel Partner needs.

Taking on a new product means not just opportunity for a Channel Partner, but also real costs – including investment, training, cashflow and resources taken away from other parts of the Channel Partner’s business.

Most effective Channel Partners are frequently exposed to new products. Over time, they’ll focus their efforts on those that are well supported by active, engaged suppliers – and away from those

that are poorly supported (and thus harder to sell), or come from suppliers who expect the Channel Partner to do all of the work.

If you’re serious about making your product a success in-market, the first step is to look at your relationship with the Channel Partner as a genuine partnership - and your contribution to that partnership is active management.

Active management includes several key elements:

• Agreement, between you and your Channel Partner, that your active engagement is the best way to achieve prolonged sales growth and performance. Your Channel Partner should understand and welcome the idea that you are investing in their success as well as yours, and that this is a positive process – you’re demonstrating your commitment to them, and inviting them to show commitment to you as well.

• The transparent relationship, which will give you access and knowledge about the Channel Partner’s end customers – the ultimate buyer of your product. For this to happen, you need to build trust and an understanding with your Channel Partner that you are there to help them. Your Channel Partner may own the channel to the buyer, but nobody can sell your product better than you.

• Exclusivity and segmentation of the market. Almost all Channel Partners

will ask for at least partial exclusivity, whether this is by customer, segment or territory. In their eyes, they are investing in developing the market for you, and don’t want to see that investment lost to competitors. Most Channel Partners will have some experience of developing new business and then watching it walk away from them, leaving no return on their effort – so it’s important to understand and manage their need for exclusivity.

• Providing support to your Channel Partner to help them grow and sell – which can mean more than just financial support or collateral. This is vital as active management is a two-way street, and your contribution is required to make the relationship work.

• Setting up a framework for ongoing performance management. This includes developing and agreeing performance KPIs which are shared with your Channel Partner, and which you can both work to achieve. This might also include a visible dashboard for both sides to view and update.

Finally, keep the Channel Partner Lifecycle in mind throughout the management process – as your business changes, so will the needs and requirements of your Channel Partner.

Effective active management will let you identify and understand these changes, so you’ll know when adjustments are needed, or when it may be time to move on to a new relationship.

ACTIVE MANAGEMENTWorking closely with a Channel Partner to grow sales takes time and effort - but it’s a much better route to long-term success than spreading your efforts thinly, and expecting several Channel Partners to do the work for you.

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— Regular communication with your Channel Partner. Set up regular weekly or bi-weekly sales update calls to manage your sales channel, review sales performance against your budgets, and do regular customer reviews.

— Regular visits to market. Aim to get into market at least four times per year – more if possible. Your Channel Partner should also visit you from time to time, for training, knowledge of your company culture and general deepening of the relationship.

— A suitable marketing support kit and sales materials. This might include resources for sales staff, promotional flyers, videos, or technical support manuals. You should also consider supporting your partner with advertising, PR and so on as needed.

— A jointly developed new product launch programme. This should include product information training, sales training, and a shared promotional plan. You should be prepared to co-invest in the launch of your product (marketing, advertising, PR, trade shows and so on).

— A period of dedicated on-site sales support from your company. This will give the Channel Partner a head start in learning how to sell and support your product.

— An agreed transparent relationship. Your Channel Partner should be comfortable with giving you access, including regular end customer visits to help you gain first-hand insights about what your customers need and want.

— Information seminars and training for your end customers and buyers – to ensure they are getting the most out of your products.

— A shared business and sales plan with your Channel Partner. Set specific sales goals and targets annually, and develop a 3-5 year growth plan to reach bigger goals (for instance, doubling sales over the next 5 years).

— An agreed set of financial and performance KPIs. These should be regularly monitored and reviewed.

— Joint product development and localisation. Shared development can give you and your partner an advantage in meeting end customers’ needs.

— A defined process for dealing with customer claims.

— If possible, consider your own in-market Business Development Manager. This person can work proactively with your Channel Partner to provide sales training, organise media and promotional activity, and develop your brand locally.

WHAT DOES ACTIVE MANAGEMENT INVOLVE?Active management of your Channel Partner should include as many of the following elements as possible – depending on your resources and the Channel Partner’s needs.

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Many Channel Partners will initially be suspicious of suppliers that want to meet and get to know their customers, worrying that this will allow them to leave at any time for a better deal and take the Channel Partner’s customers with them.

Often this suspicion is justified - almost all Channel Partners have been burnt in this way at some time. To help get past these suspicions, you need to build a strong bond of trust with

your Channel Partner, and explain that you work in this way in order to generate the best results for both sides.

The best way to generate this trust is to demonstrate your commitment by visible, real support for your Channel Partner, such as:

• Jointly developing and funding a marketing programme for your product

• Providing and/or funding sales training

• Investing in marketing, social media and PR on the Channel Partner’s behalf

• Investing in product development and localisation.

Don’t forget - getting access to your Channel Partner’s end customers puts the onus on you to actively manage the relationship, and invest time, money and effort in both sides’ success. You can’t have the ‘take’ without the ‘give’.

Once your Channel Partner understands that you’re committed to making the relationship a success, and are working in good faith to give both sides the highest return on investment, they should be comfortable with working on a transparent basis and helping you get a deep understanding of your end customers.

The transparent relationship simply means that you know your Channel Partner’s customers – the end buyer - very well. Knowing the people who actually buy or use your products, and understanding their needs, is essential to your success in the market.

THE TRANSPARENT RELATIONSHIP

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At the simplest level, supporting your Channel Partner involves putting in resources – funding, people and time - to back your shared goals around sales. This might include:

• Supporting joint marketing or promotional campaigns in market – trade shows, social media or digital promotions, advertising, media activity, etc

• Initial sales training for the Channel Partner’s staff, so they can credibly represent your products

• Additional incentives tied to sales and marketing – for instance, giving an ‘in kind’ bonus earmarked to support promotions if the Channel Partner exceeds sales targets.

At the same time, bear in mind that support can be provided in many ways, and doesn’t only mean financial support, or assistance directly linked to the sales process. If you can identify other needs and appropriately suggest how you can help, you may add much more value to your Channel Partner’s business than just the margin or commission they earn from selling your products.

As well as standard sales and promotional support, consider how you can support your Channel Partner through:

• IP development and protection

• Assistance with developing operational expertise, logistics, or inventory management

• Sharing and co-developing policies and procedures, for instance health and safety systems or HR frameworks for people development

• Hosting key staff from your Channel Partner in New Zealand, to learn more about your products and the culture of your business

• Embedding your own staff in their business to support the sales process

• Running customer information seminars

• Working together on product development and localisation

• Sharing governance insights – consider having a full Board meeting in the Channel Partner’s country, to give your Board exposure to the market and deepen your relationship with your Channel Partner.

Helping a Channel Partner in these ways can have an impact that goes far beyond the dollar value of your annual business with them. Not only will you earn your partner’s trust and appreciation, but you may be able to help them eventually grow their sales capability beyond current limits, and take your shared business into a new phase of growth.

If you want to be important to your Channel Partner, it’s essential to provide them with the right support. Channel Partners often work with a range of suppliers, and becoming valued and important to your Channel Partner means they are much more likely to prioritise your products and sales growth.

SUPPORTING YOUR CHANNEL PARTNER

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Because it’s often a hot-button issue for Channel Partners, exclusivity can be a tricky issue to deal with in the early stages of negotiation. However, giving blanket exclusivity to a Channel Partner can severely impact on your business later on - especially if it becomes clear that they aren’t suitable to grow your sales in the long term.

Generally, exclusivity should be something earnt by a Channel Partner, not given. It can be very valuable to both parties, but should not be entered into lightly, and must come with performance requirements that you intend to apply.

One common approach to handle a Channel Partner’s demands is to set performance criteria, such as minimum sales volumes, in exchange for granting full exclusivity. However, if the Channel Partner fails to meet the criteria for whatever reason, you’ll be left with two unpleasant options – either letting the criteria lapse (which undermines your signed agreement, and makes it much

harder to manage based on performance in future), or terminating the agreement and changing partner, with all the expense, lost time and wasted effort this can involve.

A better approach is to use the exclusivity discussion to learn about your Channel Partner’s relationships, main customers and breadth of coverage, and then introduce the concepts of active management and the transparent relationship. This gives you an opportunity to learn about your Channel Partner and demonstrate your commitment to their success, before getting into the details of exclusivity arrangements.

Exclusivity does not always mean blanket exclusivity, for ever – you can also offer defined exclusivity by:

— Market segment

— Industry verticals

— Specified customers

— Types of customer

— Distribution channel

— Individual products, or bundles of products, within your range

— Territory – city, region or country.

The best way to tackle requests for exclusivity is to try and understand what your Channel Partner is trying to protect. For example, most Channel Partners cannot cover the whole market, and may have several key customers that account for the majority of their sales – it might work out well for both sides for you to give them exclusivity just for those customers, which will leave you free to approach other Channel Partners to cover the rest of the market.

All exclusivity agreements should be time bound and tied to active management principles and solid performance criteria.

As mentioned earlier, many Channel Partners will ask for exclusivity when negotiating with you at the start of the relationship. From their perspective, representing your product means investing time and resources which could be used elsewhere – and exclusivity offers protection from suppliers who exploit their time and effort to build up their initial business, and then jump the fence to another partner.

EXCLUSIVITY AND SEGMENTATION

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Managing performance isn’t just about focusing on KPIs – it involves the whole active management process, which involves a large commitment of time and resources but also gives you the highest chance of success, as well as close control over performance.

If you’ve selected your Channel Partner carefully, confirmed that they’re a good fit with your business and product, and agreed on an active, transparent relationship with the right structure and terms, managing your Channel Partner’s performance becomes much easier – but you will still need to put in effort to keep things on track.

It’s essential to hold your Channel Partner accountable to the performance standards you’ve jointly agreed. Holding your partner accountable is not necessarily about penalties, or changing Channel Partners when they don’t meet targets – but it does mean a commitment to jointly look at what went wrong, and to work out a plan to turn it around. Note the reference to jointly - you are working with the Channel Partner, and it is a partnership.

Setting KPIs often isn’t hard – it’s having your Channel Partner agree to them that’s difficult. A common error made by exporters is to set KPIs at the beginning of the relationship with no regard to other factors affecting them, such as active management, a transparent relationship and Channel Partner support.

When setting KPIs:• Set them jointly, and term them ‘Channel Partner

Commitments’.

• Make them achievable, no matter how small the targets in the first year.

• Incentivise your Channel Partner to meet them, with a bonus payment for reaching targets.

• Support your Channel Partner with marketing and other resources, including appropriate funding, to help them reach targets. This approach can be very helpful when setting stretch goals. Ask the Channel Partner: “What support do you require from me to meet these sales targets?”

• Spell out clearly what actions will be taken if KPIs are not met. Nobody wants a smack on the hand, but sometimes a thorough customer review session supported by you, followed by an action plan, can be hugely empowering and motivational for a Channel Partner.

If your product is new, or if you’re a small or unknown player in their market, asking a Channel Partner to agree to sales KPIs is very difficult as there is simply no sales data to go on. Most Channel Partners will be reluctant to agree sales levels targets in the first year. There are two scenarios to be aware of:

• If your partner doesn’t agree to first year sales targets, make sure you have a firm agreement to introduce them the next year, and tie your support to the development and acceptance of those KPIs. Make it clear that you expect to work on a KPI basis for the rest of the relationship.

• If your partner does agree to first year targets, work with them to make sure they’re achievable – and if not, reduce them. If you accept impossible goals which the partner doesn’t meet, you’ll be stuck with either holding them to the goals and damaging the relationship, or letting it slide and setting a bad precedent for future management.

The dashboardSetting up a visible and easily accessible KPI dashboard is an effective way of making performance accountable, on both sides of a Channel Partner relationship. It is a form of continuous passive management that seeks to make Channel Partner performance transparent.

Setting up an online dashboard allows the Channel Partner to see the relationship from your perspective, and to align their behaviour accordingly. The dashboard should capture the main KPIs you are managing to, and importantly should be live and continuously updated, allowing issues to be spotted and fixed at the time - not at a performance review months later.

A well set-up dashboard will allow you to link incentives, support and bonuses more easily and relevantly in a timely way.

An advanced form of the dashboard is the use of the Balanced Scorecard approach, as developed by Kaplan and Norton (http://balancedscorecard.org/Resources/About-the-Balanced-Scorecard). This requires customisation, but may give you the most flexible and holistic management approach.

MANAGING PERFORMANCE

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Active management involves knowing when to make adjustments, big or small, to the way you work with your Channel Partner. Sometimes you might make these changes in response to specific problems – at other times, they may simply reflect how the market or your respective businesses have evolved over time.In a healthy active management relationship, there should be enough trust for you to discuss any necessary changes without causing offence or losing existing business, as well as keeping your partner motivated to succeed.

MANAGING CHANGE

Change within a Channel Partner relationship might include:• Changes to commission or payment

structures

• Revised KPIs or performance expectations

• Changes to exclusivity – expanding or reducing scope

• Changing channel structure, eg. engagement in eCommerce

The key to making the right changes is to consider what will motivate and enable your Channel Partner to do their best, and also give your business the best possible avenues for growth.

Trust and goodwill built through active management can make a huge difference to how your Channel Partner responds to any changes. For example, in a weak relationship, reducing your partner’s exclusivity can come across as a punishment – but in a strong relationship they may be happy to focus on areas where they can do best, and leave you to focus on customers outside their reach.

One-sided or punitive changes (which only benefit you at your Channel Partner’s expense) usually work out badly. Even if you’re acting in response to failure, keep the focus on the future, and on what both parties will gain if the right changes are made.

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Symptoms and causesBelow are a few tell-tale symptoms that something has gone wrong in your Channel Partner relationship:

• Intermittent replies, with 2-3 day periods or more without response

• Response times that are growing longer and longer

• Lack of English language skills, or language skills that get worse in times of conflict or difficulty

• No backup available when the key person is not there

• Limited or no customer feedback

• Orders cancelled without reason or explanation

• Price being cited as an issue in every transaction

• Playing of the culture card - “You just don’t understand, that is impossible”; “This is the way things are done in Asia”

• Increasing technical problems or claims, without supporting information

• Shielding of the end customer – the partner won’t tell you who your end user is, or won’t take you to meet them (sometimes claiming they are unavailable)

• Payment terms not honoured, with the end customer blamed

• Payment terms blowing out without explanation.

These symptoms can be caused by a range of deeper problems, from both the Channel Partner and supplier side.

Channel Partner problems • General competence – overextended,

or not able to follow through on commitments

• Size, coverage or ability of their sales force

• Employee change or executive succession – perhaps with loss of skills or key relationships, impacting their ability to sell or support customers

• Financial problems with the Channel Partner

• Different growth expectations – the partner may want more aggressive growth earlier, or might not be motivated to grow their business beyond a certain point.

Supplier problems• Products that don’t have a sound value

proposition in the market

• Product quality issues that haven’t been addressed

• Lack of on time delivery, wrong product or wrong specifications, shipping damage

• Unrealistic pricing

Channel Partner problems usually develop over months or years, and often the root cause of the problem isn’t evident up front. If left unaddressed, these problems can drag on for years, limiting growth and frustrating management on both sides, and ultimately destroying the trust and goodwill that underpins the relationship.

HANDLING PROBLEMS WITH CHANNEL PARTNERSBy the time most companies realise they have a Channel Partner problem, they’ve already made at least one of three major mistakes:

• Inadequate market research, or poor understanding of the end customer – meaning they don’t know how to assess whether they are succeeding or failing

• Lack of due diligence, or not investigating other options, when appointing the Channel Partner

• Not actively managing the Channel Partner throughout the relationship.

Knowing the market, knowing your Channel Partner, and actively managing the relationship will help you stay clear of the most serious Channel Partner problems, and to resolve issues more easily when they do happen.

However, problems can still crop up in any Channel Partner relationship, and knowing the warning signs and how to act on them will help to put things back on track.

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Key principles for resolving problems

Many Channel Partner problems can be resolved more easily (or prevented in the first place) if you have been applying sound active management principles, and if you’ve taken the time and effort to learn about your Channel Partner and end customers in detail.

If problems do still crop up, it’s critical to move quickly to discuss them, and make concrete, time-bound plans for both parties to fix them. Letting a problem slide once you are aware of it will signal to the partner that you don’t care if things are going wrong, which can cause other issues to snowball.

It’s essential that you work hard to understand the root cause of the problem, and create a climate where the Channel Partner feels safe and encouraged to open up to you. For instance, price is by far the most common problem raised by Channel Partners - sometimes this does mean the exporter simply hasn’t set up their pricing correctly, but it might also indicate that your value proposition isn’t convincing end customers to buy at any price, meaning the product needs to be modified or repositioned within the market.

Digging into the issues with your Channel Partner can ultimately benefit your business, as long as you are willing to listen and act on the answers you get. Be prepared to encourage and reassure Channel Partners who may be too shy or polite to speak out about problems - or afraid of your potential reaction.

Shielding of the end customer – and how to prevent itShielding of the end customer is the opposite of the transparent relationship, discussed earlier in this guide. It can include a lot of the other irritating Channel Partner behaviours and symptoms listed above – and once detected, it’s a strong indicator that the relationship is running into problems, or that you haven’t set the right expectations and shared responsibilities at the outset.

A solid Channel Partner adds value to a sales transaction, and generally has a strong relationship with the end customer. As such, they’ll be happy to make customer introductions and meetings for you, to help both sides understand and improve what they offer to the end customer. They may still be nervous at first, but once the mutual benefits of a transparent relationship are clearer, sharing contact with end customers should become less of a problem.

By contrast, a Channel Partner who doesn’t add value will feel threatened by your interaction with the end customer and react by shielding them from you. This is counterproductive and damaging – at best, you become totally dependent on the Channel Partner for your sales, and at worst you become totally unable to understand your customers’ needs and compete in the market at all.

It can be very difficult to claw an effective relationship back once you have allowed a Channel Partner to shield you from end customers. You may need to effectively reset the relationship from first principles – confirming that this partner is in fact still right for you, and agreeing a totally new working model with them. If there is not enough trust in the relationship for this to work, or if the problem has been occurring for a long time, you may need to make more radical changes, or move away from the Channel Partner altogether.

The best solution for shielding of end customers is preventing it in the first place - by agreeing a transparent relationship up front, putting processes in place to safeguard and maintain it, and by following through on your own commitments to share information with your Channel Partner.

HANDLING PROBLEMS WITH CHANNEL PARTNERS

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Changing Channel Partners can be stressful and costly, with the risk of losing existing business and disrupting your connections to the market. The decision to exit shouldn’t be taken lightly, but there are times when it may be the only way to move forward.

As a regular part of active management, you should always have a prepared exit plan that takes into account your obligations to your Channel Partner, the implications and costs of changing, and any laws and conditions that apply in-market. This should be kept up to date throughout the relationship - not prepared in a hurry once things have already gone wrong.

If you do need to exit a Channel Partner relationship, keep the following key points in mind:

• First of all, talk to your partner and explain why you’re ending the relationship. If you’ve maintained active management but the Channel Partner has still not met KPIs or performance expectations - after you’ve discussed it with them, and given them time to sort things out – they should understand and respect your decision.

• Try to leave amicably. Make sure that you meet your obligations, and treat the Channel Partner respectfully throughout the separation. The relationship may have already soured – but don’t give them excuses to hold onto a grudge, or actively damage your business.

• Exit through negotiation or arbitration if possible. Aim first for a clean negotiated settlement, based on your Channel Partner agreement. If that doesn’t work, try arbitration through a third party or registered specialist. Entering legal disputes should be a last resort.

• Use a lawyer if needed to protect your financial assets, IP or market position. A good local legal counsel can also help you tackle challenging situations and find an amicable solution, without entering a formal dispute.

• Make sure you understand any financial obligations. These should be written into your original Channel Partner agreement. In some circumstances, your Channel Partner may expect a financial severance package, on top of your buying out their remaining inventory and (on occasion) paying partial costs for staff redundancy.

• Get your end customers to understand the change. Talk to them and explain why you’re changing Channel Partners, and how this will lead to better service for them in the future. Invite them to make the switch, but don’t run down your former Channel Partner, especially when the customer may have been dealing through them for many years.

• Make sure customers switch smoothly to your new partner. Customers who follow you over to a new Channel Partner should get the same level of service as before – poor service may drive them back to your old partner, or on to your competitors. Pay close attention to inventory supply, logistics, after-sales support, returns and warranties, to make the transition seamless for your end customers.

EXITING A CHANNEL PARTNER RELATIONSHIPActive management principles will help you to keep tabs on where your relationship sits on the Channel Partner Lifecycle, and whether your Channel Partner will be able to adapt to meet your future needs - or if you may need to exit the relationship altogether.

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We’ve seen that successful Channel Partner management in East Asia has several key features:• Active management throughout the

relationship

• Awareness of the Channel Partner lifecycle and changes in the relationship over time

• Deep knowledge of your target market, including customers, channels and cultural factors

• Structured and documented processes, from recruitment and growth through to management, change and a formal exit strategy

• Strategic alignment to achieve common goals

• A transparent relationship where you are just as connected to end customers as your Channel Partner

• Continual support to help your Channel Partner achieve growth

• Clear exclusivity arrangements to focus your partner’s efforts on what they can do best, and give you flexibility to grow

• Performance measures that are clear, achievable and enforced

• Sound procedures to resolve problems when they occur

• Solid exit strategies and procedures so you can move on, at the right time, to the right Channel Partner for your next stage of growth.

Channel Partner management at its best means that your partner functions as an extension of your business - sharing your culture, values and performance measures, and creating value for your customers in partnership with you. The structure of the relationship may change over time, but both parties have common interests and goals and work to achieve them throughout the Channel Partner lifecycle.

One key measure of success is a cash positive relationship between you and your Channel Partner. This signals that they value you enough to fund your business by paying for goods and services in advance – making your business an essential part of theirs, and aligning their success with your own.

WHAT DOES SUCCESS LOOK LIKE?

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Operational contract clauses such as those below are used in contracts to help drive cost efficiencies for the manufacturer

APPENDIX: KEY CHANNEL PARTNER CONTRACT CLAUSES

Lever Purpose In Practice Key BenefitMinimum Order Quantity

Setting minimum order quantities will help manufacturers reduce costs across their warehouse through less material handling at both the inbound and outbound points as it will reduce the need to breakdown packaged stock to individual units

• Agree a minimum order quantity with distributor (at least for high volume product)• Agree if minimum order quantity is not met whether order is to be fulfilled up to the minimum

order quantity for the item or rejected

Will reduce stock handling and associated costs

Method of Ordering

• Setting agreed ordering methods will limit the amount of overheads incurred by the manufacturer• Mandating electronic ordering will also lower overheads and make enforcing ordering cut-off times

easier

Explicitly stating goods and services to be ordered directly through the system (rather than manual PO’s, phone orders, etc.) to ensure they have electronic time stamps to link with order cut-off times

Lowers administrative overhead

Account Management & Relationship

• Agree the key personnel and roles that will be dedicated to the services set out in the contract• Includes:• Escalation points• Onsite representatives• Account managers

• Agree the visibility representatives will have into the distributors processes, data and forecasts• Managed agreed commercial framework

Will aid in ensuring accuracy of data and forecasts delivered

Distributor Engagement & Reporting

• Agreeing the schedule for all performance meetings in advance along with the required attendees will ensure the required personnel for each party will attend and disputes / performance problems can be addressed in a timely manner

• Agreeing the reporting schedule is also an important part of this clause

Should set out meeting schedules including:• Type of meeting and attendees• Timing / frequency• General agenda itemsShould set out reporting schedules including:• Type of reports and frequency• Method of deliveryShould also set out operational reporting requirements including:• Distribution of daily delivery schedules• Notifications of stock issues

Ensures issues are raised before they greatly effect performance standards

Shipping/ Delivery Days

• If possible delivery days should be set in advance and agreed with distributor• Having set delivery dates will allow for greater warehouse efficiencies through staffing requirements and

greater logistical efficiencies

• Agree the days of the week/month that goods will be delivered to the distributor (can be broken at different levels either by store, region, state, volume, etc.)

• Should also cover the times that deliveries will have access to the site• Will be linked to order cut-off times

Creates cost effective delivery routines

Core and Additional Services

• Contract with distributor should explicitly state what is covered in core services and what will be regarded as additional services (such as after hours deliveries, etc.)

• This will help protect the manufacturer from scope creep and disputes about what is / is not covered by the contract and associated pricing

This clause should set out the services involved in core services and should link to the clauses set out above

Avoids scope creep

KPIs • Recommended to be in the form of a balanced scorecard and cover the requirements of both parties• Ensuring this is as quantifiable where possible will help to create a set performance review metric that

will help to eliminate emotive views that may or may not be a fair representation

• All KPIs together with their relevant weightings should be set out in the contract• Agreed criteria should be set outlining how each metric will be measured• Any rewards / penalties should be agreed for performance / lack of performance, including

value and how & when they will be paid / enacted (can be at both individual KPI level and as an overall result)

Provides objective metrics for performance evaluation

Demand Forecast Incentive

• This clause provides a financial incentive to the purchaser of goods to provide accurate demand forecasts

• Allows the manufacturer to better manage inventory and production processes

• Both annual and monthly forecasts will be provided to the manufacturer with an agreed allowable tolerance (tolerance may vary by product type, etc.)

• Each month and annually the forecast accuracy will be calculated and will be deemed either satisfactory or unsatisfactory – in the case of being unsatisfactory an agreed penalty will be paid by the distributor to the manufacturer

• Should also be linked to the ‘in-full’ component of the DIFOT KPI

Provides visible financial reasons for parties to share data

Payment Terms • Payment terms should be set out clearly including cut-off dates for invoicing • Need to consider the cash flow effects of terms such as 60 days from date of invoice compared to 60

days EOM

60 days from date invoice would provide faster cash inflow than 60 days EOM Improved cash flow and working capital

Contract Length • Agreeing contract length along with any review periods is important to ensure both parties have a chance to review the contract at agreed times if for any reason circumstances change during the life of the contract

• Using a term plus option contract (i.e. a 3+3+2) provides some security of a long term contract with the flexibility to adjust

The contract may be, for example, a eight year contract in the form of a 3+3+2 – this allows each party to review the agreement every three years before extending for another three years

Provides a the timeframe to amortise assets / recover costs• a known out if the arrangement is not

working sufficiently

Schedule of Rates • All baseline prices should be agreed (including any formulas) to ensure there is a written record at the contracts start date to minimise dispute

• This should also include classification of items in the case of having different conditions on different groups of items

• A full product list should be provided with initial pricing and product classifications as a schedule in the contract

• This will be supported by the clauses listed above and will form the basis to any price adjustment mechanisms

Have a written record of agreed price

Price Adjustment Mechanisms

• This will allow the manufacturer to pass through any unavoidable price increases they may be subject to across their operations and protect margins

This may include (including relevant formulas):• Upstream price increases• Increases in EBA rates• Fuel price increases past on from freight operations• CPI

Provides transparency for both parties to understand any cost movements

IDENTIFYING PROBLEMS

MANAGING PERFORMANCE

SUPPORTING THE CHANNEL

PARTNERMANAGINGAPPOINTINGFINDING

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© Copyright New Zealand Trade and Enterprise (NZTE) 2016

“Disclaimer: No part of this publication may be distributed or copied for anycommercial purpose nor incorporated in any work or publication (whether in hardcopy, electronic or any other form) without the prior written consent of NZTE. WhileNZTE has verified the information in this document, we make no representation asto the completeness, correctness, currency, accuracy or purpose of the information.This document only contains general information and is not formal advice. It is recommended that you seek independent advice on any matter related to the use of the information. NZTE will not be responsible for any damage or loss suffered by any person arising from the information contained in this document, whether that damage or loss arises from negligence or otherwise.”ISBN: 978-0-908344-54-3