What You Really Need To Negotiate With Your ME Distributors.
We have recently been approached by an EU medical manufacturer to assist his company in negotiating a distribution contract with a potential distributor in Saudi Arabia.
The company has made the appropriate research and due diligence. The challenge now is to further understand the distributor’s organization, sign a win-win agreement and have the beginnings of a personal relationship.
The Saudi Distributor has no particular experience with our client’s product categories. He wishes to use the product in order to enter the new market segment. He is also asking for exclusivity and willing to allocate resources to marketing our client’s product.
If you are a medical manufacturer/company, here below are few elements of what you need to watch, as we did with our Client, when negotiating contracts with your ME distributors:
Legal: It is recommended to have a solid contract with the key components of the relationship. However, do not get stuck in long legal details, as it is the case in some western countries. A MOU highlighting the essential terms and conditions will suffice.
Administration Costs: You need to consider additional costs, as there may be a requirement in some countries to legalize the contract in the ministry of trade or foreign affairs and the consulate of the Distributor’s country.
Verbal communications: Please consider that your partners may work/communicate with a different language. Yes, Arabs speak English but they may not have the same interpretation or understanding as English native speakers. Therefore, the written agreement should be followed by extensive verbal communications to ensure that the distributors have fully understood what was agreed.
Business practices: Arab Business Practices do not have the same focus as Westerners. So, do not hesitate de discuss this key cultural difference and include the mutual agreed business practice in the written contract.
Minimum Purchasing Quantities and Stock to keep on hand show the level of your Distributors commitment to invest in your product
Marketing/Advertising: Ask your distributors to define a marketing budget and to submit a business plan on how they are going to sell your product.
Value: Ask your distributors in what specific segments they can demonstrate value. If they embark into a new segment, then look at their capabilities (strategic, financial, notoriety, logistics,..;) and see if there is a match with your objectives for the market
People: Who is going to promote/sell the product to your final customers? Ask your distributors to send the resume of the persons in charge and get to know them.
Measuring Performance: This is an important element to consider. However, it may not be accepted at the first shot in Arabic culture. You should smoothly introduce it in the minds of your distributors while you are nurturing relationships.
The above info demonstrates somehow the strengths and weaknesses of your partners.
It also helps to evaluate whether you should grant them a total or partial exclusivity. In some cases, you can negotiate exclusivity by channel, product, market segment or type of Customer.