Electronics distribution: Choosing a global or regional distributor in a flat world
Your corporate procurement team manages your global distributor strategy while also observing situations in each country. In doing so, the team can better identify competitive distributors performing well. Two strategy methodologies the author suggests are bottom-up distributor selection and top-down distributor selection.
With globalization comes the understanding and acceptance that new ways of doing businesses are emerging every day. More and more choices are becoming available to decision makers and there is also an ever-increasing number of the types of business engagements that can impact your company’s overall supply chain strategy that are also more likely than ever before to extend beyond the boarders of the country where your corporate headquarters is located.
Companies must think globally. From purchasing and pipelining components and materials, to sales and after-sales support. Accepting this, you should be eager to define a distributor selection strategy that benefits not only one country but also your enterprise supply chain which you manage from a global perspective.
In your distributor selection process, one of the most important decisions you will make is based on which geographical level you want to consolidate and leverage your spending: country-based, regional-based or globally.
Some questions executives must ask themselves include: How many facilities or branches do we have around the world? What are the functions, hence purchasing needs, of each branch? Which countries do we have branches in? Which factors can influence my purchasing strategy specific to a particular country? Should I be looking at a broader region than my current local market or, perhaps globally?
Depending on the differences in your geographical needs relative to narrow or wide scope, you can have varying degrees of leverage you can use on your distributor. Your scope requirements also determine the set of selection criteria used to select your distributor.
Two strategy methodologies I suggest are bottom-up distributor selection and top-down distributor selection.
Bottom-up distributor selection
As global procurement officer, you respect the distributor selection criteria, and resulting decision, emanating from the branches within a country. Essentially, one country selects its own core distributor independent of concerns from a global perspective.
In tandem, your corporate procurement team manages your global distributor strategy while also observing situations in each country. In doing so, your corporate team can better identify competitive distributors that are performing well compared to others in various countries.
Your team documents these observations to later use during negotiations with incumbent distributors at the global level to generate opportunities to further consolidate distributors across countries.
Administering this process, in this manner, your local requirements in each country will be met. Perfectly.
The distributor selected will always be the most competitive distributor in his local market, in a specific timeframe, no matter how he performs from a global perspective.
Spending consolidation (and leverage) from a country-perspective, to a regional-perspective, to globally is always steady but the speed of consolidation that can create the amount of leverage on a global scale to influence a specific potential core distributor could be slow.
Your corporate global team will not interfere with local market practices (for example: OEM’s existing distribution channel within the country) but your team will still need to be aggressive when designing your strategy to prevent your local teams on the ground from becoming resistant to global consolidation.
Your local teams should each also fully support your global team’s suggestions based on the latter’s knowledge of the broader situation.
Top-down distributor selection
In a top-down strategy, you evaluate distributors against being able to provide the broadest coverage across a region or country. Of course, the distributor would normally already provide the best price and services in one or more major countries with high levels of spend.
So, you then discuss the willingness and ‘can do’ efforts of distributors able to support you globally (as much as they possibly can). With satisfactory plans agreed on, you now approach each incumbent country to adopt this distributor as best as they can. This is a pushing action.
Keep in mind your goal will not be to suddenly obtain the best pricing, terms and services in the local country.
Instead, you will foster growth for this distributor in the related country so that he can either grow to be the most competitive he can be in the country or, he will offer more add-on services while trading off additional price (the latter, when compared to the most competitive distributor already determined in the country specified) you might have been paying in some countries.
Using this practice, your ‘adopted’ global distributor may not be the most competitive distributor in the local market in a specific timeframe. However, from a global perspective, the adopted distributor offers you the best overall value to your supply chain.
Your global team should also strive to prevent any radical promotions that could otherwise severely interfere with local market practices. For example, whether a global supplier – upon entering a specific country – can cooperate with the OEM within that country and, whether he can successfully comply with local regulations such as proper tax protocol, foreign currency exchange management…
Your global team should perform accurate analysis resulting in producing periodic reports to make sure your company does indeed benefit the most from the best value provided by this global distributor.
Additionally, your global team should also provide solid and immediate feedback to each country’s local team, and to the distributor, to address concerns as they surface. The local team must also understand the overall value the company receives in benefits from this practice so they can better understand why it is important to provide the best support for your global strategy.
Global distributors normally quote net price without tax to make their pricing generic and applicable across the globe. In contrast, local distributors quote with tax included their total price.
Do the due diligence to understand tax regulations in the various countries / regions where you have business to determine the correct basis when comparing country and global distributors.