Many U.S. exporters see foreign distribution partners as a necessary evil, whittling away at their profit margins. I disagree with this view. So does Donald V. Fites, former chairman and CEO of Caterpillar. “The global winners over the next 10 to 20 years are going to be the companies with the best distribution organizations,” he claims in his HBR article on dealer partnerships. If managed correctly, a good distribution partnership can be one of your most powerful tools for gaining market share.
Brett Heimburger thinks that distribution partnerships are one of the most important parts of any international operation. Brett works for a Utah agency as a matchmaker between state industry and foreign partners. He has seen how these relationships can go wrong, and also how they can go right. He says that it’s important to make sure that incentives are aligned between exporter and distributor to avoid any conflict of interest that might derail the partnership.
Fites claims that good distribution is how Caterpillar turned its fortunes around in the late 1990s and early 2000s. The heavy equipment manufacturer was dying a slow death, bleeding market share to competitors like Komatsu (full disclosure: Komatsu is a U.S. Translation Company client) with their leaner manufacturing processes and lower prices. After years of “fearsome losses,” it “rebounded financially with record profits” because it built the best dealer network in the business. In a Fortune article, editor Geoff Colvin agrees. Colvin admits that Caterpillar could never compete with Komatsu on cost, but that it made its comeback by partnering with dealers to enhance the customer experience.
How did Caterpillar make its dealers into such a powerful asset? By treating them as such, rather than as a liability. Fites talks about some of the ways the company formed the “tight working relationships with our independent dealers.” These include investment in training, granting significant autonomy, and treating them like family.
First and foremost, Caterpillar focused on post-sale customer service. Heavy equipment breaks down and needs replacement parts. Sales of parts and repair services can sometimes be as important for Caterpillar’s revenue as sales of new equipment. To deliver the very best customer experience for parts and service, Caterpillar relied heavily on its dealers. The dealers understood their local culture and the needs of their customers much better than any central office ever could.
The company spent a lot on training its distributors and empowering them. They in turn helped Caterpillar localize its operations with more success than it could have otherwise achieved. Caterpillar’s dealers were influential community members who were deeply invested into their reputations, according to Fites.
They understood the dynamics of their markets and already had a rapport with their potential clients. Because the dealers were so tightly integrated into their communities, each Caterpillar dealership seemed more of a local than a multinational enterprise. Indeed, Caterpillar could never have gained such traction in places like Mongolia or Myanmar if locals viewed them as some alien, out-of-touch company.
So, if you’re looking for successful domination of foreign markets, give them the Caterpillar treatment. Don’t use distributors as a temporary market entry tool. Integrate them into your company blueprint and plan to have them with you for the long haul. In turn, they’ll reward you with their loyalty and with increased sales. Maybe that’s why Fites said that Caterpillar would “rather cut off our right arm than sell directly to customers and bypass our dealers.”
Jacob Andra is research and marketing manager at U.S. Translation Company, which helps U.S. manufacturers localize their products and operations for international markets. Contact him at firstname.lastname@example.org.