Four Things To Know When Sourcing Distributors in Nigeria
As multinationals look to Nigeria as a new market to enter and grow their global presence, one of the main resquest we get from executives is assistance with finding distributors in Nigeria. These mulitnationals usually have three objectives as they entery a new market – controling their business expansion at a strategic level, partnering with local distributor to benefit from local expertise, and minimizing their cost and risk in this new venture.
From the compnaies we have worked with, we have noticed two types of companies. There are the companies that are focused on short-term goals, who are looking to capture quick “low-hanging fruit” opportunities in the Nigerian market. We call these the “Just Sell” companies. The other types of companies are looking to achieve long-term goals and strategically grow their business presence in Nigeria. We call these the “Let’s partner” companies. We’ll go ahead and tell you right now – the “Let’s partner” companies do way better than the “Just Sell” companies.
Here are the four things mulitnationals need to know when sourcing a distribution partner in Nigeria.
Understand the Market.
Entry into a new international market should be the result of a strategic decision based on an objective market assessment. Entry into the Nigerian market is no different. We remain amazed by the number of requests that we receive from companies to find distributors without a proper understanding of the overall market structure. Most multinationals outsource their market research to their local distributors, with the expectation that the distributor will be their sole “eyes on the ground”. An organization that is setting itself up for long term success should either already know the current market structure or should be willing to invest into learning more about the market. Preliminary questions like “who are the competitors? what is the current price-point for the product? how big is the market? who are the current big players in the distribution network?” Answers to these questions will assist a company with moving to the next step of finding the appropriate distribution partner.
Properly vet distributors – company fit vs. market fit.
The companies that have seen continued success in this market are those that take some effort to properly select their distribution partners. Finding a quality distributor that fits your company’s needs takes some effort in the begninning, but that effort pays off in the long-run. As an organization, you want to set the criteria of finding a local distributor that meets your expansion strategy. Some organization choose distributors based on obvious “market fit”. They want partners that already have market share and costumer contacts in the industry. Although a good place to start, it is more important to find a partner that has a good “company fit” i.e they fit properly with the culture and mode of operation of your firm. These partners are willing to work together to navigate the current market and its challenges, and build out new market opportunities with your firm. In addition to company fit, you want a distributor that is good with communication and information. They should have a willingness to share market information and reveal key financial performance data that can guide future decision-making.
Be proactive – guide marketing strategies.
Tied into finding a good distributor that aligns with your expansion strategy, multinationals entering the Nigeria market should be proactive about leading the marketing strategies for their product. Multinationals should work in collaboration with the distributor on which products to sell, how to position them, and budgeting. Some companies rely solely on the insights of their distributors and end up reacting to unforseen changes in market dynamics that the disrtibutor could not predict. Instead of being reactive to a change in demand or a shft in the market structure, multinationals should take a more proactive approach with distributors in Nigeria. Committing money, providing expertise and proven marketing techniques that have succeeded in other markets are key components to building a great multinational-distribution partnership in Nigeria. Your job as a multinational execuitve is to find the right incentives for your distributor and align those incentives with your organization’s goals in the region. Would the proper incentive be to provide one distributor with exclusive distribution rights or do you awnt to go with numerous distributors? These are things that can be considered with a pro-active marketing strategy.
Invest & Build partnerships.
Remeber the “Just Sell” compnay that we spoke about in the beginnning. This is a common scenario that plays out:
[Before Entry]: “We just want to enter the Nigerian market, any distributor is fine.”
[Before Entry]: “No, we don’t want to invest in market research nor marketing – the distributor should fully understand the market and bear all the risk of sales.”
[First six months after Entry]: “Great, we hit our sales goals and we are gearing up for more shipment into the region.”
[Six months after entry]: “The distributor is no longer hitting the sales goals. We don’t know what is going on here. They don’t know how to grow the market…They are not ambitious enough”
[A year after entry]: “We need to find another distributor. Arrgghhh, Nigeria is just a difficult market.”
Where does that leave the “Just Sell” company? They are left with disrupted sales and an unhappy distributor who echoes the sentiment that the multinational never gave them adequate support to grow the business. This mutual blame-game is repeated as both the “Just Sell” company and the distributor never invested in marketing strategies and business development to facilitate long-term growth.
That’s why it is important for multinational firms coming into Nigeria to take more of a “Let’s Partner” approach when sourcing distributors. It is important to mitigate the risk for your organization by using a distributor as a market-entry vehicle into Nigeria. It is equally important to invest in marketing, commercial support, training and relationship-building. Through partnership with your distributor, you will set your organization up for long term growth and success in Nigeria.