Japanese distributors

 

Getting the best distribution contract terms

3.  good distribution contract terms

Based on my experience of contract negotiation for doing business in Japan, I recommend the following list of terms to require in a negotiation of a Japanese distributor agreement:

  • transfer fees calculated on net revenue not on your head-office price-list,
  • transfer fees to include not only product sales but any support, maintenance and ongoing consulting provided in association with your product,
  • floor or minimum price,
  • price-list with a schedule of maximum discounts,
  • restriction on the use of sub-distributors or the total percentage retained by sub-distributors, especially if they are subsidiaries of your distributor,
  • guaranteed minimum transfer fees paid quarterly,
  • monthly submittal of accurate in-progress sales forecasts and monthly (minimum) review of those sales forecasts,
  • terms to ensure that you do not take the full hit of any adverse exchange-rate fluctuations,
  • direct access to key customers allowing direct product feedback to occur - you do not want precious and valuable feedback going through the unnecessary filter of your distributor's management chain,
  • direct access via VPN, Outlook Web Access etc. into a secured zone of the distributor's contact management system to allow you 24/7 up-to-date account and forecast data irrespective of time zone differences,
  • minimum level of advertising required to properly promote your product (e.g. at least 5 magazine advertisements per month, a dedicated Web site, etc.),
  • minimum staffing level required to properly promote your product (e.g. full-time salesperson, full-time marketing person etc.) and preferably name them in the agreement,
  • minimum performance criteria with clearly stated termination terms,
  • minimum performance terms required to maintain any exclusivity,
  • protection against being used as a loss-leader (e.g. minimum prices etc.),
  • protection against your distributor quietly developing a competitive product to your product (while of course using your product to build their future customer base!).

A final comment - in addition to skilled contract negotiations at the outset, a Japanese distributor relationship needs to be very closely and locally monitored if it is to produce consistent revenue and profits and not degrade into a frustrating mess with a very negative effect on your Japanese market brand image. In fact, to properly support a distributor you will probably need to setup a Japanese office and very often it will require almost as many local staff to support the distributor as to sell direct. I suggest that before starting any distribution contract negotiation, you carefully consider the substantial benefits of setting up a Japanese subsidiary company or office to do direct sales in Japan - only after eliminating the direct sales option would I consider committing to a distributor-only strategy.

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Japanese distributors

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