After visiting Shanghai fair, during my flight back home, I had a little quiet time to think with no interruptions. I saw few interesting things there but nothing to write about.
Starting my own sales agency recently, Horvacki 128 d.o.o, my thoughts went in this direction.
In the past, as a product and purchasing manager in Venera Bike, most of the time I worked with trading agencies from China and Taiwan, whom I know and keep in touch with many of them to this day. Even when the company I worked for, grew and could purchase directly with the factories, we were still buying from trading companies, also bought components from major brands too.
This started a chain of thought, how it all started and how come these Asian trading companies are still thriving ?
Getting back to the 1990’s and 2000’s it was a logical choice
-From one side, the production factories were too small and couldn’t bare the cost of international sales teams. They couldn’t know all of the export procedures to different countries. There was a language barrier. The transportation was the issue, trading companies could fill the containers with multiple companies products. They couldn’t know what is fashionable in different markets and what they needed to produce next. On top of all this they had to keep the production functioning and have everything in time.
-On the other side the new customers coming to buy, from all over the world, were coming with very small orders at first so this made it very difficult for the factories to produce. Trading companies combined various orders and made it more simple for factories to be efficient. Then, the traders knew the complete offer and could always suggest the best solution to the customers, their knowledge was priceless. Thanks to big influence on the factories orders, the trading companies were almost always coming to the customers with a more competitive price. They knew how to save money to the customers and offered better solutions.
What about now, why are they still relevant ?
– Thinking about my own business I was investigating if these companies are still relevant, had a lot of talks and asked questions. It seems to me that they are even more relevant these day when the market is unstable and there are some new ones. The question was, why?
– Knowing how production works I concluded that it is very difficult for a production company to keep everything in check these days. You need to have your materials in time, enough work force for fluctuating market, meaning more when the market is good and very importantly less when it is down. You need to keep the machines serviced and running while thinking about new ones to keep up with the technology. You need to think about financing. You need to develop new products constantly. You need to think about compliance. You need to worry about the laws of each country you sell to and so on and on. Production is hard.
Logical thing for the production company is to outsource professional sales team whose only mission is to sell. The cost of sales team is in this case very easy to calculate, %, no matter how the market is doing, producer is not impacted by this. You don’t have to motivate people, in case of worker fluctuation there is no long time periods in training and getting to know customers. The orders can start coming in almost immediately compared to starting from zero and building the database for years and spending money on exhibitions.
Of course a good partnership here is of major importance ! This must be a long term thing with a lot of trust from both sides. The agency must provide a top service to the customers and it’s employees must know as much as possible about what production company can do and has in it’s portfolio. The aim here is to help the customers advance in the market, to be financially stable hence a good buyer for all. It’s a win win situation !
Bottom line the product price will in this case be lower, more competitive, thanks to savings on the sales team, travel costs, exhibition costs, company costs, company cars, company phones and laptops, training costs etc. With the trading company certain number of producers are sharing the costs. Usually up to five producers is an optimal number. In my experience this slashes the costs to by at least one fifth of owning your own sales team. This can influence the price of some products for up to 10% … Think about your product being priced 10% lower to your customers than it is now, how much more it would be competitive ?
So what can producers in Europe learn from this ?
– Well the lessons are actually in the text above but let’s sum it up here in one place:
- Sales agencies are simplifying running the production company for the owners
- Sales agencies are lowering the cost of sales teams to any sized company.
- Establishing a sales team for a small production company is almost impossible point and usually the owner is acting as a sales person on top of his other duties. All of the producers below 10 mil Euro turnover have this issue.
- Because of point above the sales agencies are lowering the cost of the products hence bringing the value to both the customers and production companies. Products with lower prices are more attractive to everyone.
- The communication with sales agencies is on much higher level because they operate locally and know exactly what is needed and how the customers think, again bringing the value to both parties. Working together with the producers the customer service is greatly improved.
- You solve the purchase of many different components just by calling one number or writing one email. This lowers the cost of sourcing to the customers. Usually the agencies offer a variety of products carefully chosen by the owners who are in the industry for a long time. They offer portfolio of production companies that are trusted and with proven track record.
- When something goes wrong you have someone to call. Agents will always fight for their partners because their livelihood depends on them.
- Agents have much experience to share because they know many companies and talk with many people. They can help customers start new business line and give advice on the production. Although they are here to earn money they are also friends who like to see everyone succeed.
- Agencies do market research and give feedback to factories to develop products which are needed. A very important topic for all parties involved. They also know the market trends and can forecast the next few months quite well.
- Unlike national distributors, agencies are not keeping stocks of products. There are sales companies who have big warehouses and keep stocks, but this makes everything so inefficient. They offer a sales team but double the costs of infrastructure, warehouses, offices, warehouse workers, CRM and WMS software systems and bottom line increase the price and make everything more complex in the end. The goal here is to be lean and efficient.
These are just the obvious things and I could write many nuances of pros and cons but it would make this article too long.
My conclusion here would be that Europe needs sales agencies to make their factories work better and be more competitive. Some, that like myself, specialize in the component sales, some that specialize in complete bicycle/e-bike sales, some that specialize in high end niche products, some that specialize in software, some that specialize in consulting and so on.
One small addition to this topic, here are my good friends friends operating sales agencies whom I know are very professional and whom I would recommend any day:
Benelux region Verduin Agency B.V. owned by Edwin Verduin
DACH region Carsten Friede
France Eurobicy
