An Australian manufacturer of specialist transport-safety equipment was preparing to expand into Europe. Its innovative product offered safety and operational benefits, but European transport operators knew little about the brand, and the company lacked established customer relationships.
It was considering two approaches: appointing specialist distributors or developing its own sales operation supported by a third-party logistics provider (3PL) for warehousing and delivery. During a Dearin & Associates Deep Dive Day, we compared the commercial capabilities, costs and risks of each model. We recommended distributors for approximately the first two years, with the option to reconsider direct sales or a hybrid arrangement as the business developed.
Start with how customers buy
Transport operators considering unfamiliar safety equipment need to understand how it works, assess its benefits and decide whether changing established practices is worthwhile. In a transport business, fleet managers may assess ease of use, safety managers may consider handling practices and documented performance, while procurement teams examine price, availability and supply reliability.
Our client's product required demonstrations and technical explanation, supported by relationships with people who could influence purchasing decisions. Specialist distributors could introduce the equipment through their existing industry networks and provide local sales support. Under a direct model, the manufacturer would need to establish those capabilities itself, potentially through local recruitment, travel and technical support. We felt that this would be challenging for them to achieve as long as most of their team was based in Australia.
We examined the buying process from initial contact through product evaluation, purchasing approval and repeat orders. This helped establish where the manufacturer needed customer access, what each sales channel would have to deliver and the level of investment each approach required.
Compare what each model requires
A distributor-led model and direct sales supported by 3PL allocate commercial responsibilities differently. A logistics provider can store and deliver products, but would not ordinarily find customers, demonstrate equipment or negotiate sales.
| Commercial activity | Distributor-led model | Direct sales with 3PL |
|---|---|---|
| Finding customers | Distributor uses established industry relationships | Manufacturer develops its own accounts |
| Demonstrations and technical selling | Distributor provides local sales capability with manufacturer support | Manufacturer funds and manages demonstrations |
| Inventory and fulfilment | Distributor can import, hold and deliver stock | 3PL provides warehousing and delivery |
| Customer relationships | Distributor manages much of the day-to-day contact | Manufacturer manages customers directly |
| Market-development expenditure | Funded through distributor margin and agreed contributions | Funded principally by the manufacturer |
The models also provide different access to customer information. A distributor may share account-level feedback and customer enquiries, or report only the orders it places. Manufacturers relying on partners should agree how market intelligence, objections and product feedback will reach their own team.
For our client, access to established transport-industry relationships was an important advantage of the distributor model. It offered a way to begin developing European sales without immediately employing a local sales team, provided the manufacturer could find partners willing to invest in building the market.
Account for differences across Europe
Test the economics before committing
Direct sales generally allow manufacturers to retain more of the selling price, but the business must pay for salespeople, marketing, account management and customer support. Distributors take a margin in return for undertaking some of that work, often alongside importing, inventory and fulfilment.
For our client, the initial investment requirements favoured a distributor-led approach. Building a direct European sales operation would have required spending on local personnel and market development before the company had established consistent demand. Distributors could provide those capabilities through an existing commercial structure, although the manufacturer would still need to invest in partner training and support.
A sound financial comparison should include expected selling prices, distributor margins, direct sales costs, freight, inventory, fulfilment and working capital. Companies should test conservative and stronger-growth scenarios to understand how each model performs at different sales volumes.
The allocation of financial risk also matters. A distributor may purchase stock and extend credit to customers, while a direct model could leave the manufacturer funding inventory, managing receivables and carrying unsold products. Across several European countries, differences in freight, local service requirements and applicable taxes can further affect profitability.
These calculations should establish the sales volume required to cover each model's fixed and variable costs and the working capital the business needs before customer orders become predictable.
Define the distributor's job before selecting partners
Know when to reconsider your route to market
Our recommendation to use distributors for approximately two years gave the manufacturer an opportunity to establish its product in Europe, develop customer relationships and gather evidence about demand. As the business matured, it could assess whether continuing with the same structure offered the best commercial return.
Suppose sales became concentrated among a relatively small number of large transport operators placing repeat orders. The manufacturer might then find it worthwhile to manage those accounts directly, using a 3PL provider for warehousing and delivery. Distributors could continue serving smaller customers or territories where their local relationships remained valuable.
The financial case would depend on the additional margin the manufacturer could retain, the cost of employing its own salespeople and the resources required to manage customers directly. It would also need to consider the investments distributors had made in developing those relationships and any contractual restrictions on changing the arrangement.
A hybrid structure could become attractive once the manufacturer had sufficient sales volume and market knowledge to support greater direct involvement. The timing and scope of any change would depend on demonstrated customer demand, channel economics and the company's capacity to manage the additional responsibilities.
