30 Jun Distribution Agreements: What to consider

The success or failure of medical device companies looking to expand into overseas markets is dependent on having strong distributor agreements.

While appointing a well-established distributor with excellent connections and a good understanding of the market can represent a low-cost, quick entry into new territories, failure to implement a robust distribution agreement can result in the manufacturer failing to capitalise on the opportunity. 

So what elements should medical device manufacturers consider when entering into a distribution agreement?

Important elements of a distribution agreement

To ensure the relationship starts on the right foot, a quality distribution agreement should clearly outline the expectations, responsibilities and obligations of both parties. 

Factors you may wish to consider could include:

• Minimum sales targets
• Forecasting and sales reporting processes
• Ordering, delivery and return policies for your products
• How you will protect your IP
• Responsibilities for registering your devices in the target territory
• Conditions under which you or the distributor can terminate the contract

Distribution agreements: Exclusive or non-exclusive? 

Giving exclusivity to a single distributor gives them alone the ability to sell your products in a specific geographic location. A non-exclusive arrangement gives the medical device manufacturer the option to engage multiple distributors in the same territory. 

Exclusive agreements are attractive to distributors and can be more easily linked to specific sales targets. However, appointing a pool of distributors to market your product on a non-exclusive basis can provide more effective market coverage.

Minimum sales targets: Agreeing achievable goals 

It is commercially reasonable to expect exclusive distributors selling your products in their territory to meet specific set targets agreed in advance, and reviewed annually if required. 

Setting out your expectations at the start of your relationship ensures distributors are aware of their obligations from the outset and allows the medical device manufacturer to monitor their performance effectively. 

Non-sales targets: Why are they important?

If you are bringing new technology to market or introducing a new product line into a territory, specific sales targets can be difficult to define. There may also be a longer sales funnel to convert the Key Opinion Leaders who will influence conversion to your product. 

Non-sales targets are therefore important when you need to measure the momentum of your product and the effectiveness of the distributor’s investment.

Examples would include:

• Surgeon workshops or labs
• Trade show attendance 
• Digital and direct marketing campaigns
• Product demonstrations 

Next steps 

Using distributors can be a relatively low-risk, cost-effective way to expand into overseas markets with advantages over a direct sales approach.

Entering into a clearly written distribution agree to ensure you avoid common pitfalls associated with overseas trading is vital to scaling your international operations and delivering sustainable growth.

With our experience working with distributors across different markets, we have developed the knowledge to understand what to include in a contract to effectively manage their performance and protect your business growth. Get in touch with our team here to discuss your strategy with our team.

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