Includes typical use of agents and distributors and how to find a good partner, e.g., whether use of an agent or distributor is legally required.
Last Published: 7/31/2019

Remember the Scale of India and Consider a Regional Approach
A local presence in India is strongly advised, but if your company is not ready to establish a branch office or a subsidiary, you can appoint an agent, representative, or distributor.  India is a huge and diverse country, with over 30 regional languages and different rules and regulations in each state.   A regional approach (north, south, east and west) ensures broader market presence and greater flexibility in addressing region-specific needs and issues.  Within each region, states differ widely in citizen income, purchasing power, educational, and other socio-economic aspects.

Defining the Terms
An agent works independently, procures buyers and gets a commission on each sale.  A representative works directly for the company whose compensation may include a salary plus commission on the sales generated. A distributor acts as an importer and typically purchases and stocks the products before selling to the end user.  The distributor’s compensation is higher than that of an agent or a representative due to higher inventory management costs.

Use Caution when Establishing Critical Relationships
The U.S-India relationship is strong, and Indian firms are eager to buy U.S. products and services.  As a result, U.S. exporters can expect generally positive interest from potential representatives and distributors for a broad range of products.  However, the enthusiasm of potential partners must be weighed against several factors before a relationship is considered.  Carrying out appropriate due diligence procedures is critical in evaluating whether the partner will truly add value.

When evaluating a distributor or agent, the Indian firm’s business reputation, financial resources, willingness and ability to invest, marketing strength, regional coverage, industry expertise, and credit worthiness should be considered.  An ideal distributor will have an extremely good banking relationship to enable the extension of credit and have the capacity to market a full range of products and services.  It is important that the agent or distributor maintains a solid infrastructure and facilities such as warehouses, service workshops, showrooms, and competent staff.

U.S. companies should be careful not to be influenced by the eagerness and persistence of a distributor or his representative.  Sometimes, Indian firms represent so many companies that they have little time or interest in developing new markets.  The Indian firm may not have the vision to go beyond the existing list of contacts that it has nurtured over time.  While in the short run, this can still provide positive returns, a more sustainable value-add will be in developing new or under-developed markets. Therefore, it is critical to measure objectively the ability, willingness, and aggressiveness of the firm in developing new networks, contacts, and areas of business.  By checking multiple professional references, a U.S. company can gain broad insight into an Indian counterpart.

Be Mindful of these Pitfalls
U.S. companies should exercise pragmatic skepticism when the potential partner offers a long list of foreign clients.  These lists may be outdated, and the relationships may no longer exist.  On the other hand, if all these relationships do exist, the distributor or agent may not be able to fulfill all obligations and commitments to promoting and selling your product. 

Other Issues to Consider

Advantages of a small distributor
A small distributorship with a regional presence and local knowledge may prove to be a competitive advantage over larger ones.  Though India is slowly moving towards more modern distribution channels in some sectors, most companies face a fragmented and multi-layered distribution network.   In some cases, appointing distributors by product is a plausible consideration for companies.

Due diligence checks
Traditional methods of validating a potential partner’s credentials are less reliable or not possible, especially in case of privately-owned companies, due to a lack of public access databases.  For example, while checking a proposed partner’s credit - a crucial first step, the U.S. firm should check with the potential partner’s bank to determine financial health, reputation and credit worthiness. Further details can be sought from accountants, lawyers, industrial associations, and other entities currently working with the firm.  For technical products, U.S. companies should confirm the technical expertise of the company’s staff, without sole reliance on documentation.

To identify agents and distributors, U.S. companies can take advantage of the Initial Market Check (IMC), International Partner Search, Business Facilitation Service (BFS), Gold Key Service (GKS) and Single Company Promotion (SCP), services offered by the U.S. Commercial Service through its seven offices in India.  To assist with due diligence background checks on local agents and distributors, U.S. companies can take advantage of the International Company Profile (ICP) service.  For more details, go to: https://www.trade.gov/our-services/.

Prepared by our U.S. Embassies abroad. With its network of 108 offices across the United States and in more than 75 countries, the U.S. Commercial Service of the U.S. Department of Commerce utilizes its global presence and international marketing expertise to help U.S. companies sell their products and services worldwide. Locate the U.S. Commercial Service trade specialist in the U.S. nearest you by visiting http://export.gov/usoffices.