Without intermediaries, it would be virtually impossible for a local Vietnamese company to sell its products in major markets around the globe such as the US, EU, Eurasia, the Republic of Korea or Japan.
Intermediaries serve as external groups of individuals or businesses that make it possible for the Vietnamese company to deliver its products to the end user, without having to own the entire distribution channel.
It would be hard to imagine, these experts say, a Vietnamese local manufacturer or retailer that did not recognize the value of Google or Amazon as intermediaries in building its customer base and sales.
There are four generally recognized broad groups of intermediaries – agents, wholesalers, distributors, and retailers.
Agents or brokers are individuals or companies that act as an extension of the local manufacturing company. Their main role is to represent the local producer to the final user in selling a product.
Thus, while they do not own the manufactured product directly, they take physical possession of it in the distribution process. They make their profits through fees or commissions charged in connection with the sale.
In order for many local producers to avail themselves of tariff reductions tendered by free trade agreements, it may be necessary for local producers to hire agents to sell their goods in foreign markets.
Using this model, the local manufacturer would pay insurance and freight to deliver the product to the customer in the foreign market and receive the offsetting benefit of tariff reductions.
Otherwise, if title transfers in Vietnam, as is the common practice today, there are no tariff reductions on the sale, either to the Vietnamese company or the customer, as neither qualify for tariff reduction on the import by the customer.
Unlike agents, wholesalers take title to the goods and services that they are intermediaries for. They are independently owned, and they own the products that they sell.
The benefit of wholesalers to the local company in the distribution channel cannot be overstated. Wholesalers give the local company untold access to customers, most of whom could only be reached via this distribution channel.
Wholesalers also provide customers credit to finance the purchase, a benefit that most if not practically all local companies could not offer, thus giving access to sales across a much wider array of retail markets.
Wholesalers do not work with small numbers of product: they buy in bulk, and store the products in their own warehouses. Wholesalers rarely sell to the final user; but rather, they sell to other intermediaries such as retailers.
Thus, they do not operate on a commission system, as agents do, but must survive by charging their customers a higher price than they paid and earn a profit.
Distributors function similarly to wholesalers in that they take ownership of the product, store it, and sell it off at a profit to retailers or other intermediaries. However, the key difference is that distributors ally themselves to products.
For example, distributors of Coca Cola will not distribute Pepsi products, and vice versa. In this way, they can maintain a closer relationship with their suppliers than wholesalers do.
Retailers come in a variety of shapes and sizes: from the corner grocery store, to large chains like Wal-Mart, Lotte and Big C. Whatever their size, retailers purchase products from market intermediaries and sell them directly to the end user for a profit.
Partnering with Intermediaries
Intermediaries already have the resources and relationships Vietnamese local companies need to quickly bring their products to global markets. It’s important for them to sell through these groups instead of wasting time and money trying to sell direct.
Understand intermediaries needs and delivering strong marketing programs— will maximize revenue and profits for local companies in the process.