Controlling Your Own Distribution

A lot of US companies will look to have a channel only model for their European business, could be for operational reasons where the Channel is a value added partner or as a transaction facilitator.

In the latter case particularly with hardware the common requirement revolves around VAT and import duties and if there are related services for installation for example the so called ‘place of supply’ rules can be tricky to cater for. Hardware shipped into the EU attracts import duties at the port of entry and is payable at the prevailing VAT rate in that country. Hardware products then transported elsewhere within the EU do not normally carry extra VAT if the necessary documentation is in place. Normally a distributor by being VAT registered in an EU jurisdiction can reclaim the VAT/Import duties on their subsequent VAT return which eliminates the need for the US based vendor to directly administer for VAT.

However, distributors will naturally take a decent percentage as a margin for facilitating such transactions and as the more your business grows internationally the more expensive this becomes. It is possible though to control your own distribution by having your own subsidiary entity in a locality to cater for the import duties by being the importer of record. Such a subsidiary entity would then bill resellers/end users accordingly. This is a very palatable option as your business grows as although there’ll be some extra administration costs the savings in no longer paying distribution margins would dwarf any administrative costs very quickly.

Similarly where a Distribution partner is seen as a value added player the key question is what value does that bring. Should they attract a series of performing resellers actively pushing your products then the value is easy enough to envisage but on balance that tends to be the exception rather than the rule. Having your own localised sales and related operational resources can bypass the need for local distribution again avoiding otherwise lost margin and giving you much more operational control of how you gear a channel to function. There are different options here either with or without a subsidiary entity depending on your individual business circumstances.

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