Advantages and disadvantages of outsourcing product distribution

Product distribution involves complex planning and logistics, including order handling, stock control, storage, packing and delivery. If your business lacks the time or resources, you can outsource distribution to a specialist logistics company.

Protect your intellectual property when outsourcing distribution

When outsourcing distribution, you must protect your confidential information and intellectual property (IP). Include clear IP clauses in your outsourcing agreement to define ownership, usage rights and protections during and after the contract.

Key IP risks

Outsourcing can expose your business to several risks, including

• disputes over IP ownership 
• loss of sensitive business knowledge 
• unauthorised use or disclosure of confidential information 

Carry out due diligence

Before agreeing to any outsourcing arrangement, carry out a full IP risk assessment. This should help you:

• identify which IP assets are most risk
• confirm ownership rights before signing the agreement
• asses potential risks with the distributor (such as past misuse of IP)
• understand how your IP rights will be protected, especially in overseas markets
• determine the best ways to safeguard your IP

Choose a distributor with a strong reputation, relevant experience and the capability to handle your product effectively.

Advantages of outsourcing distribution

Working with a reputable distributor can offer several benefits:

• local knowledge of markets, regulations and customs
• responsibility for warehousing and transport
• support with international expansion
• potential marketing support
• access to established distribution networks or brands
• reduced financial risk, such as credit risk from customers

Disadvantages of outsourcing distribution

Outsourcing your distribution involves handing over control of all distribution-related activities to a third party. This comes with certain risks, including:

• reduced control over pricing or marketing
• pressure to offer discounts or favourable credit terms to the distributor
• pressure to sign long-term exclusive contracts that could lock you in if things fail

Read more about the advantages and disadvantages of outsourcing.

How to negotiate a distribution agreement

Your distribution agreement clearly define:

• the territory covered
• whether you can still sell products directly
• whether other distributors can be appointed
• pricing and payment terms
• credit arrangements
• performance targets and incentives
• contract length and renewal terms
• conditions for early termination

When you are choosing a distributor, select one who can maximise sales and represent your brand effectively. If entering a new market, choose a partner with strong local knowledge. Businesses offering complementary products can also make effective distribution partners.

Find more tips to help you choose an outsourcing partner.