Introduction
In today’s fast-paced biotech landscape, companies must constantly evaluate the best avenues for growth. Whether through expanding their distribution networks or partnering as an Original Equipment Manufacturer (OEM), each approach presents unique advantages and challenges. With globalisation and heightened demand for innovation, making the right choice could mean the difference between rapid expansion and stagnation. For small to medium-sized biotech firms, especially those looking to scale quickly, the decision between expanding distribution or focusing on OEM partnerships is a key strategic one.
What is Sales Distribution?
Sales distribution involves leveraging third-party distributors to expand your product reach into new markets. This model can be particularly beneficial for biotech companies that want to enter new geographic regions without the logistical burden of establishing local offices or sales teams. Time needs to be spent nurturing these relationships so that the distributors will have an in-depth knowledge of your products and their strengths. A summary of the advantages and disadvantages of using distributors includes:
Pros of Expanding Your Sales Distribution:
- Wider Market Reach: By partnering with established distributors, your products can enter multiple regions faster than if you were building out your own sales infrastructure.
- Less Financial Risk: You avoid the high costs of setting up regional sales offices and teams.
- Brand Ownership: Unlike OEM partnerships, products are sold under your own brand, allowing you to build and maintain brand recognition in new markets.
- Focus on Core Competencies: With distributors handling sales and logistics, you can focus on product innovation and development.
- Higher Profit Margins: Distributors typically require less discounting than OEM partners, allowing you to retain a larger share of your product’s revenue.
Challenges of Sales Distribution:
- Time-Intensive Setup: Establishing distribution networks can be labour-intensive, often taking up to a year to finalize contracts and get distributors operational, especially on a global scale.
- Reduced Control: You may have less control over how your product is marketed and sold in these regions.
- Brand Dilution Risk: Distributors often carry competing products, which could dilute the visibility of your brand.
- Limited Marketing Support: Some distributors do not handle their own marketing, meaning your company must bear the majority of marketing expenses and efforts, particularly when expanding globally.
- Increased Relationship Management: Achieving global coverage often requires managing multiple distributor relationships, making it more complex compared to the simpler OEM model.
What is an OEM Partnership?
OEM partnerships involve supplying your products to another company, which then rebrands and sells them under their own name. This model is ideal for companies looking to increase production volume while leveraging the marketing power of larger, established brands.
Pros of OEM Partnerships:
- Access to Established Brands: By aligning with a well-known company, your products can gain credibility and reach larger audiences without the need for significant marketing investment.
- Focus on Innovation: With another company handling the sales and marketing side, you can focus on research and development, leading to potentially faster product advancements
Challenges of OEM Partnerships:
- Brand Invisibility: Because the OEM partner rebrands the product, your company’s visibility in the market may suffer.
- Dependence on Partners: Your growth can become tied to the success or strategies of your OEM partner, limiting your control.
- Larger Discounts Required: OEM partners typically demand steeper discounts compared to distributors, which can reduce overall profit margins.
- Ongoing Brand Marketing Needed: You’ll still need to invest in marketing your own brand unless you choose to rely entirely on the OEM supplier for revenue, limiting your brand’s visibility in the market.
Choosing the Right Path
Both strategies—sales distribution and OEM partnerships—offer compelling opportunities for biotech companies. The choice depends on your business goals, capacity, and where you see the most potential for growth.
For example, one of our clients, a biotech firm looking to expand into the Asian market, opted to expand its distribution network. By partnering with local distributors, they saw a 20% growth in sales within two years. On the other hand, another client used OEM partnerships to leverage an established brand in Europe, which allowed them to focus on innovation rather than navigating the complexities of international sales.
Which Approach is Best for Your Business?
When deciding between expanding sales distribution or pursuing OEM partnerships, consider factors such as market accessibility, branding control, and long-term strategic goals. Pivotal Scientific can help guide you through these options, ensuring that you choose the path best suited to your growth objectives.
If you prefer to retain brand identity and establish a distributor network then PSL has contacts with the best distributors across the globe. We can help to set up and manage the distribution network quickly and effectively. We offer distributor training to allow you to focus on what you do best – developing new products.
If you decide to OEM your products, then PSL can introduce you to the key decision-makers in some of the best suppliers around the globe. These decisions do not need to be all or nothing, a subset of products may lend themselves to being OEM while more unique products could be retained under their own brand.
In the end, the choice between OEM and distribution should fit into your overall business strategy encompassing both a sales and marketing plan and with due consideration to any planned exit strategy.
Updated: Sept 2024
