Distributor, agent or direct sales? Choosing go-to-market channels for specialty chemicals

Channel decisions in specialty chemicals are often made quickly and then lived with for years. A distributor gets a country because they asked first, and five years later nobody can say whether it was the right call. Choosing go-to-market channels for specialty chemicals deserves more care, because the choice sets your margin, your credit risk and who owns your customers.

What each go-to-market channel costs

The three channels are often compared on commission or margin alone, which leaves out stock, credit risk, service and customer ownership.

Direct sales

You keep the full price and own the relationship and the data. You also pay for the sales team, technical service, samples and logistics, and carry the credit risk on every customer. Direct works where the customer base is a manageable number of large accounts and the product needs your own experts in the room.

Distributors

The distributor buys from you, holds stock, sells at its own price, invoices the customer and carries the credit risk. Its margin pays for warehousing, small packs, local language and payment terms, and in specialty distribution for application labs and formulation support. The European distributors' association Fecc says its members serve over one million downstream users, from automotive and paint to cosmetics and food, and help customers develop formulations. In return, the distributor sees the customer's order history and you usually do not.

Agents

A commercial agent negotiates on your behalf and earns a commission. You still invoice, ship, hold stock and carry the credit risk. The agent brings contacts and local presence, usually without a lab. Agents cost less in margin terms, but in the EU they have legal protections on termination (see the contract section).

For each channel, ask who answers the formulator's technical question at 4 pm on a Friday, and in whose CRM the customer lives.

Go-to-market channels for specialty chemicals, market by market

Some common patterns by market:

In personal care, global brands buy direct and run long evaluations. Indie and mid-sized brands, and many contract manufacturers, expect to buy through a specialty distributor with a local lab, small packs and a formulation library.

In coatings and inks, large formulators have central purchasing and technical teams who want to talk to your chemists, so direct works. Regional paint and ink makers are often better served by a distributor that already sells them resins, pigments and additives.

In plastics additives, compounders and masterbatch producers buy in larger volumes, and the technical discussion is about processing conditions on their lines. Direct or a technically strong agent is common in core regions. Distributors make sense where volumes are fragmented.

In food and nutrition, large food groups buy direct under strict supplier qualification. Supplement brands and smaller manufacturers often buy through distributors who handle documentation, small lots and local regulatory questions.

In agro, formulators and crop protection companies are concentrated, and registration work ties you closely to them, so direct relationships or a specialist agent are common for actives and adjuvants.

In industrial markets such as water treatment, lubricants and cleaning, many mid-sized buyers have modest technical needs, and a broad-line distributor usually covers them more cheaply than a direct team.

Region changes the answer again. A supplier with a strong team in Western Europe may still need a distributor in Southeast Asia or Latin America, where local stock, import handling and payment collection carry much of the work.

Choosing a distributor or agent: what to check

Before signing, I want answers to five questions.

1. Customer list. Which of my target accounts do they already sell to, and what do they sell them? A distributor with the right customers and the wrong portfolio is easier to work with than the reverse.
2. Portfolio conflict. Do they carry a product that competes with mine? If yes, which one will the salesperson offer when the customer asks for an alternative?
3. Technical capability. Do they have an application lab for my market, and people who can run a formulation trial? For an agent, can they handle a first technical conversation?
4. Focus. How many principals does the sales team carry, and how much time will my product realistically get? A specialist with a narrow, complementary line often outsells a large catalogue.
5. Operations and references. Check storage, regulatory handling (REACH documentation in the EU, local registrations elsewhere) and customer credit terms. Then talk to two other principals they represent, ideally one who left.

Contract points that decide the next five years

Many problems with distributors and agents trace back to a thin contract. None of this is legal advice. Have a lawyer in the relevant country draft and review the agreement.

Territory and customer scope

Define the territory, the applications and any named accounts you keep direct. "Europe, all applications" is rarely the right answer for a new partner.

Exclusivity tied to performance

If you grant exclusivity, link it to measurable targets: volume, number of qualified projects, or named account wins. If targets are missed, exclusivity falls away or the territory shrinks. The EU Vertical Block Exemption Regulation 2022/720 generally covers agreements where supplier and buyer each stay below 30% market share. It allows a supplier to restrict a distributor's active sales into another distributor's exclusive territory, but blanket bans on passive sales are not covered. It caps non-compete obligations at five years and applies until 31 May 2034.

Activity plan

Write into the contract, or an annex reviewed each year, what the partner will do: target accounts, trade shows, trials, technical visits and stock levels. Without it, a missed target is hard to act on, because nobody agreed what effort was expected.

Reporting

Agree on monthly or quarterly reporting: sales by customer and application, open projects, lost business and why. Without customer-level data, you cannot plan production or spot a problem early.

Customer data and transition

Who owns the customer list, sample records and project history if the relationship ends? Agree it now, while everyone is friendly.

Termination

Notice periods, termination for missed targets, and what happens to stock in the channel. For agents in the EU this needs extra care. Under the Commercial Agents Directive 86/653/EEC, an agent on an open-ended contract is entitled to minimum notice of one month in the first year, two in the second and three from the third year on. On termination, the agent can be entitled to an indemnity or to compensation, depending on how the member state implemented the directive. The indemnity is capped at one year's remuneration, calculated on the agent's annual average over the previous five years. A post-contract non-compete for an agent is limited to two years and to the agent's territory, customers and type of goods. Distributors fall outside the directive, so their position on termination depends on national law and the contract itself.

Running the relationship once it is signed

Distributors and agents carry many principals, and their salespeople sell what is easiest and best supported.

Start with joint account plans. For each target account, agree who does what: who calls the buyer, who visits the lab, who brings samples, who handles regulatory questions. Put it in one shared document and update it every quarter.

Hold a business review every quarter covering sales against targets, the project pipeline, lost deals, stock and the activity plan. Bring your own data as well as theirs. Short and specific works best: three wins, three losses and the priorities for the next quarter.

Then make your product easy to sell. Train their sales team and their lab, give them application data, formulation starting points and price guidance, and visit key customers together in the first year.

Finally, watch for drift. Steady volumes from a shrinking customer count, the same five accounts in every report, or projects "in evaluation" for a year mean the partner has stopped prospecting for you.

When to switch channel

Common triggers:

• From agent or distributor to direct: a few accounts grow to the point where your margin loss pays for your own key account manager, or the customer asks to deal with the producer directly for supply security and technical support.
• From direct to distributor: the customer base fragments into many small buyers, or a region costs more in service, credit risk and logistics than it earns.
• From one partner to another: the partner misses targets for several quarters, takes on a competing line, or cannot support a new application you want to open.

Plan the switch before you announce it. Check the notice and indemnity terms, agree the handover of open projects and stock, and tell key customers yourself before a competitor does.

For the first-quarter view of a new ingredient launch, including when to make this decision, see Taking a New Ingredient to Market: The First 90 Days.

Where outside help fits

Channel decisions are infrequent, and the people who negotiated the last distribution agreement may have moved on. As a fractional CCO for specialty chemical and ingredient suppliers, I review the channel set-up per market and region, select and contract distributors and agents, and run the quarterly reviews until the internal team takes them over. You end up with a channel map you can defend to your board, contracts with targets in them, and a review rhythm your team runs on its own. Before opencream.partners I spent 15 years in commercial leadership at Solvay and Syensqo.

The short version

Choose the channel per market and region, on the full economics. Pick partners for their customers and their focus. Tie exclusivity to results, write the activity plan and the exit into the contract, and run the relationship with real data every quarter.

If you are reviewing your distributor and agent network, or setting one up for a new market, you can book a call through opencream.partners.