U.S.-based promo products distributors had been finding success expanding their sales beyond America’s borders. But then COVID-19 disrupted distributors’ international business activity – an instance of one global phenomenon replacing another.

Now, though, promo’s global sales footprint is poised to expand.

Direct Hit

Owing to the drop in PPE demand as well as the difficulty of navigating the international supply chain, overall distributor direct sourcing fell slightly in 2021 compared to 2020. The decline was most pronounced with large distributors, while small and mid-size distributors maintained their sourcing activity.

Distributors that source products outside of the U.S. & Canada

Suppliers that say distributor sourcing poses a significant threat to their business

“The demand from clients to service their global locations will continue and grow,” says Jo-an Lantz, president/ CEO of Top 40 distributor Geiger (asi/202900) and a member of Counselor’s Power 50 list of promo’s most influential people. “As distributors, we must expand our suite of services to meet their demands.”

Indeed, promo’s largest firms are leading the global sales upswing, which they say is being driven in significant part by client need.

24%

Percentage of products imported by distributors who source directly.

Shamini Peter, vice president of global sourcing, import compliance and logistics at HALO Branded Solutions (asi/356000), says the Top 40 distributor has experienced an increase in demand for its international sales and distribution solutions as more brands it serves expand into new global markets.

“Our efforts are for domestic clients that operate globally, as well as global brands where we have client relationships with a U.S. location,” reports Peter, who was Counselor’s 2017 Woman of Distinction.

Three factors are among the key catalyzers of HALO’s worldwide expansion. Clients are keen for brand consistency, spend management and sustainability – growth-drivers also cited by other distributors.

“Global clients want us to partner with them to help manage their brand guidelines so they’re consistent throughout the globe,” Peter says. “Relatedly, they want help managing overall company spend on promotional buying and they want to be able to assess that spend. Clients are also pushing to reduce carbon footprint and freight costs. Therefore, they’re looking for a single provider, like HALO, that can help manage their promo buying and source locally.”

To support international sales efforts, distributors have made investments in overseas offices and other infrastructure. In 2018, for instance, Geiger purchased well-established U.K. distributorship The BTC Group, now known as GeigerBTC. The acquisition became a foundation upon which Geiger has built subsequent U.K. acquisitions and organic revenue increases.

“Sales from that office have doubled in the last four years,” says Lantz. “This is a result of investments in talented people, full-service programs, web integration and development, equipment and technology.”

Shamini Peter
“Global clients want us to partner with them to help manage their brand guidelines so they are consistent throughout the globe.” Shamini Peter, HALO

Geiger also has offices in Germany and the Philippines. “These offices sell, support clients, and ship products across the globe,” says Lantz, noting Geiger has a distribution center in the Netherlands. “Our plans are to continue to expand into additional countries.”

Meanwhile, Top 40 distributor BAMKO (asi/131431) ships product to more than 100 nations and has offices and other infrastructure in locales that include the U.K., China, India and Colombia. An especially important international market for BAMKO is Brazil, where executives say the firm has grown into one of the largest promo distributors thanks to strategic, well-executed investments in offices, warehouses and decoration/fulfillment facilities.

Diving Back Into Interational Waters

The chilling effect of the pandemic has subsided, prompting suppliers to reinstitute their plans to expand internationally.

The markets suppliers are planning to expand into in next 5 years

“We have very good leadership on the ground, and have developed an intimate knowledge of the regulations, market and needs,” says Joshua White, BAMKO’s senior vice president of strategic growth.

Navigating Through Global Difficulties

Nonetheless, as White puts it, the challenges to doing business internationally “are legion.”

Distributors must thoroughly understand the tax and regulatory requirements of each nation, and how supply lines function in every market, as well as work within the parameters of different employment laws. They need to know how to get shipments through customs. And, certainly not least of all, they must adapt to the sensibilities and mores of each culture.

It takes time and investment to manage that. HALO, for instance, has developed a global trade desk team that works internally and externally with experts in areas that range from legal and logistics, to finance and compliance.

Beyond in-company initiatives, some distributors also partner with global promo industry entities that facilitate sales and distribution. For clients who need service in Australia, for example, Geiger works through a partner in World Advertising Gift Exchange (WAGE), a global association of promo product/brand marketing companies.

3 Growing Markets for International Sales

When it comes to selling abroad, U.S.-based distributors have found significant success within English-speaking countries like Canada and the U.K. While distributors aim to keep building sales in the Anglosphere, they also see significant growth potential in other areas. Here are three:

As distributors expand their front-end sales efforts internationally, the geographic diversity of promo’s back-end global sourcing network is also growing.

In recent years, tariffs on China-made goods and supply chain challenges resulting from COVID-19 have propelled suppliers and distributors who source products directly from abroad to increasingly move some production to countries other than China. The trend is continuing: In the last 12 months alone, about 55% of suppliers say they’ve actively explored new countries from which to source due to trade uncertainty with China.

Asian nations, including Vietnam, India, Bangladesh, Indonesia and Thailand, have been among the most popular sourcing destinations. There’s also been an intensifying focus on nearshoring – moving manufacturing closer to the end-market (North America) where products are sold/used.

In this, Latin America, and Mexico in particular, has become a more important sourcing locale.

For distributors that import products directly from abroad, Mexico was the second most popular country – behind China – from which to source. Meanwhile, Mexico was among the top four nations in which importing suppliers have their products manufactured.

“With its cost structure, proximity and skilled labor, it’s really hard to beat Mexico for low-cost, fast access to the U.S. market,” says Alan Vaught, CEO of Top 40 supplier Evans Manufacturing (asi/52840) and a Power 50 member.

Evans operates a cut-and-sew facility in Mexico. It also has a decoration operation there that focuses on sublimation, screen printing, digital printing and some blow molding.

“Shipping from Mexico is done primarily by truck, so supply chain challenges and ocean freight delays are much less of a factor,” says Vaught. “Distributors are asking for low cost and fast delivery, which fits very well with products produced in Mexico versus the Far East.”

Other promo executives also view Mexico – and Latin America more broadly – as a region that will increase in relevance when it comes to promo manufacturing in the years ahead.

“We already have a strong presence in Latin America that has allowed us to react much faster to our customers’ needs under current market conditions,” says Jose Gomez, president of Top 40 supplier Edwards Garment (asi/51752). “On the apparel side, our read is that this region’s industry will grow and be healthy three to five years from now, with growth coming both from the promo/uniform market and the retail industries.”

Nonetheless, China remains the dominant player when it comes to manufacturing for promo. More than 9-in-10 suppliers and distributors that import product do so from China, SOI data shows. Some 6-in-10 suppliers that import say they source more than half their products from China, with 25% of importing suppliers saying all their product sourcing occurs in that nation.

Says BAMKO (asi/131431) executive Joshua White: “There are certain things that simply just get made in China and will continue to be made there for the foreseeable future.”

Countries From Where Products Are Imported

China is still far and away the predominant option for importing products. Meanwhile, Mexico has emerged as the top alternative for distributors sourcing direct and a growing option for suppliers.

Distibutors

Suppliers

Elsewhere, Top 40 distributor Overture Promotions (asi/288473) is a founding member of Brand Unbound, a global network of promo agencies that work together to support customers worldwide.

“To navigate international sales, we use a combination of our Brand Unbound network and our in-house international logistics experts,” says Overture CEO Jo Gilley, a member of Counselor’s Power 50.

Even with great partners and top-notch internal teams, emerging challenges are a constant. The supply chain complications that have resulted in ills like inventory shortages and production delays in North America have plagued international business, too.

There’s also geopolitical upheaval, like Russia’s invasion of Ukraine. To date, distributors say the war hasn’t significantly depressed sales internationally, though there have been impacts and some fear worse could be on the way.

“We’ve seen a reduction in volume from several clients with European operations that have been impacted by the war,” says Zack Ottenstein, president of distributor The Image Group (asi/230069).

Lantz notes the invasion has exacerbated supply chain troubles. White sees storm clouds on the horizon as a result of the conflict.

“Second order consequences, like energy and food disruptions, could find their way into the marketplace,” White says. “It’s unclear how those will impact international sales, but we’re anticipating some market challenges.”

Even so, larger U.S. promo distributors expect to continue advancing sales efforts in foreign markets. Thinking of doing the same? White offers advice: “Companies will have to weigh the benefits of trying to enter an expanding market against the costs of trying to navigate a challenging environment to determine if they’re up to the task.”

The Continuing Cost of Tariffs

Even as the U.S. president considers removing the controversial levies, industry execs don’t anticipate immediate relief from price increases.

Distributors concerned about tariffs

2021

2022

It was nearly four years ago that the administration under former President Donald Trump levied tariffs on approximately $350 billion worth of China-made goods to counteract unfair trade practices by the dominant manufacturing nation. And while a tidal wave of cascading factors since then – such as, perhaps, a pandemic – have created intense cost and sourcing pressures, the tariffs have certainly contributed to price increases in the North American promo industry.

And so it was viewed with optimism that, in the recent months, President Joe Biden was reportedly giving serious consideration to easing or lifting at least some of the levies as part of an effort to help cool U.S. inflation, which has been running at 40-year highs.

85%

Percentage of suppliers who say setting prices will be challenging due to tariff uncertainties.

However, supplier executives who spoke with Counselor believe that while removing or reducing tariffs on imports from China could potentially contribute to price reductions down the line, it’s far from a given. Suppliers are still facing a host of inflationary pressures beyond tariffs (rising costs for labor, raw materials, warehousing, etc.) that could negate any potential benefit from tariff removal, executives say.

“While tariff relief would certainly be welcome, it will likely not have a unilateral impact to the industry,” says Andrea Lara Routzahn, chief merchant at alphabroder (asi/34063), promo’s second largest supplier. “Companies are still operating within various unsettled pricing dynamics that could easily overtake any tariff savings in the short term.”

Nonetheless, some suppliers are of the opinion that tariff removal could lead to some, if limited, pricing relief on items that have been heavily affected by the levies, such as bags. Even so, cost relief probably wouldn’t come quickly as suppliers would have to first sell through inventory purchased while the tariffs were in place.

Meanwhile, the China tariffs greatly accelerated a movement by suppliers and distributors that source directly from abroad to geographically diversify their supply chains by having more product manufactured in international locations outside China.

If the levies go, promo suppliers and other importers will return more production work to China, some executives opine. “With the potential reduction/removal of tariffs, we would look hard at China again for production, which allows for faster lead times,” says Dilip Bhavnani, COO at Top 40 supplier Sunscope (asi/90075).

Others don’t think there’ll be a mass return of promo manufacturing work that was removed from China (or set up elsewhere to start) back to that nation.

“Any industry with a sourcing network heavily weighted in one geographic region is at risk,” says Routzahn. “The pre-pandemic tariffs and the subsequent pandemic supply chain disruption has put smart companies on an irrevocable path towards sourcing decentralization.”