Overseas Agents and Distributors - Essential Reading

Commercial Agents and Distributors constitute a very effective marketing channel for exporters. Imagine having your own man in overseas markets who, with their understanding of local language, culture and market trend can promote your products to right customer segments. An effective market representative can multiply your sales several times at a very reasonable cost.

The Common Forms of Representation are :

Commercial Agent

They are generally individuals or small firms who do not purchase or maintain an inventory of your products. Their most obvious benefits are knowledge of local language and close proximity to existing and potential customers. They usually solicit orders from potential customers on behalf of the exporter (also called principal) and their compensation is a commission from the net export ex factory price or agreed fee. Orders are placed on behalf of the buyer, the agent usually does not get involved in shipping/delivery.

Distributor

Also called dealer, wholesaler or stockist, is a larger firm than commercial agent. They have the product knowledge, qualified personnel, local sales network, physical facilities and financial resources to perform all of your export marketing functions. They are equipped to advertise, promote, order, purchase, transport, stock, deliver, finance and repair you products. Distributors differ from agents in their ability to maintain a continuous inventory of products and spare parts for prompt delivery and reliable customer service. Distributors are compensated in the form of discount from gross export ex factory price and may enjoy other facilities like credit, promotion support etc.

Appoint Commercial Agent if
  • It is an accepted distribution method in the country you are exporting to
  • You are looking for an initial low-cost option to enter the target market
  • You do not need to maintain inventory in that country. For example, if you manufacture custom or capital equipment, sell services, or can have inventory shipped directly for individual orders, you probably do not need to keep stock and maintain a distributorship program in the country to which you are exporting
  • You want to maintain direct control of the sales of your products overseas. Since agents sell the product on behalf of the exporter, they must sell it at the exporter's price, under specified conditions and with prescribed representations and
  • You intend to benefit from corporate identity and intend to conduct business under your own name
Appoint Distributor if
  • It is the accepted distribution method in the country you are exporting to
  • You are satisfied that the target country is important for your marketing plan
  • You need to maintain inventory in the foreign country
  • You do not wish to invest in your own distribution network
  • Your corporate brand identity in the country is not essential
How to Appoint Commercial Agent / Distributor

You need to identify potential contacts from trade sources, export inquiries, chambers of commerce etc. Please see below few sources of information.

Next step is to establish a contact to all those who might be available and have interest in acting in that capacity. The best method is the face to face contact during trade shows, trade missions and foreign travel. If this is not possible, use conventional methods like letters, telephone, fax e-mail etc.

Your initial communication should be able to attract interest and establish confidence. Ideally, it should be drafted in local language and should contain :


  • Background of your company
  • Information about your products
  • Type of sales representation you are seeking
  • Available information regarding your target market and/or end user
  • Deadline for securing representation in the local market

Your communication should be reviewed by your legal counsel. Make sure not to make an offer or imply a contract - this initial communication should be only a solicitation for a proposal.

How to Evaluate

You need as much information as possible about potential representative before entering into a sales contract. Background information of a prospective representative should include at a minimum the following :

  • Company Letterhead
  • History and experience, particularly with similar products or industry
  • Availability of the resources to meet your requirements
  • Current sales volume and size of inventories
  • Territories they cover
  • Product lines (including competing or complementary products)
  • Current clients
  • Past performance
  • Familiarity with local business practices
  • Nature of sales force
  • PR resources

Third party evaluations, specially from chambers of commerce, embassy commercial attach\E9 or an independent companies like Dun and Bradstreet can be very helpful source of background information.

Bank and trade references are another possible source of background information. The kind of relationship your contact has with his/her bank, as well as the extent and nature of credit availability, types of accounts, and history, are often indicative of the prospect's business practices and history. Also, trade contacts such as suppliers, shipping agents, customs brokers, etc., can provide valuable background regarding the history, strength, integrity and reliability of the contact.

Current business references are a good way to explore how you might expect a relationship to proceed. These can be other exporters currently utilizing this source, accountants and legal firms, and industry and trade associations.

Next Step - Sales Contract / Agreement

Draft and execute agreement after selecting your representative. This will serve as a basis for documenting mutual responsibilities. The document must have the approval of your legal counsel who should examine the relationship and consequent legal liabilities both in your home country and the foreign country. At a minimum the following items should be included in every agreement :

  • Names, addresses, nature and relationships of parties
  • Product descriptions
  • Definitions of territory
  • Exclusivity conditions
  • Basis for compensation
  • Product pricing agreements
  • Sales goals and market share expectations
  • Non transferability of assigned rights
  • Confidentiality agreements and understandings regarding prohibitions in dealing with competing products
  • Jurisdiction regarding agreements and their enforcement responsibilities for advertising, ordering, inventories and delivery, maintenance, warranty work and other relevant operating concerns
  • Terms of the agreement and provisions for modification, cancellation, extensions or renewal
Conclusion

The exporter must be cautious in selecting an agent and in preparing the agency contract. The agency contract in certain countries is quite onerous. It can cost the exporter a fortune to rescind the contract due to the agent's poor performance or non-compliance to the terms of the contract. At times, it is impossible to rescind the contract under the national laws and regulations. The international litigation is costly.

Sources of Agent / Distributor Information

International Union of Commercial Agents and Brokers (I U C A B) Mr J.W.B. baron van Till Secretary General De Lairessestraat 158, 1075 HM Amsterdam, The Netherlands Tel: +31 204700177 Telefax: +31 206710974 Home: www.iucab.nl Agent / Distributor Pages of The Great Indian Bazaar at www.infobanc.com/agents.htm

Related Links

How to find Buyers (Part III) - Commercial Agents and Distributors

Source : FAIDA - Newsletter on Business Opportunties from India and Abroad Vol II, Issue 6; July 4' 2001

Author : Dr. Amit K. Chatterjee
( Amit worked in blue-chip Indian and MNCs for 15 years in various capacities like Research and Information Analysis, Market Development, MIS, R&D Information Systems etc. before starting his e-commerce venture in 1997. The views expressed in this columns are of his own. He may be reached at amit@infobanc.com )

Copyright : A9 All Rights Reserved. Limited permission is granted to publish this article in a web-site or printed in a journal / newspaper / magazine provided the publisher takes prior permission from author, do not make any change in the article (i.e. keep it exactly same as displayed above) and cite the Source of this article as The Great Indian Bazaar with a link to this page.

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