Check the local laws
Before entering into an agreement with an agent or distributor overseas, you need to do some research on the law in the territory where he or she is based. In some countries, for example, there are rules that require agency agreements to be registered with a Government department or that stipulate only nationals of the country can become an agent of a foreign supplier.
So, before signing anything, get some local legal advice early on to cover:
- Who is entitled to act as an Agent? – is this confined to a national or company owned by nationals of the State or can a foreigner act as your agent?
- What are the basic legal rights of the Agent and the Principal?
- What are the rules concerning termination of the Agency?
- Are there any registration procedures?
- Does the law distinguish between agents and distributors? In Europe, the rules only apply to agents but in some countries of the Middle East, the distinction is blurred and a distributor might have the same termination rights as an agent.
You might think that the issues mentioned above can be avoided if you say English law will govern the agreement with your agent. Unfortunately, it is not so simple and the local courts or even the legislation may take a different view.
Be sure to spell out all the key requirements in your agreement – territory, products, commission, initial period, targets, termination rights and much more. Don’t ever omit any important matters in the hope they will sort themselves out later.
Included in Exporting Made Easy – the book are some template agreements, which you can also order individually for download from ContractStore.com:
When appointing an agent, a good starting point is to assess your view of the “ideal” agent. His or her appearance, the words they use, their behaviour; is this someone we feel we could work with?
We have asked hundreds of exporting companies to comment on the qualities they believe are important in an “Ideal” agent and their views can be summarised as follows:
- Well Connected
- Business Fit
- Well resourced
- Shared “ethos”
- Good track record
But finding the right agent isn’t just about personality and skills. It also means choosing the right type of agent. Here’s a summary:
Types of Agent
Receives a commission payment from the seller (in ••return for the introduction it provided between seller and buyer leading to the sale). This is the most common type of agent
Receives and holds goods as consignment stock but still ••does not have title to the goods
Provides a servicing/maintenance facility on behalf of the principal
- Exclusive – the whole market is covered by one agent
- Non Exclusive – several different agents operating in one market
- Sole agent – an agent + key accounts. There’s one agent for the market but certain key accounts are excluded. The reasons for this could be that the principal already has close contacts with the client(s), that the buying decision is made in another country, or there are Pan-European or global prices in place for certain clients.
This article is an adapted extract from Exporting Made Easy by Simon Bedford and Giles Dixon
You may already know whether you require a commission agent, or prefer a distributor who can stock products locally in the market. As the export of services from the UK has expanded rapidly in recent years and there is no tangible product to stock, so an agent is often all that is required.
However, it is worthwhile to examine the role and types of agents and distributors, as these terms are often used loosely. A distributor may refer to himself as an agent and vice versa, so it can be confusing.
- An agent does not have to buy the product or service from the supplier (or principal) and does not have title to (or own) the goods or service.
- The role of the agent is to find customers for their principal in return for a commission payment on any sales they arrange.
- Once the agent has effected an introduction, the supplier/principal will then sell the goods/services direct to the consumer.
- An Agent does not accept financial liability.
The Distributor (or The Re-Seller)
- Purchases products from a UK exporter/supplier and therefore has “title” to the goods purchased.
- The distributor then sells the goods on to the final customers having added his profit to the price.
- The selling prices and terms of sale are determined by the distributor.*
- Buys/sells on own account in defined region
*Fixing the resale price is illegal in the UK and many other parts of the world. The most you can safely do is to have a recommended retail price (RRP).
The key questions that companies should be asking when starting to export goods or services:
- Why do you need an agent or distributor?
- Who to appoint?
- How will you find the right person?
- Where should they operate: territory?
- What is their role?
- When is the right time to appoint them?
Companies new to overseas markets may not be aware of the full range of options for how they can sell their products and services.
Some companies start by indirect exporting i.e. by effectively selling in the UK to Merchants, Trading Houses, or original equipment manufacturers, for example car components. Payments would be in pounds sterling on usual UK terms such as 30 days, and there is no overseas delivery to worry about.
Companies can start exporting directly without using a “middleman”. They can simply travel to the market, having carried out some research, and try to book the orders. However, after a short time there is a realisation that a local man on the ground in the form of an agent or distributor can bring results more quickly and this is a continuous point of contact for you and your customers.
Follow the blog to get more info as we continue the discussion.