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As An Export Agent, How Can One Assure To Reserve His/her Fair Share In An Export Transaction?

Posted at: Questions and Discussions | Posted on: Mon 12 Feb, 2007 4:34 am |
 
We received this question in email so we are sharing the answer to it in this forum to benefit others who may have the same question. We would like to also invite other board members to share their knowledge.

Question:



As an export agent/middleman/trading co., how can one assure to reserve his/her fair share in an export transaction (i.e. commission)? How is it possible to represent a Seller's product sample to an overseas Buyer without exposing the source? Is it wise to engage in a contractual agreement to become an export agent for manufacturers? If so, how should an agreement be constructed principally? And or, how could one generally divert away from a manufacturer’s minimum purchase requirements?

Answer:

One of the ways agents, middleman, and trading companies insure that they get their commission is via a distribution, agency, or other kinds of agreements. In some agreements, the middleperson (be it a distributor, an agent or a trading company) have the exclusive rights to a certain geographical area (a country or a city or a state or a region). Which means the supplier or the manufacturer agrees that export sales to the agreed upon area should include the exclusive middleperson.

The role of the middleperson could be marketing the products and taking care of all needed operations to get them to the final destination or the middleperson's role could be to only market the products and provide the connections and the supplier/manufacturer will handle the actual export operation.

Most suppliers honor the agreement between them and their agents. In some agreements though, the agent does not have the exclusivity. In this case the supplier may have more than one agent in the same geographical area. This method is usually used when the geographical area is very big in such that one agent is not enough. Other reasons could be to create an environment of competition between the agents or simply the manufacturer is not comfortable with giving the exclusivity. In some case, the agent is not strong enough or might not be interested enough in the product after winning the exclusivity. In this case if the agreement duration is for two or one year (even with an agreed upon expected sales volume condition) the manufacturer is stuck because for that duration he/she can't do anything about it and other competitors might be taking over the overseas market. There is also another danger. If the exclusive agent is not actively nor strongly marketing the product, the image of the product with consumers (overseas distributors or end users) is jeopardized.

The first stage of introducing a product to a new market plays a big role on how this product will be positioned and perceived by the market and by the consumers. So the agent could actually damage the image of a very good product just by not seriously marketing it properly. This damage extends beyond the agreement duration and the manufacturer suffers from this loss for a long time. That's why some manufacturers and suppliers ask prospective agents to provide their company profile, history, list of other companies and products they represent, a market research, a forecast of the expected sales volume, marketing strategy, distribution power, financial records, etc.

What if the agreement was a simple one in which the supplier will give the agent a specified commission for every client/sale he/she brings? In this case the agent has one choice which is to trust that the supplier will continue to honor the agreement not only in regard to the first sale made but also to the subsequent ones (in accordance with the duration that was agreed upon). Let’s say that the buyer receives the goods and of course at that time had the chance to know the original supplier of the goods and decides to skip the agent. It's all up to the supplier in this case to honor the agreement with the agent. How would the agent know of subsequent sales? How could the agent protect his/her shares? Here are few suggestions:

• Develop a more than business relationship (friendship) with your suppliers even if only over the phone. Show them that you care about their business and that you are continuously trying your best to increase their sales and strengthen their product marketing efforts. Why would a supplier hide/not give the agent his/her share? The answer could be greed and a problem with ethics in the work place. The real answer is that the supplier feels that the agent did a minimal and short-time span effort to provide the client/buyer and the supplier is now handling everything else. With time the supplier feels that the agent no longer deserves any share of the profits. The agent should make the supplier aware of the efforts being made or have been made to present a buyer. Justify to your supplier why he/she should continue to share the profits with you. Agreements are actually ink on paper transformed into action by humans. Remember that. The agreement should never weigh in importance and planning more the the person that will implement it.

• Include in the agreement that you (the agent) has the right to request at any time a list of all sales made to a client (that was brought by you) up to the current status of such sales. You can name this a feedback report, a report to follow up on the progress of your efforts (something like an after sale/connection service). The supplier has to provide such information in writing and usually when something is done "in writing" business people are very careful.

• Before you contact a supplier in the issue of representation, do a simple test. Know what countries the supplier has agents for and then contact the supplier asking for a quote where the final destination is one of his agents territory and in the request insert the following questions; "We would like to also know if you currently have an agent for this region? And if you do, do we need to contact them in order to place an order or a quote request?". If the supplier answers back that they do not currently have an agent, then you have an indication of what might happen to your future agency agreement with them! and vice versa.

In regard to your question of how to represent a product sample (or a catalog) to an overseas buyer without exposing the source, please consider the following points:

• The best way is to be worry free of such issues by having a representation agreement with the products' manufacturer.

• Some exporters and middlemen practice photocopying/reproducing the supplier’s original catalog and changing/hiding the information that leads to the supplier and replacing it with their own contact information. We don't advise of doing that because the supplier's catalog (including products information, illustrations and photographs) is copyright protected material. In order to do such thing, an exporter should contact the supplier and take a clear permission. Or you can take the supplier's permission to use selected parts from their catalog to produce your own catalog that is geared more towered the overseas market you are targeting. You can explain that their products need to be presented in a way more appealing and more compatible with the targeted market (translation could be another tool).

• Some suppliers understand that their agents need to protect their products resources so they provide catalogs that does not contain their contact information and at the same time a space is left (usually at the back cover of the catalog) in which the agents can place a sticker containing their own contact information.

• Some manufacturers give the buyer the option of choosing the label attached to the product. If your products' manufacturers provide this option then your clients/buyers will believe that you are the original supplier of the products and hence you are protected from being skipped.

The best thing to protect your efforts in marketing a product is to have some sort of an agreement with the supplier. If you don't have an agreement, you will be spending a good amount of effort and continuous worry about this subject. In most cases, it is not difficult to locate the original manufacturer of the goods. You could end up making one small sale and after that your clients are dealing directly with the source.

To get a look at a number of agency/distribution agreements, you can use the following sources that you can find in your public library (in the reference section) or in a bookstore:

• A good book titled "Exporting From Start to Finance", By L. Fargo Wells & Karin Dulat, Published by Liberty Hall Press. In the back of the book (appendixes) you will find samples for a variety of agreements.

• The Complete Book Of Business Forms and Agreements, published by McGraw-Hill.

• Forms Of Business Agreements And Resolutions.

• The Basic Guide To Agreements, Commercial Documents And Contracts.

• The Standard Legal Reference.

Now comes the last part of your question concerning the manufacturers minimum purchase requirements and how to handle it:

Sometimes the set minimum (especially the one for export sales) is unreasonable. An overseas company purchasing certain goods for the first time would usually prefer to order a small quantity which will be used to test the product's acceptance in the market. Manufacturers that insist on a set minimum even in the first sale (which is in fact considered a test sample), these manufacturers are closing the door on overseas sales. They miss the fact that their product is being introduced to a new market and it takes time for the sales volume to grow to their expected results (just like when the manufacturer started introducing his/her products to the local market). How to handle such condition? Try to convince/prove to the supplier that the condition is unreasonable or to delay the requirement for the first shipments when you are at the beginning of your initial overseas marketing efforts.

Hope this helps. We would like to also invite other board members to share their knowledge.



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