Exporting Basics: Finding Buyers and Distributors
What provisions and protections should I seek in an Agent/Distributor Agreement?
Agent/Distributor agreements spell out the terms of the relationship between you and your chosen overseas representatives. They usually cover the following points:
• Products covered
• Territory covered (e.g., country)
• Degree of exclusivity
• Minimum sales/purchase obligations
• Responsibilities for marketing, promotion, shipping
• Responsibilities for technical support, training, after-sales service
• On-hand inventory requirement
• Allocation of expenses
• Terms of commission/payment
• Handling of complaints and disputes (e.g., arbitration)
• Conditions of termination
These points are negotiable. Aim for an agreement that motivates the rep and protects your interests. The rep will seek to commit you to respond promptly to orders, deliver the product on time, pay the agreed compensation, provide training or other specified support, and pay your specified share of joint marketing and promotion expenses. These are reasonable conditions.
For your own protection, you'll want commitments from the rep:
• to apply the utmost skill and ability to the sale of your products;
• to effectively perform the marketing, promotion and support tasks you specify;
• to meet any performance goals you specify (e.g., sales volume and growth);
• not to handle competing lines;
• not to disclose confidential information about your company and products;
• not to bind you to agreements without your prior approval.
It's also vital to have an escape clause in the agreement. You need to be able to make a safe, clean break if the rep doesn't perform as agreed. Most agreements call for a specified duration (usually one year), with automatic annual renewal, unless either party opts to terminate. Typically, advance notice is required for termination (e.g., 30, 60 or 90 days), and it usually must be for cause if before the normal term (e.g., failure to meet specified performance levels). However, some countries limit termination rights to protect local businesses. You could be stuck with a poor performer longer than you want, or a high "severance" payment to be rid of them. It's a good idea to consult an internationally experienced attorney before signing any agent/distributor agreement. Your local Pennsylvania Regional Export Network (REN) Partner will be happy to provide you with information on international law experts in your region.
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