By now, it seems as if everyone has already read Thomas L. Friedman’s “The World Is Flat: A Brief History of the Twenty-First Century.” It changed the way we think about global business, competitiveness and the implication for far-flung economies, governments, education and more. i
—Andrew Ross Sorkin, author of Too Big to Fail
How can you sell abroad? If you want to grow and internationalize your income, determine what among your products and services you can export and get paid by international customers. Grow your global markets by exporting through foreign sales representatives that can deliver against your firm’s tactical and strategic needs. Strong in-market representation is often critical to export success. In addition to directly dealing with your clients, a good sales representative is your sales partner who can provide you with a number of benefits:
Access to local market knowledge and developments.
Ongoing market intelligence about competitors and trends.
Someone to assist with local rules and regulations, for example, labeling requirements.
In-market customer support for inquiries, support, and warranties.
Likelihood of an established network of retailers and wholesalers, saving you time and market development costs.
If you feel apprehensive, view the challenge of selecting and selling through sales representatives as an opportunity to grow your business and develop additional competitive advantages beyond domestic shores. Many small- and medium-sized businesses could be more successful and sustainable, if they would only export their products and services selling them either directly or through foreign sales representatives. There are three types of representatives.
An Agentii is someone who acts under your direction and control. The agent has no authority to enter into binding agreements on your behalf without your prior permission. This means that you, not the agent, establish the price and all other terms of the sale. Until the sale is accomplished, you, not the agent, retain ownership of the goods and bear most of the economic risk. Agents are usually paid a commission.
A Distributoriii is someone who purchases your goods from you for resale to others. The distributor acts under its own direction and control. This means that the distributor establishes the resale price and all other terms of the sale. After your sale to the distributor is complete, the distributor bears the economic risk, if something goes wrong with his sale of your product. Realize, however, that product liability is still yours as the manufacturer of the product.
A Consigneeiv is like an agent; a consignee never owns the goods. Therefore, you, as the manufacturer-owner, will generally bear the economic risk of loss, if something goes wrong in the sale of your product. Generally, you control the sale price and all other terms. However, like a distributor, the consignee acts under its own direction and control regarding the marketing and sale of the goods and so has the power to complete a sale.
By using a sales representative, you will incur less up-front costs, minimizing the possibility that your business might become subject to foreign laws. You will also reduce the risk of instability that might occur within the foreign country and you will reduce the extent to which foreign taxes and U.S. foreign tax rules apply to you. You will probably have less control over an independent sales representative than you would have over an employee. If you are not producing the goods in your foreign market, you may be subject to import and export rules, customs, and duties. Finally, you may forgo deferral or reduction of U.S. income taxes.
A good place to locate foreign sales representative is the U.S. Department of Commerce (USDC), its commercial officers, and the National Trade Data Bankv (NTDB). Other sources include the American Chamber of Commerce located in your target country (found in the NTDB), the NTDB foreign trader’s index, foreign trade associations, and foreign trade shows.
Exercise care in selecting a sales representative, given the distance between the target market and your own office/operations. You want to maintain your good reputation in the marketplace and avoid undue exposure of your firm to product liability. Thus, you should tailor a checklist of questions for potential sales representatives according to your needs, trade, and bank references. Additionally, seek any prospective representative’s assessment of the in-country market potential for your firm’s products. Such information is useful in gauging how much the representative knows about your industry; it provides valuable market research as well.
Just as you seek information on the foreign sales representative, the foreign sales representative will seek product and corporate information on your firm. You should provide full information on its history, resources, personnel, product line, previous export activity (if any), and all other relevant information.
Once your company has prequalified some foreign representatives, obtain their standard representation agreement. While you may ultimately counterpropose your own agreement, the sales representative’s representation agreement will provide insight into the representative’s negotiating position and can be the starting point for the agreement terms you propose. Be sure to retain target in-country legal counsel as well as domestic legal counsel to inform you of any potential legal pitfalls. For example, many foreign countries will not let you terminate a sales representative without paying compensation or “just cause.” That requires your monitoring your representative’s activities in detail for Foreign Corrupt Practices Act “Red Flags,”vi should it become necessary to sever your distributor/representative agreement and seek assurance in that agreement that your representative will comply with U.S foreign trade laws.
After assuring yourself there are no adverse foreign laws or consequences, your representation agreement will need to contain many provisions. Some provisions of any agreement need to address the following:
Whether the representative is an agent, distributor, or consignee.
Whether the representative may assign or delegate any duties.
Whether the representation is exclusive or nonexclusive.
Period of agreement (how long the agreement will be in effect).
The scope/size of the representative’s sales territory.
Products – description and catalog.
Sales performance targets, minimum orders, and sales reports.
Who is authorized to submit a proposal and the extent of authorization to submit a proposal.
Who may approve an order with specifics addressing delivery time timing, pricing, terms of payment, and all other sales terms and conditions.
Who will deliver and install the goods, if they require installation.
Who has title to the goods and when title to the goods passes.
How much and what type of security will ensure your and his performance.
Training and technical support.
Advertising and promotion costs.
Compensation rate, the currency in which it will be paid and the impact of fluctuation in currency exchange rates.
Arbitration – country of location, rules, and form.
Controlling law of the agreement, preferably U.S. law or that of a mutually favorable neutral country.
Where disputes will be resolved, the manner of resolution, which country’s law (preferably U.S. law), and what language will be used.
Termination of agreement/early termination for breach of agreement.
Communication costs – each party to cover its own costs.
Compliance with U.S. foreign trade laws, for example, the Foreign Corrupt Practices Act.
Confidentiality of agreement.
Global market expansion offers many opportunities for companies large and small to boost their revenues and profits by introducing new, innovative products and services to the global marketplace through foreign sales representatives, distributors and consignees. That expansion and profitability can be achieved through export sales through foreign sales distributors/representatives and a foreign sales agreement tailored to the mutual needs and interests of your customer, your partner, and your firm.