As we pointed out in "Direct Exporting: Advantages and Disadvantages to Direct Exporting," there are several different methods of exporting, one being a direct export by way of a sales agent appointment. The appointment becomes an agreement between a manufacturer and a sales agent that outlines terms of the relationship. The biggest distinction between an international distributor and sales agent is that sales agents typically don't take title to the goods during a sale, whereas a distributor does. Here we examine what a sales agent does and what you need to know before appointing one.
A sales agent:
1. Sells the product in the local country.
A sales agent earns a profit through commissions paid directly by the manufacturer. Just like a distributor, the sales agent should be (but isn't always) knowledgeable about the market, including local laws, and have mastery over the industry within which the product is being sold. It is prudent to find a sales agent who is familiar with local regulations to minimize risks.
2. Sells the product on an exclusive or non-exclusive basis.
A sales agent sells the product on an exclusive or non-exclusive appointment based on the terms of the negotiated contract. A manufacturer can elect to have several sales agents in a foreign market provided it is agreed upon within the contract. Alternatively, a manufacturer can appoint an exclusive sales agent provided the sales agent meets specified sales goals over a specific time period. If this does not happen, the manufacturer has the right (so long as it is stated in the contract) to revert to a nonexclusive appointment and hire other sales agents for the same territory.
A manufacturer should outline within the contract "acceptable" payment methods from customers (e.g., cash in advance, wire transfer, sight draft or letter of credit, for example) that they expect from the sales agents' end-user customers to ensure they are guaranteed payment. Since the manufacturer will be collecting payment directly from end-user customers located thousands of miles away and paying a commission to the sales agent on those transactions, it is wise to establish a secure, guaranteed method of payment to minimize financial risk.
3. Does not stock the product in his local warehouse.
A sales agent typically does not stock the product in his local warehouse. He primarily serves as a go-between for the end-user customer and the manufacturer. All inquiries and offers are received by the sales agent and forwarded to the manufacturer for either acceptance or rejection, with final billing and shipping taking place between the manufacturer and the end-user.
The manufacturer has the authority to specify a price at which the sales agent sells his product to the customer; he can also restrict the sales agent from selling at an inappropriate price. These issues should be addressed in the contract.
4. Markets and advertises the product in the local country.
A sales agent is responsible for encouraging end-user customers to actively promote and market the products via all appropriate online and offline marketing channels, such as trade shows, social media, billboards, direct mail pieces and newsletters.
5. Communicates with the home office (original manufacturer) with timely progress reports.
Manufacturers can elect to hear from a sales agent as often as they deem necessary for measuring progress. This is negotiated in the contract, and the trick is to set a minimum goal - say, monthly or quarterly emails, telephone calls or Skype conversations - to ensure regular communication. Further, you might also include a statement in the contract that encourages a pipeline of new product ideas based on local market trends as well as leads from customers that might fuel a new product extension or new avenue for growth for both parties.
6. Handles most but not necessarily all sales support and service.
Sales agents will be responsible for addressing most but not necessarily all customer sales inquiries, warranties, guarantees, technical issues, training and repairs (troubleshooting) that involve the purchase and/or consumption of a product. If they do not, at the very least, they should forward the customer inquiries to the manufacturer. A manufacturer should seek a sales agent who will have direct contact with end-users to solve technical or quality control issues. The sales agent must have a competent sales force to adequately serve the market.
7. Absorbs none of the credit risks and tax liabilities in the local country.
A sales agent does not incur credit risks and tax liabilities in the local country on behalf of the manufacturer because the agent only sells the product as an "independent contractor" for the manufacturer. Therefore, the manufacturer takes on greater credit risks and tax liabilities because sales made by the agent can be to several different buyers in a local country.
8. Performs according to the terms and conditions of the international sales agent agreement contract.
Don't forget, the contract should cover pricing, specific quantity of goods sold, commission, geographic jurisdiction, exclusivity or non-exclusivity appointment, duration of contract, etc. The more specific and clear it is, the more useful it will be for enforcing everything you expect done.
Putting together a solid agreement contract that meets the needs of both the manufacturer and the international sales agent is critical at the outset of the relationship. Hiring an international attorney is highly recommended to minimize potential risks, including but not limited to protecting a manufacturer's intellectual property rights. One last critical detail that everyone tends to overlook: Establish a clear understanding of how to get out of the contract should it not work.