1. Have a good contract.
This is obvious but extremely important. Business relationships across geographic, linguistic and cultural borders function much more smoothly if all parties thoroughly understand and have agreed upon detailed key terms prior to beginning sales or operations. Many companies will use contracts containing parallel versions of English, and the local language. But be advised, this can sometimes present issues with discrepancies in translation and specifics of local law. In any case, we highly recommend using an experience lawyer with direct experience in the local country. For example, if your doing business in China, use a good lawyer on the ground in China.
The contract should cover price, volume, commission, geographic jurisdiction, exclusivity or non-exclusivity, duration of contract, payment terms and acceptable payment methods, service and support, etc. The more specific and clear it is, the more useful it will be for enforcing everything you expect done.
2. Decide if you will grant your sales agent exclusivity.
This is a key part of your sales strategy, and should be considered carefully. There is no one-size-fits-all approach to this question. In any case, you should protect your interests by ensuring that in any exclusive relationship, the sales agent is responsible to meet agreed-upon volume requirements, over a set term, in a specific territory. If they do not meet your mutually agreed upon targets, the contract should default to non-exclusive. To start, we recommend using a non-exclusive relationship or a shorter term length, to make sure you and your distributor can work together successfully and meat your sales targets. Don’t feel pressured to concede exclusivity right away, as you can often benefit from using multiple sales/distribution channels, and often times there are markets within markets that are better served by different sales agents.
3. Decide upon an effective commission structure.
A sales agent generally earns a profit through commissions paid directly by the manufacturer based on unit sales, and therefore this term of the contract will be very important to them. Just like a distributor, the sales agent should be knowledgeable about the market, including local laws, and have mastery over the industry within which the product is being sold. It is generally prudent to find a sales agent who is familiar with local and industry specific regulations to minimize risks. More established sales agents with significant domain expertise will tend to command higher commission rates, but it may be well worth to your bottom line profits due to higher overall sales volume.
4. A sales agent generally 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 directly between the manufacturer and the end-customer. The manufacturer has the authority to specify a price at which the sales agent sells a given product to the customer, and can also restrict the sales agent from selling at an inappropriate price. These concerns should be addressed in the contract.
5. The sales agent will market and promote the product in the local country.
A sales agent will be responsible for actively promoting and marketing the products via all appropriate online and offline marketing channels. Generally, local methods may be different from what you are used to, and the sales agent’s marketing experience and awareness will be critical to the successful achievement of your sales targets. This may also require the creation or translation of a wide variety new marketing materials, and it is important reasonably assign people and responsibilities in order to develop a working relationship that can execute and effective marketing strategy. This will likely require significant flexibility to cater marketing materials and promotion to the local market.
6. Regular communication and progress reports are key.
As the supplier, you can choose the frequency with which a sales agent reports sales or market updates. This should be included in the contract, but generally we think the most important thing is to maintain regular, active, and even casual communication sufficient to maintain interpersonal relationships between key people involved on both sides. This will enable healthy discussion and tuning of your sales strategy, timely feedback of local market trends, and the ability to share ideas regularly, such as adjusting the marketing strategy or the possibility for expanding into new products.
7. Clarify expectations for after sales support and service.
It is important to determine who will be responsible for after sales support and service of your product. Generally, the sales agent will be responsible for part, but not all. In addition to sales inquiries, the agreed upon service and support, the sales agent should also, at a minimum, forward the rest of customer requests or complaints to the supplier. Depending on the product, there will be very different issues to consider, including warranties, guarantees, technical issues, troubleshooting, training, repairs, and even replacement parts and components. The responsibility split should be considered and included in your sales agent agreement. You should make sure your sales agent possesses the capacity (personnel, facilities, resources, etc.) to fulfill the agreed upon support obligations.
8. Your sales agent will not absorb tax liabilities or credit risks in the local country.
A sales agent does not incur credit risks and tax liabilities in the local country on behalf of the manufacturer. Using a sales agent does not allow a supplier to abdicate responsibility for knowing and complying with local regulations and taxes. Therefore, the supplier must take these issues into consideration when determining the viability and obligations (both financial and legal) of a business using a sales agent in a given foreign market.