The third in the series on market entry.
Exclusivity versus non-exclusivity
Appointing an agent or distributor on an exclusive basis – where they have sole rights to sell your product within a defined territory – allows the agent or distributor to build their business free of competition in that territory.
Many agents and distributors want exclusivity as they will invest effort and financial resources into building brand awareness to create a market for your product. The stronger the brand reputation, the more valuable an exclusive arrangement will be.
It is a good idea to think through the issue of exclusivity versus non-exclusivity before entering into negotiations with potential partners. If you intend to agree to an exclusive arrangement, performance measures will need to be established, as well as a termination clause within the agreement in the event of non-performance.
Choosing an agent or distributor
The most important factor in choosing an agent or distributor is that you can establish a close working relationship. You have to be able to build high levels of trust and communicate regularly. Business is much easier to transact if you enjoy working with each other.
Before choosing an overseas partner, you should undertake a rigorous research process and speak with a range of potential agents or distributors – perhaps four or five – before narrowing the list
Before making a final decision ask your potential partner for trade references, and also consider using a professional credit checking agency to confirm the potential partner’s financial stability.
It is also important that you meet the potential partners in their own market. They should show you the market firsthand, which will not only give you a feel for how well they know the market, but also give you a chance to get to know them better as a person.
Exporters who rely only on email communication with overseas partners often have misunderstandings leading to problematic relationships. While email is ideal for confirming discussions, meeting in person or even using the telephone or Skype in the early stages can go a long way towards reducing misunderstandings.
Remember that you are relying on your representative’s local knowledge and contacts to win business in the market, so make sure that the relationship is real. You may need to meet several times to build a relationship and work through the fundamentals of how you will work together and what should be included in an agreement.
Before drafting an agreement, you should be in accord as to who does what; then you should engage legal advice in order to have an agreement drawn up. Drafting agreements and making changes when two parties have differing views on core issues can be a waste of time and money, so it is wiser to agree on the big issues first, then start the legal work.