EXPORT ABCS - HENRY A. SAMUEL THE DEVIL IS IN THE DETAILS IN OVERSEAS DISTRIBUTION DEALS

EXPORT ABCS - HENRY A. SAMUEL THE DEVIL IS IN THE DETAILS IN OVERSEAS DISTRIBUTION DEALS

An overseas distributor of U.S. goods buys those goods for his own account, takes title to the shipment and assumes all the risks of resale.

The overseas sales agent or representative solicits orders and forwards them to the exporter, who then may accept or reject that business.While the agent or rep can be restricted to selling in a particular territory, the distributor can sell anywhere once title is passed.

TERRITORY AND EXCLUSIVITY PACTS

When territorial rights are specified, the distributor agrees not to solicit business outside that territory.

While all distributors want exclusive distribution in a given territory, most exporters prefer multiple distribution opportunities for bigger sales.

The exporter may allow exclusive distribution for a probation period, then strike a compromise with the distributor based on minimum turnover during a mutually agreed time period.

MINIMUM PURCHASES

The only reason to enter into a sales agreement is to assure highest volume of sales from the territory.

The exporter should carefully consider offering discounts for specified quantities, since such an offer relates to the exporter's ability to sever the agreement.

The phrase "use of best efforts," popular in so many sales agreements with overseas reps or distributors, is too vague. The exporter should be explicit as to the quantity of sales required for the discount expected.

PRICING POLICIES

Generally, it is illegal to specify the price at which the overseas distributor can resell the exporter's goods.

The overseas distributor's markup usually is 100 percent over cost, insurance and freight, plus import duties and local delivery to the distributor's warehouse.

The only control the exporter may have is in setting a quota sales volume, which forces the distributor to modify pricing to meet the established sales quota.

A distributor will not avoid handling competing products unless bound by a product-exclusive agreement.

The rule is ironclad: No exclusive consideration will be given a product unless the agreement with the exporter states that competing products are not allowed.

Violation of such a provision is grounds for an immediate severance of the relationship.

SUB-DISTRIBUTOR CONDITIONS

This usually is "boilerplate" in an overseas distributor agreement.

If allowed, the exporter should state that he has the right to make direct contact with such sub-distributors any time, but sales and payments are to be made only through the main importing distributor.

The exporter also should retain the right to prohibit appointment of a sub- distributor in any area not agreeable to the exporter.

LEGAL REVIEW

In many markets overseas, a government review is mandatory before a distributor agreement becomes binding.

The exporter always should specify in the agreement that the sales agreement is binding on the exporter only after government review and approval.

Initially, no large orders should be shipped until the final official stamp of approval has been given.

USING AN AGENT

An agent is paid a commission. This never should be remitted until the order has been fully paid for in U.S. dollars and deposited into the exporter's account in a U.S. bank.

Pricing can be dictated to the agent for solicitation of orders. The exporter should ask if the agent would be willing to guarantee payment by any customer from whom orders are solicited and accepted by the exporter. That may require higher commissions, but can be a big relief from credit risk.

The agent agreement should stipulate that the agent is aware of and will not violate the U.S. Foreign Corrupt Practices Act. This clears the exporter of any charges of prior knowledge in case of violation.

Oct. 1, 1993