Get it in writing
Wednesday, October 10, 2007/
However you plan to export, there are agreements to consider – to clarify your intentions and to protect your interests.
More and more companies want to export. They come to me for advice saying: “I’ve got a great product and I’ve got interest from America, but I haven’t got the money to fund it”. But you know what? They don’t necessarily need a lot of money. Distribution can be hard because you need to be able to finance it, but it’s not the be all and end all.
There are other ways to export: licensing and agency. If you have no money to expand manufacture to export agency is the way to go. And if you have good IP and no skills, licensing could be the way to go.
Whichever model you choose you need a written agreement.
The distribution agreement is by far the most popular agreement in exporting. This is where the exporter arranges manufacture of the goods and appoints a distributor in a certain territory to market and sell the goods. It is similar to a wholesale transaction locally. This appointment may be exclusive or not.
The distributor buys the goods from the exporter and then has the responsibility to on-sell the goods to retailers.
The exporter still maintains some control as it may impose certain criteria to be met by the distributor in relation to marketing, use of intellectual property, types of stores they want to stock the goods, etc, within the distribution agreement.
The exporter will also usually impose minimum purchase targets on the distributor to ensure the distributor’s commitment to the brand. Distribution is a good alternative when you have a strong brand and you want to maintain it.
If you freak out at the prospect of dealing with manufacturers, developing marketing plans or you do not fancy yourself much of a sales person or manager but what you do have is a fabulous invention with no capital to commercialise it, then perhaps licensing is a better option.
Licensing agreements can range from selling someone a licence to completely exploit your intellectual property – so they design, manufacture, market and sell the product and you claim royalties – to selling someone a licence simply to manufacture or do any one of the things detailed above.
If you do not have much knowledge or experience of the territory you wish to exploit in your exporting ventures, you may consider appointing an agent to canvass sales for your product in the territory.
Unlike the relationships with distributors or licensees, which are principal and principal relationships or “independent contractor” relationships, the relationship between you and your agent will be much like the relationship you have with your employees here in Australia. You are responsible for their actions as they are acting on your behalf. The agent will canvass sales from either wholesalers or directly from retailers but the orders will come directly to you.
You will then pay the agent commission based on the sales. Agency arrangements work well in the fashion industry and in industries where merchandising in store is important, such as homewares, giftware, etc.
Finally, if you don’t care about your brand at all and are not chasing global domination, you may just want to enter into a simple buy/sell arrangement with your importer, who will order your product and then do what they want with it. As long as you get paid you are happy.
Whatever type of arrangement you choose, you will need to ensure that you have an appropriate written agreement that sets out the terms of the arrangement, with particular attention to the duties of the importer, payment terms, delivery terms, marketing terms. You will need to determine the liability of each party and have an understanding of which, if any, international conventions and other laws will apply to your relationship.
So before embarking on your exporting adventure, ask yourself what type of relationship you want with your importer and what type of agreement is the best match for that relationship.
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