2-Negotiating AgreementsNegotiating with Foreign Reps
Negotiating an Agreement with a Foreign Representative
When your company has found a prospective representative that meets its requirements, the next step is to negotiate a foreign sales agreement. Export Assistance Centers provide advice to firms contemplating that step. The International Chamber of Commerce also provides useful guidelines.
Here is important information to consider when negotiating an agreement with a foreign representative
Your Company should provide foreign representatives with information on:
Accountability
Agreements should be able to hold foreign representatives accountable. Consider including performance requirements, such as a minimum sales volume and an expected rate of increase.
Ending an Agreement
In drafting the agreement, you must pay special attention to safeguarding your company’s interests in case the representative proves less than satisfactory. It is vital to include an escape clause in the agreement that allows you to end the relationship safely and cleanly if the representative does not fulfill expectations.
Some contracts specify that either party may terminate the agreement with written advance notice of 30, 60, or 90 days.
The contract may also spell out exactly what constitutes “just cause” for ending the agreement (for example, failure to meet specified performance levels). Other contracts specify a certain term for the agreement (usually one year) but arrange for automatic annual renewal unless either party gives written notice of its intention not to renew.
In all cases, escape clauses and other provisions to safeguard your company may be limited by the laws of the country in which the representative is located so be sure to
For this reason, you should learn as much as you can about the legal requirements of the representative’s country and obtain qualified legal counsel in preparing the contract.
Legal Jurisdiction
The agreement with the foreign representative should define what laws apply to the agreement. Even if you choose U.S. law or that of a third country, the laws of the representative’s country may take precedence.
Many suppliers define the United Nations Convention on Contracts for the International Sale of Goods (CISG, or the Vienna Convention) as the source of resolution for contract disputes, or they defer to a ruling by the International Court of Arbitration of the International Chamber of Commerce.
For more information, refer to the International Chamber of Commerce arbitration page. Prepared by the International Trade Administration. With its network of 108 offices across the United States and in more than 75 countries, the International Trade Administration of the U.S. Department of Commerce utilizes its global presence and international marketing expertise to help U.S. companies sell their products and services worldwide. Locate the trade specialist in the U.S. nearest you by visiting http://export.gov/usoffices.
When your company has found a prospective representative that meets its requirements, the next step is to negotiate a foreign sales agreement. Export Assistance Centers provide advice to firms contemplating that step. The International Chamber of Commerce also provides useful guidelines.
Here is important information to consider when negotiating an agreement with a foreign representative
Your Company should provide foreign representatives with information on:
- Pricing structure
- Product profit potential
- Terms of payment
- Product regulation
- Competitors
- Firm support
- Sales aids
- Promotional material
- Advertising
- Sales Training
- Service Training
- Ability to deliver on schedule
- Not having business dealings with competing firms (because of antitrust laws, this provision may cause problems in some European countries)
- Not revealing any confidential information in a way that would prove injurious, detrimental, or competitive to your firm
- Not entering into agreements with other parties that would be binding to your firm
- Referring all inquiries received from outside the designated sales territory to your firm for action
- How far in advance must the representative be notified of your intention to terminate the agreement? Three months satisfy the requirements of many countries, but a registered letter may be needed to establish when the notice was served.
- What is “just cause” for terminating a representative? Specifying causes for termination in the written contract usually strengthens your position.
- Which country’s laws (or which international conventions) govern a contract dispute? Laws in the representative’s country may forbid the representative company from waiving its nation’s legal jurisdiction.
- What compensation is due to the representative on dismissal? Depending on the length of the relationship, the added value of the market that the representative created for you, and whether termination is for just cause as defined by the foreign country, you may be required to compensate the representative for losses.
- What must the representative give up if dismissed? The contract should specify the return of property, including patents, trademarks, name registrations, and customer records.
- Should the representative be referred to as an agent? In some countries, the word agent implies power of attorney. The contract needs to specify whether the representative is a legal agent with power of attorney.
- In what language should the contract be drafted? In most cases, the contract should be in both English and the official language of the foreign country. Foreign representatives often request exclusivity for marketing in a country or region. It is recommended that you not grant exclusivity until the foreign representative has proven his or her capabilities or that it be granted for a limited, defined period of time, such as one year, with the possibility of renewal. The territory covered by exclusivity may also need to be defined, although some countries’ laws may prohibit that type of limitation.
Accountability
Agreements should be able to hold foreign representatives accountable. Consider including performance requirements, such as a minimum sales volume and an expected rate of increase.
Ending an Agreement
In drafting the agreement, you must pay special attention to safeguarding your company’s interests in case the representative proves less than satisfactory. It is vital to include an escape clause in the agreement that allows you to end the relationship safely and cleanly if the representative does not fulfill expectations.
Some contracts specify that either party may terminate the agreement with written advance notice of 30, 60, or 90 days.
The contract may also spell out exactly what constitutes “just cause” for ending the agreement (for example, failure to meet specified performance levels). Other contracts specify a certain term for the agreement (usually one year) but arrange for automatic annual renewal unless either party gives written notice of its intention not to renew.
In all cases, escape clauses and other provisions to safeguard your company may be limited by the laws of the country in which the representative is located so be sure to
For this reason, you should learn as much as you can about the legal requirements of the representative’s country and obtain qualified legal counsel in preparing the contract.
Legal Jurisdiction
The agreement with the foreign representative should define what laws apply to the agreement. Even if you choose U.S. law or that of a third country, the laws of the representative’s country may take precedence.
Many suppliers define the United Nations Convention on Contracts for the International Sale of Goods (CISG, or the Vienna Convention) as the source of resolution for contract disputes, or they defer to a ruling by the International Court of Arbitration of the International Chamber of Commerce.
For more information, refer to the International Chamber of Commerce arbitration page. Prepared by the International Trade Administration. With its network of 108 offices across the United States and in more than 75 countries, the International Trade Administration of the U.S. Department of Commerce utilizes its global presence and international marketing expertise to help U.S. companies sell their products and services worldwide. Locate the trade specialist in the U.S. nearest you by visiting http://export.gov/usoffices.