Q: I am thinking about appointing a sales agent to help me expand my business overseas, what are the pros and cons of appointing an agent?
A: A sales agent is an individual, or company, who you appoint to conclude contracts with customers in your name, and on your behalf. The sales agent will not be a party to the contract. This is different to a marketing agent who has authority to promote your goods or services and obtain orders, but no authority to conclude contracts on your behalf.
Appointing a sales agent overseas lets you take advantage of that agent’s local business knowledge and connections. You could also benefit from their knowledge about local laws, rules and regulations with which you might need to comply. Appointing a sales agent is often a lower cost alternative to establishing your own overseas subsidiary (which would come with extra overheads like employees, premises, and the costs of setting up an overseas entity). Given that all contracts will be between you and the end customer (and not the sales agent) you will retain greater control over the terms on which you sell your goods and/or services, and also the prices at which you sell those goods or services (you cannot do this when appointing a distributor). You will also be able to develop relationships directly with customers, which generally, you would not do with a distributor (as customers are actually customers of the relevant distributor).
Before appointing an overseas sales agent in the EU, you need to be aware of the compensation regime that applies at the end of your arrangement with the agent (if you are selling goods through the agent). Agents are entitled to a lump sum compensation or indemnity payment on termination of the agency agreement, except in very limited circumstances, and you cannot contract out of paying that. There are also likely to be anti-bribery and data protection concerns when appointing an overseas agent.
Q: Should I consider appointing a distributor rather than an agent?
A: The main difference between an agent and a distributor, is that a distributor enters into relationships with third party customers for its own account, rather than on your behalf, and will purchase the goods from you to resell to their own customers. The advantage of this is that there is a lower administrative burden on you; you receive orders from your distributor, and generally fulfil them by delivering the goods to the distributor. You do not have to carry out marketing campaigns in the territory (as this would be up to the distributor), and you potentially have a fairly steady source of business without the need to go out and find customers yourself. Also, the compensation regime applicable to agents does not apply, so it is easier to manage the termination of your distributor and appointment of any new distributor. A distribution arrangement does, however, mean less contact and interaction with the end customers, and you can expect your profit margins to be much less than with direct sales.
Q: Should I offer my agent or distributor exclusivity?
A: Broadly speaking, you have three options when appointing your agent or distributor: (i) exclusive (ii) sole or (iii) non-exclusive.
An exclusive appointment means that you cannot appoint any other agent or distributor in the same territory, and you yourself cannot make sales to customers in the relevant territory. A sole appointment also means that you cannot appoint another agent or distributor in the same territory, but you do reserve the right for yourself to sell products directly to customers in the relevant territory. A non-exclusive arrangement sees no limits put on your ability to sell directly into the territory, and equally, no limit on how many distributors you can appoint within that same territory.
The last option is often the most popular as it gives flexibility to add more distributors if one cannot meet demand from customers in the territory or is underperforming. However, distributors often prefer an exclusive appointment to give some degree of protection against competition. If you do appoint your distributor on an exclusive basis, there are mechanisms within the contract which you can use to protect yourself from underperformance by your distributor, for example, minimum purchase commitments with exclusivity conditional upon meeting such commitments.