International Sales Agreements: 5 Things to Know
After carefully evaluating and selecting a distributor in a new market, the next critical step is the strategic negotiation of an international sales agreement. It’s important to not leave this to a handshake or to signing a standard “out of the box” agreement. A strategically negotiated sales agreement can make the difference between lack luster and stellar sales performance. In addition to clearly defining the roles and responsibilities of both the exporter and importer, below are five things to consider before you negotiate any international sales agreement.
1. Specify territory and channel rights.
It’s always advisable to both specify and limit the territory and channel rights in the international sales agreement even if your initial distributor evaluation findings did not raise any alarm bells. At some point, it may become apparent that the appointed distribution partner cannot adequately penetrate every distribution channel in the export territory. For example, the distributor could be very strong in the supermarket retail channel but very weak in the “mom and pops” channel. In a situation like this, granting territory exclusivity in all distribution channels would limit your sales growth and hinder your future attempts to retract or amend territory and channel rights without engaging in a legal battle.
2. Include performance metrics.
After appointing a distributor and signing the agreement comes the on-going task of distributor management. To avoid the legal challenges and costs associated with wrongful termination, it’s important to include clear performance metrics in the agreement, such as monthly stock and sales reports, advertising and promotional budgets, marketing plans, annual and rolling sales forecast (in dollar value and volume) and a set performance review period.
3. Understand applicable local laws.
A common assumption made when negotiating an international sales agreement is that the laws of the importing country are the same as the exporting country, but this could not be further from reality. Every international market has its own unique laws and standards that deal with commercial issues such as distributor and consumer protection, labeling and the importation, sale, and advertisement of goods. Failure to research and make provisions for applicable laws in the international sales agreement could result in misunderstandings, legal battles and hefty penalties.
4. Plan an exit strategy.
Specifying the duration of the sales agreement is a great way for an exporter to reserve the right to periodically review and renegotiate the terms and conditions of the agreement. Additionally including the conditions that constitute a breach and that could trigger termination of the contract by either party is a great way to remove any ambiguity and to set clear expectations and provide an exit strategy. International sales agreements should also specify a non-compete clause as some distribution partners may carry competing lines or add a competing line down the road.
5. State the price terms.
Every international sales agreement should include a price list clearly stating the international commercial terms (Incoterms) and currency applicable to the sales agreement.
For example CIF US$- Kingston, Jamaica clearly indicates to all parties involved in the international sales transaction that the exporter’s price includes the Cost of the Goods, Insurance and Freight quoted in United States Dollars and delivered to the Port of Kingston in Jamaica. This information ensures that in the event that the goods are damaged in transit or are lost at sea, the liability rests with the exporter because the Incoterms used were CIF, which places the responsibility on the exporter for insuring and delivering the goods in good condition to the port of Kingston, Jamaica.
Keep in mind, these tips should not be a substitute for seeking a legal opinion. You should always consult a lawyer in the export territory versed in international sales agreements before signing on the dotted line.