With the first freight train arriving from Yiwu, eastern China in London on the 18 January 2017 the opportunity to expand your business into China (or in fact any country) has never been more achievable. But what is the best way to expand your business into new territories?
Agents
An Agent has the power to negotiate and conclude contracts for its principal (you) when dealing with another principal (your customer). Once you and your customer are in a legal relationship the agent is no longer part of the transaction. Therefore as a general rule an agent is not a party to the contract between you and the customer – the agent acts on your behalf to negotiate and conclude a contract. This means that the customer is never a customer of the agent.
Because agents are not a party to the contract with the customer you retain a lot more control in relation to price, quantity, promotions etc as opposed to if you are dealing with distributors. However, you also retain the risk in the products you are selling as these never transfer to the agent – you sell directly to your customer. Payment to the agent is usually based on commission on sales made by the agent.
When dealing with agents it is important to be aware of the impact of Commercial Agents (Council Directive) Regulations 1993 and the rights the regulations confer onto agents. The regulations place onerous obligations on you when it comes to the termination of an agent’s contract and require you to pay a “compensation” or “indemnity” payment on termination. Please click here for more information.
Pros:
- Greater level of control.
- Direct contact between you and the end-user.
- Less risk of competition law issues.
Cons:
- You retain the risk of the product not selling.
- Agent must be paid on termination in line with UK law.
Distributors
A distributor buys goods in its own right from you and contracts directly with the end customer. Therefore the contract is between the distributor and the end user. The distributor makes their revenue on the profit derived from the difference in price between what it charges to the end user and what it has to pay to you.
Pros:
- Pass over risk in stock to the distributor.
- A greater motivation to sell the goods.
- Avoids the need to have an established place of business – reducing administrative costs.
Cons:
- Less control of the activities of the distributor
- Greater risk of competition law issues arising.
Considerations when appointing an international agent/distributor:
- Should all imports be through a local agent or distributor under local law?
- Is it important for the principal to have direct contact with the customer?
- Local laws and practices in the territory.
- Does the territory require the agreement between you and the agent to be registered in that territory?
- Is a translation of the agreement required for local use?
FURTHER INFORMATION
Emily Wintle is a Trainee Solicitor in Nelsons’ Commerce & Technology team. For more information, please contact Emily or another member of the team on 0800 024 1976 and they will be happy to assist.