Congratulations! You’ve found and vetted a fantastic distributor for your product overseas.

Now the fun part begins – time for some negotiating. But are you truly ready to go there?

Once a company has identified a suitable agent or distributor, it’s time to negotiate and sign a binding agreement.

This written agreement will offer protection to both sides, and reduces the risks associated with the transaction. But there are many things to consider before jumping in.

To cover all of your bases, companies should always consult with an experienced trade lawyer to ensure they have covered every criterion possible when drawing up the agreement.

Be prepared for compromise

As with any business negotiation, it is not always possible to obtain a perfect fit between the capabilities and objectives of the two parties involved. A compromise might be necessary to ensure that the essential interests of each party are protected as much as possible.

There are nine key issues that deserve close attention in any agreement with an agent or distributor. These are detailed below, along with suggestions as to how a compromise might be made.

1. Marking your territory

There might be a mismatch between the target market that the exporter has in mind and the territory covered by the sales representative.

The representative might want the rights to a larger territory to satisfy sub-agents, whereas the exporter may be afraid of overextending and want to limit penetration to an area that can be comfortably supplied from existing facilities.

To satisfy both concerns, this part of the agreement might specify a strategy of gradual growth into the territory.

2. Granting exclusivity

Most representatives want exclusive rights to sell the product in their territory, but an exporter might want to maintain some traditional house accounts or key customers. The exporter might also want to be able to engage different representatives to handle different product lines.

The situation also might arise where a new buyer wants to deal directly with head office and bypass the representative.

In these cases, it might be necessary to pay commission to an agent even if sales were made directly from head office.

Exclusivity must adhere to international trade law in the countries concerned.

In some regional trading blocs, exclusive rights to one country alone cannot be enforced. This is one reason why it is essential for companies to consult lawyers experienced in international trade.

3. Working out a fair commission

An agent might want to charge higher commissions to serve new exporters, justifying this by stating that the increase will offset the additional effort required to start up and position a new product line.

This might also occur if agents are asked to serve a territory that they have not serviced before. Agents might also ask for higher commissions to represent customized products designed for a narrow customer base, or products that require a longer and more intensive selling cycle.

4. Positioning status

Another issue of importance is the extent to which the agent or distributor is associated with and represents the exporter. This is especially critical in agreements in which agents wish to use the exporter’s business card and present themselves as part of the company.

If the agent is deemed an employee of the firm, this might have implications for taxation or employment regulations in the target market. In such a close association, there is also a danger that the exporter’s interests can be undermined by the agent’s inappropriate actions.

5. Asserting control and motivation

It is important to ensure that the agent or distributor acts in the interests of the exporter as much as possible.

The agent’s or distributor’s motivation will largely depend on how important they deem the exporter in comparison with other clients.

Large firms with numerous clients might not pay sufficient attention to a supplier that comprises a small fraction of their business. Small exporters may therefore be better served if they work with small representatives.

If strategic considerations (market coverage, access) lead the exporter to choose to enter into an agreement with a larger representative, additional incentives, such as higher commissions or performance bonuses, might be used motivate the representative.

6. Training and intellectual property

To sell a product effectively, a representative must be familiar with all aspects of its performance and manufacture, and be able to differentiate it from the competition.

The representative might require special training, supporting materials, technical specifications and other information.

The agreement should specify who will pay for this training and material. Because some of the material and knowledge transferred might be proprietary, companies should consider how they can ensure security.

7. Handling sales

The way in which sales are made and orders are received is important, especially in agency agreements.

For example, negotiations should cover how leads are to be handled. In most cases, if the exporting company encounters promising leads (for example, at a trade show) and has an agent, the leads should be handed over to the agent for follow-up.

Similarly, even if the exporter makes a direct sale within the agent’s territory, that sale will be credited to the agent and a commission paid on it. The agreement should also state who will take orders and who is responsible for order fulfillment.

8. Making payments

Two types of payment are important in agreements with trade representatives: Payment by the end-user and payment of commissions.

The negotiation of payment is less complicated with distribution agreements because a distributor will pay the exporter for goods received and then take payment for them from purchasers.

In the case of agency agreements, key issues are the rate of commission, how commissions will be calculated and when they will be paid.

In most cases, commissions are paid to the agent after the exporter receives payment from the buyer. The agent might wish to ensure that payment terms do not allow an excessively long interval between finalizing the sale and receiving payment.

Deciding who should pay for expense items such as sales trips is a separate issue.

9. Providing service and liability

Many products are sold with after-sales service and warranties. The agreement with the sales representative should spell out respective responsibilities.

To whom should the end-user turn for spare parts, repairs and replacements?

Who is liable in the event that the merchandise is defective or unsafe?

Who should pay for liability insurance?

How can the exporter be protected if the representative oversells the qualities or capabilities of the product?

Coming to a clear agreement for all foreseeable situations will not only help keep your trading relationships positive, it will ensure you do not end up on the losing end of the bargain.

Do you see any possible situations we have missed? What are your go-to negotiating tactics?

The post 9 things you need to consider to avoid getting swindled in negotiations with agents or distributors appeared first on Trade Ready.

Business and social etiquette are important attributes for success in overseas markets. Being aware of the different rules of intercultural etiquette will ensure more rewarding personal and global trade relationships.

1. Use names and titles correctly.

It is extremely important to learn the correct pronunciation of foreign names, even if they are difficult.

Sliding by or making a joke about a name is inexcusable in any culture.

Similarly, be prepared to accept that certain cultures care about proper titles.

The Germans and Swiss use titles and formal address. The Japanese place great importance on knowing a person’s title and position in the corporate hierarchy, and they want to know how a company compares with their own in terms of size and history.

2. Not all handshakes are created equal.

Shake hands with people for varying lengths of time and with varying intensity. For example, the Danes prefer a vigorous handshake. The Belgians find a pumping handshake to be unrefined. In Italy, everyone at a meeting shakes hands with everyone else.

3. Gender roles in business.

Be sensitive to the fact that businesswomen may be expected to greet their host or counterpart differently than men in certain cultures. For example, the practice of kissing women’s hands was common in Italy, Spain and Poland until recently. It has now fallen into disuse, though it may still be observed at social functions.

4. Adapt to the greeting style of each country or region within a country.

While Americans tend to move to a first-name basis quickly, other countries are less likely to do so. The British never use first names unless explicitly invited to do so.

In Switzerland, it is common to use a first name with a title, such as Mister George. In Japan, the name should be followed by san (e.g., Jones-san) to indicate the equivalent of “Mister.”

5. The use and significance of business cards.

Learn the use, presentation, hidden meanings and importance of business cards. Marketers should translate and print their business cards in at least one of the languages of the host country. In Belgium, French and Dutch would be useful; in Switzerland, German and French are appropriate.

In Japan, the business card is considered an extension of the owner.

The business card owner offers the card with the front side facing upwards toward the recipient. Presenting the business card with both hands grasping the top corners of the card shows respect to the recipient.

The business card is received with both hands, studied carefully and commented upon. It is extremely rude to put it away quickly or to stick it in a wallet or back pocket. A separate cardholder should be carried to collect business cards and this should be kept in a front jacket pocket.

6. Dress for your setting.

Find out what is appropriate attire for business and social settings. In Australia, dress codes are less formal for the warmer regions of the country, but in some tropical countries, a business suit may still be expected regardless of the heat.

Generally, it is not a good idea to wear local costume to business meetings, though it may be appropriate for some social functions.

If local attire is worn, care must be taken that it is put on and worn properly so as not to ridicule or cause offence to the trading partner.

7. Be aware of conversational styles and avoid slang or jargon.

There are conversational topics that are taboo in some countries, but not in others. Danes do not discuss personal incomes, whereas Greeks may wish to. The Danes would also find it odd to have someone comment on their clothes.

Conversations about family are avoided in Germany, but encouraged in Spain or Greece. Business can be discussed over lunch in most countries but not at dinner in some (e.g., Britain and Belgium). Never compare the Swiss to the Germans. Avoid talking about Cyprus to the Turks.

Do not talk about the Second World War with Germans or Japanese. Do not offer opinions about poverty or foreign aid to Indians and avoid discussions of religion with Muslims. On the other hand, Greeks like to talk about politics and will do so in such an animated way that to an outsider it may seem like they are violently arguing.

8. Find out in advance about gestures or body language that may cause offence.

Indians and many Muslims do not use their left hand for food or greetings. In some countries, it is rude to show one’s hosts the bottom of one’s shoes. In some European countries, it is considered ill bred to use a toothpick.

Many cultures find it rude to keep hands below a table or out of sight.

The Danes smile automatically, but that does not necessarily indicate agreement. The Greeks will smile even if they are angry, and they indicate “no” with an upward nod of the head and a click of the teeth.

9. Check your calendar, and check theirs too!

Arrange the itinerary to avoid holidays, feast days and other special periods when businesses might be closed.

For example, this is true from mid-June to mid-August in many European countries. In Muslim countries during the month of Ramadan, work ceases and people do not discuss business after midday.

10. Remain patient—time has different meanings in different cultures.

If negotiating in Asia, be prepared to invest several trips and many meetings before getting down to business. And in Latin America, focus on building a strong relationship with your business associates as opposed to selling them on all the facts and details of your product or service.

The post Ten tips for creating stronger global trade relationships through cultural considerations appeared first on Trade Ready.

When doing business internationally, there are numerous areas for negotiation. What happens if the merchandise is damaged during transportation? What inspections or authorization paperwork is necessary? When will payment be made, in which currency and by what date? What, if anything, will the packaging consist of? What are the regulations related to importing and exporting the product, in all countries involved with the transaction?

Negotiation is where these and numerous other questions should be answered. If the contract does not address these questions, or is not clear, they will be answered by applying the law of whatever country or international convention has been chosen to govern the contract.

Negotiation is the fulcrum of commercial transactions. When parties consider buying or selling, importing or exporting goods, it is with the intention of gaining something that will benefit their bottom line.

These gains are often at the expense of other parties who have their own gains in mind. The final agreement on what will be exchanged is often the result of rounds of negotiations full of concessions: some voluntary and some based on foreign legislation (for example, some countries dictate local owners must retain 51 percent of legal ownership of a venture).

1) Hire a consultant

If there is no in-house expertise skilled in the international negotiation arena, retain one to help. If cost is an issue, purchase literature or search online to subscribe to an accredited expert.

2) Choose your team wisely

Consider a small, competent team to manage expenses, schedules and communication more effectively, especially if travel is necessary. Also, if there is a language or cultural barrier, be sure to include a translator and/or customary expert as part of your team.

3) Gauge your counterpart’s bargaining power and negotiation style

Usually one party has substantially more to gain or lose from an international venture. Over or underestimating the balance of bargaining power can result in unnecessary concessions or failed negotiations. Similarly, if you approach negotiations too aggressively and your counterpart is more passive, or if you are technically focused and they are financially focused, the business venture will not seem like a good fit.

4) Meet them in person

If at all possible, it is important to meet with prospective parties face-to-face. Be conscientious of cultural norms. Be on time, dress in appropriate attire and demonstrate proper manners and respect. First appearances go a long way in establishing the tone and trust level for further negotiations. Similarly, choosing a neutral site or persuading them to come to your home territory can help you overcome or address cultural biases.

5) Fix the agenda and keep detailed records

In addition to being perceived as professional and informed, an agenda (or a checklist) helps keep time, expenses and schedules in check, limits the number of issues that can be overlooked, keeps further rounds on track, and provides reference for future negotiations.

The post Five strategies for negotiating international business contracts appeared first on Trade Ready.