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Chapter: Business Science : International Business Management : Conflict Management and Ethics in International Business Management

The role of international agencies

1. The ‘Hand-Shake’ 2. Heads of Agreement/Exchange of Letters 3. Formal Agent/Distributor Agreement 4. Joint Venture



1. The ‘Hand-Shake’


Many New Zealand exporters confirm their agent or distributor’s appointment and the terms of their relationship on the strength of a handshake. New Zealand Trade and Enterprise does not recommend this approach. If there is no written document the relationship can run into difficulties in areas such as measuring performance, sorting out differences of opinion, or terminating the arrangement. It is important to have a written agreement that covers the key components of your relationship.


2. Heads of Agreement/Exchange of Letters


In the majority of cases, a Heads of Agreement or Exchange of Letters is the best starting point in terms of an export and agent/distributor agreement. Such an agreement implies trust and a formal relationship and is a good mechanism to protect your interests. However, it does not involve the time and cost of working through lawyers.


The Heads of Agreement should include the following:

Products involved – description


Territory covered by the representative The timeframe of the agreement


Termination clauses – it is important to think about these at the start of the relationship when you and your representative are on good terms.


Review Clauses – when you want to review the agreement and what you want to review Performance targets – these could cover such things as amount of sales, number of


customers, number of advertising campaigns etc.


        Formal Agent/Distributor Agreement


This is a formal agreement that requires the services of a lawyer, as well as considerable time and money on your behalf. Just as too many New Zealand exporters rely on the handshake agreement, too many also jump in at this stage.


While the handshake is too flimsy, the formal agreement at the outset can be a waste of time and money if the relationship only lasts for a few months. It is usually better to start with a Heads of Agreement or Letters of Exchange and progress to this stage once the relationship has proved itself to be ongoing. Be aware, however, that formal agent/distributor agreements should not be seen as legally binding, except perhaps for Australia. It would normally be too expensive for a New Zealand company to sue an offshore partner who breaks such an agreement, despite its legal basis.


The key advantage of a formal agreement is that it is a written statement of intent that ensures everyone understands the rules and is working to the same objectives.


A checklist of items that should be included in an agent/distributor agreement can be found at the end of this document.


4. Joint Venture


Once you have an established and successful relationship with your representative, you could consider entering into a joint venture with them. This is a public show of your commitment to each other and sends good market signals. For information on joint ventures, see the New Zealand Trade and Enterprise


Measure the agent or distributor’s performance:



While the sales figures and trends will give you a good indication of how well your product and your distributor or agent is performing, it makes good sense to have a more formal performance arrangement in place so you can quickly and easily identify areas for attention.


Request regular reports on a monthly, quarterly and annual basis. These reports should cover such things as sales, inventory after-sales service, distribution and warehousing, freight, competitor activity, new products, consumer and audience trends.


Regular visits to the market should be part of a performance review.


Encourage open, two-way communication so problems can be highlighted and dealt with quickly and constructively.


Talk to customers to find out how they think your representative is performing.


Use your time in the market to ascertain how quickly and accurately your representative is reporting back market trends


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Business Science : International Business Management : Conflict Management and Ethics in International Business Management : The role of international agencies |

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