Agent on commission
This is a person who acts on behalf of a
principal either by soliciting orders, or concluding contracts,
or negotiating deals using the authority vested in him
by the principal. Payment is usually made in the form of
a commission. This type of agent is most suitable where
long- term selling is required to a fairly large number
of customers. One agent could represent a number of manufacturers
of complementary and non-competitive products at any one
If the principal has some doubt about the
credit-worthiness or financial status of the buyer introduced
to him by his agent, (s)he may ask the agent to assume
liability in case of non- payment by the buyer. In other
words, the agent is asked to assume the 'del credere' risk.
However, the agent is not liable for the risk in the case
of non-acceptance of goods by a solvent buyer. Logically,
in view of the liability in such an arrangement, the 'del
credere' agent expects a higher-than-normal commission.
The existence of the 'del credere' agent is only common
in the United States.
If it is clear that some time may pass before
a product is established in the market, a retainer or fee
may be paid to the agent initially to provide some financial
inducement. However, once sales improve, the agent would
normally be put on to a commission.
Where a lot of non-profitable, pre-sales
work, training, customer contact, etc. is involved, the
most suitable method of selling is through salaried salesperson.
The salesperson would have the authority to accept orders
on behalf of the principal, who would meet all expenses
involved. (S)he could work from home or from an overseas
This is a commercial traveller with his/her
own area of retailers, wholesalers, or factories. The person
would act on behalf of a number of different principals
and can accept orders on behalf of each. (S)he does not
get involved in the stocking, servicing or documentation
of goods. This type of salesperson is suitable if there
are only a few customers for any one principal and if,
the goods are simple to understand and to sell.
Here the agent works on a commission for,
say, the sale of machinery, but works on profit basis for
the sale and distribution of consumables or spares related
to the product. The exporter is the contracting party with
the customer for the machine, but the customer purchases
the consumables directly from the agent in his/her own
Some products require an approach to selling
that is best suited to a commission agent but the agent
must also provide warehousing facilities for which they
are paid a fee. The agent takes responsibility for administering
stock, keeping it under tight security and issuing regular
reports on the stock situation. They can change prices
if necessary and can also divide bulk supplies into more
easily distributable units.
Capital equipment, such as cranes and machine
tools, cannot be bought by the agent and is handled on
a commission-on-sales basis. However, these goods must
be serviced and the agent guarantees certain minimum service
facilities - installation, maintenance, spares, and repairs
- in return for a direct charge in proportion to the extent
of the work involved.
Many products need a design service incorporated
into the selling approach, e.g. factory flooring, air-conditioning
and audio/visual equipment. The agent must have drawing
office facilities where individual clients' needs can be
worked out. This type of agent is paid for these services
separately from the commission earned on the orders themselves.
Often the installation is carried out by local contractors,
or may even be organised and paid for by the customer.
Sometimes a major customer is willing to
offer the exporter's products to other potential customers
on a commission basis.
Often when selling to a developing country,
it is important that the exporter has at his disposal a
detailed knowledge of the market and the assurance that
his affairs are being continuously managed at a senior
level. This can be accomplished by a managing firm which
will report on agents, supervise joint ventures, recommend
new ways of entering the market and advise on a sales approach.
Because of its local status, it can lobby authorities to
prevent interference. Often it offers its own wholesale
or retail outlets, or distribution networks for managerial
services plus an agreed share of overall profit.
Factory representative/Agent controller
This is a salaried employee based abroad
to supervise the marketing arrangement in a specific group
of markets. Normally (s)he controls the local agent's operations,
but does not actually sell to customers, rather accompanying
the agent on key calls.
Export management agency
This agency acts as the manufacturer's export
department either for all or for a selection of foreign
markets. The agency familiarises themselves with the manufacturer's
product range and pricing structure, and investigates potential
outlets. They operate on a commission basis, or on fee
plus commission basis.
Representative purchasing for himself
The export merchant purchases the goods from
the exporter on his/her own account as principal, with
the intention of reselling them at a profit. (S)he must
then find the customer and take the financial risk. The
manufacturer must ensure that they do not compete against
the merchant's own sales effort. The agreement may have
a clause to the effect that all orders from a specific
sales area, whether or not placed by the merchant, will
be credited to his/her commission account
Distributors buy from the exporter to resell
at a profit. They have exclusive right to market the goods
in their territory. All orders must be channelled through
them. The export merchant might purchase goods from the
manufacturer and appoint their own distributors in different
areas, giving them the right to resell, or they might act
as distributors themselves.
The stockist generally buys from the manufacturer,
the export merchant or the distributor, reselling at a
profit but qualifying for special terms by agreeing to
hold minimum stocks to ensure prompt local supply. These
special terms can be discounts or long credit periods or,
as often happens, the exclusive stockist right in a specified
area. Normally, they would not stock competitors' products.
A network of stockists is essential if customers are to
obtain ready supplies.
Agent who assembles
When a firm wants to export goods that will
require facilities for repair or maintenance and/ or when
customers are dubious of the performance of the foreign
goods, then often the answer is to set up an assembly organisation.
The agent will purchase the goods - a German forklift truck,
for example, minus the engine, hydraulic and electrical
components. These parts may then be purchased from local
manufacturers who have designed them specifically to fit
the German chassis. The parts are easily replaced or repaired.
The agent invests time and money in assembling the machines,
generating income from the profit made from selling the
final product. Often high tariff barriers are overcome
by using a large proportion of local equipment/parts in
the finished product.
Representative acting for buyers who are
It is important to remember that there are
buying representatives, as well as selling representatives.
There are export merchants whose principals have asked
them to purchase large quantities of goods on their behalf.
The orders placed by representatives of the Japanese trading
companies, for example, constitute more than 70 per cent
of all Japanese imports. There are also commercial sections
of embassies and foreign trade delegations which have instructions
to locate suppliers of goods and equipment required by
their nationalised industries.
Many large companies, especially US department
stores, set up buying offices in various centres that are
identified as having profit potential. Usually the orders
are large and the buying office arranges transport and
ensures prompt payment.
Buying houses place orders for both consumer
and technical goods, and serve specific markets. They may
combine the job of agent and principal depending upon whether
they are ordering for clients as a service, or purchasing
on behalf of parent or associated companies.
This type of agent offers services similar
to those of a buying house and a buying office but to a
wider range of principals. (S)he acts as host and documentation
clearing house for visiting buyers of many countries. In
order to get exclusive lines, department stores and fashion
houses which are big buyers of foreign products, are often
served by a buying agent. It would be difficult to acquire
this type of service from a local agent who is intent on
supplying as many customers as possible.
Selling through a representative in the
It has been estimated that representatives
handle more than half the world's foreign trade. There
are three main types of representative:
- Those that act for the exporter who
remains the principal
- Those that purchase for themselves as principal
- Those that act for buyers who are the principals
Whichever type of representative is
chosen as an intermediary, it is necessary to enter into
some sort of legal agreement protecting the rights of both
parties concerned. Although such a contract is designed
to govern disputes and protect each party's interests in
law, it can serve as a plan of action for setting targets,
detailing financial incentives and defining penalties
(loss of rights, etc.). It can also be phrased in such
a way that it is compulsory for an agent to bring in a
certain percentage of business over a period or else face
the termination of his contract.