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 time.
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 sales office.
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 right
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 as principal
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 the principals
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 market
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.