In order to be in constant touch with a particular territory and to exploit the full potential of the market, it may be necessary for an exporting organization to have its own offices in that market. But many small and medium enterprises may not be able to afford the resources required to open their own offices abroad. Under such circumstances, commercial agents may be a viable alternative. They can perform the functions, which an overseas office of the parent body is expected to do. The role of commercial agents, thus, becomes crucial from the standpoint of exporting firms.
The agent, being a local person, is likely to be thoroughly conversant with the market and is expected to have wide contacts not only in the business but also in government and, therefore, will be in a position to promote the interest of the exporting firm. The agent does not trade on his own but secures orders in the name of and on account of the principal and gets commission on the basis of the business that he is able to generate. There are various ways to identify agents in the foreign markets. Once a list of potential agents is prepared, the next step for an exporter is to decide on the particular agent whom he would like to appoint.
Once the firm has identified the characteristics of the agent and the range of service, he has to render, the firm should obtain the following information in order to find out the appropriateness of that agent.
- How long has the agent been in business?
- How many salesmen has he got? their experience and reputation.
- Names of the other accounts he is presently handling. Does he carry any lines that are directly competitive with or complementary to the firm’s lines?
- Total turnover during the last few years.
- What is the average turnover per account?
- Has he got adequate working capital?
On the basis of the answers to these queries the firm should be able to evaluate the potentialities or various agents and make the final choice.
Export Agency Agreement:
Export agency agreement is a legal document that spells out the responsibilities and interests of each party, i.e., exporter and the agent. Export agency agreement protects both the parties. Careful preparation of such an agreement and reviewing it with the agent help to minimize later misunderstandings. The agreement should be a living document that can adjust to new circumstances so that the relationship can grow beyond the original agreement.
The agreement contains the following:
- Parties to the contract.
- Contractual products.
- Contracted territory.
- Duration of the contract.
- Payment of commission.
- Rate at which commission is to be paid.
- Calculated on percentage basis the base for such calculation.
- The time when commission becomes payable.
- Settlement of disputes.
- Renewal and termination of agency.