Six Steps To Setting Up Foreign Reps

 

"When you have a foreign agent, you must compete with other principals for the rep's time and attention," notes Harry E. McGrath Jr., a former international marketing consultant and now with Regis McKenna Inc., a public relations firm in Palo Alto, Calif. "Unless you communicate regularly with your agent, the relationship will wither and die."

McGrath offers this advice for companies that want to expand overseas:

1. Write down your requirements for a local sales agent or distributor. The rep should be, for example, a national of the country you are going to sell to and understand the product or service. Michael Rooney, president of Boston Systems Office in Waltham, Mass., looks for companies big enough not to be fighting for survival, yet small enough to need his company's business.

2. Identify agents who represent complementary, but noncompetitive, products. There are several sources for this information, including the U.S. Department of Commerce's Agent/Distributor Service (which charges $90 per country for a search) and its Foreign Traders Index, as well as trade associations, freight forwarders, commercial banks, business publications, and trade shows.

3. Have your banker check bank references with a letter or telephone call to the agent's banker. Some companies ask the local Commerce Department field office for a World Traders Data Report (WTDR). The company fills out a form and pays $40 to have it sent to the U.S. embassy in the country where the agent is located. An embassy officer obtains basic information about the company, such as whom the company represents, how long it has been in business, and how many people it employs. A WTDR, which generally takes 10 to 30 days, is a good starting point, but don't accept the data as fact until it has been verified by other sources.

4. Obtain a credit report on a prospective agent from a service such as Dun & Bradstreet or from a local credit agency in the country where the agent is based. For $3, the U.S. Commerce Department will send a booklet, "Sources of Credit Information in Foreign Countries," which lists credit agencies throughout the world that you can write to or telex for credit reports. Many of these companies will send a credit report within 72 hours.

5. Ask the prospective agent for at least a dozen references of both customers and principals and call them. Visit the candidates and ask each agent to take you to visit one or two of his customers. When you are with the customer, notice if the agent is well received by the subordinates, such as receptionists, secretaries, and purchasing agents.

6. Try to select the agent while you are in the country. Whoever is representing your company should have the authority to sign the contract on the spot. Companies that send sales managers to hire agents without giving them the authority to negotiate and sign a contract seldom have good long-term agent/principal relations, since most foreign businesspeople value personal business relationships highly and want to know that they are dealing with someone who can speak for the company.

Author's note: Despite good intentions, relations between U.S. companies and overseas reps can sour. "It often turns out to be very difficult and costly to divorce an agent that you were quick to marry several years before," explains Adolfo Garcia, a partner with the Chicago-based law firm of McDermott, Will & Emery and a specialist in international law in the firm's Boston office.

Garcia notes that most foreign laws are written to protect their countrymen from damages. The longer and more profitable the relationship has been for the local agent, the more costly it becomes for the principal to terminate the representative.

Before expanding overseas, Garcia advises, consult with a lawyer, banker, accountant, consultant, foreign business organization, or government representative -- someone who understands the kinds of problems that can arise and has contacts abroad familiar with a particular country's laws and business climate. When drawing up contracts, he concludes, write down specific reasons that would be grounds for termination and enter into nonexclusive relationships whenever possible.