A few months ago, I was asked by the U.S. Department of Commerce to join a panel discussion on how to develop relationships with international distributors and representatives.
Most lawyer presentations on this subject begin by suggesting that manufacturers send their international partners one-sided contracts. These contracts focus on legal terms such as consequential damages, non-solicitation, warranty, etc. Many lawyers often overlook that some of these standard U.S. law terms may lead to distrust and/or misunderstanding due to differences in laws and cultural norms. And, they may not even be enforceable.
The bottom line is that no contract, no matter how well written, will eliminate all risk. There are certain industry realities that one has to grapple with, including that international partners often have just as much leverage as you do. The objective should be to find a win/win.
So, when I talk to clients I think about two objectives. The first objective is ensuring accountability. The second objective is ensuring transparency.
Accountability (on both sides) can be achieved multiple ways, including by ensuring that the payment model is win/win, the margins work for both sides, deciding whether the distributor’s territory is exclusive, and deciding whether the distributor/sales representative is integrated with your business.
Transparency can be achieved through trip reports (note: build the requirement into the contract) and potentially audit rights, among other things.
The three takeaways from this discussion are:
- Signing them up can be easy.
- Ensuring Win/Win – “Partnership” is just as important.
- Accountability and transparency in any contract is critical