Be wary but not afraid of overseas agents – Johnson

YORKSHIRE companies launching export strategies should tread carefully when employing the services of overseas sales agents, a leading lawyer has advised.

In the second of a series of articles analysing both the opportunities and challenges facing businesses who want to trade internationally, Robin Johnson, of Eversheds, said relying on foreign agents and distributors was tempting for those starting out overseas.

Last month Mr Johnson told TheBusinessDesk.com that government bodies, including UKTI, could offer more services to exporters.

Mr Johnson today follows last month’s advice, by arguing that with the right agents on board, overseas success can be achieved.

“The guy that got himself into a mess with the overseas order we met last time had to rethink his way of doing business,” says Mr Johnson. “He was still attracted by the fact that there was a lot of opportunity in Europe.

“He realised that making an order directly with a customer without local assistance and then having to deal with all the issues associated with an overseas customer when he has got enough orders around in the UK still was a mistake. So what could he do next?”

Mr Johnson says a first step is to identify local agents or distributors by finding people who are regarded by potential clients as intermediaries and who know the markets they operate in.

“Our businessman sensibly doesn’t try to get these people signed up in each jurisdiction but instead he focuses on key jurisdictions; he decides which jurisdictions he wants to create a reputation in and then he decides to give, in effect, an area to particular individuals. 

“He’s looking for like-minded people to himself; people that want to work in his way, it’s important to establish a long term relationship with these people. He does not want to enter into formal legal arrangements; it’s more based on trust but obviously commission structures have to be put in place.”

However, Mr Johnson warns that care should be taken about the levels of commission agreed to, how payments will be made and what the intermediaries will do with the cash paid to them. 

“It was only later that he discovers that the UK Bribery Act could actually be relevant if he had not taken ‘adequate procedures’ to actually identify where those commission payments went to. Did they go for example to individuals in the buying department of the ultimate customer?
 
“He later regrets this when there is a whistle blower investigation at an ultimate customers and he can’t believe he has got himself embroiled in something that ‘has nothing to do with him’.” 

Mr Johnson said the UK businessman and his business should have also taken care to establish whether the intermediary was acting as agent or distributor.

If a distributor, the intermediary requires transfer of title of the company’s goods rather than just passing on orders.

Mr Johnson adds: “When the UK businessman comes to terminate this agency arrangement at a later date he discovers that he has to pay compensation under the Commercial Agents Directives to these agents which he would not have had to pay had he entered into a distribution arrangement.

“He also had not really established the geographic regions of these agents and when he actually found somebody else who was pretty good there was then a dispute as to whether or not their geographic area covered not only Italy but also Switzerland and Austria. 

“He had not established clear guidance as to where their geography would end.
 
“Consequently notwithstanding the European minefield of commercial agency rules, our manufacturer in Yorkshire may have been building his business, and was attracting more wannabe agents and distributors, but that has created new issues as he refines his European network.”

One silver lining is that the company now has a proper sales force around Europe for its products, Mr Johnson added.

Next time: Setting up companies in Europe