establishing a presence abroad · 2014. 5. 26. · establishing a presence abroad 1 zagreb, may 23,...
TRANSCRIPT
Establishing a
presence abroad
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Zagreb, May 23, 2014
Writing an International Agency or Distributorship contract … using the ICC models
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… probably the most difficult decision in a company’s lifetime
Going international requires continuity structure;
Long term relationship >< sale bill
is presented much later;
Decision prior to market knowledge / experience … and its return;
What’s possible?
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How to structure my presence on a foreign market?
I don’t need someone else
I need someone else (cost sharing, complementarity, …)
Y N Direct trade Indirect trade
Can I afford a full time employee / sales organisation from the expected profit of the market? Am I prepared to invest in my presence on the market before turn-over?
Advantages: • limited financial risk • limited investment
/ fixed costs • limited engagement • partner knows the
market • easy access to
customers • complementarity
Disadvantages: • dependency of
partner • profit sharing • limited flexibility • limited product
knowledge • no direct contact with
customers
Advantages: • no dependency
of the partner • ho profit
sharing • high flexibility • high product
knowledge • direct contact
with customers
Disadvantages: • first the investment
financial risk • fixed costs • limited market
knowledge • slow market building • no complementarity
How to structure my presence on a foreign market?
I don’t need someone else
I need someone else (cost sharing,
complementarity, …)
Am I prepared to invoice in local currency, pay taxes locally, invoice with VAT, …? Is local
financing available? Is it a stable, permanent presence?
Sales Rep Rep Office
Do I want a separate legal entity with a separate capital, separate accounts, separate liability …?
Branch Subsidiary
Does the size of the customer justify a separate debt administration, credit policy, ligistics,, …? Is direct
contact / negotiations with the (final) customer required? Are we dealing with tailor made products?
Is the customer a better credit risk than the middleman?
Can I or my intended customer/buyer fulfill the import formanities
(customs VAT, …)
Distributor
Commercial agent
Commission agent
Agent-reseller
Y
Y
Y
Y
Y
N
N
N
N
N
Direct trade Indirect trade
Can I afford a full time employee / sales organisation from the expected profit of the market? Am I prepared to invest in my
presence on the market before turn-over?
Direct Trade
Rep office No separate legal entity = branch without permanent
establishment No autonomous activities – no contracts - no local
currency (invoicing – import/consignment/warehousing) Branch
No separate legal entity but permanent establishment Registrations – management – liability – income –
taxation … Subsidiary
Separate legal entity Establishment – registration - management – liability –
income – taxation … Joint venture, acquisition, greenfield, brownfield …
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Order
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Distributorship
Principal
(manufacturer)
Customer
Customer
Customer
Distributor
Stock
Contract of sale
Distribution contract Sale
Service
Invoice Invoice +
Profit margin
Payment Payment
Order
Order
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Commercial agency
Principal
(manufacturer) Customer
Agent
Commission
Contract of sale
Mediation
Invoice
Payment
Mandate
Order Order confirmation
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Commission agent
Principal
(Manufacturer) Customer
Commission
agent
Contract of sale
liability
Invoice Invoice
commission
Payment Payment
Administrative relation
Legal relation
‘CHANNEL DISTRIBUTION’
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HOW LONG MAY THE ‘CHANNEL’ BE?
Rep office
Length of the channel depends of:
1. Nature of Product:
product features, size, weight, shape, durability, perishability, value etc. Perishable items, odd sizes, difficult are often found to have shorter channels.
2. Customer Characteristics:
huge and geographically dispersed customer base buying in small quantities longer channels. Industrial products technological and functional customer preferences shorter channels.
3. Nature of Market:
dense market spread across in length and breath long channel; niche market short.
4. Cost Consideration:
channels with many middlemen raise the price of the product. The shorter the chain, the lower the cost.
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Length of the channel depends of:
5. Time:
Longer channel are often found to take shorter time to make the product available to the consumer because the channel goes deeper into the market. Keeping a channel short means that the customers have to first look for distributor and place his orders.
6. Competition:
If competition is intense (eg. consumer goods), the channel is longer; if competition is (eg. industrial equipment) less the channel is shorter.
7. Availability of Middlemen:
Products that are customer oriented and regularly/daily consumed use longer channels as middleman are very easily available. For high tech products and industrial equipment middleman are not easy to come by and may need to be trained.
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Length of the channel depends of:
8. Technological Factors:
Simple products can have longer channels (no need to be explained). Technical products need explaining, training
shorter direct channel.
9. Consumption Pattern:
If the product is consumed regularly or periodic longer
channels as consumers want such product to be easily accessible and don’t want to run around for them.
10. Other Factors:
infrastructure in the foreign market, political context, legal regulations, social attitude, culture, values etc.
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Indirect trade
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Producer Market
Intermediary
Who do you want to pay? Who do you want as a supplier? Standard product – Taylor made
Competition Legal requirements
Supply chain …
Which distribution structure do you prefer – why?
Seller of fine artisanal chocolates
to delicatessen shops in Northern France;
to supermarket chain in France;
Shipping line prospecting Indian market;
Manufacturer selling high tech equipment for the aviation industry;
Manufacturer of consumer goods (design furniture) prospecting
the Russian market;
the German market;
the US market;
Engineering company World cup Football
Manufacturer of health care equipment public hospitals in France
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Commercial agency - definition
Independent – self-employed (VAT, Commercial Registry, ...)
Continuing authority Primary – secondary activity
Fixed term – customer – project
Negotiation – power of representation prospection vs. negotiation
Remuneration (commission)
On behalf, in the name of the principal
Free of formalities exceptions - clauses - proof
1 invoice
Legal protection
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Distributor - definition
Self-employed, continuing authority …
Represents the product vs. the principal
2 sales
2 invoices
Profit vs. commission
Own name – own account - commercial risk
Combination – agency
Contractual freedom
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Commission agency - definition
Independent – self-employed No continuing authority (freight forwarders, customs
agents, …)
On behalf of the principal liability (payment,
conformity, …), legal relationship In his own name 2 invoices, administrative
formalities Contractual commission rate to be added to
invoice Free of formalities
exceptions - clauses – proof
Contractual freedom
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Sales rep Rep Office
Employee Natural person
Authority
Salary
Social security – labor law
Professional expenses
Goodwill
VRP - representante de comercio …
salarié non statutaire - sales rep
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Comparison
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Advantages Disadvantages
Sales rep
- direct control on activities
- exporter owns goodwill
- exporter gets distribution margin
- fixed costs
- labour law / social security
- commercial risk / debt administration
- customs and logistical administration
Commercial agent
- fast access to customers (specialist,
complementary agencies)
- no fixed costs / remuneration depends
on results
- direct contact with customers
- control on prices and production
- commercial risk / debt administration
- customs and logistical administration
- independent organisation of the
activities (represents other principals)
- statutory protection
Distributor
- contractual freedom
- one single debtor
- consolidated deliveries
- local stocks
- no control over sales and marketing
policy
- intermediary takes higher distribution
margin
- no contact with customers
RIGHTS AND OBLIGATIONS MANAGEMENT
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Risk management in international trade
Contract
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International law
Customs Lex Mercatoria
order (confirmation)
framework contract
general conditions
parties
port, trade, …
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Model contracts
Models for specific users
Agents, distributors, vendors, …
Industry specific models
Orgalime (http://www.orgalime.org/) ….
GAFTA, NOFOTA, ….
National model contracts ACLA (All China Lawyers Association); Standard
Business Contracts (Larcier 2013); …
International models http://www.intracen.org/; http://www.intracen.org/contrats-
types-destines-aux-petites-entreprises/;
CCI (http://www.iccwbo.org)
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Different structures
Per product/industry sector, trade, applicable law, interest focus …
1. Singular models comprehensive text
will fill in clauses
2. Dual models
Short part ‘specific clauses’ (fill in boxes)
Part ‘general conditions’
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Purpose of (good) Model Contracts:
1. harmonization of industry/sector standards
contribution to ‘lex mercatoria’;
2. ‘weaker’ contracting parties looking for a ‘model of reference’ to counter contractual obligations presented by the stronger partner;
3. SME occasionally engaging in international operations and/or changing foreign partners;
4. contracting parties looking for a neutral/standard/compromise position to overcome different positions while negotiating;
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Your contract
Contract = manual = specific for every user but
Draft your own model
Negotiations
Advantages of scale
Avoid competition in your own network
Uniformity Applicable law
Dispute settlement
Croatian law – croatian courts
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Write your own contract
Agency
Principal >< Agent
Export of children’s clothing to France
Export of chemicals for the pharma industry in the US
… (your suggestion?)
Distributorship
Supplier >< Distributor
Export of electrical consumer tools to Germany
Export of chocolates to Brazil
… (your suggestion?)
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Where did it
(almost) go wrong?
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Territory &
products
Mandate of the agent/distributor
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What & where ?
Territory (geographical - sectoral - …)
exclusivity – sole agency – no exclusivity
criterion (invoicing address, delivery, …)
Goods or services
Trademark – new products – …
Representative authority Permanent establishment – production – collection
Claim management
Written – additionnal fee
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The remuneration
EU commercial agency commission - provision
During agreement orders procured by the agent
+ repeat orders
+ indirect BE - LU - NL - GB: exclusivity required
DE - FR : no exclusivity required
expenses …
After termination of the contract Order procured before termination
Reasonable delay – real effort 37
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Commission
Fixed remuneration - % - combination Starting period – advance – exceptional expenses
...
Existing customers – new customers
Method of calculation Gross/net invoice price
Upon execution delivery or prepayment Ultimately upon payment (reasonable advance)
disputes digressive - progressive
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Distributor – profit margin
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Recommended resale prices
Maximum resale prices
Minimum resale prices
Quota
Indirect commission
…
Discount on the recommended retail/consumer price
Distributor
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Principal
(manufacturer)
Customer
Customer
Customer
Distributor
Stocks
Contract of sale
Distribution contract Sale
Service
Invoice
Invoice +
profit margin
Payment
Payment
Price list
- Incoterm?
- Volume?
- Condition of
payment?
- …
• Product regulations – documents – registration
• “Grow the business”– develop sales to distribute to maximum potential in the territory - Minimum turnover – criteria – sanctions
• Stay within the territory
• Advertisements – publicity – trade fairs
• Harmonization conditions of sale – prices
• Keep manufacturer/seller apprised of market developments - Reporting
• Confidentiality – industrial property
• Stock obligations – title – consignment
• Trade mark use – sub distributors/agents
• Service – training staff …
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Obligations of the representative
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Obligations of the principal
• Marketing support – supply (distributor’s quantity requirements, lead times, …) – exclusivity – technical support – training – advertising – protection against claims - …
• Remuneration • Commission rate
• Bonusses
• Discounts
• …
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Territorial market
approach & www.
E-commerce distribution agreements
Principal/supplier on the internet?
Agent/distributor on the internet?
Prohibition internet site?
Mandatory link?
Prohibited link?
Physical obligations
Data transmission – advertising (banners)
Site content – links – web design – domain name
Pricing – indirect commission
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E-commerce & agency
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E-commerce & distributorship
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Term of the agreement
Fixed term With intermediate possibility of notice
Successive fixed term contracts
Prolongation indefinite term
Trial contracts
Notice: Directive: 1 - 2 - 3
National: 6 months
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Commercial agency Indemnity - compensation
German system
New customers - substantial increase turnover (50%)
Continuing benefits
max. 1 year (new customers/increase)
French system (FR - IE - GB)
Termination of the agency
2 years commission (total turnover)
GB?
Indemnity
CN
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Commercial agency Indemnity - compensation
Fixed term - indefinite term - trial - death ...
Exceptions
Default of the agent; sale of the card
Initiative agent
exc. decease, high age, … (! corporation)
? Secondary activities
Request within 1 year prescription (BE!)
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Distributor
Contractual freedom
Pre-contractual information duty (BE – FR - ES)
Reasonable and good faith
Analogous application agency
Reasonable notice – stocks
‘rompre brutalement’
Concealed agency (DE – ES – CH - …)
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What about termination in
Arab countries?
Latin America?
USA, Canada?
Asia?
…
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(non-)Competition clause
written
territory - products
agency max. 2 years BE 6m.; AT 0m.; LU 12m.; …
distribution max. 1 year
indemnity ?
notice by principal?
necessary ?
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APPLICABLE LAW
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Legal context
Mandatory commercial agency legislation
European Union (28)
Norway – Iceland – Switzerland – Turkey
Morocco – Korea …
Middle-East ~ South-America
USA ~ South-East-Asia
Mandatory distributorship legislation Belgium - Middle-East - Latin-America
Concealed agencies
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EU - Commercial Agency
Directive 86/653/EEC ‘on the coordination of the laws of the Member States relating to self-employed commercial agents’, 18.12.1986
Directive national differences
Mandatory law >< complementary law
Application in third countries?
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Conflicts of Law (Applicable Law)
Regulation 593/2008 (Rome I) Choice
Exceptions: transport of people – consumer sales – insurance
No choice: The law of the “country of closest connection” autonomous rules
Rome I
contract of sale of goods Law of the country where the seller has his habitual residence
contract for the provision of services law of the country where the service provider has his habitual
residence
contract relating to a right in rem in
immovable property or to a tenancy of
immovable property
law of the country where the property is situated (exception
short time leases)
franchise contract law of the country where the franchisee has his habitual
residence
distribution contract law of the country where the distributor has his habitual
residence
contract for the sale of goods by auction law of the country where the auction takes place
contract for the carriage of goods law of the country of habitual residence of the carrier, provided
that the place of receipt or the place of delivery or the habitual
residence of the consignor is also situated in that country. If
those requirements are not met, the law of the country where
the place of delivery as agreed by the parties is situated shall
apply.
Take care - Europe:
ECJ judgment 9 November 2000, case C-381/98, Ingmar GB Ltd v. Eaton Leonard Technologies Inc.
Articles 17 and 18 of Council Directive 86/653/EEC of 18 December 1986 on the coordination of the laws of the Member States relating to self-employed commercial agents, which guarantee certain rights to commercial agents after termination of agency contracts, must be applied where the commercial agent carried on his activity in a Member State although the principal is established in a non-member country and a clause of the contract stipulates that the contract is to be governed by the law of that country
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Conclusions:
1. When appointing a commercial agent for a territory inside the EU, the protection against termination as provided for in Directive 86/653/EEC can not be excluded.
2. As far as the minimal protection of Directive 86/653/EEC is guaranteed, the applicable law may be chosen freely.
3. One model contract can be developed for the entire EU under the same national law.
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Take care: Belgium
The law on agency of 13/04/1995 applies only to agents with a place of business in Belgium ICC
Arbitration 15/02/2010 (TBH 2012/3, maart 2012, 238-246)
The law on exclusive distributorship of 27/07/1961 applies only to concessions, granted for the Belgian territory Cass. 06/04/2006
Arbitration clauses are – as far as Belgium is concerned – invalid if the leads to the exclusion of
the law on agency of 13/04/1995 Cass. 03/11/2011
the law on distributorship of 27/07/1961 Cass.
28/06/1979, 22/12/1988
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Conclusions
When appointing an agent/distributor in Belgium, the protection of the agent/distributor can not be avoided … by non-EU principals;
When rendering Belgian agency/distributorship law applicable to agencies/distributorships with execution outside Belgium, the statutory (mandatory) protection does not apply
As far as Belgian courts have competence
Belgian exporters are advised to make Belgian law applicable to their international agency & distributorship contracts as this gives them full contractual freedom.
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Application statutory protection?
Definition
Self-employed
Continuing
Negotiation
In the name of
On behalf of
Remuneration
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No statutory protection contractual freedom
sales rep
broker
consultant – market survey
undisclosed commission
distributor
‘agent’
DISPUTE
SETTLEMENT
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Negotiations ADR -
Mediation
Binding third
party advice
Arbitration Courts
Third party
involvement
No Yes Yes Yes Yes
Parties Third party Decision
making
Parties
Dispute
review board
Dispute
adjucation
board
Third party Third party
Voluntary Voluntary Voluntary
Forced
execution
after
exequatur
Forced
execution
Enforceability
Abroad: New
York 1958
Abroad:
treaties
Brussels I
Debate Yes Yes and no Yes (and no) Yes Yes
Proof finding Ad hoc Ad hoc Ad hoc Flexible rules Strict rules
Guilt question Secundary Tertiary Secondary Primary Primary
Truth finding Secundary Tertiary Secondary Primary Primary
Contractual
basis
Yes Yes Yes Yes Not required
Litigation - EU
No choice made Regulation 44/2001 10/01/2015: Regulation
1215/2012 art. 2.1. Defending party
Subject to this Regulation, persons domiciled in a Member State shall, whatever their nationality, be sued in the courts of that Member State.
art. 5.1.(b) Services: place service
A person domiciled in a Member State may, in another Member State, be sued: in the case of the provision of services, the court for the place in a Member State where, under the contract, the services were provided or should have been provided
National Law: Defending party (+ Place of execution)
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Court competence - EC
Agent Principal
(factory)
Boilerplate” Clauses
Place – date – number of originals – n° schedules – tax obligations – entire contract – governing language – procedural references – entry into force – severance clause – assignment (permitted or not) – Force Majeure -
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Summary
A properly drafted agreement should:
be balanced
set forth fully and clearly as many of the rights and responsibilities of the parties as can be reasonably anticipated and
serve as a governing charter of the relationship of the parties
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