Unit Thirteen

Agency

Learning Objectives

To define what is an agentTo understand an agency agreementTo learn how to apply for a sole agency

General View Agency is widely used nowadays in international

trade. In practice a lot of business work is handled not

only by direct negotiations between buyers and sellers,

but also by means of agencies and intermediaries.

When a company seeks to develop its markets, it often

resorts to the help of agents, who will be employed to

represent the company and sell its products in an area

too distant to be effectively covered by the company

itself.

General View

1.Qualifications of an agency

2.An agent agreement

3.Types of Agency

1) General agent

2) Sole agent / Exclusive agent

3) Broker

4) Factor

5) Forwarding agent

General View 1. Qualifications of an agency their reliability and financial soundness; their market connections and the effectiveness of their

sales organization; their technical ability to handle the goods to be marketed; the nature and extent of other agencies they may hold,

and in particular whether these are concerned

with the sale of competing products.

General View 2. An agent agreement The agreement usually stipulates the commodity,

validity, territory, minimum purchase amount, payment terms for the agent commission, terms of price, exclusive rights and obligations, remedial measures for breach of the contract, market information, the governing law and method of arbitration in the event of dispute, etc.

General View3. Types of Agency According to the different rights and responsibilities, the

agents may be categorized into two main types: general agency and sole/exclusive agency.

1) General agent A general agent may be a firm or a person who acts

under some degree of instructions from his principals to sell or to buy goods on the best terms obtainable. He charges a “commission” for his service under some kind

of agreement or contract.

General View2) Sole agent / Exclusive agent A sole agent may be a firm or a person who acts exclusively

for one principal with sole or exclusive agency rights to sell on a commission basis certain commodities in a certain district under some kind of agreement or contract.

Moreover, there are other types of agencies with varying degrees of authority.

3) Broker

A broker is a firm or a person who negotiates sales or

purchase contracts for buyers and sellers,

without rights of their own in the goods.

General View4) Factor A factor has authority to sell in his own name for the principal, to receive payment, and to sell at times and prices which they consider advisable. Fruits, agricultural products and raw materials are often handled by factors.

5) Forwarding agent A forwarding agent carries out all the duties connected with collecting and delivering the goods. The services of a forwarding agent are particularly valuable in foreign trade because of the complicated arrangements that have to be made.

Guidelines for writing

1.Elements of a letter aiming to apply for agency

2.A letter aiming to find an agent

3.Elements of a letter aiming to grant agency

Guidelines for writing1. Elements of a letter aiming to apply for agency

A letter which is intended to ask for agency is made up of the following components:

(1) State the intention directly (2) Offer reasons why he is interested in agency, and competence he has for agency. (3) Expect for a favorable response

Guidelines for writing2. A letter aiming to find an agent includes the

following elements:

(1) self introduction; (2) reasons why new agents are needed; (3) the intention of looking for an agent; (4) expectation for a quick and favorable response

and good cooperation.

Guidelines for writing3. Elements of a letter aiming to grant agency

A letter which gives a reply to an application usually consists of the following components:(1) Acknowledge receipt of the application.(2)Make a decision: acceptance or declination(3) If the response is positive, express expectations for good

cooperation.(4) If the response is negative, decline the application politely. And an explanation and a good wish are necessary.

Specimen Letter-1 （ Seeking an agency）June 5, 2012

Dear Mr. Benson:We are a mobile phone manufacturer with a company based in Japan and factories in China. Our major purchasers come from Europe and Southeast Asia.We are planning to expand our business to the U.S.A and you have been highly recommended to us as having been most successful in marketing mobile phones. We would like to ask if you are interested in representing us.We enclose a catalogue and export price list so that you can see the wide range of our products.Your prompt reply is highly appreciated.

Yours faithfully, David Li

Specimen letter-2 (Applying for sole agency)April 22, 2012

Dear Sirs,

At the Shanghai Spring Fair, we were impressed by the high quality, attractive design and reasonable prices of your textile products. We have read your full catalogue and are convinced that there is here in New York a promising market for your products. If you are not already represented here, we should be interested in acting your sole agent. As leading importers and distributors of more than twenty years’ standing in the textile trade we have a good knowledge of the New York market and have fostered

close business relations with the domestic wholesalers in this district. We feel confident that if you give us any opportunity to deal in your goods, the result will be entirely satisfactory to both of us. Please let us know your

quotations, the rate of our commission, and payment terms, so that we may begin negotiating with our customers to secure their orders.We await your affirmative reply.

Yours faithfully, Wendy Lei

Specimen letter-3 (Agreeing to a request for a sole agency)30 April 2012

Dear Sirs,We are pleased to receive your letter of the 22nd April, 2008 in which you propose to represent us in New York for the sale of our textile products. In view of your excellent performance in pushing the sales of our manufactures and the satisfactory business records, we have decided to appoint you as our sole agent for textile products in the territory of New York.We have drawn up a draft sole agency agreement in which the terms and conditions are set forth in details. Please examine it and tell us if they meet with your approval.We hope the establishment of agency will further expand the business to our mutual benefit.

Yours faithfully, Edward Phillip

Specimen letter–4 （ Declining a request for a sole agency）July 15, 2012

Dear Sirs, Thank you for your letter of July 7, in which you would like to be our sole agency dealing in our textile products in New York. After serious consideration, we think that it would be premature to commit ourselves at this stage when the

record of transactions shows only a moderate volume of business. We are now only prepared to enter into a Distributor Agreement with you.

Please do not misinterpret the above remark, which in no way implies dissatisfaction. As a matter of fact, we are quite satisfied with the amount of business you have brought us. We shall, of course, be glad to consider appointing you as our sole agency at the time when your turnover is big enough to justify establishing the agency.We hope that you will agree with us on this point and continue to give us your cooperation.

Yours faithfully, Mary

Specimen (Sole Agency Agreement)

Sole Agency Agreement

This agreement is entered into between the parties concerned on the basis of equality and mutual benefit to develop business on terms and conditions mutually agreed upon as follows:1. The parties concerned:

Supplier: China New Supply Trade Centre, Co., Ltd. 921-923 Dongfang Road, Shanghai , ChinaTel: 021-58878098 Fax:021-58878096 E-mail: newsupply@163.com (Hereinafter called Party A)Agent: M/S. Taylor Industries Ltd. 1241 Long Beach Street, Los Angeles CA 90025

Tel: 213-6660068 Fax: 213-66600898 E-mail: talor@gmai.com (Hereinafter called Party B) Party A hereby appoints Party B to act as its Sole Agent to sell the commodity mentioned below.2. Commodity and Quantity: Bronze plated Iron Square Hinges with Screws. It is mutually agreed that Party B shall undertake the sales of the afore-said commodity for not less than 500,000 pairs in the duration of the agreement.3. Territory: Los Angeles, U.S.A.4. Validity of Agreement: This agreement when duly signed by the parties concerned shall remain in force for 12 calendar months to be effective from November 1st, 2011 to October 31st, 2012, and it will be extended

for another 12 months upon its expiration unless notice is given to the contrary.5. Confirmation of Orders: Party B shall submit offers to other parties completely in accordance with the specifications and trade terms given by Party A and is allowed any alteration without Party A’s permission. The commission on each transaction is to be fixed through mutual consultation and paid to Party B after full payment of the transaction has been received by Party A. Every transaction concluded is binding only after it is confirmed by Party A in writing. 6. Reports on Market Conditions: Party B shall forward once every three months to Party A detailed reports on current market conditions and of consumer’s comments, and if there is any special change in the market, Party

B shall also report timely to Party A its full particulars in writing. 7. Payment:

Payment is to be made by confirmed, irrevocable letter of credit, without recourse, available by draft at sight upon presentation of shipping documents to the negotiation bank in… The letter of credit for each order, whether opened by the agent or by the customer, shall reach Party A… days before the date of shipment.8. Other terms & Conditions:

a) During the validity of this agreement, Party A shall not make offers of the said goods to any party in the above-mentioned territory other than Party B, and Party B shall guarantee not to undertake the agency of, or to handle the sale of, the same kind of goods for any other countries.

b) Party B must be responsible for placing orders and arranging Ls/C to be opened in favor of Party A for at least 250,000 pairs for the first six months and 250,000 pairs for the second six months of the duration of this agreement. Should Party B fail to pass on orders to Party A for a minimum quantity of 250,000 pairs for the first six months, Party A shall have the right to sell the same goods to any other buyers.c) It is understood that this sole agency agreement does not involve the transactions concluded in the following ways: 1/.Transactions concluded by Party A in the name of its government on one side with the government of Party B on the other. 2/.Transactions concluded between Party A and any other buyers in Los Angels, U.S.A for goods to be re-exported to other countries.

d) When a transaction is confirmed by Party A, Party B is held responsible for its fulfillment.

e) Party A has the right to revise or change the selling prices in accordance with the prevailing market conditions and shall notify Party B of the change in time.

f) During the validity of this agreement, if either of the two parties is found to have infringed the stipulations of the agreement, the other party has the right to terminate this agreement by giving notice in writing to the infringing party.

Party A (Supplier) Party B (Agent)

China New Supply Trade Centre, Co., Ltd. Taylor Industries Ltd.

• Called the “Seven Cs” , the principles for business communication put forward by professor Emeritus Herta A. Murphy, University of Washington, and her two colleagues in University of Michigan are completeness, correctness, clarity, conciseness, concreteness, courtesy, consideration. “Seven Cs” refer to the evaluation of foreign letters in the word choice, sentence structure, content, tone, attitudes and other aspects of business letter writing. Effective application of the “Seven Cs” principles can create a miracle in business communication.

Further Refinement

• Skillfully applying the writing principles to the practical writing can create effective business letters to win the longstanding business relation, enlarge the market and even get saved from the unfavorable situations.

• Let us appreciate the following business correspondences and see how one of the writers clearly justified his decision in the first mail and the other politely handled the crisis with ease in the reply mail.

Further Refinement

The first mail• Dear Mr. Shu:

• We have recently completed an extensive review of our overseas operations and concluded that it is in our best interest to change our marketing approach in Taiwan. With considerable regret, we must inform you that effective July 20, 2009, our exclusive representation agreement with Horizon will be terminated. We feel that the level of sales in Taiwan does not justify continuing ①this agreement. Of course, Horizon may continue to purchase equipment from us at standard, international list prices.

• We have noted further, that in order to be competitive our Compass II system ②must be sold at the international list price. It has come to our attention, however, that Horizon’s price for the Compass II is significantly higher, and this is ③

causing us to lose bids to our competitor, North King Industries.④• We wish to personally thank you for your effort over the last several years

and hope for your continued success.

• Sincerely yours, • Thomas Simons• Vice President

Comments

• The first mail is a typical deductive writing pattern, which has been recommended especially for beginners. The writer states his writing purpose at the beginning and collects sufficient evidences （ see -① ④ ） to justify his decision. Even in this case, the writing does not betray the principle of courtesy and never offends the receiver.

The reply mail• Dear Mr. Simon,

• Thank you for your message of June 5.• We acknowledge with regret your intention to terminate our exclusive representative

agreement effective July 20, 2009.• While we understand the reasons for termination, we would like to point out that the higher

selling price for yours CII is necessary in order to provide our customers with the high level of after-sales service that Horizon is so well known for. It is because of our reliability, in fact, that ITA and NTS purchased your CII.

• While accepting your position, we would like to make one proposal: in view of the special trust and service-reliability that has been established between Horizon and ITA/NTS over the years, could you allow us to continue as your product representative for these two companies?

• We are certain that all parties would benefit in this arrangement and look forward to your comments.

• With best regards,

• Sincerely yours, • Tao Shu• Deputy Director

Comments

• The writer of the reply mail appears to be an expert at practical writing as well. No complaints or negative remarks can be found in the whole letter. The letter begins with the understanding and then proves that previous operations should not be blamed for. Finally the writer gives the counter proposal and shows his positive attitude and suggests promising prospects.

• To sum up, the letters above demonstrate not only how well written letters cultivate business success but how bad news can often be converted into good news.

KEY TO UNIT THIRTEEN

KEY TO UNIT THIRTEENI. Translate the following sentences into English.

• (1) In view of our experience and extensive business connections, we hope you will appoint us your sole agent for the territory.

• (2) We are glad to advise that we have decided to entrust you with the sole agency for our Yangtze brand milk in your country.

• (3) With wide and varied experience in this trade, we are convinced that we can handle as an agent the goods you are exporting in the most effective manner.

• (4) We have noted your request to act our sole agent in your district, but before going further into the matter, we should like to know your plan for promoting the sales and the annual turnover you may realize in your market.

• (5) The general manager thinks it premature for us to discuss the question of agency at the present stage.

• （ 6) It will be appreciated if you confirm these terms at your earliest convenience. A formal agreement will then be drawn up and copies sent for your signature.

• (7) Before drawing up the formal contract for signature, we should like to confirm the main points upon which we reached agreement.

II. Correct the mistake in each of the following questions.

1. with 2. is entered into 3. in pushing the sale 4. mutual 5. distributors

• III. Write letters according to the requirements given below:• 1.• Dear Sirs,• We recently attended the Guangzhou Spring fair and were deeply impressed by the high

quality, attractive design and reasonable prices of your video cameras. After a careful study of your full catalogue, we are considering that there is a potential market for your product here in Argentina. If you are not represented here, we should be interested in acting as your sole agent in this country.

• As an experienced importer and distributor, we have been leading in the line of video cameras for more than 20 years. We have a good knowledge of the Argentine market and are well connected with the major wholesalers and retailers here. We feel confident that a sole agency for marketing your products in Argentina would be mutually beneficial and the result would be entirely satisfactory to both of us.

• We look forward to receiving your affirmative reply.• Yours Faithfully, • Nancy

2.• Dear Sirs, • Thank you for your letter dated April 24, in which you offered to be our

exclusive agency dealing in our video cameras in Argentina.• As we are now in get-acquainted stage ( 在初交阶段 ) when the record of

transactions shows only a moderate volume of business, we think it premature to take into consideration the matter of sole agency.

• In our opinion, it would be better for us to try out a period cooperation before committing ourselves. We shall, of course, be glad to consider appointing you as our sole agent at the time when your turnover is big enough to justify establishing the agency.

• We hope you will appreciate and continue to give us your cooperation.• Yours Faithfully,• Susan