The first step towards establishing agency/distribution system in a foreign country is to understand background knowledge about target market including legal framework and identify potential contacts from trade sources, export inquiries, chambers of commerce etc. This place is an excellent source - in fact unique in the world in many respect.

The second step is to contact all those who might be available and have interest in acting as agent/distributor or commercial representative. E-mail, tel, fax, letter, web-sites etc. could be the ideal media for initial round of information gathering and filtering. Once you have prepared a short list of potential candidates, consider a trip to the country for first hand knowledge of the market and face to face interview of short-listed candidates. Do not forget to enlist the services of a professional lawyer in your target market. Your embassy should be able to help you in this regard.

Remember, your initial communication should be able to attract sufficient interest and establish confidence in your product/company. Ideally, your proposal should be drafted in local language and should contain:

• Background of your company
• Detail Product Information with specifications/quality/ISO 9000 approval etc.
• Type of sales representation you are seeking (i.e. agency or representation, exclusive or non-exclusive etc.)
• Any available information regarding your target market and/or end user
• Deadline for securing representation in the local market

Your communication should be reviewed by your legal counsel. Please make sure that you do not make an offer or imply a contract during initial round of interaction.

Its obvious that you need as much information as possible about potential representative before entering into a sales contract. Following is a checklist for your ready reference.

• Company Letterhead
• History and experience, particularly with similar products or industry
• Availability of the resources to meet your requirements
• Current sales volume and size of inventories
• Territories they cover
• Product lines (including competing or complementary products)
• Current clients
• Past performance
• Familiarity with local business practices
• Nature of sales force
• PR resources
  

Third party evaluations, specially from chambers of commerce, embassy commercial attaché or independent companies like Dun and Bradstreet can be very helpful source of background information.

Bank and trade references are another possible source of background information. The kind of relationship your contact has with his/her bank, as well as the extent and nature of credit availability, types of accounts, and history, are often indicative of the prospect's business practices and history. Also, trade contacts such as suppliers, shipping agents, customs brokers, etc., can provide valuable background regarding the history, strength, integrity and reliability of the contact.

Current business references are a good way to explore how you might expect a relationship to proceed. These can be other exporters currently utilizing this source, accountants and legal firms, and industry and trade associations.

Once you have selected the right candidate for your business, next step is to draft and execute a legal agreement with your representative. The document will serve as the basis of business relationship between the two companies. Naturally, it should be clear and transparent, specially in establishing mutual responsibilities and financial commitments. The document must have the approval of your legal counsel who should examine the relationship and consequent legal liabilities both in your home country and the foreign country. It is helpful to have the initial contract for a limited period with provision for extension with mutual consent. This escape route can be very handy for either party in case of unforeseen circumstances. At a minimum the following items should be included in every agreement:

• Names, addresses, nature and relationships of parties
• Product descriptions
• Definitions of territory
• Exclusivity conditions
• Basis for compensation
• Product pricing agreements
• Sales goals and market share expectations
• Non transferability of assigned rights
• Confidentiality agreements and understandings regarding prohibitions in dealing with competing products
• Jurisdiction regarding agreements and their enforcement responsibilities for advertising, ordering, inventories and delivery, maintenance, warranty work and other relevant operating concerns
• Terms of the agreement and provisions for modification, cancellation, extensions or renewal

You should be cautious in selecting an agent and in preparing the agency contract. The agency contract in certain countries is quite onerous. It can cost the exporter a fortune to rescind the contract due to agent's poor performance or non-compliance to the terms of the contract. At times, it is impossible to rescind the contract under the national laws and regulations. International litigation being costly - it is far better to spend money in legal fees and your time to make the contract foolproof than repent later.