After deciding to expand business operations abroad via a third party, an entrepreneur should consider the potential clients when choosing a representative, which becomes the visible face of the company.
More importantly, the chosen representative may have different legal capabilities and commitments. For instance, a representative abroad may legally bind your corporation in accordance with local law, even if this is not explicitly described in the contract. One must understand that even if a company tries to avoid certain legal effects, these effects may be legally required in the choice country, regardless of the contract’s terms.
Agents open new business areas and deals outside of the company’s home-base, at the discretion of management. However, the agent interfaces with and forms business agreements with customers directly. An agent determines the price of the goods, date of arrival, form of payment, and other key features of the sales contract, which is delivered to the customer. Sometimes, agents conduct business outside of the agreed-upon scope with the company.
To avoid unwanted third-party involvement where an agent oversteps the bounds of the contract, a company may choose to monitor an agent’s business transactions. An agent’s representation powers are an intrinsic feature of an agency contract. A company may legally require a client to check the terms of the agency agreement before negotiations, which may be a burden. However, if the client breaches this legal clause, a court battle may ensue. Legal arguments may negatively impact the company’s commercial image in the expansion location. In fact, legal disputes and a tarnished reputation may be more detrimental to a company than an unsupervised agency contract gone wrong.
A tarnished business reputation due to legal battles or unfulfilled obligations may be more damaging than profit losses incurred by a single transaction. For example, an agent may offer a client an unrealistic delivery date that the company cannot meet. The company may hire additional staff to ensure on-time delivery, even if this isolated incident results in losses. Sometimes, it may be beneficial for a company to sacrifice profits than to breach the contract.
On the other hand, the distributor purchases goods from the manufacturer, reselling them. This representative generally has no ties or obligations to the company outside the terms of the contract. However, in certain business jurisdictions, like some Latin American countries, the goods supplier is not only the salesman, but also the manufacturer. The distributor may be subject to administrative and criminal liability in certain cases, e.g. when negligent goods negatively impact the final customer. For example, a computer explosion due to faulty parts or a soda contaminated with inconsumable products creates liabilities and legal implications. .
Regardless, legally requiring representative supervision burdens clients. The company or manufacturer is solely responsible for third-party actions. A manufacturer cannot take legal action against the agent or the distributor, reducing their contract to recover losses, or even terminate their contracts based on the breach.