How to Market your products in the US?

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Zara Law Offices111 John Street Suite 510, New York, NY 10038

Tel: 1-212-619 45 00Fax: 1-212-619 45 20

www.zaralawny.com

The US Market

• Enormous in size

• Demanding

• Competitive

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World Economic Forum’s Survey of Global Competitiveness 2007-2008*

1. US2. Switzerland 3. Denmark 4. Sweden5. Germany6. Finland 9. UK10. Netherlands13. Canada17. Israel18. France 26. Chile29. Spain40. Portugal46. Italy53. Turkey72. Brazil85. Argentina

*http://www.gcr.weforum.org/3

The US confirms its position as the world’s most competitive economy

• The United States is the world’s most competitive economy. According to the Report, the efficiency of its markets, the sophistication of its business community, and its impressive capacity for technological innovation contributed to the re-emergence of the US as the world’s most competitive economy

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• Successfully entering the US market and remaining there permanently is a difficult undertaking

Factors to be considered:

• Competitiveness of your products

• Ability of your company to endure the market risks

• Cost, time and energy

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Success in the US Market is not assured

Entering the US market

1. Direct Sale

• Selling your products directly through your company’s export department

• Incorporating your own company in the US • Establishing a Joint Venture with a US company

2. Indirect Sale

• Selling your products in the US through• An agent* or • A distributor

* All parties mentioned herein including Agent, Distributor, Consignee, Guarantor may be any juridical person including an individual

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Selling through your company’s Export Department:

• Finding a Buyer, checking the credibility of the Buyer and actually selling the goods are your export department's responsibility

• You negotiate with your customers directly

• You sell your products to the Buyers directly

• You determine any services to be provided post-sale

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Agent or Distributor?

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Agent or Distributor?

• You need to stock products in the U.S. (choose Distributor) vs. You will have time to ship from your own country (Agent OK)

• You need someone entirely dedicated just to your product (choose Agent) vs. You need your product to be shown alongside your competitors’ (choose Distributor)

• You need frequent feedback on your U.S. sales/projects (choose Agent)

• You need someone to call on prospective clients and do the legwork (choose Agent)

• You need someone with an established reputation in the industry (choose Distributor)

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Issues you need to decide regarding the Agent’s authority

• Do you want to authorize your Agent to– Negotiate sales? – Offer prices for your products? – Accept purchase orders from customers?– Sign sales contracts? – Collect your receivables? – Carry out all necessary commercial transactions? – Divulge information to customers about your company, your

business activities, your personnel, your product capacity etc.?

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You will need an Agency Agreement which will cover:

• Agent’s duties and responsibilities

• Scope of your Agent’s authority

• Whether your Agent will have the right to sell competitors’ products

• The commercial information you do not want to be divulged to the customer during sales negotiations

• Whether your approval will be necessary to any sales agreement or only to those that exceed a certain amount

• Whether your Agent has authority to hire sub-agents

• That you have the right to end the Agency Agreement unilaterally subject to 15 days’ prior written notice

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You will need an Agency Agreement which will cover:

• The responsibility of the Agent to give your weekly or monthly progress reports, including:– Customers’ contact numbers– Meeting details– Orders received– Advance payments received– Debts collected– Suggestions and complaints from customers

• The amount or percentage of Agency fee, and method of payment– If you had previous sales to the US, you must indicate that no

fee will be paid for those or that a lower amount will be paid as commission

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Real Authority vs. Apparent Authority

Real authority (power of attorney)• Any power transferred willingly by the principal (i.e. you), by

making a statement to that effect by way of the Agency Agreement and/or a written Power of Attorney to the Agent giving him the authority to act on the principal’s behalf

Apparent authority• When a third person relies on the Agent’s authority to act on

your behalf where in fact the Agent does not possess such authority. However the Agent’s actions can bind the principal under certain circumstances

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Informing the customers about the Agent’s authority

• You may ask your Agent to distribute to clients a document indicating the scope of his/her authority. Or you can obtain the client's information from the Agent and e-mail it to them yourself

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Working with an exclusive Agent

Exclusive Agent for your products

• The Agency Agreement should set forth whether or not your Agent may sell other companies’ products along with yours

• Your prior written approval may be required so the Agent may sell other companies’ products

Exclusive Agency in a specific geographical area

• To indicate the specific geographical area of representation in the Agency Agreement

• To grant Agency in 2-3 states, as opposed

• To grant Agency in all states of the US15

Factors to consider before appointing someone as your Agent:

• Experience

• Services that the agent can provide

• Financial situation

• References

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Agent’s Experience

• For how long has it been providing Agency services?

• Agent’s Principals, for whom has the Agent been working?

• Which products is it currently marketing?• Ask for references• Was Agent ever sued before? For what?• Is there a clause in Agent’s previously

signed contracts that restricts it from being the agent of another company? Is it necessary for the Agent to get permission from other companies to be your Agent?

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Services Agent can provide

• Extent of Agent’s specialty (is Agent specialized in the products you wish to sell in the USA?)

• Agent’s geographical reach (extent of geographical area within which Agent can work for you)

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The Agent’s financial situation

• Credit score– www.experian.com– www.transunion.com– www.equifax.com

• How is Agent’s credit report? • Who are the Agent’s references?

(You should definitely call and check)• Social security number• Resume/ CV • Agent’s reputation in the market

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Suggestions

• Trial period: Indicate in the Agency Agreement that if a certain amount of sales is not realized within a certain time (e.g. 3 months), it may be terminated unilaterally

• Indicate in the Agency Agreement, the transactions that require your prior written consent

• Do not appoint the Agent as an Exclusive Agent for the entire US. Initially restrict its authority to a couple of states

• Only divulge the confidential information that is absolutely necessary for the Agent to operate; indicate clearly in the Agency Agreement any type of information that may not be given to third parties without your prior written consent

• Unless absolutely necessary, do not authorize the Agent to collect any payments on your behalf

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Distributor

• Buys products from your company and is accountable for paying the purchase price

• Generally provides post-sales service for the products

• Generally sells other companies’ products too

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When should you work with a Distributor?

• In case it is necessary to keep a very large amount of products in the US and you do not want to deal with operating a warehouse nor with distribution issues yourself

• In case it is necessary for the merchandise to be distributed quickly and it takes a long time to transport them from your country to the US

• If you do not plan to have your own company in the US

• If it is not important for you to be known and recognized in the U.S. as a producing or importing company

• If your priority is to make a quick profit

• If you do not want to spend money on financing production without knowing whether or not your products will be sold in the US

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Things to consider when choosing a distributor

• To whom is Distributor presently selling? Distributor’s experience

• Sales record and size of sales force

• Competing products Distributor is carrying and pricing thereof

• Location of Distributor’s premises

• Distributor’s present contractual commitments

• You also need to consider:– Services that the Distributor can provide– Financial situation – same considerations as the Agent (see page

18 above)– References

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Distributor’s Experience

• For how long has Distributor been providing Distributorship services?

• Distributor’s Clients, for whom has the Distributor been working?

• Which products is Distributor currently servicing?

• Ask for references

• Was Distributor ever sued before? For what?

• Is there a clause in Distributor’s previously signed contracts that restricts him/her from being the Distributor of another company? Is it necessary for it to get permission from other companies to be your Distributor?

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The Distributor’s services

• If you are planning to provide post-sales service, consider whether your Distributor will be able to do so

• Do not appoint an Exclusive Distributor for the entire US; until you are certain of the Distributor’s suitability, restrict the distributorship to a couple of states only

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Protect your inventory from Distributor’s creditors-UCC filings

• Whenever entrusting product to a distributor - or for that matter to anybody else in the US - without prior payment it is essential that you obtain and perfect a security interest by entering into a Security Agreement and filing the requisite UCC financing statements

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• Minimum amount of sales that should be realized by the Distributor

• Terms of payment

• If it is an Exclusive Distributorship, set forth the conditions Distributor should meet to maintain status

• Duration of the Agreement

• Whether the Distributor has the right to sell your products under its own name

• Whether it has the right to register your trademarks and patents in the US

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Clauses that should be included in the Distributorship Agreement - 1

Clauses that should be included in the Distributorship Agreement - 2

• Distributor’s authorized sales price range for your products

• Minimum marketing support

• Warranties you allow your Distributor to offer buyers for your products, on your behalf

• That you have the right to unilaterally end the Distributorship Agreement in case of a delayed payment following a shipment

• The obligation to inform you about the market reaction to your products, and

any other matters pertaining to your products

• The obligation to support and assist you free of charge in case of litigation

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Manufacturer's liability under US law

• According to US Product Liability Laws, manufacturing companies and distributors that market a product commercially in the US are both liable for damage that a consumer may incur regardless of whether they have provided a warranty

Suggestion:• Buy product liability insurance

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Distributor’s Indemnity to you

• If the Distributor provides a service for the assembly or technical maintenance of the products, and if later a damage arises from such services, the consumer may decide to sue you as the Manufacturer

• Therefore you must indicate in the Distributorship Agreement that the Distributor agrees to indemnify you – including reasonable legal fees - for any liability you incur to a buyer by reason of Distributor’s defective assembly and/or maintenance of your products

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Conclusion

• Ascertain whether there could be a market for your products in the US

• Think and rethink about distribution channels

• Test the market

• Make sure you know who you are doing business with

• Document your agreements in writing

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