Distribution Agreements – Getting It Right!

For over 16 years, Harris Gomez Group has been assisting foreign companies with their investments in Latin America. We often meet companies that are very prudent in their home country when selecting partners, but for some reason, once in a foreign market, they occasionally make mistakes. Maybe it is the short time frame many companies have to find a suitable partner or the fact that they are in an unfamiliar country with a different language.

Regardless, when it comes to a distributor agreement, there are many aspects that go into the creation of it. Often, any mistakes that are made are almost invisible until the end of a distribution partnership. In order to avoid problems, you should follow some practical tips and have a good handle on the agreement from the very beginning to ensure the relationship is successful.

This week we have a chosen to focus on a few common mistakes to avoid when drafting your next distributor agreement.

Giving Too Much

Every new partnership between a distributor and a manufacturer is born in a period of bright optimism. All the parties involved are excited about the new relationship which often leads to giving too much, too fast.

It is common for companies to fly into the Region, meet a few potential distributors, and leave a few days later with an agreement that covers multiple countries in hand. What many do not realize is that mine sites in countries like Peru and Chile are spread out geographically. It is very difficult for one distributor to cover the whole country properly.

Distributors that are successful are on site frequently and the only way to do that is to focus on specific mines. Often it better to have multiple distributors in each country that focus on specific areas. When agreeing on a territory, it is better to assign something that is not too large initially. We recommend starting with the distributor's proven territory and expand the territory gradually as the distributor proves themselves.

Exclusive or Non-Exclusive

We often see distributors who demand an exclusive territory, arguing that without it, they have no incentive to allocate resources toward developing sales for the manufacturer. By assigning exclusivity in a territory, it requires the supplier to make an unnecessary leap of faith with someone they are just starting a relationship with.

One alternative is to draft the distribution agreement in such a way that the distributor is non-exclusive but providing them exclusivity over...