Many companies that engage in international business require international distribution agreements. International business agreements are legal contracts between a supplier or manufacturer in one country and a distributor or reseller in another country. These agreements help to provide a framework for the terms and conditions that must be met in order for a distributor to be able to market, sell, or distribute a supplier’s products or services within a specific geographic location or market.
An international distribution agreement with a foreign company can help by allowing both parties to mutually benefit from the relationship and grow their business. However, when not properly drafted there can be issues with these agreements. Here are common issues with international distribution agreements.
1. Not taking cultural differences and language barriers into consideration.
A very big area of miscommunication within international distribution agreements stems from cultural and language barriers between the two parties. Things as simple as the terms used within the contract can create significant misunderstandings. That’s why it’s imperative that the different cultures of the parties and related nuances are considered during negotiations and the agreement is properly translated.
2. Failing to properly comply with the other party’s local regulations.
Even the regulations that govern distribution agreements can greatly differ between countries. The last thing that you want to do is to be penalized for inadvertently violating the other party’s laws. Before entering into the agreement both parties should ensure that they are in compliance with local laws.
3. Failing to add provisions that protect IP.
Another big issue that commonly comes up with an international distribution contract is whether each party has properly protected their intellectual property (IP) in foreign markets. Without doing this a business’ brand can be at risk. To combat this, confidentiality and non-disclosure provisions can be included in the agreement.
4. Not accounting for volatile world markets.
The exchange rates between countries often fluctuate, which can have a significant impact on a business’s profit margins. Therefore, when a business is dealing with international payments and currency exchange it can put it at risk. The agreement can include hedging strategies for currency to combat volatile markets.
5. Not clearly laying out termination and resolution clauses.
Something else to consider with international distribution agreements is their termination clauses and how disputes between parties are to be resolved. Since different countries have varying legal systems, it’s in both parties’ best interests to include a very clear termination clause. It may also be a good idea to provide only arbitration for dispute resolution in order to avoid costly lawsuits.
While international distribution agreements can help businesses to grow on the international stage, their complexity often creates many issues. A well-drafted international distribution agreement by an experienced international attorney can help ensure that your business is complying with applicable laws while protecting your interests.
U.S. Counsel Services for Foreign Businesses
If your business is located outside of the United States but you engage in U.S.-based operations, it’s critical that you seek legal counsel from an attorney who understands the complex issues involved. Whether you have ongoing legal issues related to a business expansion or are simply engaged in a singular transaction, the lawyers at Transnational Matters can assist with all of your American endeavors.
When it comes to foreign and domestic businesses, we can assist with your transactions and general corporate needs. We would love to discuss your needs with you. Contact our experienced transnational litigation and arbitration attorneys today!