In order to appreciate the market characteristics of a particular territory and to exploit the full potential of the market, it is necessary for an exporting organization to have its own offices in that market. But for many smaller companies, it is possible to open their own offices abroad. Commercial agents and distributors can perform the functions which an overseas body is supposed to do. Therefore, the role of commercial agents and distributors is extremely crucial from the standpoint of export forms. The agent being a local person is thoroughly conversant with the market. He is also likely to have contacts with important persons in the business and, therefore, is in position to promote the interest of the exporting firm. The distributor also essentially performs the same functions but there is an important difference between an agent and a distributor. The basic duty of an agent is to secure orders in the name of and on account of the principal. But he does not trade on his own. He gets commission on the basis of the orders that he has secured. The distributor on the other hand, purchases on outright basis from the principal and then resells it on his own account. The overseas exporter will not know ultimately who are the buyer of his products nor will he know the prices at which these are being sold, though the latter is possible in some cases where the principal fixed the process and the distributor is supposed to follow the price list rigorously in subsequent dealings.
Advantage of having Agents:
The basic advantage of having an agent in the export market is as follows:
1. In some countries there are legal stipulations that all imports/tenders are to be handled through a local agent who is a resident ad citizen of the country. In such cases, appointment of the agent becomes obligatory.
2. The agent is a local man and is, therefore supposed to be knowledgeable of the marketing conditions and prospects of specific products in that market.
3. He is likely to have good contacts with the decision makers at various levels which may be crucial in the case of large contracts.
4. He will have a set-up in the major commercial centers of the country, and therefore will be in a position to call personality on the main buyers at regular intervals.
5. Commercial and trade information relevant to the principal’s product line can be passed on by the agent with greater speed.
6. The agent is paid on commission basis on the total value of the orders secured by him. There is, therefore, no fixed or overhead cost.
7. An agent, if he is well established, may have warehousing facilities which are crucial in the export mating of certain types of products.
8. An agency firm also has specialized sales staff competent to handle sales of sophisticated engineering items.
9. An agent can provide after sales service which is an integral part of the total marketing function for manufacturing items.
10. It is comparatively easier to appoint an agent than a distributor. If the company is well established and its products are well known brands, a distributor generally is not interested in taking up such products. This is because a distributor has to lock his working capital in the product does not move at the same rate as it was anticipated. An agent, on the other hand, does not risk anything except his time when he takes up an additional account. This is also true because agents are more than wholesalers. It is estimated that in the EEC itself there are about 500,000 commercial agents.
Limitations of agents
1. They work for other principals as well and normally they would be competitors.
2. It case of technical products, an agent may find it extremely difficult to keep himself informed of their latest technical merits and he may not be able to clinch the deal because he is unaware of the best properties of the product.
3. An agent may not put in his best effort if he apprehends that if he builds too successful a business, his principal might set up a local factory and he might lose his business.
Before appointment of an agent, the firm should determine what it wants the agent to do for firm. That depends upon (1) the principal types of users for the firm’s product and (2) specification/selling points for its product. Again the firm had to decide on: (1) whether it wants the agent to hold stocks for him, (2) whether it wants him to provide finance for the purpose,and (3) what promotional support is the firm willing to offer the agent he prospective agent would also like to know whether the firm has an agent before and, if so why did the firm terminates his agency.