The two forms most frequently used to distribute products abroad are (1) an independent foreign agent, or (2) an independent foreign distributor. An independent foreign agent, sometimes called a sales representative or commission agent, does not take ownership of the goods and is typically paid through a combination of salary and commissions. In contrast, an independent foreign distributor buys the manufacturer’s products outright and resells them through its own established network in the foreign market - the distributor essentially purchases the goods for resale and assumes the financial risks involved. Whichever is used, whether an independent foreign agent or an independent foreign distributor, is typically a choice made by the U.S. exporter. It is also important to note that the general meaning of “agent” may differ from country to country, which emphasizes the need for contractual clarity in defining the relationship.
A well-drafted distributorship agreement will clearly spell out the rights and obligations of both parties. In a typical agreement, a section titled the “Grant of Distributorship” gives the distributor permission to import, promote, distribute, and service the products within a defined territory. The agreement should additionally include provisions covering:
Pricing and payment terms
Minimum purchase volumes and requirements for inventory
Exclusivity (or lack thereof)
Territory restrictions
Intellectual property protections and trademark usage
Marketing and reporting obligations
Warranties, customer service, and returns
Termination rights
One of the biggest advantages of working with a distributor is that distributors have the unique ability to understand regional preferences and cultural nuances. This allows for quicker access to a new market by tapping into the distributor’s existing infrastructure, customer relationships, and local knowledge of the market.
However, this approach is not risk-free. Since distributors control day-to-day sales, manufacturers often have limited oversight of how their products are represented in the foreign market. Although the manufacturer can require prior approval of advertising materials and branding (as seen in many agreements), they are not involved in the hundreds of daily decisions that shape the customer experience.
Additionally, while most distributorship agreements are written to strongly favor the manufacturer—in terms of broad termination rights, compliance, and warranty responsibilities of the distributor—local laws in many countries can override these protections. For example, in Puerto Rico’s Distribution Contracts Law, “no principal or grantor may terminate said relationship . . . except for just cause.” Artículo 2, 10 L.P.R.A. § 278a. This law overrides termination sections in distributorship agreements that are in conflict with it and represents one aspect of a broader industrial trend in the law of distributorships in Latin America and Europe.
A properly drafted distributorship agreement requires well-written sections and clauses that comport with U.S. trade law and the law of the country where distribution occurs. Distributorship transactions require collaboration with attorneys abroad, so working with counsel is essential.