Commercial Representation, Agency, Distribution, Licensing, and Franchising: A Comprehensive Guide
1. Commercial Representation
A commercial representative promotes commercial operations in another country on behalf of the principal. They are employees of the principal and are paid a salary and expenses. The advantage of using a commercial representative is that the company has control over their transactions. However, the disadvantage is that they are foreigners in the country and may not be familiar with the local market.
2. Agency
An agency is a person or company that promotes commercial operations in another country on behalf of the principal. They are independent contractors and are not employees of the principal. The advantage of using an agency is that they have a deep understanding of the local market and are in touch with key contacts. However, the disadvantage is that they do not own the goods and do not bear any risk.
3. Distribution
A distributor is a company that offers its services to distribute the supplier’s products in another country. They are independent companies and buy the product from the supplier. The advantage of using a distributor is that it lowers the risk for the supplier because the distributor knows the market. However, the disadvantage is that the supplier has no control over the transactions the distributor is doing in the foreign country.
4. Licensing
A license allows an intellectual property rights holder (licensor) to make money from an invention or creative work by charging a user (licensee) for product use. The licensee has to pay a percentage of the total amount of sales as a royalty to the licensor. The advantage of using a license is that it is a local company that knows the local market. However, the disadvantage is that the licensor does not have to invest in the factory, employees, and other expenses.
5. Franchising
A franchise is a variation of the licensing agreement, but the franchisee does not produce the product; they just sell it following the “know-how” of the main business. In exchange, they pay different royalties to the main business for different concepts. The advantage of using a franchise is that the franchisee knows the local market better. However, the disadvantage is that the franchisor loses control over the business.
6. Joint Venture
A joint venture is a business agreement in which the parties agree to develop, for a finite period of time, a new entity and new assets by contributing equity. The advantage of using a joint venture is that it allows both parties to share the burden of the project as well as the resulting profits. However, the disadvantage is that either party may develop new goals or no longer agree with the joint venture’s aims.