As a rep in today’s global economically driven market — it would be a mistake not to at least explore the possibility of off-shore representation. The observations contained in this editorial are slanted toward overseas sourcing versus over-the-borders of North America. While there are several approaches a rep can take, there are three that I have found most common:
- Working with an existing domestic principal who has established foreign ties.
- Working with a reputable trading company.
- Working directly with an off-shore source.
We currently have several lines where the principal has aligned themselves through either ownership or strategic alliances with foreign manufacturers. The benefit for the rep is that the principal has taken on the responsibilities of due diligence, communication, customs, etc. This allows us to bring our principal opportunities that can be reviewed with options on how to best proceed. An added benefit to the customer is to place a certain percentage of the business using our foreign source, while maintaining the balance of the business at our domestic facility (duplicate tooling concerns can usually be worked out). Having a principal who takes the initiative to align themselves with a foreign source helps the rep avoid the complications and possible conflicts of dual representation.
Trading companies offer an alternative that also includes the benefit of working with a company that already has the expertise and personnel in place to handle the necessary paperwork, logistics, communication, and etc. required when doing business with overseas manufacturers. They generally offer a synergistic bank of manufacturers that are able to find the right fit for the product being sourced. There may be some overlap in the capabilities of these foreign sources with the capabilities of existing principals; so, to maintain integrity — the rep may need to only offer products outside their principals’ parameters or have an agreement that allows the domestic principal first-right-of-refusal. A further consideration is that adding a trading company in the mix will also add another layer of cost in the supply chain. Today’s competitive global market may make it prohibitive to add this extra layer of cost. There may be a risk of loss of control and continuity if a trading company re-sources parts in an effort to improve their profits without consulting with the representative or your customer.
You can represent a specific manufacturer or a group of manufacturers from foreign soil on a direct basis. This cannot be a knee-jerk reaction type of decision. It requires a personal investment of time, travel, and due diligence. The rep needs to do all within his power to be sure he is giving himself the best opportunity for success. That means learning all he can about potential foreign principals and availing himself to legal counsel who are familiar with the rep business and adept at working with international business. The representative needs to be acutely aware of the cost and wear and tear of communication day and night due to 13 or 14 hour time differences. One can find himself working 24/7. Ask yourself if you are prepared for a heavier work day. When working with an off-shore principal, the representative has at least three options, depending on the level of financial and system resources, as well as the mutual level of trust with the foreign principal. The options include:
• Your customer places orders directly with the factory, and the factory pays you commissions.
• You take orders from your customer, then buy and resell. Margins can be greater, as can your exposure, carrying and system costs.
• You open and control a USA corporate office for your foreign principal. He pays you for all services related to running the business, plus commissions on sales. If you can control your costs, this can work well, and there is mutual dependency.
One last caveat is that the rep may find that many of the major customers in their territory are already heavily invested in foreign sourcing. They have established alliances that have been researched and visited on a regular basis. Or they have personnel on the payroll in place (e.g. Asia, Europe) to handle sourcing, quality, logistics, relationships, etc. They may be open to discussing the opportunities offered by the rep — but their first choice is to take advantage of the investments they have already put in place.
Our agency is not involved with representation in the latter two categories of trading companies or direct foreign sourcing. We have done some exploration, but have not found the right fit or niche. We believe that it does not make good business sense to add overseas sourcing to our line card just for the sake of doing so. If taking these steps doesn’t equate to a real net added value for our business — then we are better served to not move in that direction until the right opportunity presents itself. Also, recent observations indicate that due to increasing costs, overall lead-times and inventory requirements — products and programs that were sourced overseas are coming back for domestic sourcing. And, more and more products and programs that would have been slated to go off-shore in the past are now being sourced domestically.
