International Operations - Ethna Piazza
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  • 1. International OperationsSales, Distribution and Manufacturing
  • 2. Different International Sales Strategies Help Let Someone Do It Pay Someone Let Someone Else Make/Sell Let Someone Someone Sell &OOwn P t of Part fYourself Sell Sell For You Else Make/Sell For You That Someone Direct Sales Joint Franchise Distributor Licenses Sales Representative Venture Commissioned C i i d Distributor Di t ib t Distributor Di t ib t Licensee is Li i Licensee Makes/ Li M k / Hire Agents Sells By Resells Jointly Owned Sells Product,Employees Solicit Prescribed For By You and Pays Orders Marketing Plan Profit Another Royalty AKA Can Be A: More Flexible AKA Supply or Corporation, Corporation Compared to Manufacturer Marketing Partnership, LLC Sale of Representative Agreement or Other Technology Special Cases: Special Cases: Special Cases: OEM Teaming Know-How Private Label Agreements Show How Show-How$ $ 2
  • 3. Agent/Rep. vs.Distributor/DealerAgent/Representative Distributor/Dealer/ LicenseeEnd Customer is the Customer Distributor is Your CustomerNo Inventory InventoryPlaces Orders Purchases for Own AccountCommissions MarkupDoesn’t Handle $$ Handles $$No After Sales Services After Sales ServicesLimited Local Assistance Local Assistance with Market Conditions or Manufacturing 3
  • 4. Control and Costs Subsidiary JVControl Distributor Agent Cost 4
  • 5. Manufacturing StrategiesDomestic Production Foreign ProductionPros and Cons Pros and ConsDo it yourself or let someone handle Let someone handle all/part of itall/part of itOwnership of Machinery Ownership of MachineryEmployees EmployeesAbility to Control y Ability to Control y Competitors 5
  • 6. Manufacturing StrategiesAdditional key issues: y• Title to the WIP and products• Bailment• Technical assistance agreements• Intellectual property negotiations• Product development• Minimum order quantities• Level load/On-demand production• Pricing arrangements g g – Cost plus – Fixed fee 6
  • 7. Managing The Risks1. Performance Risks2. Channel Conflicts3. Financial Risks4. Supply Chain Management5. Intellectual Property6. Risk Allocations7. Dispute Resolutions8.8 Mergers & Acquisitions Acq isitions 7
  • 8. 1. Performance Risks
  • 9. Performance Risks:Pre-qualifications• Business/Marketing Plan (Initial and Annual)• Credit Checks• References• Distributor Growth History• S Success i R l t d Fi ld in Related Fields• Clear with Social/Environmental Affairs• Whether they work with competitors• In-person meeting in their office 9
  • 10. Performance Risks:Term• Length of Initial Term• Renewal – Automatic (Evergreen) Unless not Renewed – Expire Unless Renewed Affirmative• Impact of Distributor/Manufacturer Investment 10
  • 11. Performance Risks:Termination• Grounds – Breach Only? – Cessation of Business? – Insolvency/Bankruptcy? – Change of Control? – At Will?• Notice/Cure Period• Effective Date• Liquidated Damages• Non-payment Termination Provision 11
  • 12. Performance Risks:Marketing Obligations g g• Distributor Efforts – Commercially Reasonable – Best Efforts• Distributor’s Expenditures – Staffing – Marketing – Advertising• Company Efforts p y – Distribution Obligation – Company Contribution 12
  • 13. Performance Risks:Minimum Sales• Exclusive vs. Non-Exclusive• Penalties for Failures to Meet M t• Inventory Levels• Local modifications 13
  • 14. Performance Risks:Training• Kinds – S l Sales – Installation – Support• Expenses• Locations• Frequency• Annual Sales Meetings 14
  • 15. Performance Risks:Demos, Shows, Visits • How Many? • At What Cost? 15
  • 16. Performance Risks:Literature/New Media• Legal: – Authorship – Copying – Printing – Translating• Local custom• Web sites/Social Media 16
  • 17. Performance Risks:Records, Reports, and Audits • Records – Sales – Customer Information – W Warranty Information t I f ti • Reports – Market Overview – Competitive Reports • Audit Rights 17
  • 18. 2. Channel Conflicts
  • 19. Channel Conflicts Manufacturer • Two or More Channel Members Compete for the Same BusinessChannel A Channel B • Examples Include: – Direct Versus Channel – Channel Versus Channel Customer • Destructive When Margins Erode 19
  • 20. Channel Conflicts: Exclusivity PROGRAMS TO MANAGE CHANNEL CONFLICT Saturation Policy Limited PolicyMany channel partners with Few channel partners withrelatively easy requirements for exclusive or quasi-exclusiveauthorization. th i ti territories. t it i Limited Limited Selective Selective S l ti Saturation Saturation Selective PolicyModerate number of resellers.Specific requirements. Someterritory overlap. 20
  • 21. Channel Conflicts:Ex Territory Sales• Territory• Ex Territory Prohibitions – Forbidding Sales Outside of Territory – Forbidding Marketing Outside Territory – Forbidding Transshipping/Gray Marketing – Website prohibitions• Manufacturer disclaimer as to grey market goods 21
  • 22. Channel C fli tCh l Conflicts:House accounts• House accounts – If Exclusive, Even as to Company? p y – Specific Lists – Channels – Fields• Distributor with retail outlets• Competing products 22
  • 23. Channel Conflicts:Post TerminationConsequences• Inventory – Sell off – Buy Back• Transition Assistance• Carryover Services• Customer Lists 23
  • 24. 3. Financial Risks
  • 25. Financial Risks:Prices• Scheduled Prices• Discounts Off List• Changes to Price Schedules – Unilateral vs. Mutual – When Effective – Frequency – Most Favored Customer Clauses• Resale Price Maintenance laws vary widely 25
  • 26. Financial Risks:Payment Terms • Payment Due – In Advance – On Delivery – Net 30 • Type – Check – L tt of Credit Letter f C dit – Wire Transfer 26
  • 27. Financial Risks:Taxes and Duties• C t Customs D ti Duties• VAT, Sales, and Other Product Taxes• Withholding Taxes• May impact decision to manufacture instead of solely distribute 27
  • 28. 4. Supply Chain Management
  • 29. Supply Chain Management:Forecasts• Frequency g• Coverage• Binding vs. Non-Binding• Component Liability 29
  • 30. Supply ChainManagement:Orders• Format• Minimum Order Size• Frequency• Lead Times• Reschedules• Cancellations• Component Liability 30
  • 31. Supply Chain Management: pp y gDelivery• Carrier Selection C i S l ti• Risk of Loss – Warehouse – Loading Dock L di D k – In Transit – FOB – FCA – EX WORKS• Import and Export Licenses pp and Approvals• Insurance Costs• Broker Fees 31
  • 32. 5. Intellectual Property
  • 33. Intellectual Property Issues:Products• “Products” Definition – Fixed – Flexible• Product Changes – New Versions and Upgrades pg – Fixes, Updates, Releases• Localization 33
  • 34. Intellectual Property Issues:Rights Granted• Making/Manufacturing• Copying• Modifications• Translating• Combinations 34
  • 35. Intellectual Property Issues:Ownership• Product Modifications• Enhancements, Add-ons, Combinations C bi ti• Localizations and Translations• Documentation and Literature 35
  • 36. Intellectual Property Issues:Enforcement• Policing Third Party Infringement – Right vs. Duty vs• Allocation of Expenses• Allocation of Recoveries 36
  • 37. Intellectual PropertyIssues:TrademarksT d k• O es p Ownership• Use• Quality Control• Registrations 37
  • 38. 6. Risk Allocations
  • 39. RiskAllocations:All tiCustomer Support• Installation• Maintenance• Support – Tier 1/Level 1 – Tier 2/Level 2 – Tier 3/Level 3 39
  • 40. Risk Allocations:Indemnification• Indemnity by Manufacturer y y – Intellectual Property (Except Combinations and Modifications) – Manufacturing Defect – Design Defects• Indemnity by Distributor – Intellectual Property From Combinations and Modifications – Misrepresentations and Fraud – Ad ti i I j i Advertising Injuries• Trademarks?• Have the products been cleared from an IP perspective in the distributor’s country? distributor s 40
  • 41. Risk Allocations:Disclaimers• Customary and Typical – Merchantability – Fitness for Particular Purpose• Atypical – Non infringement Non-infringement – Error Free (software) – Uninterrupted (software) 41
  • 42. Risk Allocations:Limitation of Liability• Exclusions – Consequential Damages – Punitive/Special Damages – Lost Profits/Lost Revenues• Loss of Data• Caps – Fixed Amount – 1X to 3X – Time Period 42
  • 43. 7. Dispute Resolution
  • 44. Dispute Resolutions:Governing Law• What Governing Law Means• What Governing Law Doesn’t Doesn t Mean• Which Jurisdiction? – D Dangers – Drafter of Contract – Compromise – Benefits of International Arbitration 44
  • 45. Dispute Resolutions:Venue• Not Same as Governing Law• Fixed Locations• Alternative Locations• Bifurcated Locations 45
  • 46. Mergers &MAcquisitions• Termination Rights and Obligations• Change of Control• Distributors May Be Seen As a Cost Item by Strategic Buyers 46
  • 47. Take-Away Items• Consider Global Strategy Up Front• Get Correct Legal Advice Up Front 47
  • 48. ContactIan KesslerOwnerSanukE-mail: ian@sanuk.comAmit KumarAssociate General Counsel; Head of Licensing and Business TransactionsTaylor Made Golf CompanyE-mail: amit.kumar@tmag.comClark LibensonPartnerAllen Matkins Leck Gamble Mallory & Natsis LLPE-mail: clibenson@allenmatkins.comEthna PiazzaPartnerAllen Matkins Leck Gamble Mallory & Natsis LLPE-mail: epiazza@allenmatkins.com @ 48