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International OperationsSales, Distribution and Manufacturing
Different International Sales Strategies Do It Yourself Pay Someone  Sell Help  Someone Sell For You Let Someone Sell For You Let Someone Else Make/Sell & Own Part of That Someone Let Someone Else Make/Sell Direct Sales Sales Representative Franchise Distributor Joint Venture Licenses Hire Employees Commissioned Agents Solicit Orders Distributor Sells By Prescribed Marketing Plan Distributor Resells For  Profit Licensee is Jointly Owned By You and Another Licensee Makes/ Sells Product, Pays  Royalty AKA Manufacturer Representative AKA Supply or Marketing Agreement Can Be A: Corporation, Partnership, LLC or Other More Flexible Compared to Sale of Technology Special Cases: OEM Private Label Special Cases: Teaming Agreements Special Cases: Know-How Show-How $ $ As responsibility decreases, up-side opportunity decreases and need for financing decreases.
Agent/Rep. vs. Distributor/Dealer
Control and Costs Subsidiary JV Control Distributor Agent Cost
Manufacturing Strategies
Manufacturing Strategies Additional key issues: 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 Cost plus Fixed fee
Managing The Risks Performance Risks Channel Conflicts Financial Risks Supply Chain Management Intellectual Property Risk Allocations  Dispute Resolutions Mergers & Acquisitions
1. 	Performance Risks
Performance Risks: Pre-qualifications Business/Marketing Plan (Initial and Annual) Credit Checks References Distributor Growth History Success in Related Fields Clear with Social/Environmental Affairs Whether they work with competitors In-person meeting in their office
Performance Risks: Term Length of Initial Term Renewal Automatic (Evergreen) Unless not Renewed Expire Unless Renewed Affirmative Impact of Distributor/Manufacturer Investment
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
Performance Risks: Marketing Obligations Distributor Efforts  Commercially Reasonable Best Efforts Distributor’s Expenditures Staffing Marketing Advertising  Company Efforts Distribution Obligation Company Contribution
Performance Risks: Minimum Sales Exclusive vs. Non-Exclusive Penalties for Failures to Meet Inventory Levels Local modifications
Performance Risks: Training Kinds Sales  Installation  Support  Expenses Locations Frequency Annual Sales Meetings
Performance Risks: Demos, Shows, Visits How Many? At What Cost?
Performance Risks: Literature/New Media Legal: Authorship  Copying Printing Translating Local custom Web sites/Social Media
Performance Risks:Records, Reports, and Audits Records Sales Customer Information Warranty Information Reports Market Overview Competitive Reports Audit Rights
2.	Channel Conflicts
Channel Conflicts Manufacturer Two or More Channel Members Compete for the Same Business  Examples Include: Direct Versus Channel Channel Versus Channel Destructive When Margins Erode Channel B Channel A Customer
Channel Conflicts:Exclusivity Limited Selective Saturation  PROGRAMS TO MANAGE CHANNEL CONFLICT Limited Policy Few channel partners with exclusive or quasi-exclusive territories. Saturation Policy Many channel partners with relatively easy requirements for authorization.  Limited Selective Saturation Selective Policy Moderate number of resellers. Specific requirements. Some territory overlap.
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
Channel Conflicts:House accounts House accounts If Exclusive, Even as to Company? Specific Lists  Channels Fields Distributor with retail outlets Competing products
Channel Conflicts:Post Termination Consequences Inventory Sell off Buy Back Transition Assistance Carryover Services Customer Lists
3. Financial Risks
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
Financial Risks:Payment Terms Payment Due In Advance On Delivery Net 30 Type Check  Letter of Credit  Wire Transfer
Financial Risks: Taxes and Duties Customs Duties VAT, Sales, and Other Product Taxes Withholding Taxes May impact decision to manufacture instead of solely distribute
4. 	Supply Chain Management
Supply Chain Management: Forecasts Frequency Coverage Binding vs. Non-Binding Component Liability
Supply Chain Management: Orders Format Minimum Order Size Frequency Lead Times Reschedules Cancellations Component Liability
Supply Chain Management: Delivery Carrier Selection Risk of Loss Warehouse Loading Dock In Transit FOB FCA EX WORKS Import and Export Licenses and Approvals  Insurance Costs Broker Fees
5.	Intellectual Property
Intellectual Property Issues: Products “Products” Definition Fixed  Flexible Product Changes New Versions and Upgrades Fixes, Updates, Releases Localization
Intellectual Property Issues: Rights Granted Making/Manufacturing Copying Modifications Translating Combinations
Intellectual Property Issues: Ownership Product Modifications Enhancements, Add-ons, Combinations Localizations and Translations Documentation and Literature
Intellectual Property Issues:Enforcement Policing Third Party Infringement Right vs. Duty Allocation of Expenses  Allocation of Recoveries
Intellectual Property Issues: Trademarks Ownership Use Quality Control Registrations
6. Risk Allocations
Risk Allocations: Customer Support Installation Maintenance Support  Tier 1/Level 1  Tier 2/Level 2 Tier 3/Level 3
Risk Allocations: Indemnification Indemnity by Manufacturer Intellectual Property(Except Combinations and Modifications) Manufacturing Defect Design Defects Indemnity by Distributor Intellectual Property From Combinations and Modifications Misrepresentations and Fraud Advertising Injuries Trademarks? Have the products been cleared from an IP perspective in the distributor’s country?
Risk Allocations: Disclaimers Customary and Typical Merchantability Fitness for Particular Purpose Atypical Non-infringement Error Free (software) Uninterrupted (software)
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
7.	Dispute Resolution
Dispute Resolutions: Governing Law What Governing Law Means What Governing Law Doesn’t Mean Which Jurisdiction? Dangers Drafter of Contract Compromise  Benefits of International Arbitration
Dispute Resolutions: Venue Not Same as Governing Law Fixed Locations Alternative Locations Bifurcated Locations
Mergers & Acquisitions Termination Rights and Obligations Change of Control Distributors May Be Seen As a Cost Item by Strategic Buyers
Take-Away Items Consider Global Strategy Up Front Get Correct Legal Advice Up Front
Contact Ian KesslerOwnerSanukE-mail:ian@sanuk.com Amit KumarAssociate General Counsel; Head of Licensing and Business TransactionsTaylor Made Golf CompanyE-mail:amit.kumar@tmag.com Clark LibensonPartnerAllen Matkins Leck Gamble Mallory & Natsis LLP E-mail:clibenson@allenmatkins.com Ethna PiazzaPartnerAllen Matkins Leck Gamble Mallory & Natsis LLP E-mail:epiazza@allenmatkins.com

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International Operations - Ethna Piazza

  • 2. Different International Sales Strategies Do It Yourself Pay Someone Sell Help Someone Sell For You Let Someone Sell For You Let Someone Else Make/Sell & Own Part of That Someone Let Someone Else Make/Sell Direct Sales Sales Representative Franchise Distributor Joint Venture Licenses Hire Employees Commissioned Agents Solicit Orders Distributor Sells By Prescribed Marketing Plan Distributor Resells For Profit Licensee is Jointly Owned By You and Another Licensee Makes/ Sells Product, Pays Royalty AKA Manufacturer Representative AKA Supply or Marketing Agreement Can Be A: Corporation, Partnership, LLC or Other More Flexible Compared to Sale of Technology Special Cases: OEM Private Label Special Cases: Teaming Agreements Special Cases: Know-How Show-How $ $ As responsibility decreases, up-side opportunity decreases and need for financing decreases.
  • 4. Control and Costs Subsidiary JV Control Distributor Agent Cost
  • 6. Manufacturing Strategies Additional key issues: 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 Cost plus Fixed fee
  • 7. Managing The Risks Performance Risks Channel Conflicts Financial Risks Supply Chain Management Intellectual Property Risk Allocations Dispute Resolutions Mergers & Acquisitions
  • 9. Performance Risks: Pre-qualifications Business/Marketing Plan (Initial and Annual) Credit Checks References Distributor Growth History Success in Related Fields Clear with Social/Environmental Affairs Whether they work with competitors In-person meeting in their office
  • 10. Performance Risks: Term Length of Initial Term Renewal Automatic (Evergreen) Unless not Renewed Expire Unless Renewed Affirmative Impact of Distributor/Manufacturer Investment
  • 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
  • 12. Performance Risks: Marketing Obligations Distributor Efforts Commercially Reasonable Best Efforts Distributor’s Expenditures Staffing Marketing Advertising Company Efforts Distribution Obligation Company Contribution
  • 13. Performance Risks: Minimum Sales Exclusive vs. Non-Exclusive Penalties for Failures to Meet Inventory Levels Local modifications
  • 14. Performance Risks: Training Kinds Sales Installation Support Expenses Locations Frequency Annual Sales Meetings
  • 15. Performance Risks: Demos, Shows, Visits How Many? At What Cost?
  • 16. Performance Risks: Literature/New Media Legal: Authorship Copying Printing Translating Local custom Web sites/Social Media
  • 17. Performance Risks:Records, Reports, and Audits Records Sales Customer Information Warranty Information Reports Market Overview Competitive Reports Audit Rights
  • 19. Channel Conflicts Manufacturer Two or More Channel Members Compete for the Same Business Examples Include: Direct Versus Channel Channel Versus Channel Destructive When Margins Erode Channel B Channel A Customer
  • 20. Channel Conflicts:Exclusivity Limited Selective Saturation PROGRAMS TO MANAGE CHANNEL CONFLICT Limited Policy Few channel partners with exclusive or quasi-exclusive territories. Saturation Policy Many channel partners with relatively easy requirements for authorization. Limited Selective Saturation Selective Policy Moderate number of resellers. Specific requirements. Some territory overlap.
  • 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
  • 22. Channel Conflicts:House accounts House accounts If Exclusive, Even as to Company? Specific Lists Channels Fields Distributor with retail outlets Competing products
  • 23. Channel Conflicts:Post Termination Consequences Inventory Sell off Buy Back Transition Assistance Carryover Services Customer Lists
  • 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
  • 26. Financial Risks:Payment Terms Payment Due In Advance On Delivery Net 30 Type Check Letter of Credit Wire Transfer
  • 27. Financial Risks: Taxes and Duties Customs Duties VAT, Sales, and Other Product Taxes Withholding Taxes May impact decision to manufacture instead of solely distribute
  • 28. 4. Supply Chain Management
  • 29. Supply Chain Management: Forecasts Frequency Coverage Binding vs. Non-Binding Component Liability
  • 30. Supply Chain Management: Orders Format Minimum Order Size Frequency Lead Times Reschedules Cancellations Component Liability
  • 31. Supply Chain Management: Delivery Carrier Selection Risk of Loss Warehouse Loading Dock In Transit FOB FCA EX WORKS Import and Export Licenses and Approvals Insurance Costs Broker Fees
  • 33. Intellectual Property Issues: Products “Products” Definition Fixed Flexible Product Changes New Versions and Upgrades Fixes, Updates, Releases Localization
  • 34. Intellectual Property Issues: Rights Granted Making/Manufacturing Copying Modifications Translating Combinations
  • 35. Intellectual Property Issues: Ownership Product Modifications Enhancements, Add-ons, Combinations Localizations and Translations Documentation and Literature
  • 36. Intellectual Property Issues:Enforcement Policing Third Party Infringement Right vs. Duty Allocation of Expenses Allocation of Recoveries
  • 37. Intellectual Property Issues: Trademarks Ownership Use Quality Control Registrations
  • 39. Risk Allocations: Customer Support Installation Maintenance Support Tier 1/Level 1 Tier 2/Level 2 Tier 3/Level 3
  • 40. Risk Allocations: Indemnification Indemnity by Manufacturer Intellectual Property(Except Combinations and Modifications) Manufacturing Defect Design Defects Indemnity by Distributor Intellectual Property From Combinations and Modifications Misrepresentations and Fraud Advertising Injuries Trademarks? Have the products been cleared from an IP perspective in the distributor’s country?
  • 41. Risk Allocations: Disclaimers Customary and Typical Merchantability Fitness for Particular Purpose Atypical Non-infringement Error Free (software) Uninterrupted (software)
  • 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
  • 44. Dispute Resolutions: Governing Law What Governing Law Means What Governing Law Doesn’t Mean Which Jurisdiction? Dangers Drafter of Contract Compromise Benefits of International Arbitration
  • 45. Dispute Resolutions: Venue Not Same as Governing Law Fixed Locations Alternative Locations Bifurcated Locations
  • 46. Mergers & Acquisitions Termination Rights and Obligations Change of Control Distributors May Be Seen As a Cost Item by Strategic Buyers
  • 47. Take-Away Items Consider Global Strategy Up Front Get Correct Legal Advice Up Front
  • 48. Contact Ian KesslerOwnerSanukE-mail:ian@sanuk.com Amit KumarAssociate General Counsel; Head of Licensing and Business TransactionsTaylor Made Golf CompanyE-mail:amit.kumar@tmag.com Clark LibensonPartnerAllen Matkins Leck Gamble Mallory & Natsis LLP E-mail:clibenson@allenmatkins.com Ethna PiazzaPartnerAllen Matkins Leck Gamble Mallory & Natsis LLP E-mail:epiazza@allenmatkins.com