1. International Operations
Sales, 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 f
Yourself 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/Dealer
Agent/Representative Distributor/Dealer/
Licensee
End Customer is the Customer Distributor is Your Customer
No Inventory Inventory
Places Orders Purchases for Own Account
Commissions Markup
Doesn’t Handle $$ Handles $$
No After Sales Services After Sales Services
Limited Local Assistance Local Assistance with Market
Conditions or Manufacturing
3

4. Control and Costs
Subsidiary
JV
Control
Distributor
Agent
Cost
4

5. Manufacturing Strategies
Domestic Production Foreign Production
Pros and Cons Pros and Cons
Do it yourself or let someone handle Let someone handle all/part of it
all/part of it
Ownership of Machinery Ownership of Machinery
Employees Employees
Ability to Control
y Ability to Control
y
Competitors
5

6. Manufacturing Strategies
Additional 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 Risks
1. Performance Risks
2. Channel Conflicts
3. Financial Risks
4. Supply Chain Management
5. Intellectual Property
6. Risk Allocations
7. Dispute Resolutions
8.
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 Business
Channel 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 Policy
Many channel partners with Few channel partners with
relatively easy requirements for exclusive or quasi-exclusive
authorization.
th i ti territories.
t it i
Limited
Limited
Selective
Selective
S l ti
Saturation
Saturation
Selective Policy
Moderate number of resellers.
Specific requirements. Some
territory 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 t
Ch 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 Termination
Consequences
• 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 Chain
Management:
Orders
• Format
• Minimum Order Size
• Frequency
• Lead Times
• Reschedules
• Cancellations
• Component Liability
30

31. Supply Chain Management:
pp y g
Delivery
• 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 Property
Issues:
Trademarks
T d k
• O es p
Ownership
• Use
• Quality Control
• Registrations
37

38. 6. Risk Allocations

39. Risk
Allocations:
All ti
Customer 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 &
M
Acquisitions
• 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. Contact
Ian Kessler
Owner
Sanuk
E-mail: ian@sanuk.com
Amit Kumar
Associate General Counsel; Head of Licensing and Business Transactions
Taylor Made Golf Company
E-mail: amit.kumar@tmag.com
Clark Libenson
Partner
Allen Matkins Leck Gamble Mallory & Natsis LLP
E-mail: clibenson@allenmatkins.com
Ethna Piazza
Partner
Allen Matkins Leck Gamble Mallory & Natsis LLP
E-mail: epiazza@allenmatkins.com
@
48