international operations - ethna piazza
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International OperationsSales, Distribution and Manufacturing
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Different International Sales Strategies
Do It Pay Someone Help Someone Sell Let Someone
Let SomeoneElse Make/Sell& O P t f
Let Someone
Different International Sales Strategies
Yourself Sell Someone SellFor You Sell For You & Own Part of
That SomeoneElse Make/Sell
DirectSales
SalesRepresentative
C i i d
Franchise
Di t ib t
Distributor
Di t ib t
JointVenture
Li i
Licenses
Li M k /Hire
Employees
CommissionedAgentsSolicitOrders
AKA
DistributorSells By
PrescribedMarketing Plan
DistributorResells
For Profit
AKASupply or
Licensee isJointly Owned
By You andAnother
Can Be A:Corporation
Licensee Makes/Sells Product,
Pays Royalty
More FlexibleCompared toManufacturer
Representative
Supply orMarketingAgreement
Special Cases:OEM
Private Label
Corporation,Partnership, LLC
or Other
Special Cases:Teaming
Agreements
Compared toSale of
Technology
Special Cases:Know-HowShow-HowPrivate Label Agreements Show How
$ $
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Agent/Rep. vs. Distributor/DealerAgent/Representative Distributor/Dealer/Agent/Representative Distributor/Dealer/
LicenseeEnd Customer is the Customer Distributor is Your Customer
No Inventory InventoryNo 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 MarketLimited Local Assistance Local Assistance with Market Conditions or Manufacturing
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Control and CostsControl and Costs
Subsidiary
JVControl
Distributor
Agent
Cost
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Manufacturing StrategiesManufacturing Strategies
Domestic Production Foreign ProductionDomestic ProductionPros and Cons
Foreign ProductionPros and Cons
Do it yourself or let someone handle all/part of it
Let someone handle all/part of it
Ownership of Machinery Ownership of Machinery
Employees Employees
Ability to Control Ability to Controly y
Competitors
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Manufacturing StrategiesManufacturing Strategies
Additional key issues:y• Title to the WIP and products• Bailment• Technical assistance agreements• Technical assistance agreements• Intellectual property negotiations• Product development• Minimum order quantities• Level load/On-demand production• Pricing arrangementsg g
– Cost plus– Fixed fee
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Managing The RisksManaging The Risks
1. Performance Risks1. Performance Risks2. Channel Conflicts3. Financial Risks4. Supply Chain Management5. Intellectual Property6. Risk Allocations 7. Dispute Resolutions8 Mergers & Acq isitions8. Mergers & Acquisitions
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1. Performance Risks
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Performance Risks: Pre-qualifications
• Business/Marketing PlanBusiness/Marketing Plan (Initial and Annual)
• Credit Checks• References• Distributor Growth History
S i R l t d Fi ld• Success in Related Fields• Clear with Social/Environmental Affairs• Whether they work with competitors• Whether they work with competitors• In-person meeting in their office
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Performance Risks: Term
• Length of Initial Term• Renewal
– Automatic (Evergreen) Unless not Renewed
– Expire Unless Renewed Affirmative
• Impact of Distributor/ManufacturerDistributor/Manufacturer Investment
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Performance Risks: Termination
• Grounds – Breach Only? – Cessation of Business?Cessation of Business?– Insolvency/Bankruptcy? – Change of Control? – At Will?At Will?
• Notice/Cure Period• Effective Date
Liquidated Damages• Liquidated Damages• Non-payment Termination
Provision
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Performance Risks: Marketing Obligationsg g• Distributor Efforts
– Commercially Reasonable– Best Efforts
• Distributor’s Expenditures– Staffing– Marketing– Advertising
• Company Effortsp y– Distribution Obligation– Company Contribution
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Performance Risks: Minimum Sales
• Exclusive vs. Non-Exclusive• Penalties for Failures to
M tMeet• Inventory Levels• Local modifications• Local modifications
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Performance Risks: Training
• KindsS l– Sales
– Installation – Support
• ExpensesExpenses• Locations• Frequency• Annual Sales MeetingsAnnual Sales Meetings
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Performance Risks:Performance Risks: Demos, Shows, Visits
• How Many?• At What Cost?
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Performance Risks: Literature/New Media
• Legal:– AuthorshipAuthorship – Copying– Printing– Translating
• Local custom• Web sites/Social MediaWeb sites/Social Media
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Performance Risks:Records, Reports, and Audits
• Records– Sales– Customer Information
W t I f ti– Warranty Information• Reports
– Market OverviewCompetitive Reports– Competitive Reports
• Audit Rights
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2. Channel Conflicts
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Channel ConflictsChannel Conflicts
Manufacturer• Two or More Channel
Members Compete for the Same Business Channel A Channel B
• Examples Include:– Direct Versus Channel– Channel Versus Channel
Channel A Channel B
• Destructive When Margins Erode
Customer
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Channel Conflicts:Exclusivity
PROGRAMS TO MANAGE CHANNEL CONFLICTPROGRAMS TO MANAGE CHANNEL CONFLICTSaturation Policy
Many channel partners with relatively easy requirements for
th i ti
Limited PolicyFew channel partners with exclusive or quasi-exclusive t it i
LimitedS l ti
authorization. territories.
LimitedSelectiveSelectiveSaturation SelectiveSaturation
Selective PolicyModerate number of resellers. Specific requirements. Some territory overlap.
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Channel Conflicts:Ex Territory Sales
• Territory• Ex Territory Prohibitions
– Forbidding Sales Outside ofForbidding Sales Outside of Territory
– Forbidding Marketing Outside Territory
– Forbidding Transshipping/Gray Marketing
– Website prohibitions• Manufacturer disclaimer as to
grey market goods
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Ch l C fli tChannel Conflicts:House accounts
• House accounts– If Exclusive, Even as to
Company?p y– Specific Lists – Channels– FieldsFields
• Distributor with retail outlets• Competing products
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Channel Conflicts:Post Termination Consequences
• Inventory– Sell off– Buy BackBuy Back
• Transition Assistance• Carryover Services• Customer Lists• Customer Lists
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3. Financial Risks
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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
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Financial Risks:Payment Terms
• Payment Due– In Advance– On Delivery– Net 30
• Type– Check
L tt f C dit– Letter of Credit – Wire Transfer
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Financial Risks: Taxes and Duties
C t D ti• Customs Duties• VAT, Sales, and
Other Product TaxesOther Product Taxes• Withholding Taxes• May impact decision
to manufacture instead of solely distributedistribute
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4. Supply Chain Management
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Supply Chain Management: Forecasts
• Frequency• Coverageg• Binding vs.
Non-Binding• Component Liability
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Supply Chain Management:Management: Orders
• Format• Minimum Order Size• Frequency• Lead Times• Reschedules• Reschedules• Cancellations• Component LiabilityComponent Liability
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Supply Chain Management: pp y gDelivery
C i S l ti• Carrier Selection• Risk of Loss
– WarehouseL di D k– Loading Dock
– In Transit– FOB– FCA– FCA– EX WORKS
• Import and Export Licenses and Approvals pp
• Insurance Costs• Broker Fees
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5. Intellectual Property
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Intellectual Property Issues: Products
• “Products” Definition– Fixed
Flexible– Flexible
• Product Changes– New Versions and Upgradespg– Fixes, Updates, Releases
• Localization
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Intellectual Property Issues: Rights Granted
• Making/ManufacturingMaking/Manufacturing• Copying• Modifications• Translating• Combinations
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Intellectual Property Issues: Ownership
• Product Modifications• Enhancements, Add-ons,
C bi tiCombinations• Localizations and
TranslationsTranslations• Documentation and
Literature
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Intellectual Property Issues:Enforcement
• Policing Third Party Infringement
Right vs Duty– Right vs. Duty• Allocation of Expenses • Allocation of Recoveries
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Intellectual Property Issues: T d kTrademarks
• OwnershipO e s p• Use• Quality Control• Registrations
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6. Risk Allocations
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Risk All tiAllocations: Customer Support• Installation• Installation• Maintenance• Support
– Tier 1/Level 1 – Tier 2/Level 2– Tier 3/Level 3
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Risk Allocations: Indemnification
• Indemnity by Manufacturery 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?
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IP perspective in the distributor s country?
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Risk Allocations: Disclaimers
• Customary and Typical– Merchantability– Fitness for Particular– Fitness for Particular
Purpose• Atypical
Non infringement– Non-infringement– Error Free (software)– Uninterrupted (software)
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Risk Allocations:Risk Allocations: Limitation of Liability
• Exclusions – Consequential Damages– Punitive/Special DamagesPunitive/Special Damages– Lost Profits/Lost Revenues
• Loss of Data • Caps• Caps
– Fixed Amount– 1X to 3X
Time Period– Time Period
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7. Dispute Resolution
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Dispute Resolutions: Governing Law
• What Governing Law Means• What Governing Law Doesn’t• What Governing Law Doesn t
Mean• Which Jurisdiction?
D– Dangers– Drafter of Contract– Compromise – Benefits of International
Arbitration
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Dispute Resolutions: Venue
• Not Same as Governing Law• Fixed Locations• Alternative Locations• Bifurcated Locations
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M &Mergers & Acquisitions• Termination Rights and
Obligations• Change of Control• Distributors May Be Seen As a
Cost Item by Strategic Buyers
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Take-Away Items
• Consider Global Strategy Up Front
• Get Correct Legal Advice Up Front
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ContactContactIan KesslerOwnerSanukSanukE-mail: [email protected]
Amit KumarAssociate General Counsel; Head of Licensing and Business TransactionsAssociate General Counsel; Head of Licensing and Business TransactionsTaylor Made Golf CompanyE-mail: [email protected]
Clark LibensonClark LibensonPartnerAllen Matkins Leck Gamble Mallory & Natsis LLP
E-mail: [email protected]
Ethna PiazzaPartnerAllen Matkins Leck Gamble Mallory & Natsis LLP
@
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E-mail: [email protected]