Contract

In a message dated 9/2/03 3:20:54 AM, carolfreire@earthlink.net writes:

I have an import company of handcrafted gifts and stationary and I want to
ask my supplier for a contract of exclusivity for all sales in the U.S.
market. Does anyone has a sample of this kind of contract or could give me some
information about sources on this topic?

There might be a better way... The reason for exclusivity is presumably to
avoid competition... to keep someone from offering what you plan to offer...
assuming the items are of your design, then is a exclusive desirable?

First, know that for a supplier to give an exclusive, you must agree to pay a
premium price for the item (since the supplier presumably cannot make
superior profits thru volume selling) AND you must guarantee some sort of
minimum
purchase, usually higher than normal to cover what the supplier's anticipate
they
would sell. Now both of these conditions are bad for your customers, so they
are bad for you.

Second, you will have a monopoly, and you'll charge a premium for it. Your
competitors will see this and be inclined to move in on your products earlier
than normal, taking away money from you (just how I'll get to shortly).

Third, what makes you think you can cover all markets, all channels? Venison
sausage sold to deli's may be a fine market, but you may have never
considered hospital kitchens for the same product. What about the entrepreneur
who has
thought of that. Should you block him?

Or, here is the alternative... why not encourage your supplier to push your
product to all possible buyers in the USA, and indeed, all over the world. If
the price to you is $1 each, then good, that will be the price to everyone in
the world, USA included, plus a say, 5 cents premium on that price, as a
royalty to you.

IN this way, you make money no matter what, no matter who is trading in your
item. Worst case scenario: a direct competitor, here in usa, pays the premium
price and shows up at a trade show with the same item as you.

Now, this is extremely unlikely, but, either they beat you with your own
product paying a higher price, at which point you should probably retire... or
they don't... at which point you know where you can get a garage full of your
own
product at an excellent price. Now again, i have never heard of anything
like this happening.

On the other hand, it is not unheard of for someone to import an item for a
market completely unanticipated. Drucker has a fascinating example of the
animal anesthetics imports in his book Innovation and Entrepreneurship. Why
miss
that money, let alone overseas money.

Now all this assumes these are YOUR designs... if not forget all of the
above. It won't work. Even if a supplier signs an exclusive contract, anyone
who
wants to can and will get around an exlusive in iinternational trade. Just
because some supplier signed a contract with you does not mean i am obliged to
honor it... I can and have simply ordered a product thru an agent... the maker
had no idea it was coming to me in violation of the suppliers agreement.

On the other hand, if the products are your designs, and I buy them up
directly and freely from the supplier, then you make money.

So how do we set up this arrangement? No contract, just add it to the list
or terms and conditions of sale. It is about as remarkable as asking for the
dressing on the side when you order a salad at a restaurant. "OK."

How do you track them? You don't... these people are getting rich oveseas
being honorable. It is how the rest of the world works.

Finally, this may involve bank accounts overseas and reporting these
royalties as income, but your CPA can handle that.

So in short, I would never have an exclusive, but always have a royalty paid
on your products.

Jon



Not your designs?

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