by Sid Ragona, Ph.D., Ragona Scientific, LLC
This is a two-part editorial solely focused on the subject of representing principals from overseas.
In Part 1 of this editorial, we covered some of the soft skills associated with working with overseas companies such as holiday schedules, language and U.S. geography. In this month’s editorial, we cover some of the “harder skills” that the rep must take into account. I have narrowed this down to my top three. These include contracts, shipping terms, and harmonized tariff codes.
At the best of times, contract negotiations can be tedious, time-consuming and potentially expensive if the contract has to go back and forth to an attorney multiple times. This process can be even more time-consuming with overseas principals, who are seeing the arrangement through the prism of a different culture and a different language. Fortunately for MANA members, we have an excellent online resource not only for agreements with domestic partners, but also advice on agreements with international partners (members.manaonline.org/file/misc/international.pdf). As with any agreement, special attention has to be placed on communication — when and how often you will communicate and via what means. A factory visit is often a very good idea at the start of the relationship since it is easier to get the ebb and flow of communication of the whole organization and sometimes get the sense of who does what, with an eye on when you will need their help in the future. Getting to know people in the organization is a good idea for any principal we represent; it is doubly so for an overseas principal.
2. Shipping Terms
When representing North American companies, we generally take shipping terms for granted and use either FOB (origin) or FOB (destination) depending on whether the seller or the buyer assumes responsibility for the goods during shipment. More often than not, it is assumed (unless otherwise stated) that the seller is responsible for all aspects of shipping.
However, for shipping goods internationally there is a wider array of shipping terms known as incoterms. There are 13 incoterms to choose from, plus one needs to know if there is duty to be paid. To add to the complexity, incoterms also include a FOB shipping term. However, it is neither a FOB (origin) or FOB (destination) shipping term, but somewhere in the middle. Sadly, requesting a familiar looking term will not provide a familiar result, far from it. It is therefore absolutely necessary for a rep in the U.S. who decides to represent an overseas principal, to determine the correct shipping term most appropriate for the customer’s expectation. For example, EXW (Exworks) means that after the order is placed, the responsibility of shipping, insuring and paying duty is the responsibility of buyer (this could be a surprise to a customer). Conversely if one uses the term DDP, (Delivery Duty Paid) the responsibility of shipping, insuring, and paying duty is the responsibility of the seller, in this case the principal. For my own rep company that sells high-end scientific equipment, I simply take the easy route for my customers and instruct my principals to ship DDP so there is no further work required for my customer. The following link provides an excellent explanation of the incoterm shipping terms: www.incodocs.com/blog/incoterms-in-2023-guide
3. Harmonized Tariff Codes (HTC)
The harmonized tariff schedule sets out the tariff rates and categories for all merchandise imported into the United States. The good news here is that the manufacturer is the one that has the responsibility for determining the HTC and consequently the duty that will be paid. If as a rep or distributor you are handling the importation, then you need to go to the manufacturer to obtain the HTC and determine the duty that needs to be paid. Before taking on any overseas principal, it is to the rep’s benefit to ask for the HTC for all the product categories that you will represent to determine the additional expense of duty which can range from nothing to high double-digit percentages. For more information on HTC access this link: hts.usitc.gov/current
The world is truly getting smaller and to survive the juggernaut of globalization, our skill set as reps needs to expand.
I would like to acknowledge my gratitude to the sales managers of my overseas principals with whom I have shared many adventures and without whom this article would not be possible.
Sid Ragona, Ph.D., founded Ragona Scientific, LLC, in 2006, and the company has been a MANA member since 2009. Ragona Scientific specializes in nanotechnology from foreign start-up companies that want to sell into the U.S. and Canada. Since 2020, he has cohosted a radio show and podcast about entrepreneurship entitled Rethinking Business: Success Sauce and Two Pickles (www.successsaucetwopickles.com). Ragona has also been a Certified Score Mentor since 2011 and serves on MANA’s Board of Directors.