Working with Export Partners in the European Union
Western Europe is a continent in flux as it undergoes transformation to a single market system - the
European Union (EU). The pace of change in Europe leads to confusion and requires US exporters to be
cautious when choosing agents and distributors for their products to ensure success. The use of English
as the universal language of business is increasing. In addition, single currency accounting (the Euro)
is fostering cross-border markets and distribution. Nonetheless, much of the pre-EU system, including
the old national markets and distribution systems, varying regional business customs and national legal
differences, is still firmly in place. The reduction of market barriers and borders has increased competition.
In addition to finding a distributor who is knowledgeable about your specific products or industry,
it is highly advisable for to work with individuals who are willing to keep you abreast of changing
EU requirements.
Relationships
US business relationships are relatively straightforward to navigate and enter/exit, whereas Europeans
spend more time building rapport and trust prior to entering partnerships. Agents and distributors are
viewed as partners to a manufacturer, and the European legal system reflects this greater emphasis on
relationships. Examples include:
- Notification periods for terminating contracts are excessive by US standards (ranging by country
from the EU legal minimum of 3 months to several years). Therefore, dissolving a business partnership
can be complicated, even when it involves a manufacturer assuming control of its own distribution
process.
- EU law requires termination payments for agents, sometimes even if the termination is part of a
natural process (e.g., if the contract has expired or the partner fails to perform its obligations).
Only Belgium currently requires termination payments for distributors, but case law in France and
Germany has begun to favor local distributors who sue for unlawful termination. Although not an EU
member, Switzerland also requires mandatory termination payments. Belgium is also unique in that fixed-term
contracts; after they have been renewed twice, automatically become indefinite contracts.
- As has been in the news recently, Europe has much stricter standards than the U.S. in terms of a
company's legal rights to use stored customer data. The difference between English and German law,
in particular, is extensive.
Agent vs. Distributor
Despite greater entitlement to termination payments, an agent isn't necessarily better than a distributor
for the US exporter in Europe. A distributor has control of pricing, whereas using an agent provides a
manufacturer with:
1) Control over pricing, and
2) More say in how the product is presented.
How to decide which one to choose? A rule of thumb is that distributors are generally recommended
for companies who are new in a market or seeking to grow, and agents are preferred for a manufacturer's
more mature/developed markets. In Germany, the best solution is for a company to set up a direct sales
office, due to that market's large size and the competition from European-made products. Germans have
a reputation for taking a company less seriously if it does not establish a presence in Germany.
Legal Counsel
Good, clear legal agreements are the best protection for American businesses working in Europe. It is
vital for your business to work with attorneys familiar with EU regulation, as well as the legal systems
and judicial trends for the individual countries in which you currently or are planning to export. In
addition to the complexity of navigating notice periods and contract termination payments, non-competition
clauses and protection of intellectual property rights are key components of any contract with a European
representative. A growing legal tendency in cases regarding termination disputes is for European courts
to rule that the representative was actually an employee of the manufacturer, making exporters liable
for accrued social security, fines, and interest.
Communication
American businesses are encouraged to invest time in the process of finding the right representative for
their product. Once the relationship is established, remaining in close communication with the partner
and responding quickly to requests to help mitigate the distance factor. A personal relationship with
a representative is useful, as well. While a strong legal foundation protects your interests, it will
not necessarily build your business. The EU is an exciting growing market with tremendous opportunity
and strength. It is well worth the investment necessary to enter. For more information about the EU, see
reviewed websites under this heading.
More information about International Business and doing business in the Europe Union can be found in World
Trade Magazine. The full article "The European Minefield" by Andrea Knox may be found in the September
1999 issue.
Article by: Jessica Brown
Web Editor: Shuai-Hua (John) Chen