Chapter II.-THE HUMAN ELEMENT After the foreign market has been analyzed in its abstract aspects, the next step is the analysis of the concrete human element that is so important in the successful prosecution of an export enterprise. Here we are dealing with human nature, not with statistics, resources, selling seasons, or the comparative quality of merchandise. Human nature is dynamic, not static, and, while a market analysis once made may hold good for some time, imponderable elements enter into the human analysis. However, custom and experience have set up certain standards in the selection of the sales personnel at home and abroad which have become more or less recognized and accepted. FUNCTIONS OF THE DISTRIBUTOR The first question in an analysis of the human element in exporting has to do with the functions to be performed. If an export merchant is buying goods at seaboard and paying cash for them, you are naturally less interested in his sales ability and responsibility than if he asks you to send them to him abroad on open account or with drafts drawn on him against acceptance. For the same reason, if an export commission house wants to represent you and offers to guarantee a reasonably large annual sale of your product you have less reason to investigate its selling ability than if a resident agent abroad wants a territory set aside on a sole agency basis in which he can take orders on a commission. The type of investigation, therefore, depends upon the functions of the distributor. TYPES OF DISTRIBUTORS AS DETERMINED BY RESPONSIBILITY INVOLVED Channels of distribution may, therefore, be grouped under two general heads: 1. Those involving no credit risk on the part of the manufacturer or exporter. 2. Those involving credit risk. Distributors whose activities involve no risk on the part of the manufacturer or exporter are export merchants at home and abroad who buy and sell for their own account. Export commission houses at home and importers, wholesalers, and jobbers and retailers abroad, may also assume financial responsibilty by outright purchase for cash. Types of distributors who leave a major share of the financial responsibility to the manufacturer or exporter are manufacturers' agents at home and abroad, combination export managers at home, resident agents abroad, and brokers or factors at home and abroad. Such distributors are essentially salesmen on commission, assuming no financial responsibility themselves but functioning effectively in the sale of certain types of products. EXPORT COMMISSION HOUSE The original, and still the principal, function of the export commission house is to act as a buying agent for foreign customers. Grad 33514-38-2 13 ually, however, some of the leading export commission houses have solicited manufacturers for their accounts and have thus become selling agents of the manufacturing exporter rather than buying agents for the foreign customer. Some of them still combine both functions successfully, but obviously, for ethical reasons, never for the same transaction. In their capacity as buying agents, export commission houses may assume the credit risk. As selling agents, however, they function exactly as do manufacturers' agents who leave the credit risk entirely with the manufacturer or exporter. MANUFACTURERS' AGENT As the name implies, the manufacturers' agent is a selling agent for the exporting manufacturer. He handles most successfully products that must be sold, while the export commission house, functioning in its primary capacity, takes orders for things the foreign buyer wants. Thus, United States manufacturers' agents are most successful in handling American advertised specialties for which there would be no demand unless it were created by salesmanship. These include toilet articles, pharmaceuticals, packaged foods, fancy textiles, and other products that people buy or select as a result of intensive advertising. The export commission houses, on the other hand, have come to represent manufacturers abroad as selling agents for the more staple lines for which there is a constant and established demand, such as staple piece goods, heavy chemicals, metals, and other raw materials. The manufacturers' agent usually works on a commission and leaves the financing of the order to the manufacturer or exporter. Many such agents have offices abroad and cover effectively definite sales areas such as the Far East, Australia, Scandinavia, the Near East, etc. EXPORT MERCHANT Similar to the export commission house in assuming the credit risk in financing is the export merchant. These distributors sometimes maintain sales offices abroad, but they buy and sell for their own account and not for the account of the manufacturer or exporter. They are decreasing rather than increasing in number, as manufacturers become more familiar with the technique of export selling. COMBINATION EXPORT MANAGER The combination export manager is usually located at the port of shipment and handles the entire export function for a number of allied but noncompeting manufacturers. He selects foreign agents or circularizes dealers abroad in the name of his principals; consummates sales; attends to billing, financing, and shipping details; and in general performs the functions of an export department, except that he handles on a fee and commission basis the business of a number of manufacturers who do not care to operate a separate export department. He usually assumes no credit risk. BUILT-IN EXPORT DEPARTMENT Closely identified with the combination export manager is the "built-in" export department. Small manufacturers, or manufac turers whose export business is not large, sometimes employ a single individual as export manager, who makes use of the regular domestic sales staff to perform the separate function of exporting. Such activities are usually the first step toward the establishment of a regular export department separately staffed. RESIDENT AGENT ABROAD Export departments sometimes make direct connections with individual salesmen abroad whom they appoint agents for a given territory and pay a commission on all orders obtained from wholesalers, jobbers, or retailers. These individuals may at the same time represent a number of American or foreign manufacturers who are offering allied but noncompetitive products. They usually confine themselves to calls on certain well-defined groups of distributors, such as hardware merchants, garages, stationery stores, dry-goods merchants, etc. They are salesmen, not order takers, and they assume no financial responsibility except to undertake to sell only to responsible people. Many of them sell on terms that call for payment of the draft by the buyer against presentation of the documents (D/P) and agree to "stand by in case of need"-that is, to try to resell the goods in case the draft is refused. They function similarly to a manufacturer's agent except that they confine themselves to a single sales territory abroad. IMPORTER ABROAD A foreign importer usually buys and sells on his own account. His customers are wholesalers and retailers who stock goods and with whose financial standing he (being on the ground) is thoroughly familiar. He may fix his resale price and often sells at what the market will bear rather than at prices indicated by the United States manufacturer or exporter. He instructs that the drafts be drawn on him rather than on his customers, and, when he pays them, the goods become his property and he can therefore sell them for what he pleases. Importers sometimes enter into agreements with manufacturers in the United States to sell at fixed resale prices in return for sole agency arrangements or advertising allowances, although when such agreements are made, the importer functions more nearly as a manufacturer's agent, although he may still assume the financial risk. WHOLESALER AND JOBBER ABROAD Many manufacturers who maintain well-organized export departments and send salesmen or advertise extensively abroad deal directly with wholesalers or jobbers. These distributors usually buy and sell on their own account and in many instances stock merchandise against retail demand, especially in the more staple goods which do not fluctuate in price or style and which require little sales effort in their distribution. Some manufacturers make the mistake of appointing such distributors as their sole agents for a given territory. When they do, the business of other wholesalers and jobbers is usually lost, as their competitors do not wish to pay them a selling commission. Wholesalers or jobbers should only be appointed sole agents after thorough consideration of these factors. They maintain essentially sales depots or display rooms and are not salesmen. If salesmanship is required, a sole agency may be necessary, but a manufacturer's or resident agent should be selected. RETAILER ABROAD Distribution through retailers is a more intensive method than distribution through wholesalers or jobbers, but in principle it is essentially the same. Retailers can either be canvassed by salesmen of the manufacturer or exporter or can be circularized by mail. They stock in small quantities, as a rule, only merchandise for which there is a demand created either by the inherent character of the product itself or through consumer advertising. Products which lend themselves to wide consumer appeal, such as toilet articles, pharmaceuticals, patent medicines, packaged foods, and other goods usually sold through intensive advertising at home, can usually be sold through retailers, if the same amount of advertising is done abroad. BROKER AT HOME AND ABROAD In the staple lines of raw materials and foodstuffs, the broker often intervenes to transact foreign business. These individuals send quotations by mail or cable to foreign buyers, sometimes daily, and, on finding a buyer, collect a brokerage from the producer or exporter upon consummation of the sale. They often sell, to similar functionaries abroad. They necessarily deal in staple products or those capable of sale on standard-grade designation, although in the coffee and other trades, for example, periodic sampling is necessary to establish seasonal grades. They assume no financial responsibility of any kind, merely bringing buyer and seller together. They usually confine their activities to small groups of commodities or to a single commodity. EXCLUSIVE AGENT There are few terms in the export trade in regard to which there is more misunderstanding than that of "exclusive agent." The word "exclusive," in an export sense, means one thing, namely, that the exporter employs only one agent in a given territory. Great care should therefore be used before granting any exclusive arrangement. In other words, the exporter is "tied hands and feet" and confines his activities to this one concern. But how does this "exclusive" status work out in the agent's relation with the exporter? Many American exporters overlook this point, and their "exclusive agent" may often represent a number of the exporters' competitors who also have made such "exclusive" arrangements. This makes the "exclusive" status operate only one way. MULTIPLICITY OF CONNECTIONS In one particular branch of the lumber-export industry it was recently found that four exporters had the same "exclusive agent" and that this "exclusive agent" was able to play one exporter against another. "Certainly," this agent said to exporter No. 1, “you can have no objection to my placing an inquiry before some other exporter if the price is too low for you to accept it." This particular "exclusive agent" was at least open and aboveboard, and no criticism can be made |