The financial relations between the parent company and the branch companies differ greatly according to what it is desired shall appear on the balance sheets. Some branch companies buy at cost from the com pany, others at an arbitrary price, and still others at a price fixed from time to time according to the con ditions of the local market. But whatever the finan cial relations of the branch company to the parent organization, no new element has been introduced into the marketing of the goods; the branch company merely takes the place of the export department.
10. Selling tliru local agents.—Branch houses are possible only to concerns of large capital. The great advantage of this method lies in the fact that the con cern is represented locally, gets reliable market and credit information on the spot, can push sales more intelligently and persistently and can also bring into the transaction of business that personal touch which plays such a large part in building good-will.
Tho local agents cannot take the place of branch houses, they do to some extent perform the same valuable services. It is of prime importance to select the right kind of local agent and it is no easy matter to do so. Manufacturers should be on their guard against the plentiful class of men who, after having made a failure of other lines of business, establish themselves as representatives of foreign firms as a last chance. A good quality of paper and a high sounding letterhead impress inexperienced foreign business men. The American exporter cannot, how ever, be negligent in the matter. The local business world will judge the reliability of the firm by the kind of representative it chooses, and its task will be harder if it assumes a handicap.
The manufacturer may choose as agent a large wholesale firm. This has one apparent disadvantage: the competing wholesale firms may not care to handle the article under those conditions and may look around for an export manufacturer making a similar article.
A good agent can be of great assistance to a manu facturer. He should give detailed information about prices, customs, quality, packing, the financial stand ing of customers and should be expected to make suggestions for the improvement of the product and methods of handling it.
11. Exclusive manufacturer will usually require the agent to handle no competing lines. This is not always essential; some agencies successfully handle a large number of competing lines. This is notably the case in hardware and ma chinery, in Europe. These lines require highly spe
cialized knowledge and the agents find it impossible to give the buyer satisfactory service when confining themselves to the products of but one firm. The elimination of competing lines may, however, act as an incentive to greater activity.
As a rule the agent will try to obtain the "exclusive agency." This is almost always undesirable from the manufacturer's point of view. The agent may merely wish to prevent some other firm from introducing the product and may have no intention of bestirring him self in an unusual way, The manufacturer may find it advisable to supple ment the work of the agent by the use of travelling salesmen or advertising. The agent may under these circumstances decline in importance and confine him self solely to collections, delivery of goods and giving of credit information. An agent of this type rarely receives commission on sales not passing thru his of fice.
The exclusive agent expects a compensation on all sales in his territory whether they were made direct from the home office or thru the agency. In such eases it is necessary for the home office to keep close watch on all sales thru export commission houses so that the destination of goods may be known. The territory should be clearly defined in the agency con tract. copies of which, sworn to before a notary public, should be in the hands of agent and principal. They will prove useful in case of dispute.
Where the agent is entrusted with all development work his commission is usually increased to compen sate him for initial outlays. It is common for an agent to bind himself to spend a minimum sum each v-ear in promotion, This minimum may be a stated sum or a percentage of total sales; five per cent being considered a reasonable demand in many lines.
The agent may be of great service in handling col lection items. The goods may be billed to him with instructions to make no delivery until payment has been received. Especially where no "to order" bills of lading are permitted and also where the banking system is poorly developed, such an arrangement proves very satisfactory; but even where banking fa cilities are wholly adequate the handling of drafts and documents thru the agent may have its advantages. The agent can use his discretion when goods are re fused or payment is not promptly made; the bank is interested only in collecting the item; the agent considers future sales. He is in a position to make exceptions in worthy cases.