During the negotiations, the distributor and supplier hope to establish a lasting relationship, which will bring exactly what each party expects – the distributor expects to successfully place goods or supplier services in a particular territory and make a profit on margin, while the supplier expects its goods or services to be placed relatively easily in the new market.
Considering optimism and enthusiasm for establishing a new business relationship, the distributor and supplier often begin cooperation without an adequate written distribution agreement. Experience has shown us that this practice leads to the later troubles of opening the Pandora’s box. There is no doubt that eventually there will be a multitude of contentious issues when the initial optimism of the contracting parties wears off.
The distribution agreement is extremely useful for both contracting parties because it enables both distributor and supplier to define their rights and obligations clearly in advance, as well as solutions to potential problems that may arise when the agreement is executed (e.g., damage to goods, non-payment of contracted price, use of intellectual property, dispute resolution, etc.).
Apart from that, when starting distribution, the distributor often invests significant funds in promoting goods and creating a brand, frequently hoping that they will remain the exclusive distributor for the agreed territory.
However, without an exclusive distribution agreement, there is no adequate mechanism for the distributor to protect themself from other importers and unfair competition. If there is no written distribution agreement, it is almost certain that the distributor and supplier will have to settle the dispute in court, causing additional costs. Furthermore, they often will not be able to count on the help of another contracting party. That is when the distributor often realizes how costly a mistake was made by missing out on a written distribution agreement.
On the other hand, without adequate regulation of the contractual relationship, the supplier may be in a situation where the distributor begins the unauthorized use of the supplier’s intellectual property, as well as cause serious damage to the brand.
Therefore, “short reckonings make long friends” is the right recipe for this contractual relationship and can only be achieved through detailed regulation of all aspects of cooperation through a written agreement.