During the negotiations, the distributor and supplier hope to establish a lasting relationship, which will bring exactly what each party aims to achieve – 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. However, the experience has shown us that this practice leads to the later troubles of opening 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 of paramount importance 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, led by the thought that they will remain the exclusive distributor for the agreed territory.
However, it should be noted that without an exclusive distribution agreement, there is no adequate mechanism for the distributor to protect themself from other importers and unfair competition. If the distribution agreement is not concluded in a written form, it is almost certain that the distributor and supplier will have to settle the dispute in court, causing additional costs. Furthermore, once when the issue of unfair competition arises, the distributor often will not be able to count on the help of the other 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 supplier’s 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.