Sunday, June 15, 2008

Rosewood Case Study: Legal Aspects of Rosewood's Sales in Mexico

Rosewood Case Study: Legal Aspects of Rosewood's Sales in Mexico

Key factors to consider with regard to the legal aspects of Rosewood’s sales transactions in Mexico:

The first concern is establishing a cost effective method of direct shipment which may be fully beyond Rosewood resources. However it may be preferred and more efficient in future. Therefore establishing a mutually beneficial and profitable contract with a local agent or distributor will be an essential legal hurdle.

The terms of agreement must meet Canadian and Mexican legal requirements and will implicate review of the contract by both Canadian and Mexican legal firms. For example, Rosewood must ensure that all products meet legislative certifications and safety standards for both nations. Failing to meet them will be costly. In distributor agreements legal liability terms must be clearly determined for the agent or distributor.

Definitions for terms of use, specificity of goods, effective validity dates, measures for damages in compliance issues, excape or exit clauses, force majeure clauses, mediation and arbitration laws, applicability of Geneva Convention or exclusions of terms of convention, terms excluded and agreed by both parties, specific prices of goods, terms of sale, terms of payment, currency of settlement, compliance terms and responsible parties for regulatory standards, codes, packaging and labelling laws, dispute resolution methods, warranty protection and product liability responsibilities must be discussed, negotiated, agreed and in compliance with both Canadian export and Mexican import trade laws.

The contract should also include terms of minimum stocking orders, parts orders and emergency or special order terms which are recommended as the distributor or agent must act in the interest of Rosewood according to these terms of contract.

By necessity these contracts must be explicit, are at times lengthliy and may take several revisions, modifications and translations to be mutually acceptable to both parties. Under negotiation they may often appear similar to the pattern of order offers, counter-offers and acceptances. Thus prior negotiation of terms must be included in selection of agent or distributor and research of indirect competitor contracts and terms should also be considered to ensure Rosewood is not missing essential clauses which could be considered legal loopholes creating disadvantages for the company. In contract terms operating in Mexico regardless of EDC recommendations Rosewood will be at a perennial disadvantage unless Mexicans are included in the management team at HQ there will always be an interpretation and legal context disadvantage.

Further inclusions and considerations recommended by John R. Jagoe at The Export Institute USA would be:

1. Regular and routine sales reports tabling requirements of products from Mexico to Rosewood HQ to assist in MRP/DRP scheduling.

2. Regular notifications regarding changes in governing Mexican regulations over product certification and licensing to allow Rosewood to modify product when necessary.

3. Ensuring Rosewood retains legal right to fulfill orders made directly from Mexican buyers to Rosewood Canada. This would allow an online presence for sales orders seperately from Mexican agent or distribution contracts (eventually such a market presence may preclude the needs of agency or distributorship as the market grows).

4. Minimum validity periods on all supply product quotations which will ensure agents or distributors may deliver a solid price quotation to customers. Short validity periods will harm Rosewood's image in foreign markets. Variables in pricing should be regular and forecast inot porduct pricing.

5. A flexible and cost-effective agent or distributor product education program specifying terms of education and frequency of training in-house or at Rosewood HQ. Nothing could be worse than an un-informed distributor or agent.

6. Terms of emergency repair or technical assistance Rosewood will provide on site in Mexico, maximum frequency of technical assistance and terms of visit.

7. Ensure exclusivity of product category. For example, it would not be in Rosewood's interest if Mexican distributor or agent was also stocking direct competitor's products.

8. Rosewood should expect to in addition to develop a personal and familiar relationship with Mexican agent or distributor, his family, and personal circle of business contacts in Mexico. Therefore Rosewood's management team should be prepared for at least biennial or triennial trips to Mexico to develop that relationship. Such extra-legal measures wille ensure mediation of contract is a ritual rather than a legal procedure as time progresses.

9. Steps to select an agent or distributor should be pragmatic and thorough. Nothing could be worse than the wrong legally contracted agent or distributor.

10. Regular review of performance and recommendations dialogue between Rosewood and agents or distributors to maximize sales in Mexico.

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