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Nov 22, 2011

The Grey Market Agent Scam in Asia: Don't Forget the Due Diligence.

I just posted this on the Korean Law Blog. The same advice applies to all relationships you have with agents and potential agents in Asia.

Many of my clients operate, in Asia, through relationships with agents. The local agent, normally, holds an exclusive right to sell the client's product in the local jurisdiction.

For example, one of my clients sells medical lasers. The company has relationships with agents throughout Asia. The relationships guarantee the agent an exclusive right to sell the lasers in the nation the agent is located in. The agent, also, is responsible for managing technical, warranty and other after-sale matters in the jurisdiction.

One Korean company approached my client and noted that they are a Korean company with an office in the Philippines. My client has no agent in the Philippines. The client, thankfully, smelled a rat and called me. If you hear of a Korean, Chinese, Vietnamese, Thai or other nationality doing business in a country, other than their own, please smell a rat.

After doing a little investigating it became clear that this company was simply going to import the product into the Philippines and then transport the product to Korea.

Some may be saying - who cares. The client will still get the sale.
The client, the agent and the end-user will care.

First, the price in the Philippines was cheaper than in Korea, since no on-the-ground technical and after-sale support were to be provided with the purchase. The less than scrupulous Korean company may be promising the same technical and after-sale support as they would, normally, receive in Korea. The Korean company would, also, expect this support even without the promise.

Secondly, the local agent would be not too happy to receive a call from the Korean end-user requesting support, warranty services and technical assistance, since the authorized Korean agent would realize that they were cut out of a sale.

Lastly, brand image is important. An agent, that you have not built a relationship with, may be misrepresenting your product or making promises that can never be fulfilled.

Beware the Grey Market Trap through due diligence, street smarts and a demand to know the end-user. It is often better to lose the sale than to lose your reputation.

Engage in no agency agreement with any agent in Asia without a review of the agreement and the agent by an attorney experienced in the jurisdiction.

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