5 mistakes to avoid before signing an international sales contract
The moments before signing a international contract They are complex for our company, especially when we refer to the first international contract.
It is normal to feel lost the first time due to lack of information in various areas.
Signing our first international contract marks a turning point in our company's history because we are opening ourselves up to new, unknown variables.
On the one hand, we are faced with the unknowns of a new market, also with a possibly new culture for us, which will influence not only during the subsequent internationalization process but also before, in the contract negotiation.
Landing in new markets is always a new business adventure, and logically we must minimize the risks and uncertainties we encounter as much as possible.
The best instrument to mitigate these risks is international contract.
At RRYP we understand that a solid knowledge of International Law is the best protection, and also a lifeline, for the company in its internationalization process.
Because from this knowledge of the Law, the future contract will emerge that will include the obligations of one party to the other.
For this reason, during our advisory processes we place special focus on the contract between our client and the other party.
The contract as the core of internationalization
There are several ways to enter new markets, but whichever one we choose, we should always specify it in the contract.
Next, we will see what are the most common forms of entry:
The contract of sale
It is that by virtue of which the parties deliver goods or services in exchange for compensation, which can be very varied, but is usually financial.
El franchise agreement.
This is whereby one party, called the franchisor, grants the use of its brand and shares its know-how with the other party, known as the franchisee, in exchange for financial compensation.
As an example, McDonald's uses the franchise agreement in more than 65% of its establishments, according to the website Infofranquicias.com.
El distribution contract
It is one by which one party produces certain goods and the other is in charge of trading them in different geographical points in exchange for a consideration.
The part Distributor assumes the risk of these operations.
This contract allows for rapid international expansion of the producer, but also less control over its own product, compared to other types of contract.
The agency contract
It is one by which one party commissions another to promote certain products or services of its own in certain places in exchange for financial compensation.
Joint Venture Contract
It is one by which two or more companies reach an agreement to penetrate a certain market, it being common for one of them to be present in the destination market.
El The objective is to take advantage of the knowledge of the company that already operates in that market., so it is this company that "leads the hand" of the foreign company in exchange for compensation.
Of these figures, the one that is probably most familiar to us is the sales contract because it is a type of transaction that we are all familiar with.
Despite its apparent simplicity, This contract requires special treatment and attention when it is made between parties who habitually reside in different countries..
That is, being an international contract.
In the following lines we will talk about the five main mistakes that are made before signing an international contract.
5 mistakes to avoid before signing an international sales contract
Do not explore other similar commercial options before signing the contract
When a company from another country contacts us for the first time to sign a contract, and without having previously sought it out, it is a moment of joy for the businessman.
Somehow It means that your business is notable and visible enough so that someone in another country has known about him and wants to do business with him.
And yes, it is indeed a cause for joy and celebration.
At RRYP we often comment that the initial euphoria when it comes to internationalisation is negative, and we must replace it with thoughtful and calm actions.
That euphoria, It can also play tricks on us in the moments before signing the contract.
We should not accept the first offer we receive to sign a contract. international contract, without stopping to analyze it carefully.
Must carefully consider the advantages and disadvantages, and above all, to know if our potential client's proposal interests us.
This first international contract is often seen as the transaction that will lead our company to international success, and sometimes it may happen.
However, at RRYP we have a very clear recipe: patience, analysis and meditation.
Before signing the purchase and sale contract, we must carefully study the offer they are making to us and see if it truly works for us. economically profitable.
On the other hand, an aspect to also take into account is the Contract period because a business relationship of any type can be very interesting for a certain period of time, but could become a nightmare if it extends longer than desired.
That is why it is so important to clearly establish in the contract how long the relationship between both parties will last.
A contract that is very economically beneficial in the short term could make us ignore other aspects, which could later become a problem.
In summary, we must carefully study the short and long term impact that signing the contract will have for us and even find out if other international clients could offer us something better than the first one who contacted us.
Not taking into account the geopolitical situation at that time
La globalization has shortened the distances between countries, in every sense.
A malfunction in Egypt's economy could also affect China, for example, despite the distance between them.
The current global hyperconnection between governments, companies, markets and societies makes us constantly united by a multitude of links.
The political or strategic crises that we frequently read about in the press or see on the news do not end there.
They are a external factor that affects our business and that is difficult to confront unilaterally.
To this hyperconnection between governments, companies, markets and societies we must add a new adjective: volatile property market. That is, these changes occur in a unexpected and variable manner.
A good example is the grounding of the EverGiven in the Suez Canal in March 2021: the closure of the Suez Canal paralyzed much of world trade, and resulted in economic losses of around $10 billion, according to the New York Times. An isolated event, such as the running aground of a ship in Egypt, put global trade in check. Therefore, the hyperconnection is proven.
Furthermore, this is an event that took place in minutes and whose consequences had almost immediate effects on the world economy.
The volatility of global trade is therefore proven.
Therefore, before signing our purchase and sale contract we must understand, analyze and try to foresee, as far as possible, what hypothetical scenarios could affect us in the future.
Making accurate predictions in geopolitics is not easy, and many fail in their attempts, but that does not prevent us from keeping this factor in mind.
For example, if under our contract we commit to importing paper pulp from Latvia to Spain, we must take into account Latvia's proximity to Russia and the current invasion of Ukraine because it is an external fact that may threaten the success of our contract.
On the other hand, if we wanted to export a product or service Saudi Arabia would have to take into account the tensions with some neighboring countries, such as Iran.
Internationalization companies are the best partners during this process because they have expert knowledge in geopolitics, and they know how it influences private commercial transactions.
Avoid using ambiguous terminology
The use of generic words and vague descriptions in the contract is a mistake that we must avoid.
The contract is created to specify as much as possible the rights and obligations of each party., and the more precise the descriptions and terms used, the more legal disputes we will avoid in the future.
It is common to see companies suing each other because in the contract that binds them there is a word or concept, the meaning of which each party interprets in a different way and that is a source of conflict.
Therefore, the best way to avoid these situations is draft the contract in a clear manner and with terms that give rise to little interpretation.
It is also common to include a glossary of words attached to the contract, which includes the definition of each controversial term.
In addition, sometimes a language other than one's own is used, which can increase the risk of disputes over the meaning of concepts.
Therefore, our advice is that the information contained in the contract is as explicit as possible.
Using pre-made templates
There are templates on the Internet for different types of national contracts, and also for international contracts.
These may have some use, but we should always adapt them later to our contractual needs.
Drafting an international contract can be complicated and lengthy, but we should never use a 100% generic template.
Chambers of Commerce and other public administrations provide interested parties with different types of templates. It is true that they are suitable as a basis for the document, but we must always modify them to fit our needs.
We frequently comment in our articles that The contract is the core of internationalization because it is the text that says what we, as a party, have and do not have the right to. Therefore, we must pay all the attention it deserves, without missing any details because it could become a detriment in the future.
Not taking into account the cultural factor
An failure común think that the negotiation and signing of the contract It is done the same in international markets as in the local market but that is not true.
The planet is made up of very diverse markets, and although globalization has partly homogenized them, they are still sufficiently distinct to speak of their differences.
El protocol It is a factor that we barely take into account when we talk about signing national contracts, but which becomes very important in foreign contracts.
We might even think that the protocol does not matter, because what is truly relevant is the economic transaction, but this is a mistake.
In cultures like China o Japanese, the ways of speaking, behaving... They differ from the Spanish one and their businessmen give them a lot of importance.
For example, in some Asian countries there is a protocol that determines which of the two parties enters the negotiation room first.
Another example is the thumb up.
It is a gesture that in Spain or Japan is seen as something positive or as the absence of problems. It could easily be done in the context of a meal to negotiate the contract, for example.
However, in countries such as Greece, Australia or Nigeria, raising the thumb has a derogatory meaning for the person to whom it is shown.
Therefore, We must have a basic understanding of the other party's culture and know what the red lines are that we must not cross..
These are the 5 mistakes to avoid before signing an international sales contract..
Conclusions on 5 mistakes to avoid before signing an international sales contract
As we see, the negotiation, drafting and signing of a contract is not a trivial event; but it has a direct impact on the stability of our business.
At RRYP, we are experts in international business law, and you can count on us. Write to us at [email protected].
RRYP Globallawyers specializing in international trade.
