Using the Services of an Agent, Distributor or Re-seller is an Easy Way to Enter the Mongolian Market
Hiring a reputable import agent or distributor is a popular first step for SMEs entering the Mongolian market for the first time.
Using a distributor or re-seller to take care of product localisation, in-country marketing and to provide technical support can be a cost effective route to market for firms dipping their toes into the Mongolian market for the first time.
Most Mongolian people prefer to do business with someone they have met face-to-face and have established rapport and a level of trust with.
Using the strong relationships built by agents and distributors with their customers over many years can help world companies quickly expand their sales network.
In addition, using third parties such as Mongolia Business Consulting other Mongolian companies or other international companies who have successfully done business in Mongolia for introductions can accelerate the relationship building process as they are effectively vouching for you to your Mongolian counterparts.
Main Considerations
Distributors in Mongolia usually cover a specific territory or industry and importers are often appointed as sole agents for the entire country.
Exclusive distribution agreements may be used to encourage loyalty and strong commitment from a Mongolian agent.
While the Mongolian Fair Trade Commission has guidelines applicable to exclusive agency contracts, there are no statutory damages required upon termination of an agency agreement.
However, given the close-knit nature of business circles and the traditional wariness towards foreign suppliers in Mongolia, replacing an agent or distributor could damage a foreign firm‘s reputation – and even compromise its entire market strategy – if not handled sensitively.
Mongolian agents may request “parting compensation” in the event the foreign exporter decides to dissolve the distribution agreement. Since this is common practice in Mongolia, foreign companies should address this eventuality prior to signing a contract.
Foreign companies should ensure comprehensive due diligence is carried out prior to the signing of any distribution agreements. In addition, foreign firms should check whether the distributor handles competing lines, is restricted to operating in a particular industry group or has any other potential conflicts of interest.
Another important consideration is sales commissions paid to agents and distributors.
Under an agency contract, the supplier normally invoices the agent for the same amount that the agent will sell to the customer (”back-to-back”).
The supplier then pays a sales commission to the agent at the percentage provided in the agency contract or agreement.
Under a distributorship contract, the supplier sells the product to the distributor, who then adds a markup which determines the final sales price to the customer.
Commission rates vary according to the product and contract terms.
Once an agent or distributor agreement is signed and the foreign company‘s products gain a foothold in the Mongolian market, the foreign company may want to establish a representative office in Mongolia to support the distributor’s sales and marketing efforts.
