What are the advantages of having a local representative/agent in emerging markets? Discuss some of the issues that a firm may encounter with local agents/representatives and suggest ways to minimize these issues.

Question

What will be an ideal response?

Answer 1

Especially in EMs where relations are more pronounced, building business relations with the right agents takes precedence. Companies can identify suitable agents by participating in trade fairs, visiting potential companies, researching through countries’ business directories and trade associations.

Agents and representatives can provide access to networks in emerging markets. They can also help foreign entrants in learning about the business environment and processes. Working with local agents can be especially helpful in dealing with some of the institutional voids. For instance, local agents can help foreigners in various ways such as enabling distribution, finding qualified local personnel to manage operations, providing information related to the players in the industry, providing access to key network members – which may be helpful in doing business in the market – or helping the foreign firm throughout the negotiations.

New entrants can encounter issues with prospective agents or representatives. A few examples of issues among the foreign firm and the local agent may be conflicts among the interests of the foreign firm and the local agent, the inaccuracies in evaluating the capabilities of the local agent or weaknesses in communication regarding the expectations of both parties.

In emerging markets, business environment is dominated by family structures, and players who have built relations among each other. This structure is further endorsed by the culture of these markets which values relationships. In parallel, the advantage of having local representatives or agents for foreign firms entering emerging markets is substantial. Similar to exporters who are advised to retain local agents or distributors upon entry, firms interested in joint ventures are recommended to work with local partners. Local partners’ knowledge of the conditions in Indonesia, their networks as well as their approach to local customers provide significant advantages for foreign entrants.

However, potential foreign entrants need to be thorough in choosing local agents/representatives. Such firms need to make sure that the specialities of the agent or representative they choose is aligned with the foreign firm’s business. They also need to make sure that the agent/representative has the suitable background and resources necessary to undertake the task agreed upon by the parties. Foreign firms also need to confirm the network position of the potential agent/representative and make sure that the counterparty can help the foreign firm establish business networks. In doing so, the foreign firms also need to consider the interests of the local agent and make sure that their interests are not conflicting. Another point that the foreign firms need to consider is their approach in dealing with the local agent. They need to be clear about their expectations, provide accurate information and training if needed.