Independent manufacturers’ representatives – interview with legal counsel Gerald M. Newman

VentureOutsource.com caught up with Chicago-based legal counsel Gerald M. Newman with Schoenberg, Finkel, Newman & Rosenberg, LLC. Transcripts from that discussion follow.

VO: Its often said, the easy part for the contract manufacturing sales representative is booking the business and the more difficult part is servicing the account (while going out and getting new business for the contract manufacturer). This balance can often create challenges and frustration for both parties. How can sales representatives and contract manufacturers put together meaningful business engagements to addresses specific objectives?

Newman: Servicing the account typically involves quality issues; delivery issues, changes in price, design changes, component sourcing and substitutions, and similar matters.

The contract manufacturer must be held to specific standards in these areas which must be met as the project moves forward. On the other hand, the sales representative must be available to communicate the customers’ concerns to the contract manufacturer and vice-versa. If time commitments for servicing accounts exceeds the time available to the sales representative, the sales representative must consider increasing sales force efforts by hiring more sales personnel.

Business agreements between the contract manufacturer and the sales representative must also include provisions for the sales representative to hire additional personnel, if necessary.

The agreement should also place certain penalties on the contract manufacturer for failure-to-live-up-to understandings with the contract manufacturer’s customer, which may then require the sales representative to spend more time resolving problems and issues and, therefore, prevent the sales representative from pursuing new business.

VO: Aside from the above, can you please share three other common types of disputes your law offices see that often surface between sales representatives and electronics contract manufacturers?

Newman: Most of the disputes in which we our law offices become involved in are between sales representatives and electronics contract manufacturers where the contract manufacturer becomes unwilling to compensate the sales representative commissions in accordance with the contract agreement. Sometimes, the contract manufacturer will take the position the sales representative was not responsible for booking the business in question.

In other instances, the contract manufacturer may take the position that the business was procured from outside of the sales representative’s territory defined in the agreement, even though the contract manufacturer may have encouraged the sales representative to seek and pursue new business opportunities outside of the territory.

Another type of common dispute involves ‘split commissions’ between two or more sales representatives where each claims to represent the contract manufacturer in different aspects of a business sale transaction.

VO: What do you feel both parties can do to build a stronger working foundation so these types of disputes are less likely to occur?

Newman: The sales representative and the contract manufacturer can build a stronger working foundation by being fair to each other without one trying to take advantage of the other.

Open and frank communication and dialogue is essential in creating a stronger working relationship.

Each party must be willing and able to discuss issues which arise from time to time without fear of retribution — with each side listening and considering any suggestions proposed by the other. This is an essential component for making a stronger working relationship.

Additionally, parties should have a comprehensive written agreement drafted by an attorney skilled in the area of sales representatives who can anticipate problems that may occur and can address such problems in the contract agreement.

Unanticipated problems that surface where parties are unable to resolve should be referred to binding mediation and preferably handled by a skilled mediator who is knowledgeable in the field of sales representatives.

VO: How have business contract engagements between sales representatives and electronics contract manufacturers changed over the years and, what do you feel are three primary reasons for many of the changes in these contract engagements?

Newman: Business contract engagements and relationships have definitely changed over the years between sales representatives and electronics contract manufacturers.

One major reason is the amount of contract manufacturing going offshore to some companies with outsourcing destinations in low-cost regions that have lower labor wages, modern high-speed manufacturing capital equipment, and highly-trained and skilled engineers who can constantly be engaged and more importantly perhaps, on a very affordable basis.

This additional degree of competition puts more pressure on other contract manufacturers (domestic and offshore) to reduce their contracted prices, resulting in commission pressures on the sales representative.

The sales representative is also being asked to assume greater responsibilities other than those responsibilities required just for sales.

These greater responsibilities can include intelligence gathering; providing the contract manufacturer with numerous types of periodic projection reports, keeping the contract manufacturer abreast of new ideas and emerging industry techniques and technologies and, engineering issues as well as assisting in accounts payables…all of which puts more pressure on the sales representative and leaves less time for the representative to secure new business.

VO: Are electronics contract manufacturers trending toward using more sales representatives? What particular contract manufacturing end-market segments (e.g., medical, industrial, defense) do you notice that seem to be more pro-active in securing the services of contract manufacturing representatives?

Newman: Although I do not have statistics, it is my belief electronics contract manufacturers are trending toward using more manufacturing representatives in all end market segments.

However, as electronics products become more sophisticated and specialized, contract manufacturers may likely feel there are good reasons to take their business ‘direct’ because of the level of engineering skill involved.

Many contract manufacturers believe they have greater engineering and product knowledge for particular products regardless of the industry.

The above said, contract manufacturers designing and manufacturing consumer and industrial technology products are typically more proactive in securing services of sales representatives.

Medical electronics is also a strong market for sales representatives.

Defense is strong in certain areas and is weak in other areas. There appears to be a movement to keep defense manufacturing in the United States, rather than moving it offshore for some obvious protection reasons.

VO: If you could talk over dinner with any person living, dead, or fictional, who would you choose and what would you want to discuss?

Newman: I would select Ariel Sharon, former Prime Minister of the State of Israel, who is alive but has been in a coma and on life support for the past 14 or 15 months.

I would like to discuss his views for settling the Israeli-Palestinian conflict and creating secure borders for the Jewish state while providing Palestinian autonomy and a lasting peace resolution between Israelis and Palestinians — one that provides dignity for both nations and their citizens; prevents future conflicts and would hopefully help act as a catalyst for eventual peace across The Middle East.

VO: Thank you, Gerald.

Newman: You’re welcome. Thank you.

Have an idea for an interview to be published on VentureOutsource.com?

VentureOutsource.com