As a means of entering markets in which it may not have an established presence, a producer may contract with local agents to help it sell to that market. These agents are empowered to act as middlemen on sales, with terms of the sales established by the producer. Generally, the middleman is paid after the sale by a commission, and these sales are known as indent sales.
In order for a sale to qualify as an indent sale, the local agent must be working on behalf of a nonlocal entity. The agent must be able to take orders from local customers and then either agree to the sale himself, according to terms set with the parent company, or send the order to the parent company for approval. In all cases, it is the parent company that dictates sale terms.
Indent sales are an efficient means of a producer establishing a foothold in a market in which it does not have an established presence. Because the agent is often paid on commission, the producer does not face exorbitant costs if sales are few. Also, because the producer is supplying the goods, it saves the cost of contracting with a local vendor to supply the product.
As with most situations in which a foreign company is attempting to set up shop in an area in which it has little presence, the company may have only limited control over the actions of its agents in the area. Although strict conditions can be set, they may not be followed. Also, supervising from a long distance can often lead to a decrease in productivity and an inability to react to local conditions.
Businesses can employ a number of alternatives to indent sales. For example, a company can contract with a local firm to produce products on site, using technology or intellectual property provided by the company. This is closer to a licensing agreement or a franchise partnership. In third-party sales, the local agent also contracts with a local vendor rather than the parent company to supply the goods.