Basic support and warranties
Local laws in your target market will set the minimum standards for support of your products. Look at the quality and fitness for purpose standards in New Zealand’s Consumer Guarantees Act 1993 and the Fair Trading Act 1986 to get a sense of the types of responsibilities you may have.
As every country has different laws don’t assume that the minimum standards in your target market will be equivalent to those imposed under New Zealand law.
The agreement between you and your customer may also contain express warranties. A product warranty is a contractual commitment given by you to your customers, which sets out the standard of quality that the product must measure up to. For example, you might warrant that the products are fit for purpose or comply with a particular industry specification. A product warranty should also set out what your customer can do if the warranty is not met – for example, returning the product to you or your agent for repair, replacement or refund.
Your customer may have the right to claim damages if the standards are not met. To protect yourself from potentially costly exposure to claims, consider the following:
- limiting your liability for direct losses (for example, to repair or replace the product)
- excluding liability entirely for indirect and consequential losses (for example, loss of goodwill or reputation)
- include damage or loss of use caused by fair wear and tear, and force majeure events. A force majeure event is an extraordinary circumstance that is beyond the control of either you or the customer – including earthquake, fire, flood, or a volcanic eruption.
Note that some support obligations implied by law cannot be limited or excluded by contract – any contractual limitation on your responsibility for the products may be trumped by local law.
Support in the target market
If you export products that can be repaired if they fail or need to be maintained by qualified support providers you are likely to need a service and repair agent in your target market.
One of the things to think about when engaging a support provider is the extent to which they will act on your behalf. If appointing an agent (ie someone you authorise to act as if they were you) you should ensure your agreement with that agent clearly sets out the scope of the appointment and the agent’s responsibilities (such as maintaining a stock of spare parts). This should also be accompanied by suitable protections/remedies for you if they fail to perform their obligations as agent, or act outside the scope of their appointment.
Alternatively, you may choose to appoint a support provider as an independent contractor. One advantage of this approach is that (unless the contractor is trading under your brand) customers can see that the contractor is simply that – a contractor – so if the relationship sours, you may be able to replace them without damaging the brand.
Whether you appoint your support provider to act as your agent or independently, you should consider how you will measure their performance. This is where you can include service levels (sometimes referred to as key performance indicators or KPIs), tailored to the product. Generally, a serious problem will require a quicker response than a minor problem. For example, if your product develops a minor fault, but can still function, the support provider may not need to respond immediately. However, if it develops a critical fault and cannot function at all, you may want your support provider to respond quickly – perhaps within hours. You can set these service levels by reference to an industry standard, or a negotiated standard that you and the support provider agree on together.
Regular reports can help you assess whether your support provider’s performance is meeting expectations. If service levels are not achieved, your agreement with the support provider may provide for payment of compensation and/or a plan to reduce the likelihood of a repeat occurrence. A service level agreement is a good way of prescribing, and measuring, a consistent quality of service for your customers.
Training
If you export products requiring some familiarity to use or maintain, you may need to train your customers in the use of those products. Customers will judge you on the quality of any training provided.
Clearly define your training obligations, and any compensation for the customer if expectations are not met, in your agreement with the customer. Consider whether training will be provided on-the-ground in the target market, or remotely from New Zealand. Should the customer, in addition to paying for the cost of any training, reimburse you for your travel and accommodation costs relating to the training?
What to do if things go wrong
When exporting any product there is a good chance that some things won’t go to plan.
Example 1: manufacturing failure
You are a successful manufacturer of fibreglass boats and have been exporting for several years to markets across the globe, including Canada.
You recently discovered that the fibreglass used to construct a batch of your boats is vulnerable to cracking when exposed to very cold water. You have constructed the boats’ hulls in accordance with an international fibreglass standard. Under that standard the fibreglass should not crack at such temperatures. You are now faced with the prospect of a hefty repair bill to fix the hull, disappointed customers and the risk that a boat might sink causing loss of life - and irreparable damage to your brand. What should you do?
- Isolate the problem. As the substandard fibreglass was only used in a batch of your boats, identify which boats may be affected. Test to confirm the defect and keep detailed records.
- Protect your brand. As the defect has the potential to expose you to significant liability, you should contact your customers without delay to inform them of the defect – and arrange to have it repaired, or the boat replaced. Consider a publicly notified product recall if the owners of your boats cannot be traced.
- Identify who is liable for the defect. Check your supply agreement with the fibreglass supplier, focusing on its terms relating to warranties and liability for defects. Seek legal advice.
Example 2: dispute with your support provider
You engage an agent in Australia who will distribute and service your tractors. Your agreement requires the distributor to achieve service levels, including in relation to response and repair times. In practice, monthly reports indicate that the distributor consistently fails to meet those service levels. What should you do?
- Discuss with the support provider. Talk to the support provider about the failures and ensure that you are paid any pre-agreed compensation.
- Agree a plan to fix the failure. Your support provider should, in addition to paying you compensation, provide you with a plan to remedy the substandard performance, and stick to it. This might reveal that the real issue is an employee who needs to be retrained or more closely managed.
- If all else fails, raise a dispute. If your plan fails, consider initiating the formal dispute resolution process in your contract with the support provider. This could take the dispute from good faith discussion, to mediation and perhaps arbitration. If the dispute cannot be resolved you may need to transition to a replacement support provider - ideally with the support provider’s help (and at their cost).
To maintain and grow your brand in a target market you should plan for the delivery of after-sales support to your customers. To meet customers expectations, ensure the agreement between you and your customers clearly describes the support you will and won't provide.
Providing any training required will enable your customers to become experts in your product. They can then spread the word to build your brand. While reliable agents in your target markets, who can assist if anything goes wrong, will help keep your relationship with your customers healthy.
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Use of the information contained in this guide is at your own risk and we are not responsible for any adverse consequences arising out of such use. This is a complex area and we recommend that you seek legal advice before taking any related action.
