Marketing Channel Contracts in El Salvador

Before going into the details of these truly complex legal institutions, it is worthwhile to understand a little of the reasons for their existance. These figures arise from the great need of large companies, often transactional, with a large manufacturing and distribution capacity of their products on a large scale, which wish to enter in other countries and markets in order to offer and sell them, but without incurring in large investments in infraestructure, machinery, personal property, facilities, brand positioning, hiring of personnel and others, to serve as real market channels.

In the country there are many figures such as the agency contract, distribution contract and consignment contract, all of which are independent and are institutions whit their own characteristics.

However, in the present article, the Distribution Contract and the Agency Contract regulated in the Code of Commerce are analyzed. These contracts are not specified or included in the section of the contracts but are in article 392 and following, that is to say, in the part of the auxiliary ones of the merchants.

The disadvantage of the Code of Commerce is that it speaks of the Agency Contract and Distribution Contract as if they were the same institution, giving them a unified treatment, but the reality is that they are not the same.

In case of the Agency Contract, it is when the agent is associated with one or more companies to promote the business of the principal, i.e., an agent is empowered to promote business or economic activity in a given territory.

Subsequently, the agent lets the principal contract with the recipient directly and the agent, for this intermediation, earns a commission by reason of this mediation or connection between th principal and the recipient. In other words, the agent is a true merchant since he organizes an economic structure to earn a commission by promoting the business of the principal.

On the other hand, the Distribution Contract is a contractual relationship in which a company or distributor acquires the right to sell products exclusively in a certain region or territory from a manufacturer, and this is done by receiving a profit consisting of the surcharge that the manufacturer establishes for the product in the market. The distributor has in turn paid a special discounted price for the product given by the producer or manufacturer. This difference or margin between the discount given by the manufacturer and the overprice of the product in the market is his profit.

The manufacturer seeks to penetrate a market or region and does so through a local distribution company. This is done because the distributor already has all the structure in the assigned area, i.e., distribution channels, salesmen, facilities, warehouses, advertising channels and others.

In conclusion, the distributor is a true owner of the product since he has paid a price for it, unlike the agent who is only an intermediary between the principal and the recipient.