The Termination Dilemma of Foreign Intermediaries: Performance, Anti-Shirking Measures and Hold-Up Safeguards

For many exporting firms, success in foreign markets hinges to a large extent on the performance of their foreign intermediaries ( Albaum, Strandskov, & Duerr, 2002 ; Ellis, 2000 ; Root, 1987 ). In spite of the key role played by intermediaries in foreign markets – i.e. sales agents and independent distributors ( Solberg & Nes, 2002 ) – exporters often regard them as temporary arrangements and second-best alternatives to conducting foreign marketing, sales, and service activities in-house. The typical assumption is that foreign intermediaries are low-control entry modes ( Hill, 2003 ; Root, 1987 ) that do not have the potential of exploiting the full sales potential of export markets. In other words, foreign intermediary arrangements could have inherent limitations that foster mediocre rather than excellent market performance. Several studies report that exporters generally distrust foreign intermediaries and suspect them of shirking at any given occasion ( Beeth, 1990 ; Nicholas, 1986 ; Petersen, Benito, & Pedersen, 2000 ). Poor performance is sometimes expected. On the other hand, foreign intermediaries often find that exporters put in place incentive structures that do not induce them to achieve excellent performance. Hence, it is asserted that foreign intermediaries may deliberately seek mediocrity rather than very poor or outstanding performance.