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

This study examines the "termination dilemma" phenomenon of foreign intermediaries operating in export markets of great sales potential to their principals/exporters. Both low and high sales performances evoke risks of termination: either via replacement with another intermediary, or through the establishment of a sales subsidiary. The termination dilemma induces foreign intermediaries to make no more than a mediocre sales effort, thereby imposing losses to exporters. The paper investigates how anti-shirking measures (such as outcome-based remuneration and monitoring instruments) and hold-up safeguards (e.g. severance payment) put in place by exporters may mitigate such problems. The empirical study is based on a longitudinal data set of 258 Danish exporting firms and their relations to foreign intermediaries in major export markets over a 5-year period