The signing of a concession agreement allows a company to do business in a certain area in exchange for the terms provided for in the agreement.
The term “concession agreement” is used in two slightly different ways in the business world. Both refer to a type of negotiated contract that gives the company the right to do business, with some specific requirements. In a sense, it refers to a contract between a foreign company and a government, in which the company signs a concession contract to be able to do business in that government’s country. In a second sense, this type of contract is one that grants the concessionaire the exclusive right to do business in a certain area or location in exchange for some carefully negotiated terms.
A concession agreement may give a beer, soda or snack distributor the exclusive right to sell its product within a stadium.
When talking about contracts with foreign companies, a concession agreement is made between the company and the government of the nation where it wants to do business. The government may want to incentivize the company by reducing taxes, relaxing restrictions, or providing other incentives. In cases where the government is not so enthusiastic, the company may need to make some concessions, such as giving part of the profits to the government or paying a special tax rate that may be higher than that of domestic companies. Once the agreement is negotiated and signed, the company has the right to do business locally as per the terms of the agreement.
Governments can use this type of concession contract to provide services they cannot or will not provide. For example, a concession contract may be signed with a foreign company to allow it to manage ports or borders.
In terms of operating concession, the agreement gives the company the exclusive right to operate in a location such as a sports stadium, a cruise ship or a government building. In this case, the company operates a concession that can sell food, accessories and a wide variety of other products. You must pay an annual fee for the right to operate, or give up a percentage of your revenue for the location. In return, the site agrees not to enter into concession agreements with other companies offering similar products or services.
This type of concession agreement is often used when a location or company wants to make a product or service available but does not want to be directly involved. On a cruise ship, for example, the line may operate concessions with restaurants and cafes so that it is not responsible for food service. This means that the cruise ship is deprived of some of the potential profits, but also of issues such as legal liability for contaminated food, personnel safety, and organizing supplies.