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Expanding Your Business Into International Markets

2nd October, 2014

With the UK a very small market within a huge international trade arena, expanding internationally can be considered the next step for financial growth and an increased market share coupled with a reduction in economic exposure to the home market.

There are a number of ways to establish a presence in another country including:
• establish a branch
• acquire an existing business
• enter into a joint venture with a local partner
– direct sales to a manufacturer
– engagement of a sales agent
– a contract with a distributor.

Once the decision is made you then need to consider the following:

Branch or new subsidiary entity?

A branch is a recognised trading presence within the country and usually requires registration at the commercial registry in that country.

A subsidiary of an existing company would be a newly formed corporate entity within the country which would need registration and will need to comply with local corporate law requirements.

The advantages of proceeding in this way is that it is an extension of your existing business you will take the benefit of but also the risk of organic growth and retention of profits, however there is a disadvantage in that there is no established presence within the country.

Joint venture or strategic alliance?

This is a way that many people commence business within a foreign country as the risk is shared together with the reward with a third party.

The advantages are sharing of risk and local knowledge from the joint venture party.

The disadvantage is that it sometimes takes time to establish and may be difficult to exit from.

Agency

Many businesses start to supply in a new jurisdiction through the use of a commercial agent who will take on the task of marketing and sales within the jurisdiction.

The advantages of this method are that you immediately obtain local knowledge with contacts within the area within which you wish to sell.

The disadvantages of an agent are that many jurisdictions have protective measures in place which can make the termination of an agency arrangement expensive.

Distributor

This is a contractual arrangement with a company within the country which has knowledge of the market and route to market for your particular products.

They purchase the product from you and distribute it with a mark up.

It is possible to link distribution with licencing (where appropriate) and to include provisions as to the style of marketing material and advertising and other supportive documentation in relation to the products.

The advantages of this is that having found the right party, it is fairly quick to set up and easy to administer.

However, it is unsuitable for long term expansion as you are linked almost inextricably to the experience and market of the distributor.

Contractual arrangements with third parties

In certain instances, your products may be such that you can contract directly with a manufacturer to purchase products from you for incorporation in another product. This is a straight forward supply arrangement into another country.

However this is purely sales based and does not create a presence.

If you wish to sell your products within a different country you may consider entering into a manufacturing licencing agreement with an already established manufacture in the territory.

That manufacturer would then manufacture the goods for you and you would be left responsible for finding route to market.

There are many things to consider and if you would like to discuss expanding your business internationally please contact Stuart Haynes on 01743 453687 or email [email protected] who will be able to guide you and your company through all the options.

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