Alternative Routes to Market

 In our last article Moving into the International Market, David Thompson looked at reaching new markets through agency or distributorship arrangements. We now consider some alternative routes to the international market.

UK based sales into overseas markets

One of the simplest ways of bringing your product to international markets is through sales direct from an established UK base. Understandably this option is becoming increasingly popular with the advent of the internet.

This can be a cheap and effective way to test a new market without significant financial risk. However, it may be difficult to build a customer base this way and you will bear all the risks of exporting.  

Entering into a joint venture

Another option is to enter into a joint venture with a local business based abroad. This could be a corporate joint venture, or a commercial partnering arrangement.

A successful joint venture can provide contacts in the new market and distribution networks, whilst sharing the financial risk.

However, getting the right partner with the same objectives is important for success. You should always take care to ensure that a full due diligence process is undertaken before entering into any such arrangement.

There are a number of ways of structuring a joint venture which can help to protect your business interests.

Granting local manufacturing rights

Manufacturing a product abroad can save on shipping and export costs.

An agreement can be made with a local business permitting it to manufacture your products. Particular care does need to be taken to ensure that appropriate contractual protection is afforded to the licensing party. Thought needs to be given not just to the term of the arrangement, but also to what would happen if/when the arrangement expires or is terminated.

This type of arrangement does inevitably lead to some surrender of control, so again thorough due diligence is always required. 

This can be a sensible option to consider if you already have contacts in a particular overseas territory. It is often used in conjunction with one of the other structures such as agency or distribution.

Setting up a franchise

The main advantage of operating a successful franchise network is increased brand awareness, with the franchisees bearing the running costs. In return you would normally offer each franchisee support in setting up and managing the business.

The main risk with this structure is an unsuccessful franchise which could cause damage to your brand. For this reason franchise agreements tend to be couched in a manner which strongly favours the franchisor.

Establishing foreign subsidiary

Setting up a foreign business yourself allows you to retain complete control over your business overseas and retain all of the profits. The disadvantage of a wholly owned subsidiary is that you will bear all the costs of set up, be solely responsible for complying with the local laws and bear all the risk if the venture is not successful.

Local legal support is often of benefit. Michelmores has strong links with overseas professionals, and is a member of IAG a worldwide network of business advisors.

For more information on these or advice on the practical implementation of any of the structures highlighted above please contact: David Thompson - david.thompson@michelmores.com