Agent, Consortium, Subsidiary, Branch….

This was originally posted in 2011 under expertexporter’s wordpress blog.

How will you get your products or services into your target market?  Will you follow the indirect or direct route?

Indirect exporting is often popular with small companies who are just starting to export and have limited experience of international trade.  It is a good cost effective way to access an existing client base and get a foothold in a market.  However, it is not recommended as a long term solution as it is impossible to build up a deep understanding of the market.

Indirect methods include:

  • working with an export house
  • ‘piggybacking’ on a supplier who sells a complementary product range and already has an established distribution network

 Direct exporting allows the manufacturer to build contacts and a good understanding of the market and is the best option for those planning a long term export business. Direct methods of exporting include:

  • Appointing an agent or distributor

These two approaches are often confused but are not one and the same! An agent markets the goods in return for a commission payment, whereas a distributor buys the goods and determines the price at which he sells onto his client base.

  •  Working as a member of a consortium

This involves companies working together on large scale infrastructure projects, where as a group they can take advantage of opportunities too diverse or expensive for individual members acting alone.

  •  Establishing a Joint Venture

In this scenario, the manufacturer sets up a business with a local company in the target market.  One benefit of this arrangement can be the avoidance of import barriers.

  •  Establishing a subsidiary or branch within the local market

A subsidiary is a separate legal entity, a branch is not.  There are financial and legal implications associated with these options which should be taken into account in any decision making process.

  • Agreeing a licensing deal with a local manufacturer in a target market.

Under a licence agreement, goods are produced by the local manufacturer who pays a royalty fee to the licensor.  The licensor benefits from rapid penetration of the market, the licensee gets access to an established brand or a complementary product line. Downsides of this type of arrangement may include issues with Quality Control standards and there is always the risk that the licensee sets up as a home grown competitor on expiry of the agreement!

  • Acquiring or merging with an overseas company

An expensive option but it does allow for quick market entry with an established client base.  Remember to check that profits are not subject to exchange control regulations!

  • Setting up a franchising agreement

An increasingly popular low cost means of gaining access to new markets whilst keeping control of branding; well known examples of this type of arrangement include The Body Shop, Vapiano (Italian food, sadly not yet available in Edinburgh) and Starbucks (available practically everywhere).

 With such a wide range of market entry options available, companies intending to export must weigh them up and choose the one that best meets their requirements whilst minimising risk. It’s a complicated area, so if you have any doubts, don’t hesitate to speak to someone with relevant international trade experience.

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