If you are thinking about exporting for the first time, you may be unsure about the best way to approach your chosen export market and how to manage a complex marketing and distribution process from a distance. You may choose to sell your product or service direct to overseas customers, or decide to sell indirectly via a third party. It is important to undertake thorough research and be clear about your chosen method of market entry before you start exporting.
It is possible to sell direct to individual customers or outlets abroad. This may be appropriate where your customer base is narrow or limited, or when there is little need for servicing or after-sales care.
This approach requires a great deal of preparation and a considerable investment of time and money. For this reason, even large firms often decide to use an intermediary for all or some of their exporting. If you choose to export directly rather than appoint an intermediary, you will need to:
- Find a local representative in your target export market.
- Make arrangements for shipping goods and completing all documentation.
- Do your own market research.
- Decide how to price your product or service, and subsequently promote it.
- Manage invoicing and payments, and be prepared to deal with the risk of late or non-payment of invoices.
Selling at or attending overseas trade fairs
You could exhibit at trade fairs and exhibitions attended by prospective overseas customers, buyers and suppliers involved in various sectors. If you are considering exhibiting, it is important to contact your trade association to see if they offer any specific support. You should also get in touch with the Department for International Trade (DIT, www.gov.uk/government/organisations/department-for-international-trade) or your chamber of commerce, which can provide help and technical advice. Even if you do not exhibit, visiting these events will give you opportunities to make contacts, research the market, find agents or wholesalers, and develop sales leads. DIT also arranges market visits, the costs of which may be subsidised, depending on where your business is located.
Franchising involves selling the right to use your brand and manufacture or sell your products or services as a ready-made package in a particular market. In return, you will receive fees and other potential income, such as a percentage of annual profits. Franchising is a means of expanding a business while limiting risks and reducing management responsibilities. The franchisee contributes capital and other resources as well as paying you a licence fee, while you (as the franchiser) will be expected to provide a range of support, possibly including training and technical services.
You can grant another firm the right to use your product names, technical specifications, processes or patents by drawing up a licence agreement. A fee (which may or may not include royalties) is charged for the licensed rights. Licensing may depend on you securing protection for intellectual property rights in the country concerned, and may also require approval from the government in that country.
There are three ways of setting up joint ventures for exporting purposes:
- Collaborating with a UK firm: it may be possible to identify a suitable UK firm that is willing to enter into a partnership with you to begin exporting. This provides an opportunity to pool resources and expertise, and it is important to find a firm with strengths and competencies that balance any weaknesses you may have. Chambers of commerce, professional networks and your trade association can also be good sources for locating potential partners.
- Collaborating with an overseas business: it may be possible to reach an arrangement with a compatible business abroad. This can involve agreeing to manage each other's export trade, or a joint operation to enter a specific market that may involve shared investment.
- Working with a multinational firm: whether UK-based or in the target export territory, large firms often seek new products for their sales portfolio. If initial research indicates that your product could work well within a particular firm's range, it is possible to explore this 'piggyback' method.
As an alternative to direct exporting, you could choose to appoint an independent agent or distributor to represent you overseas and sell on your behalf on a commission basis. This may eliminate the need for travelling abroad and dealing with some of the complex export documentation. However, it still requires considerable commitment. It can be a useful route to selling abroad for smaller firms, and provides a means of testing the viability of a product in new markets.
Whatever methods of exporting you use, it is essential to protect the intellectual property rights relating to your products or services, and any ideas and processes that are unique to your business. This will be particularly important if you are considering licensing or contracting out the manufacturing of a product, or setting up a joint venture production facility with an overseas business.
Advice is available through your local chamber of commerce and DIT can provide free information to help you plan your exporting venture effectively.
Options to consider when using an agent or intermediary include:
Import and export agents
Import agents are based in overseas countries, while export agents are UK-based. Agents may look for the sole rights to a region or country and will help you fulfil orders in return for an agreed commission payment on each order. (They do not normally deal with shipping or payment, which you must arrange separately from the UK, usually through a freight forwarder.) They are briefed on appropriate prices and terms, and they then find you customers within their designated geographic territory.
Agents accept orders and enter into legal contracts on your behalf. They do not usually accept a credit risk on stock unless they are 'del credere' agents, who accept the credit risk on supplier stocks for their market and charge a higher commission to compensate for the risk involved.
Distributors based in overseas markets hold stocks of products from which they fulfil local orders. Unlike agents, they will buy products from you and sell these on at prices that they fix themselves. They usually also oversee the import/export process.
Distributors work in various ways: some may buy products from you and resell them at their own prices; others will trade under a sale-or-return arrangement. You should seek advice from a solicitor with experience in international trade if you are thinking of setting up an exclusive or selective arrangement with an overseas distributor.
There are several other types of intermediary, named according to the type of advice or practical assistance they offer. In many cases functions overlap, and the services offered may vary from country to country.
- Export houses are firms with a detailed knowledge of international sales that specialise in financing and servicing exports. The price paid for your product will reflect their costs, but in some cases the importer pays the fees of the export house.
- Export consultancies generally specialise in certain markets and services. They usually accept responsibility for all aspects of export administration or will offer you particularly specialised kinds of support.
- Export management services are independent and take on the export function on behalf of their clients, often securing the exclusive territorial rights to certain areas or product ranges.
- Export merchants buy products outright from you and sell them abroad. They usually take delivery and make payment in the UK, and often specialise in certain products. When dealing with a new product, they will require an agreement with you to protect their investment in building overseas sales, and may also request product or packaging changes to meet their market requirements.
- Confirming houses place orders with you on behalf of overseas customers and attend to all transport arrangements. They can also act as agents for you and seek orders from their overseas contacts.
- Crown Agents make purchases on behalf of the public sector - for example, foreign governments, the armed forces and transport authorities. They are responsible for paying you within the UK.
- Large overseas firms, such as grocery or retail chains, often have buying houses in the UK. These have huge purchasing budgets, and although you will usually still have to deal with the administrative process of exporting, you may receive large orders.
Choosing the best method for exporting
It is important to consider all the elements of a particular export project before finalising your market-entry strategy. Each entry method should be considered in the light of the proposed market and customers, product or services provided and resources required.
Proposed market and customers
Gaining a foothold in any market involves being aware of how it operates. It is important to clarify the existing channels of distribution for your particular type of product. A market visit will provide a good opportunity to study the local business structure and answer the following questions:
- Are there any legislative issues that will affect sales, such as restrictions on choice of representatives?
- How do firms in the chosen market prefer to do business? For example, many large organisations are not keen on unsolicited approaches but channel all their buying through an agent.
Product or service
In many cases, the nature of your product will determine the selection of market-entry method. It is a good idea to make a list of any factors that may affect the way your product should be sold, using your experience of the UK market where applicable. Factors may include the level of technical back-up and promotional investment required.
This can include staff time, language skills, technical and marketing resources, as well as finance. For example, how will your domestic business be affected if technical staff are busy dealing with issues abroad?
Finding advice and information about exporting
There are many sources of advice available to anyone considering different market-entry methods and seeking partners or representatives. Their help ranges from general information to specific assistance with a particular venture. Please refer to our resource section below.
Hints and tips
- It is essential to seek assistance from an experienced adviser or solicitor before you enter into contracts with agents or other intermediaries. The relevant legislation (the Commercial Agents (Council Directive) Regulations 1993) is notoriously complex and it is important that the implications of any agreement are understood.
- In many countries, government regulations may dictate the choice of who represents you, and may stipulate the level of commission.
- It is important to understand that the best method of entry into one market may not work in another. Many firms that export to a number of markets deal direct in some areas while using UK intermediaries to sell to other territories.
- Overseas trade exhibitions will provide you with an opportunity to establish contacts with potential buyers, distributors, agents and partners, and also enable you to assess the competition.