Different models of market entry can be more suitable for certain countries. While appointing an agent or distributor is frequently the first step, in this chapter we have selected some key markets and looked at the usual or most appropriate options for developing business. Here we look at export to India.
India is a huge market of over 1.2 billion consumers and as it is further behind China in terms of development is regarded by many UK companies as offering untapped potential. Companies often look at direct exporting and then search for agents and distributors. These may not prove successful as much is promised and not delivered particularly regarding total market coverage.
After building up some experience with visits to major cities in India, companies may well conclude that they really need a local partner to access and develop the market. In addition, import duties and supplementary taxes can add around 35% or more to the landed cost. Therefore, some local manufacture or assembly or in the case of services, delivery with locally engaged staff, may be necessary to reduce costs in a price sensitive market. These considerations may result in the setting up of a joint venture with a local company.
It should be noted that establishing a business in India can demand patience and perseverance as this is a very bureaucratic country. For 2015, The World Bank ranks India 142 out of 183 countries in their “Ease of Doing Business” index. www.doingbusiness.org
To celebrate 7-14 November 2014, we offered 25% off Exporting Made Easy. It was reduced from £10.99 to £8.25 plus P&P but has now been returned to normal price.
Author Simon Bedford ran workshops at Export Week events in the East of England – to find out more, connect on LinkedIn or find out more on the UKTI website.
Different models of market entry can be more suitable for certain countries. While appointing an agent or distributor is frequently the first step, in this chapter we have selected some key markets and looked at the usual or most appropriate options for developing business. Here we look at export to China.
Most companies that start looking at China as an import or export market make direct visits, and soon realise that it takes time and many repeat trips to build up trust with their potential customers, suppliers or partners. Chinese intermediaries are frequently involved which means you are not dealing with the end customer or supplier. The common export route is to use one or more agents or distributors (also sourcing agents) which can help to “open doors” if they prove to be as well connected as they purport to be. China is a vast country and one agent or distributor is unlikely to have the connections or infrastructure to service more than his own region.
However, to assess a huge and growing domestic demand, UK companies can consider establishing some type of local presence. This may be setting up an informal operation with a Chinese contact address. China Britain Business Council (CBBC) offer their Launchpad scheme, whereby you can have a “hotdesk” facility and they will employ a local manager or salesperson on your behalf.
UK companies can establish their own representative office but as the name suggests this office cannot engage in business activities and is restricted to liaison, marketing and exchange of technology.
Joint Ventures used to be the only way to enter the market and so from the time they were introduced in 1979 an Equity Joint Venture (EJV) was popular but not necessarily successful. Early Chinese JV partners were often existing or ex-state trading organisations which were inefficient and bureaucratic and there are many horror stories of foreign investors losing their capital and IPR (Intellectual Property Rights), and eventually cutting their losses.
In the mid 1990’s WFOEs (Wholly Foreign Owned Enterprises) were permitted, allowing 100% foreign ownership, without a local Chinese partner. WFOEs quickly took over as the preferred form of Foreign Direct Investment (FDI) giving independence, control and more protection of the foreign company’s IPR. A key point about WFOEs is that initially they were only permitted for export oriented or import substitution activities. Later it was made much easier for WFOEs to sell to the domestic market.
Finally, in 2004 the Foreign-Invested Commercial Enterprise (FICE) was introduced. This allows the foreign investor to set up a trading operation doing wholesale, retail or franchising.
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Check the local laws
Before entering into an agreement with an agent or distributor overseas, you need to do some research on the law in the territory where he or she is based. In some countries, for example, there are rules that require agency agreements to be registered with a Government department or that stipulate only nationals of the country can become an agent of a foreign supplier.
So, before signing anything, get some local legal advice early on to cover:
- Who is entitled to act as an Agent? – is this confined to a national or company owned by nationals of the State or can a foreigner act as your agent?
- What are the basic legal rights of the Agent and the Principal?
- What are the rules concerning termination of the Agency?
- Are there any registration procedures?
- Does the law distinguish between agents and distributors? In Europe, the rules only apply to agents but in some countries of the Middle East, the distinction is blurred and a distributor might have the same termination rights as an agent.
You might think that the issues mentioned above can be avoided if you say English law will govern the agreement with your agent. Unfortunately, it is not so simple and the local courts or even the legislation may take a different view.
Be sure to spell out all the key requirements in your agreement – territory, products, commission, initial period, targets, termination rights and much more. Don’t ever omit any important matters in the hope they will sort themselves out later.
Included in Exporting Made Easy – the book are some template agreements, which you can also order individually for download from ContractStore.com:
30% DISCOUNT OFFER TO SUPPORT UK BUSINESS
To celebrate National Export Week on 12-16 November, our new business guide ‘Exporting Made Easy’ will be available from this website at a specially reduced price of £7.70 for this week only.
Last year the Government launched its export strategy, “Britain Open for Business” as part of a plan to boost the UK economy (ref.1). In November, the CBI made exports the focus of its annual conference and urged Britain to match the EU average of one in four businesses exporting (ref. 2).
Yet export may seem daunting, or simply may be something a business hasn’t thought of . A British Chambers of Commerce survey found that one of the main reasons given by SMEs for not exporting was ‘they did not know how to do it’ (ref 3.) . A majority of exporters are in manufacturing but professional service providers lag behind with only 18% having export as part of their business.
In this context the publication of the business guide to Exporting Made Easy and the associated website could not be more timely. With practical guidance on all the stages of finding and working with agents and distributors as well as sample legal documents, it looks at how to assess a suitable partner, gives case studies to consider and covers issues of culture, law, cross-border trading, how to deal with problems and much more.
Authors Simon Bedford and Giles Dixon bring a wealth of experience to the subject.
Simon has been providing export training and workshops for UK Trade & Investment for eight years after a long and successful career in export in the private sector. Giles has spent much of his career in commercial law overseas, and in 2002 founded ContractStore.com, a online provider of legal contract templates for business around the world.
Described by Graham Hand, Chief Executive of British Expertise, as “a good read, easy to understand and encouraging to exporters”, Exporting Made Easy is designed for clarity, with its 109 pages divided into 25 short chapters covering all aspects of dealing with overseas agents and resellers.
Any small or medium enterprise seeking new markets would be well advised to consult this work as a first step towards successful expansion and to help lift UK fortunes.
The UKTI’s National Export Week runs from 12-16 November and so to encourage export and to support the UKTI efforts, we are offering a 30% discount all that week from this website.
Check back here on 12-16 November to order your copy of Exporting Made Easy for just £7.70 plus P&P
Find out more about Export week and all the events that will be on offer at: www.exportweek.ukti.gov.uk
You may already know whether you require a commission agent, or prefer a distributor who can stock products locally in the market. As the export of services from the UK has expanded rapidly in recent years and there is no tangible product to stock, so an agent is often all that is required.
However, it is worthwhile to examine the role and types of agents and distributors, as these terms are often used loosely. A distributor may refer to himself as an agent and vice versa, so it can be confusing.
- An agent does not have to buy the product or service from the supplier (or principal) and does not have title to (or own) the goods or service.
- The role of the agent is to find customers for their principal in return for a commission payment on any sales they arrange.
- Once the agent has effected an introduction, the supplier/principal will then sell the goods/services direct to the consumer.
- An Agent does not accept financial liability.
The Distributor (or The Re-Seller)
- Purchases products from a UK exporter/supplier and therefore has “title” to the goods purchased.
- The distributor then sells the goods on to the final customers having added his profit to the price.
- The selling prices and terms of sale are determined by the distributor.*
- Buys/sells on own account in defined region
*Fixing the resale price is illegal in the UK and many other parts of the world. The most you can safely do is to have a recommended retail price (RRP).
The key questions that companies should be asking when starting to export goods or services:
- Why do you need an agent or distributor?
- Who to appoint?
- How will you find the right person?
- Where should they operate: territory?
- What is their role?
- When is the right time to appoint them?
Companies new to overseas markets may not be aware of the full range of options for how they can sell their products and services.
Some companies start by indirect exporting i.e. by effectively selling in the UK to Merchants, Trading Houses, or original equipment manufacturers, for example car components. Payments would be in pounds sterling on usual UK terms such as 30 days, and there is no overseas delivery to worry about.
Companies can start exporting directly without using a “middleman”. They can simply travel to the market, having carried out some research, and try to book the orders. However, after a short time there is a realisation that a local man on the ground in the form of an agent or distributor can bring results more quickly and this is a continuous point of contact for you and your customers.
Follow the blog to get more info as we continue the discussion.