External Expansion Limited

Wednesday, 21 May 2014

ACTORS, PROMOTERS AND ALTERNATIVES FOR ACCESS TO INTERNATIONAL MARKETS

In this article, following the analysis above, we will enter to know in detail the actors, promoters and alternative for access to international markets that give you a perspective on what would be the best option that suits the needs of your company. Here we reveal the characteristics and advantages that the Commercial Agents, Commercial Agreements and the diferent ways to Establish Abroad which will help you to make the best decision to entering into a foreign market.
The commercial agent is a individual or legal entity that steadily is dedicated to making mediation in international trade operations as unemployed person for manufacturers, wholesalers or distributors, normally receiving a remuneration in the form of a commission but without taking risks in operations. The commercial agent carries out its work independently by third parties without meeting any employment obligation with the company for which they work. They usually have a minimum structure and the success of their business resides in having legal, commercial and technical updated information of the market and product in which they operate. The advantages of a commercial agent are to allow the company to maintain control over the commercial pricing policy, branding, communication and promotion. This enables a lower cost of sale allowing higher gross margins for the company; The agent receives remuneration represented by a commission on their sales, being less expensive than having a commercial on staff or move overseas owns sellers. Being a person of small structure, the company gets a better understanding of the market getting more feedback (information market: trends, products, competitors, legal regulations, sales expectations), even going to maintain direct contact with the clients, which facilitates customer loyalty. Is simpler the agent training obtaining a further diversification of business risk in different customers, which in turn, provide to the exporting company a lower difficulty to establish in the country of destination when it sees fit. The drawbacks are generally originating from the difficulty of finding the right commercial agent and once gotten (except EU) many are reticent in providing market information. Other normally transferred the problems to the company instead of solving directly and are not liable for the solvency of the customer. It should be particularly careful with those who say cover more territory that really control and usually tend to be multi portfolio so they end up focusing on those products that provide top sales and not the entire portfolio.
There are several types of commercial agents, which are distinguished by their own specialization. Import Agent are demand-oriented product abroad that they need to satisfy the customer portfolio who already have established in their home country. Export Agent are oriented to offer products of their country of origin to customers in foreign markets and the basis of its populari in having a competitive product offering. Import and Export Agents better known as brokers, working in both directions of foreign trade operations, characterized by having a wide range of products and specialized in a small number of countries or geographic area, with a little developed structure distribution. General agents are geared to work for companies that guarantee them exclusivity in a given geographic area for the full range of current and future products in a minimum period of time, usually five years. Purchase Agents work as central purchasing locating suppliers to lower prices that customers pay to their regular suppliers. They are usually employed by hypermarket chains, department stores and manufacturers that consume a large volume of raw materials. Other forms of brokering is usually the Commission Merchants, which are self employed intermediaries without duration or stability characteristics of a commercial agent, and that its activities are limited to specific business operations. The Representatives, often linked to the company by contract working type with a fixed salary and may be a wage or commission, but in both cases are considered as company employee. The Trade Commissioners, are the direct trading of the company doing sales management for the enterprise in a foreign country and having a structure created by the actual company in situ to serve the market, but legally separate from branch or subsidiary commercial.
On the basis of our experience we suggest to export through a commercial agent in the following cases: when the company is in an initial phase of international expansion; when financial resources are not sufficient to reach foreign clients directly; when the company want to enter a market where potential customers are very low or very high, but the return you get will not be enough to serve them moving own salesmen; when potential customers are public agencies or companies those who access is required through institutional contacts which provides us the agent; when the sector to which the company belongs is characterized by having very chargeable prices and is require of a person who negotiates in a agile and permanent each tender; when the product not require a service post sale; and when the demands may be served to the final customer without the costs of transport make more expensive excessively the sale price. In these last two cases, if requires a service post sale or the cost of transportation make more expensive the sale price, is recommended use a dealer, that gives these services and has a logistics infrastructure in the country of destination which are not available to commercial agents. As we noted in the previous article, any type of agent selected will be framed within the form of access as direct export without in any case the Agent assumes any liability.
When a company has experienced a process of direct export through a broker, it would advance your export policy giving a greater role to your agent or go to the achievement of trade agreements that will boost their export activity and will involve taking some responsibility by the other part. One of the major trade agreements is the Piggy Back, which is used by the company that wants to enter a foreign market by leveraging the distribution network of another company that is already established in the target market. Many times the alliance between producers of complementary products or consumer companies that share the same distribution channel or the same points of sales, are the basis of such agreements, and is useful for companies that do not have the ability to create your own commercial distribution network. In such cases the benefit is mutual, because the company installed abroad (or channeler) gets the advantage to make profitable its distribution network and increase product range acquiring a greater negotiating skills with customers; and in turn the supplier acquires the advantage of access to foreign markets at a lower cost through a network that is already operational, which will allow know how your product behaves in the market and make an estimate of potentials sales. These agreements have the exclusive distribution feature either using its own brand or creating a new brand that should be register for greater effectiveness.
The Consortia and Export Groups, such as the case of the Pool-Partenariat typical of France, consist in the grouping of companies with 4 or 6 members constituting a company to manage its operations in foreign markets, which could be created in the market of origin or destination (own from Russian, African or Chinese market). Many times private agencies respond to the interests of the government of a particular country support these companies as they are characterized by similar distribution channels between them being able to share marketing costs, giving them greater bargaining power with large accounts in the destination country. Also used by businesses with less legal rigidity and have intention of share with other companies promotion costs and logistics. Clusters, which are groups and companies in the same sector of a particular geographical area, often make this type of agreement with other cluster in the advanced country of destination, thus completing the productive activities of different value added.
In Europe, other consortia and export groups are the European Economic Interest Grouping (EEIG) created to foster cooperation between European companies, consisting of the creation of an entity with legal personality between 2 or more companies from different EU countries compromised to perform an activity together. Tipically have a very wide field of activities, ranging from manufacturing or marketing of a product or provide a service developmental in R + D, until submit bids in contests. As the name clearly indicates, is to meet certain requirements like that are to be a minimum of native partners in countries of the European Union and in the name of the company should be added EEIG abbreviations or words "European Economic Interest Grouping" registered office inside the EU. The partnership contract should be formalized in a public deed and registered in the mercantile registry of the registered office of the new partnership, have a tax system of fiscal transparency and no more than 500 workers; For all these reasons, this type of agreements are usually used in the field of consultancy, engineering or architecture for access to preferential financing, maintaining joint and unlimited liability by part of all partners on all debts acquire.
The License Agreements, consist in authorize the manufacture of a product to a company transferring its patent, trademark or industrial design with the appropriate know-how and Copyrigths. In such agreements interact one licensor and a licensee, the main reason for this type of agreement are the barriers to entry of certain markets due to the existence of monopolies, high tariffs, excessive transport costs, the return on investment in R + D or lack of resources for use other routes. The greatest risk of such agreements resides in the Licensee itself, which may become a competitor in the future so it can be very important to control the registration of the patent. The grant of the license allows to obtain revenue from 4 different lines: a fee or initial deposit, deposits or royalties, fees for additional services (training, quality control, etc.), and revenues by sell of complements (components, parts, ingredients, etc.).
The trade agreement known as Joint Venture has its roots in the difficulty for one company to have the means necessary for the creation of a subsidiary or distribution of a product in a foreign market, therefore, resorts to an alliance with another to give out effort, with the aim to complement although is lost some autonomy. In each case, a type of contract is specific because there is no single or standard model although containing common features. Is usually given in companies that have legal and economic autonomy, located in different countries, which are a common society (with its own legal personality and independent management agencies) or sign a contract to jointly develop a lasting or temporary activity. Sometimes is usually the only form of access to foreign markets too closed and also a way to established abroad in many cases.
The Establishment Abroad by medium or large enterprises strongly consolidated in their country of origin, is made by a delegation, which is usually the form easiest and least costly of establish in the external market, without actually having its own legal personality because it only boasts a showroom and reduced staff, with the aim of achieving the expansion and control the sales network; makes no direct invoices to customers and take no risks; Delegation allows you to analyze the market return before creating the subsidiary. Another means of establishment abroad is Commercial Subsidiary which consists in creating a partnership with legal personality in the destination country controlled by the matrix. This one purchase the products to the matrix and resells theme in their market assuming all risks inherent in the operations. Performs own managements of an importer and distributor with the advantage of knowing the market well and have direct contact with customers. In the first phase it is advised that the branch manager is an expatriate provided by the matrix, to ensure control and knowledge necessary for the development of the activity. The location of the subsidiary shall meet three basic criteria: 1st- Commercials, because it must find the greatest geographical proximity to potential customers and most centers of consumption; 2nd- Logistics, it is necessary to analyze communications be it to transport products as the travel of executives between the matrix and the subsidiary; and 3rd- Legals, because it is essential to know perfectly the rules on the constitution of companies, the existence of aids, the treatment to foreign investments, the tax benefits, the conventions on double taxation, the labor laws, etc.. Also, there is the Subsidiary of production that consists in the creation by the company their own production facilities in a country abroad for the manufacture and sale of products, or to produce different product lines and components that are then exported other countries that already have their distribution network, this being the alternative of greater commitment and risk. Is often, large multinationals strategy since it requires extensive financial resources and managerial, with the advantage of reducing costs for supplying a great emerging market and countries or sectors with restrictions on the presence of non-national companies. The 3 alternatives for a subsidiary of Production are: through the constitution of a new company allowing to adapt the structure exactly to the needs choosing the location and proceed by stepwise of investment and contracting; through the Acquisition of an Existing Company allowing quick access to an existing market share despite the problems with parallel activities; and through the creation of a Joint Venture where the subsidiary be independent of the matrix and allowing in their capital participate an external partner mainly requested in protected markets where it is necessary to have a local partner for overcoming obstacles, and in cases where there are restrictions by standards to the foreign investment which prevent a non-national company has holdings of 100% capital in a local company.
Ultimately, we mentioned the International Franchise which is defined as a system of collaboration between two legally independent parties linked themselves by a contract where the franchisor gives to the franchisee in exchange for a economic remuneration or fee, the right to use their trademark and their know-how business for a limited time and in a specific territory. The Franchise responds to the need for constant renewal of its supply in the market , forced by the relentless and growing emergence of new competitors and the need to offer new services. The Franchise gets a closer relationship with the consumer through a better specialization focused on the product knowledge, a better service and a better consumer care. They differ from other contractual arrangements because are based on a unique product or service, by a unique way of doing business, the business name, the good reputation or the patent that the franchisor has developed. The Franchises already exist in a variety of sectors and the U.S. dominate over 40% of all retail sales. Franchises provide security by reliance on the creation of a network of outlets supporting an entire distribution system, where different franchisees interact with each other, getting the maximum benefits for the different parties. The franchisor ensure to the franchisee a minimum return, a quality product, their originality and the knowledge offered by the fact of joining a lower commercial risk business due to the experience that provides the chain that is already operational. At international level facilitates the expansion due to changes in distribution channels in different countries and retail habits that allow the need to adapt the offer to the tastes and practices of the local market.
For more information or require services related to this article, please contact through our website www.externalexpansion.net or directly our email info@externalexpansion.net.
Until the next article...

Leonardo Dufau
LinkedIn
Also read the following related article: DIFFERENT WAYS TO ACCESS INTERNATIONAL MARKETS

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