When going into new overseas markets, it is important to determine how you will achieve your sales. In other words, your routes to market. There are several options, and all are as valid as each other but each will suit different businesses.
Sales agents are sales professionals who work on your behalf in a defined territory (which will usually be exclusive, meaning no other sales agents can be appointed in that area). They are usually remunerated on the basis of commission on sales and rates can be anything from 2.5% to 20% or more – depending on your industry.
Agents will usually focus only on sales and once they achieve an order, the company will take over. This will include all responsibility for delivery and for collecting payment.
Agents are based in the territory that they represent and so have the advantage of local knowledge. They build relationships with customers but ultimately you retain control of the relationship as well as pricing, and any other aspects of the sale that you choose. If an agent’s contract is terminated for any reason, you will retain the customers.
Because of exclusivity, you have to rely on the agents that you appoint to perform well as you can’t appoint further agents in their territories (though you can terminate their contract if they fail to meet targets and conditions set). It can take longer to be paid with agents than other routes as you have to wait until they have made sales to end users.
You do need to understand regulations in different countries as some enjoy strong protection in law and could even continue to earn commission on sales after their contracts have ended. Remember to factor in the cost of supporting your agents, including marketing and sales aids, and consider whether indirect sales in their area (such as online sales) are subject to their commission.
Distributors are resellers of your goods, so they buy your goods and then sell them to their customers. They will usually want exclusivity in their territory. Distributors buy your goods, often in bulk, at a discount and sell them on at a higher price. Usually your involvement will end once you have sold your goods to the distributor.
As with an agent, their local knowledge can be very useful. Because your sale is to them and not the end user, the process is shortened and therefore you’re likely to be paid sooner. You’re also selling in bulk so can achieve economies of scale on delivery and administration.
Because of their discounts, you will achieve lower profit margins than selling direct to customers. You also lose control over how your goods are sold and priced once you have sold them to the distributor, nor do you have any contact or relationship with the end user.
One way to have a direct presence in another territory is to set up an office of your own there and staff it yourself. This can be used for pure sales or you could even establish some manufacturing or assembly there.
Having your own office in an overseas territory demonstrates a clear commitment to that market and this can help with establishing trust in your customers. It gives you total control over the whole process and means you retain all relationships and all profits yourself.
Setting up and staffing a new office can be costly and it may take some time before you turn a profit in that area plus you will need to factor in the tax and regulatory obligations of that country. Directly managing staff remotely can also present some difficulties.
Instead of setting up your own office in another country, you can join up with a company who is already there. A joint venture involves establishing a new company, jointly owned by the two partners.
A joint venture is cheaper than setting up a new office plus you can benefit from the local knowledge that the other company has. Costs would also be shared.
As well as sharing costs, you would also be sharing profits with your partner organisation. Contracts need to be thorough and include protections for things like intellectual property.
A strategic alliance is similar to a joint venture, but you don’t necessarily need to form a new company.
As with a joint venture, you can share expertise and combine their local market knowledge with your product knowledge. You can also share costs and risks.
Again, shared costs also mean shared income and intellectual property needs to be protected. With a strategic alliance, you need to make sure you are complying with anti-competition and anti-cartel laws in the country you’re operating, and potentially elsewhere.
Licensing allows other companies to use your intellectual property according to license conditions. This may be using your technology, processes, images, branding, and so on. The cost of manufacture would be theirs and you would be paid in the form of royalties or agreed fees.
This allows you to make profit from ideas and concepts that have already been developed without the variable costs of manufacture and delivery. It can also increase your brand reach.
Contracts need to be carefully thought out and must incorporate how you will control and protect your intellectual property and brand. You also need to put mechanisms in place to monitor and enforce this.
This means selling direct to your customers via the internet. This could be through a website or, increasingly, through social media or third-party selling sites.
Direct sales in this way allow you to cut out the middle-men (agents, distributors, partners) and therefore retain all of your profits. It also allows you to retain control and have a direct relationship with your customers.
Doing everything yourself in this way means you don’t have the advantage of the local knowledge that other routes offer. You’re also likely to have larger volumes of small orders which will increase delivery and administration costs. It can also be harder to get established and you may have to increase your marketing spend.
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