Stuart has a wide range of experience and specialises in corporate transactional work, intellectual property, commercial contract and international trade work.

Q: We are a small to medium sized enterprise considering international expansion. Why should we expand internationally and what do we need to consider?

Why do business abroad? Each business needs to consider its own position but generally speaking one has to realise that the UK is a very small market within the huge international trade arena.

The reasons for expanding internationally are therefore considered to be financial growth and increasing market share coupled with a reduction in economic exposure to the home market.

Q: What is the best way to set up a business abroad?

There are a number of ways which companies traditionally establish a presence in another country all of which have pro’s and con’s that will vary from business to business.

You can establish a branch, acquire an existing business, or enter into a joint venture with a local partner.

The relationship with a partner maybe by direct sales to a manufacturer, engagement of a sales agent, a contract with a distributor.

If, after careful research, it is considered appropriate then it is always possible to set up a new subsidiary within the country you are looking to exporting into.

In relation to these options the following should be considered:

Branch or new subsidiary entity?

A branch is a recognised trading presence within the country and usually requires registration at the commercial registry in that country.

A subsidiary of an existing company would be a newly formed corporate entity within the country which would need registration and will need to comply with local corporate law requirements.

The advantages of proceeding in this way is that it is an extension of your existing business you will take the benefit of but also the risk of organic growth and retention of profits, however there is a disadvantage in that there is no established presence within the country.

Joint venture or strategic alliance?

This is a way that many people commence business within a foreign country as the risk is shared together with the reward with a third party.

The advantages therefore are sharing of risk but also the advantage of local knowledge on the ground from the joint venture party.

The disadvantage is that it sometimes takes time to establish and may be difficult to exit from.

Agency

Many businesses start supply in a new jurisdiction through the use of a commercial agent.

These are individuals who will take on the task of marketing and sales within the jurisdiction.

The advantages of this method are that you immediately obtain local knowledge with contacts within the area within which you wish to sell.

The disadvantages of an agent are that many jurisdictions have protective measures in place which can make the termination of an agency arrangement expensive.

However, there is an advantage in that it is a way of testing a market with your products on a commission related basis with the agents Which can help to lower risk as well as ensuring you have a motivated local partner.

Distributor

This is a contractual arrangement with a company within the country which has knowledge of the market and route to market for your particular products.

They purchase product from you and pay you for that product and then distribute at mark up.

It is possible to link distribution with licencing (where appropriate) and to include provisions as to the style of marketing material and advertising and other supportive documentation in relation to the products.

The advantages of this is that having found the right party, it is fairly quick to set up and easy to administer.

It is unsuitable for long term expansion as you are linked almost inextricably to the experience and market of the distributor.

Contractual arrangements with third parties

In certain instances, your products may be such, that you can contract directly with a manufacturer to purchase products from you for incorporation in another product. This is a straight forward supply arrangement into another country.

However this is purely sales based and does not create a presence.

If you wish to sell your products within a different country you may consider entering into a manufacturing licencing agreement with an already established manufacture in the territory.

That manufacturer would then manufacture the goods for you and you would be left responsible for finding route to market.

Are there any other issues that we should consider?

It is important when considering international expansion that you clearly set out your own strategic plan and also undertake a risk analysis.

The home based business should also be protected against the possibilities of a failure in relation to the international venture.

Good advice from agencies within the UK should be taken and without doubt early advice from professionals is appropriate in relation to the structure, contractual documentation, and tax of proposed foreign operation..

You should ensure that you obtain direct advice from professionals within the country that you are intending to operate. This is due to the fact that they will be able to assist and advise in relation to various issues depending on the way that you decide to proceed. Certain UK-based firms, such as Aaron & Partners, are able to facilitate this for you through international framework organisations.

If you intend to establish a branch or a subsidiary then there will be issues in relation to the corporate establishment and also general issues in relation to employment, tax, health and safety and other issues applicable to any business but with a particular emphasis on the country within which you will be operating.

The proposal should be an acceptable risk for your business and should be incorporated within the entire business plan.

To discuss this or any other commercial law issue please contact Stuart Haynes on 01743 453687 or email stuart.haynes@aaronandpartners.com