Route to market

Access Markets

This lesson will help you consider what resources you can provide from within your business.

Identify  what would be better delivered in territory.

Consider what you will need from a third party to overcome the barriers to growth you identify. The analysis will help you identify your best option.

Options For Market Entry:

There are a number of different ways that you can approach the market – take a look at the list of common international business models below. Note that these are typical overviews – it is your business model, so you can tailor any of these models to suit your own requirements.

Direct Sales:
You identify, sell to, supply and service customers with your products or services from your UK base. On the face of it this seems like the obvious way to maximize your profits – but is it? Whilst the margins will probably be higher, so will the overheads and risk profile. You may be able to mitigate this to an extent by using indirect sales through website or telephone sales as part of your process – but once you have made the sale have you considered the challenges of fulfillment and customer service in a marketplace that may be many miles away, and have a very different culture to your domestic market.

Tips:

  1. Do not get “seduced” by the gross profit potential – consider operational costs and associated risks.
  2. Consider the scalability and sustainability of the Direct Sales model – will you hit “glass ceilings
  3. Question yourself – are you wanting to sell directly because you are an “over-protective” parent – if you do not let others get involved in developing your business it may not realise it’s full potential.

Agents
An agent negotiates sales, or conducts a specified part of the sale on your behalf and earns a commission. The contract of sale (and the legal ramifications) are between you and the customer and your product or service is delivered directly to the customer. Some agents may offer customer service facilities, and hold stock (but the stock in this case is owned by you).

Tips:

  1. Have clear written agreements – take legal advice
  2. Think clearly about commercial terms – who does what
  3. Agree performance targets and monitor regularly
  4. Build trust and ask for visits to end users
  5. Choose the right agent – visit the ‘find and manage partners’ section on this site
  6. Ensure your agent is motivated to recruit customers that are likely to pay you on time and will help collect outstanding debts by making it clear that the agent will receive their commission payments after the end user has paid you.

 

Distributors
A distributor buys products from you and re-sells them to their own customers. Distributors may be ‘sole’ (this means that you can also sell in the territory, but no other distributor can be appointed provided the terms of the agreement are met), exclusive (this means that no one else can sell to end users in the territory – including you), or authorized non-exclusive. In the case of a distributor the “contract of sale” lies between you and the distributor. Whilst you will have to give away margin, the distributor should provide many resources that significantly reduce your overheads and risk profile. A very scalable and sustainable model.

Tips:

  1. Have clear written agreements – take legal advice
  2. Think clearly about commercial terms – who does what
  3. Agree performance targets and monitor regularly
  4. Build trust and ask for visits to end users from time to time
  5. Choose the right distributor – visit the ‘find and manage partners’ section on this site

 

E-Commerce
This is where you service customers directly from your e-commerce website. This can either be selling direct to end users (as a form of direct sales) or bulk sales to partners. Obviously making the best use of technology to reach your customer base is a sensible thing to consider. You might simply want to make some adjustments to your existing e-commerce model to attract a few more overseas customers, or you might want to develop a sophisticated scalable model with high levels of growth potential. Whatever you want to achieve there is a fantastic range of routes to market open to you on this front, and much excellent support to help you to choose the best option.

  • You can develop your own e-commerce sales platform where you will be selling your products at maximum margin and the customer will only be focused on your offering – but where you have to drive traffic to the site, or
  • You could use one of the many “busy” marketplaces (such as Amazon) that already have strong traffic flow, but where your offering may be considered as a ‘commodity’ next to other similar products with the customers having a wider focus, and your margins subsequently being lower.

On the face of it it e-commerce seems an easy way to reach a wide customer base, and fulfill your customers’ needs from your UK base – but is this the reality? If it is your own site can you really cost effectively drive traffic to it from overseas markets? If SEO and social media is much of the usual source of that traffic can you do that cost-effectively from the UK? How can you establish credibility such that individuals will trust you to send goods or deliver services from the UK. What happens if they want to return goods? How do you operate in countries where there may be great sales opportunity but they do not speak English? Once you have made the sale, can you effectively administer it, fulfill the order and provide the levels of customer service that your offering demands? – Lots to consider and lots of different models that you could create within this sphere!

Tips:

  1. Think about the ‘big picture’ – what do you really want your e-commerce to deliver for you?
  2. Think about culture – remember not all international customers will behave like your customers here in the UK
  3. Don’t just focus on the technology and the website – consider the reality of operation.
  4. Even if you are a seasoned e-commerce trader, speak to a UKTI digital advisor. They will be able to give you an international perspective, introduce you to a range of possibilities and also help you to avoid the pitfalls.
  5. Research shows that buyers are more likely to click the buy now button if that page is in their own language.

 

Franchising
This is a similar model to working with Agents or Distributors – it is where you set up a business opportunity that is run to a specific set of guidelines. It may, for example, involve the partner (franchisee) paying you an upfront fee (for the rights and the business model), and an annual renewal fee. They might also either buy and resell stock or, in the case of services, pay you royalties on their sale of services. Franchising does give you more control and it is a sustainable model, however, it can be quite complex and subject to high levels of statutory administration and legal restriction (which varies from territory to territory).

Tips:

  1. Think about where the value is in your business – could you systemise it and create a ‘business in a box’.
  2. Get professional advice on how to set up a franchise.
  3. Before you invest in developing your franchise model check that your target marketplaces will accept a franchise model

 

Licensing
This is where you would grant a third party the rights to produce and sell your product or service “under licence”. This is the ultimate leverage of your intellectual property. Whilst you may immediately consider the risk aspects of this (what happens if the licensee steals my idea, or the quality of the goods produced does not meet my standards) you can usually structure the agreement to overcome these aspects and this is a highly effective way of generating cash once the IP has been created and protected.

Tips:

  1. Try to hold a piece of the jigsaw back to make the offering complete – this may be a small component that you produce, or part of the service that you deliver – this makes it hard for someone to copy like for like, and is an easy way to monitor how much business is being done and hence monitor how much royalty you should be paid.
  2. Check to see how you can protect your IP – to give you an insight into this you might want to visit the module here in ExportSavvy entitled ‘Protecting Your IP’
  3. Try to charge a licence fee and then use this to engage your own quality control person who reports sales levels back to you and rectifies issues.

 

Joint Ventures
This is when you join forces with another management team to set up a trading entity that you co-manage and/or co-fund. There are some markets around the world where this is the only form of trading model that is allowed for an importer. Joint ventures need careful consideration This should be carefully considered – will your management styles compliment each other (particularly considering cultural differences), do you have skills that compliment each other and who will be responsible for what? if you invest in an offshore entity how safe is your investment, how solid are the terms of your relationship.

Tips:

  1. Look for a clear win/win in the relationship.
  2. Take professional advice
  3. Have a clear written agreement and around roles
  4. Be sure that you are bale to maintain acceptable levels of control.
  5. Protect your IP

 

Strategic Alliance
This is where you would develop a business relationship with one or more other businesses and work as a team to achieve strategic objectives that would otherwise be more difficult to achieve if you were trading solo. The partner could be a domestic business or an overseas entity. The partner(s) could be in the same sector, or complimentary sectors who talk to the same customer base. You may have a larger collective message – for example a group of food producers may combine to form a British Food Group – they may exhibit overseas as a collective.

Tips:

  1. Make sure that all parties in the alliance get satisfaction from the benefits of the alliance
  2. Base the alliance on frequent open communication to ensure trust
  3. Have a clear written agreement that lays out the basis of the alliance – who contributes what and what benefit each party will receive.

 

Own Office / Company
You set up your own subsidiary – owned 100% by you or your company. This could be a locally registered business, or just an office premises managed by your existing company. This model gives you control, but it is a route to market that entails relatively high costs and risks. Not only is it likely to be quite costly, but is will be time consuming and mentally challenging – you may engage a local team, but you still have to recruit and manage them. In some territories you will not be allowed to do this under local regulation so before jumping in it is worth checking this out. All this aside if the market is very attractive don’t dismiss this out of hand – in the longer term it could pay real dividends and add real residual value to the business.

Tips:

  1. Have a clear plan
  2. Think about all resources required and plan where these will come from.
  3. Consider the reality of time management with this model – can you effectively manage a team that far away given the resources that you have available to you?
  4. Own office/subsidiary – Tip – Take professional advice on your tax position in the overseas territory and where the profit is accrued.

 

Value Added Reseller
This is where your offer may become part or a component of someone else’s. Your partner may already be selling a product or service to the marketplace, but the addition of your product or service will significantly improve their existing offer.

Tips:

  1. To test suitability for this model think about the real value of your offering – what is the bit that is worth the money, the bit that others cannot do?
  2. Have clear written agreements – take legal advice
  3. Focus on protecting your IP in the agreement

Barriers To Growth

Exporting is the opportunity to completely reinvent your business model to overcome potential barriers to growth – for example, if cash will be a barrier you will want to set up your model so that you are paid up front (perhaps by a partner who will take the credit ‘hit’ with the end user, if production capacity will be a barrier then licencing your product or service to be produced by a third party overseas might be a good route to market. Consider the barriers to growth that you might have to overcome.

Options For Market Entry

Let’s think about all of the things that we have covered – Considering the resources that you will need to source from within the country that you are intending to trade with, and considering the barriers to growth that you might want your business model to overcome, what is your best route to market?

Take a look at the list below and note the most suitable for you.

Click to complete, and choose another lesson.

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