Neil Bromage has run his own small business and is a freelance business writer working on a range of newspapers including The Times, Sunday Times, Telegraph and Financial Mail on Sunday. This book is based on a wide range of columns and Q&As written and answered by Neil for Business Link over a number of years. He is based near Preston, Lancs.
Directly exporting your goods into an international market is only one way of expanding abroad. Other options include licensing, joint ventures and offshore production.
Licensing requires a contract between you and a foreign company, which grants them the rights to manufacture, distribute and sell your product, in return for which you receive payment. It’s a method that enables rapid entry into a new foreign market without making huge investments but which can provide comparatively quick returns. However, you will lose control over manufacturing and marketing of the goods: if you’re not careful your partner can become your competitor.
Joint ventures, however, create what can be a more equal partnership, based on a contractual arrangement with a foreign partner. The contract can provide for different levels of equity to suit individual requirements. In some countries, a joint venture is the only legal way for a foreign company to set up operations. It has the advantage of providing a level of control over the operations, which is supported by the foreign partner’s knowledge of the market. Often the partner’s business and political contacts may help to smooth out difficulties. However, it will need higher levels of investment than licensing and requires training, management and transfer of technology. You will also be dealing with entirely new management in a different country on a more regular basis; where the partners do not share the same language this can create communication difficulties.
If greater overall control is your desired aim then you may consider setting up your own international manufacturing base. In doing so you may achieve lower production and transportation costs and other tax or foreign government investment incentives but the risks are relatively high. You will need much higher levels of investment than required for either a joint venture or licensing operation. Additionally, substantial time commitment will be needed. This route to market raises many issues you will need to consider such as legal and tax ramifications, and location.