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Ways To Venture Abroad

Overview

• It is important to have a sound market entry strategy that organises your entry and exit plans, and communicates your plans to other key parties like your investors.
• A good market entry strategy should look at items such as
  • potential markets by geography and industry
  • distribution channels
  • positioning and branding
  • costs and benefits of market entry options
  • operational support
  • potential candidates for management, partners and agentsyou are looking for business opportunities in new markets

Joint Ventures (JVs)

• You can enter a foreign market by forming a JV with a foreign company. A JV is a strategic alliance. Usually, all parties contribute equity and share in the profits, losses and control of the JV.
• JVs can be for one specific project or for an ongoing business relationship (e.g. the Sony-Ericsson partnership).

Advantages

• Forming JVs is a popular strategy when venturing abroad because it combines the expertise of the foreign company and the market of the local company.
• A JV also shares the costs and risks of venturing into a new country. In fact, JVs are sometimes the only permitted way to penetrate a market, as some countries impose having a local partner as a market-entry criterion.

Distribution Channels

• In distribution, instead of setting up offices overseas, owners extend the reach of their brand by using distribution channels to deliver their products and services to customers overseas.
• There are different types of distributions channels. You may:
  • sell your products and services through a retailer
  • distribute your products and services through a wholesaler
  • use a combination of channels
• In distribution, you need to consider important factors, including:
  • whether the distribution is exclusive, selective or extensive
  • number of members in the channel and level of control of each member
  • physical distribution and logistics (e.g. storage of products)
  • availability of product or service
  • how costs are shared among members (e.g. advertising)

Advantages

• Distribution is one of the simpler ways of venturing abroad. You export your goods through retailers, wholesalers and agents.
• AThere is no need to set up a presence in the foreign company although some companies do set up branch or representative offices to increase their presence in the market or offer support and services.

Franchising

• You can also franchise your business to a foreign company. In franchising, you (the franchisor) sell the rights to use the business name, brand and method of doing business to a franchisee in exchange for a fee.
• There is usually a franchise contract that states what the franchisee is allowed to use, what support the franchisor will provide, the fees, and terms and conditions.

Advantages

• Franchising is a quick and often profitable way to expand a business. You can build your brand overseas without having to handle the day-to-day operations of each outlet. Through franchising, you can also increase your distribution with minimal financial commitment.
• However, the downside for franchisors is the lack of control over operational matters. A franchisee that provides sub-standard goods and services or fails to promote the brand correctly could weaken your brand name.
• Some local household names that have successfully expanded overseas in a short period of time using franchising are BreadTalk, Osim, Bee Cheng Hiang and Kinderland.

Licensing

• You can licence your Intellectual Property Rights (IPR) to companies in overseas markets. IPRs include patents, copyright and trademarks.
• Licensing is giving someone the right to use your IPRs for certain purposes. For instance, if you have developed a software programme, you can licence it to foreign companies to use, sell and market.
• The different types of licensing include:
  • General Intellectual Property Licensing
    e.g. Disney cartoon characters on apparel, watches and confectionary
  • Technology Licensing
    e.g. transfer of high-tech expertise and operating techniques, and software licensing

Advantages

• As a licensor, this is an effective method to venture overseas because:
• it helps you extend the usage of your technology or IPR to more applications
• it helps you establish your technology as the accepted standard and leader in other markets
• To ensure that you can adopt licensing as your strategy, you need to consider many factors. Some of them are:
  • ensure your IPR is properly registered and protected
  • decide which products or parts of products should be licensed
  • engage professional help in structuring your licence agreements, especially when it involves international tax laws and licence territories

Branch Offices and Subsidiaries

• You can also set up a branch office or offshore subsidiary in a foreign market.
• The difference between the two is that the branch office forms part of the main company. The offshore subsidiary is a legal entity in its own right, with its own management, costs, and profits and losses.

Advantages

• Branch offices and subsidiaries require a lot of financial investment as it involves the setting up of a new office overseas.
• Businesses usually choose this method when they want to make a big impact on the market. By setting up an office, they are able to offer a full range of products and services including sales, marketing and product development.
• Unlike the other methods of entering a market, setting up a presence gives you full control over your products, services and brand.
• Most businesses start with branch offices and later convert them into subsidiaries for tax purposes. To understand this better, please consult your tax advisor.

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