Setting up in-market

Some markets have disjointed and fragmented distribution channels that can be hard to manage. In this case, it makes more sense to set up your own company so that you can control everything from purchasing, to storing and distributing goods.

Most importantly, you need to commit a significant amount of time and resource to investigating the quirks of the market you are targeting, before you invest in putting down roots. Cultural, economic and geographic factors will all play a huge role in how you structure your strategy.

Why set up in-market?

In some larger countries, it can be hard to maintain control of how your product is priced and distributed, which can be damaging to your brand. Setting up in-market allows you to keep control over every aspect of the design, manufacture and distribution process.

To figure out whether this is the right choice for your business, you may need to explore the alternatives first and talk to people on the ground in your chosen country. If you encounter an overwhelming maze of distribution channels and businesses who are disillusioned with their networks, setting up in-market could be the way to go.

Setting up in-market means you can:

  • employ people and operate within that country’s employment laws
  • understand the tax implications of operating in that country
  • build strong personal relationships with staff, suppliers and clients
  • ‘live the system’ – understand how businesses operate from a personal perspective
  • gain a deeper (and ongoing) insight into market trends and needs.

Models of in-market presence

Joint ventures with local distributors

Pros

Joint ventures (JVs) allow you to focus on just one area of your business and do it really well, for example developing the design of your product to meet customer needs.

Cons

JVs can be hard to manage in large countries that do business differently. New Zealand deals are often based on trust and personal relationships due to a relatively small market. In more anonymous markets, you can’t rely on these things and may find yourself spending large amounts of time overseas just managing your JVs.

Representative offices

Establishing an overseas office can be expensive, so it is seldom the first market entry option for new exporters. Setting up a dedicated sales or marketing office in one market will cost several hundred thousand dollars per year or more.  

The costs can be even greater in markets with higher business costs such as the US, Europe and Japan. Another option could be to set up a 'virtual' local office. This might mean using a local phone number that is re-directed to New Zealand, or a call centre which takes local calls, then contacts you.

Employing staff overseas

Employment legislation varies from country to country. If you intend to establish an office or employ staff in your target country, check local legislation to ensure you comply with all employment laws and requirements. For example:

  • if you are trading in Brazil you must form a Brazilian company before hiring any local employees
  • in China wholly foreign-owned enterprises must provide local employees with a written agreement in the prescribed Chinese language

Always seek expert legal advice before you start to trade or employ staff overseas.

The advantages of having an overseas office include:

  • having greater control of your business activities in the overseas market
  • the office acts as importer and distributor, and provides a point of communication and marketing for overseas customers
  • they are generally much easier to set up than a wholly-owned company and provide invaluable eyes and ears on the ground in your chosen market
  • you can reach customers who may only want to deal with locally based companies - this adds to your credibility, and demonstrates a commitment to the customer
  • setting up a local office as part of a joint venture can lessen the risk to your business while accessing local knowledge
  • further expansion into the target country can be easier if you have an already established presence.

The disadvantages of having an overseas office include:

  • the costs of running an overseas office can be very high
  • you will need to understand local tax, contract and employment laws
  • there may be issues repatriating profits from your overseas operations
  • representative offices often carry restrictions - you may not be able to buy or sell anything as a business or employ local people.

There are important legal and financial considerations when setting up an overseas office. Make sure you get professional advice before commencing operations in an overseas country.

Wholly-owned companies

Pros

Owning your own company in-market means you can train your own people and build up a trusted team of committed employees. It also allows you to keep total control of all your operations and stay ‘on brand’.

Cons

The process of setting up your own company in another country can be slow. It pays to get all your ducks in a row before you embark on this path. Find out what paperwork you need. Get advice up-front. Research local regulatory requirements. Talk to other business people who have done the same.

Read more about strategic alliances and joint ventures.

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