Page 100 - Export and Trade

Positives are higher than New Zealand; there are no double tax
•Haveequitystake inmarket. agreements and the exporter is still making losses in
•Canpartnerupwithlocalswhohavelocalexpertise, New Zealand.
capital, contacts and distribution. – You need to look at thin capitalisation and transfer
•Sharedbusinessrisk. pricing rules.

Negatives Other considerations
• Internationally joint ventures have a low success rate. • For long term, strategic markets this is probably the
‡ 2IWHQ GLI¿FXOW WR PDQDJH -9 SDUWQHU UHODWLRQVKLSV GXH best entry mode for those prepared to put in the
to differences in language, culture and interests. additional resources of time and money. There is
‡&DQEHYHU\WD[LQHI¿FLHQW <RXQHHGWRORRNYHU\ greater risk but potentially much greater long term
closelyatthelocaltaxregime,includinganydouble rewards.
tax agreements, thin capitalisation and transfer pricing • Some companies have not had good experiences
rules in order to minimise local tax. when employing only offshore consultants and
‡ ,I WKH -9 SDUWQHU KDV WKH DELOLW\ WR IRUFH WKH H[SRUWHU IRUHLJQ HPSOR\HHV 7KH\ FDQ EH GLI¿FXOW WR PDQDJH
WRH[LWWKH-9& DQGWHFKQRORJ\KDVEHHQGLVFORVHG WR at a distance. It is often more effective to send New
WKH-9& WKHUHFDQEHLQWHOOHFWXDOSURSHUW\WUDQVIHU Zealand-trainedemployeestooverseeoperations.
risks. • A good option is to initially only set up a sales team
before you invest in other infrastructure such as
Other considerations warehousing and manufacturing.
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Branch
Wholly owned subsidiary Key legal characteristics
Key legal characteristics ‡7KHH[SRUWHUVHWVXSDVDOHVDQGPDUNHWLQJRI¿FHDQG
• Separate legal entity. or manufacturing operation in market.
•Wholly-ownedbyexporter–nolocalbusinesspartners. • Unlike the wholly-owned subsidiary model, no separate
•Exporterlicencessubsidiarytousebrand. legal entity exists. The exporter is trading in the
•Exportermaylicencesubsidiarytomanufacture. market itself.
• Exporter may supply ingredients/components.
•Exporterreceivessomeorallof:royalty,management Positives
fees, technical assistance fees, sale price for • The main driver for setting up a branch rather than a
ingredients/components, dividends. ZKROO\ RZQHG VXEVLGLDU\ LV EHWWHU WD[ HI¿FLHQF\ EXW
this will very much be determined by the exporter’s
Positives particular circumstances. An example is where the
•Exporterisnotitselftradinginthemarket,therefore exporter wishes to be able to offset initial trading
has a degree of insulation from trading liabilities. ORVVHV DJDLQVW 1HZ =HDODQG SUR¿W UDWKHU WKDQ OHDYLQJ
However, caution is necessary in relation to product them trapped in an overseas subsidiary.
liability issues.
•Havenobusinesspartnerorrelationshipissues. Negatives
•Havefullcontrolover marketingandcanbuildin- •Willbedirectlyliablefortradingobligations.
market customer relationships. • Some local companies will not want to deal with a
•Willbuildbettermarketknowledge. foreign entity.
•Willhavemuchbetterlongtermmarketsecurity. ‡ &RPSOLDQFH LVVXHV VXFK DV WKH ¿OLQJ RI DFFRXQWV DQG
auditing in some markets.
Negatives • Not permitted in some countries.
• Greater investment in time and money.
•Needtohavealonger term viewbecausesales arelikely Other considerations
tobuildmoreslowlythanwithlocalpartnerassistance. ‡ 7KH ¿UVW GHFLVLRQ LV ± GR \RX ZDQW WR VHW XS DQ
‡ $V ZLWK D -9& RYHUVHDV RI¿FH RU SUHVHQFH" ,I WKH DQVZHU LV \HV WKHQ
– Wholly-owned subsidiaries can be very tax the next decision is whether a branch or wholly owned
LQHI¿FLHQW SDUWLFXODUO\ ZKHUH ORFDO FRUSRUDWH WD[ UDWHV subsidiary is appropriate.

98 NZ Export & Trade Handbook 2018