Page 98 - Export and Trade

International Market Entry Options
for Exporters

Original chapter by Jonathan Wood, revised by Averill Dickson.

NewZealand exportersenteringoverseasmarketscan of the products.
use a number of legal structures, each of which involves • Generally bears most of the advertising and
different legal and tax issues. promotionalcosts,althoughthisvariesfrom
Take the example of a company that owns a product arrangement to arrangement.
technology and brand. It wants to sell products globally •Subjecttoanywarrantiesthatmaybegivenbythe
underthisbrandaswellaspossiblymanufacture exporter, is fully liable for its operations in the market.
inoverseasmarketsthroughtheuse of contract • Generally keeps most of its customer details to itself.
manufacturers, third party licensing arrangements or
joint ventures. Positives
Possible market entry structures for selling offshore • Most common form of export structure worldwide
include: thereforeiseasilyunderstoodbyall.
• Distributor/reseller. • Relatively simple to set up.
•Agency. •Low costandrisk.
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• Wholly-owned subsidiary.
•Branch. Negatives
•Licence. ‡ 9HU\ JRRG SHUIRUPDQFH LV RIWHQ GLI¿FXOW WR DFKLHYH
•Exporterhasverylittlecontroloverhowitsproducts
Manufacturingoptionswhen sellingoffshoreinclude: are promoted in the market and the pricing model
• Manufacturing products in New Zealand and exporting used.
products to overseas markets. •Theexporterdoesnotgetto knowthemarketorthe
• Using contract manufacturers in market. customers.
•Manufacturingin offshoremarketsorthrougha • The relationship between the exporter and distributor
subsidiary or joint venture. is often hard to manage because of separate
ownership, differing interests, cultural and geographic
‘Weightlesseconomy’businessessuchassoftware separation and often language.
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other web-based businesses do not need to worry about Other considerations
physically getting their products to markets, but may • Although many distributors/resellers will ask for it, try
still require in-market sales channels in order to reach to avoid exclusive arrangements wherever possible.
target customers. If thedistributor/resellerispushingforexclusivity,at
The key characteristics, and positive and negative the very least have a reasonable initial trial period and
attributes of these models, is outlined below. include minimum performance requirements.
•Chooseyourdistributor/resellercarefully.Instrategic
Distributor/reseller marketsthisisabsolutelyvital.
Key legal characteristics • Distributors sell to retailers, wholesalers and/or resellers,
• Independent entity. whereas resellers generally sell directly to end customers.
•Distributor/resellerbuysproductfromexporter and Themorestepsbetweentheexporterandtheend
sells product in its own market as principal. customer, the less the exporter is able to control how
•Takesthecreditriskonproductsalesinmarket. itsproductsandbrandare portrayedtoendcustomers.
• Generally sets product prices and controls the sales, Consider retaining approval rights, and having minimum
marketing and distribution in market. requirements, for each step in the chain.
•Generallyresponsibleforimportingthegoodsintothemarket. • For software companies, the licence agreement with
• Makes its money through making a margin on the sale the company will often be entered into directly with the

96 NZ Export & Trade Handbook 2018