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:: ARTICLES ::
Ways To Venture Abroad
 
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  There are many strategies you can adopt when setting up or expanding overseas. The key is to remain flexible and choose what will be most effective for your needs.

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

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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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