Directly exporting your goods into an international market is only one way of expanding abroad. It is also worth exploring other options such as licensing, joint ventures or setting up offshore operations.

Licensing

Licensing involves a contractual agreement between you and a foreign company, whereby they manufacture, distribute and/or sell your product or service as set out in the license.

Advantages:

  • Receive payment for license
  • Rapid entry into the market
  • No capital needed to establish manufacturing operations abroad
  • Quick returns in comparison with other market entry methods

Disadvantages:

  • Loss of control over manufacturing and marketing of goods
  • Your partner can become your competitor
  • Preparing the licensing agreement – it could be timely and costly

Joint ventures

Joint ventures are contractual arrangements with a foreign partner from your chosen export market. There are two basic types of joint venture:

  • Equity partnership – where the partners are equal
  • Non-equity partnership – where the host country partner contributes a greater percentage of equity in the company

In some countries, a joint venture is the only legal way for a foreign company to set up operations.

Advantages:

  • Control over foreign operations
  • Extensive knowledge of the target market by the partner
  • Partner's business and political contacts may help to smooth the market entry

Disadvantages:

  • Requires more investment than licensing
  • Requires training, management and transfer of technology
  • Risks connected with geographical and cultural factors, which may interfere with day-to-day operations
  • Dealing with entirely new management in a different country
  • Communication problems if partners do not have a shared language

International base

Offshore production requires either setting up your own facility or subcontracting the manufacturing of your products to an assembly operator.

Advantages:

  • Offers greater control over operations
  • Lower transportation costs
  • No prohibitive tariffs or duties (as with imports)
  • Lower production costs
  • Foreign government investment incentives (e.g. tax holidays)

Disadvantages:

  • Requires greater investment than joint ventures and licensing manufacturing
  • Substantial commitment of time
  • Risks are relatively high

If you decide set up offshore operations, you will need to consider whether to acquire and adapt an existing facility or to construct a new one. The key factors to consider are:

  • Legal and tax ramifications
  • Location to set up operations
  • Method of financing the foreign investment