Guide

Entering overseas markets

Advantages and disadvantages of opening an overseas operation

Opening an operation in your overseas market is generally the most costly and time-consuming way to enter it, but the rewards can be great.

Local rules may restrict your options, but the three main ways to open an overseas operation are to set up:

  • a local office - staffed by one or more of your employees
  • a locally registered subsidiary company - a new business in the target market, subject to local company, employment and tax rules, and generally hiring some local staff
  • a joint venture - partnering with a local business to set up a new business with ownership shared between you

Advantages

A local office in this way gives you the chance to identify and exploit opportunities in your target market. It also gives you the flexibility to control your operation, and expand if necessary. There are other benefits:

  • While intermediaries may opt for short-term sales, this way you can plan for the long term.
  • Your customers will take you more seriously if you have a local base. This is particularly true if your products require specialist after-sales service.
  • If you use a joint venture, you will be able to share the risk. You will also benefit from your partner's local knowledge and reputation.
  • If you operate alone, all profits from the enterprise remain yours alone.
  • A local subsidiary company offers limited liability if things go wrong. It is also easier to expand than a local office.
  • It provides an opportunity to extend your intellectual property rights and registrations into other markets.

Disadvantages

This option may require significant resources, and involves greater administrative and managerial burdens than other approaches to entering overseas markets:

  • You will need to understand corporate, employment and tax law in the new territory, and use local specialists to help you.
  • You may need to rebrand the business to attract local attention or if your existing business or product name has a different meaning in the new territory.
  • Costs will be high if things go wrong.
  • You have to take all the risks yourself (if you don't work with a local partner). These could include non-payment or regulatory compliance problems.

There are important legal and financial implications involved in setting up an overseas business. You should take advice from your solicitor, accountant or business adviser, as well as from similar professionals in the target market.