Entering overseas markets
Considerations when choosing how to enter an overseas market
It's essential to research overseas markets before you start to market, promote and sell your product or service within them. By thoroughly researching your potential customers, competitors and the trading environment in each overseas market you will greatly increase your chance of success. You should also investigate practical issues such as route to market, logistics, regulation and local suppliers in your chosen market.
Deciding how to enter an overseas market will be a crucial part of your export strategy. Once you have identified your market, there are various ways of entering overseas markets. You can manage the process yourself - selling directly from the UK or setting up an operation in the target country. Alternatively, you can use an intermediary such as an agent or a distributor.
Develop an export marketing plan
Use market research and trade visits to develop an exporting marketing plan
It's essential to build a detailed export marketing plan, based on market research, for each of your overseas markets. Huge differences between markets and countries prevent the use of a 'one size fits all' approach.
Your export marketing plan should take into account your chosen approach to the market and your plans for logistics, order fulfilment, customer service and supplier management.
Export marketing plan considerations
Investigate your new market and how your product will fit into it. Consider the following questions:
- What's your priority - minimising potential costs or controlling the process?
- Do you have the market knowledge (and language skills) to make contacts and generate sales?
- Do you have the time and money to invest in setting up a local branch or subsidiary?
- Are there restrictions on the way you can enter the market? For example some countries may insist you form a joint venture with a local business.
- What is appropriate for your product? If it requires specialist after-sales support, selling through an intermediary may not be suitable.
- What are the usual distribution channels for products like yours in the target market?
Choose your target markets
One of the key decisions you will make when exporting is choosing which markets to target. Trying to export to several different countries can be very expensive. Unless you tailor what you offer to suit each individual market, you may fail to offer what customers really want. Instead, it's usually best to focus on selling to one or two individual markets. See country guides: exporting to the EU and country guides: exporting outside the EU.
Read more about how to choose which export markets to enter.
Visit your target markets
Trade visits are organised visits to target markets. While they provide an excellent opportunity to research overseas markets, you can also use them to generate business.
Invest NI offers a range of services to help businesses going on trade visits to generate advance publicity in their target market. It also offers a range of other advice and financial support. Read more about the available support for exporting.
Research partners, logistics, and infrastructure
The distribution channels available for selling will vary between countries. There are several different ways to enter overseas markets.
Consider the following:
- How will you be paid by your overseas customers?
- Will the exchange rate be prone to excessive fluctuation?
- What's the communications infrastructure like?
- Does your target market have widespread access to telephones, faxes or the internet?
- Do you need UK freight forwarders experienced in your chosen market and product?
Communicate with customers abroad
As part of your promotion, you may want to communicate directly with customers in your export market. The choice you make will be defined by your budget and how effectively each method will reach the customers in your chosen market. Read more about the basics of advertising.
Alternatively, you may choose to buy in a database of potential customers from a direct mail agency. You should select the agency carefully to ensure you receive high-quality data. Read more about the basics of direct marketing.
Exporting marketing plan template
Download an export marketing plan template (doc, 162KB).
If you are importing, you will need to identify countries to trade with, as well as individual suppliers within those countries. You will also need to consider how you are going to manage overseas suppliers.
Break-even analysis when exporting
A break-even analysis enables you to determine how many products you must sell and at what price in order to make a profit.
Your break-even point is when your business is producing enough revenue each month to cover all your fixed and variable costs.
Why is break-even important when exporting?
Conducting a break-even analysis lets you see what your minimum sales requirement is in order to avoid making a loss. This information can help inform your pricing strategy and help you understand how many products you will need to sell in any new market you enter.
By knowing where your break-even point is, you are able to establish:
- how many units you need to sell before you start to make a profit
- how much your sales can decline before you start to incur losses
- how reducing price or volume of sales will impact your profits
How to calculate break-even point
Break-even point is calculated using the following equation:
Break-even point = fixed cost / (sales price - variable cost)
When completing our break-even template you will need to input the following information:
- The profit you will be aiming for - make sure you consider what variable costs are involved in order to get your product to your chosen market.
- Your overheads - your overheads are your ongoing expenses when operating your business. These may include rent, mortgage or electricity payments.
- Your average unit price - this is the price you expect your customers to pay for your product.
- Labour costs - employee's salary.
- Material costs - tools, raw materials etc.
Break-even analysis template
Download our free Break-even analysis template.
The different ways to enter overseas markets
When you decide to enter an overseas market, it's important that you identify the best approach for your business.
There are four main ways to sell to customers in overseas markets. You may find you need to use more than one entry strategy, depending on the markets you target and the products you offer.
|Selling directly from the UK|| |
This typically involves making periodic sales visits to the country, supplemented by telephone sales or accepting overseas orders on an e-commerce website. It can be a simple and cost-effective way to enter an overseas market. However, it may isolate you from your customers, and make you unable to share the exporting workload with partners or intermediaries.
Opening an overseas operation
This involves opening your own branch or subsidiary in the new market, or entering into a joint venture with a local business. Having a presence on the ground can be valuable, but setting it up and maintaining it may involve major resource commitments.
Using an overseas sales agent
A sales agent acts on your behalf in the overseas market, either by introducing you to a customer or by receiving commission on any sales to that customer. Agents are used extensively in the European Union and are protected from abusive business tactics by law. Ensure that you understand what you have agreed and seek legal advice on your agreement, as it's not advisable to operate without an agency agreement in place.
Using an overseas distributor
A distributor buys from you and then sells on at a higher price to their market and customers. They take full responsibility for the import of your goods. A distributor takes ownership of the goods and therefore can do with them as they wish, which means you must trust them with your brand.
Important considerations when entering overseas markets
There is much more to exporting than simply generating overseas sales. An intermediary can help you with issues including customs and other paperwork, shipping, warehousing and after-sales service. Selling direct means you will have to handle these issues yourself.
Find out more about how to manage the risks of exporting.
When selling overseas, you can sell your product or service directly to customers or use an intermediary. You may decide a mix of these approaches is best for your business. There is no 'one size fits all' solution.
You should consider the implications of each method in terms of:
- the direct and indirect costs, such as investment in an overseas operation, or the heavy discounts often demanded by distributors
- how much control you'll retain over how your product is sold, and how much you'll need to delegate to partners or intermediaries
- which export-related risks you'll have to bear, such as exchange-rate movements, non-payment risks, longer trading cycles and delays due to documentation problems
An intermediary may be able to handle issues such as paperwork, shipping and warehousing. However, you will have less direct control. Selling directly may give you more control, but you will have to bear higher costs.
Read a step-by-step guide to exporting.
Advantages and disadvantages of opening an overseas operation
A local office, subsidiary company or joint venture offers great flexibility
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 of opening an overseas operation
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 of opening an overseas operation
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.
Advantages and disadvantages of using an overseas agent
An overseas sales agent can be a low-cost option, but you need to choose carefully
A sales agent acts on your behalf in the overseas market by introducing you to customers who you supply and invoice direct. They are paid a commission for any sales they make ranging between 2.5 per cent and 15 per cent. The key benefit of using an overseas sales agent is that you get the advantage of their extensive knowledge of the target market.
While there are clear benefits, agency relationships can also have downsides.
Advantages of using an overseas agent
- You avoid the recruitment, training and payroll costs of using your own employees to enter an overseas market.
- An agent should be well placed to identify and exploit opportunities.
- Your agent should already have solid relationships with potential buyers - it might take you some time to build up your own contacts.
- Using an agent allows you to maintain more control over matters such as final price and brand image - compared with the other intermediary option of using a distributor.
Disadvantages of using an overseas agent
- You remain responsible for shipping and other trade-related logistics - although your agent should be able to help.
- You need to specify in an agent's contract if you need them to credit check your customers for you.
- Arrangements must be made to allow access to your sales ledger as part of the commission payments process.
- After-sales service can be difficult when selling through an intermediary.
- You may lose some control over marketing and brand image, compared with entering the market yourself.
Read more about finding and contracting with overseas agents and distributors.
Advantages and disadvantages of using an overseas distributor
Distributors take on many of the risks and burdens of trading overseas, but they expect heavy discounts in return
A distributor buys your goods from you and then takes full responsibility for selling them on in the overseas market. While the role of a sales agent is to find you customers, a distributor is your customer.
Advantages of using an overseas distributor
The main advantage of using a distributor is simplicity. Distributors enable you to access international markets while avoiding logistics issues and many trade-related risks.
The distributor is usually responsible for the shipment of goods, and the accompanying customs formalities and paperwork.
If you sell to a UK-based distributor, you avoid currency-related risks.
It would be easier for a distributor with an established reputation and contacts list to introduce a new brand to the market than it would be for you.
Distributors generally spend on marketing to support their sales effort, although they will sometimes expect you to make a financial contribution.
A distributor will often offer credit facilities to potential customers.
Many distributors carry a stock of the products they sell - so they buy in bulk, and take care of warehousing and inventory control in the overseas market.
Disadvantages of using an overseas distributor
In return for taking on your trade-related risks and burdens, distributors will expect heavy discounts and generous credit terms from you.
You may lose control of the way your products are marketed and priced.
If you use a sales agent, you can use the commission structure to motivate them - there's no similar mechanism with a distributor.
Distributors often demand a long period of exclusivity, so you need to be sure that you choose one that has experience selling your type of products and has customers for the kind of goods you sell. Read more about finding and contracting with overseas agents and distributors.
It's important to seek advice from your legal adviser before concluding a distributorship agreement.
Finding and contracting with overseas agents and distributors
Make a shortlist of intermediaries and compare what they can offer you and how well each is run
Make sure you conduct research before selecting an agent or distributor. Draw up a shortlist of at least three, then carefully compare what each can do for you.
Where to find agents and distributors
There are many organisations that can help you with your search, including:
membership bodies for businesses trading between the UK and your target country
major banks - these have trade teams which may be able to help
You may also have the opportunity to join trade visits or attend exhibitions in your target country.
Choosing which intermediary to work with
The most important thing to establish is that an agent or distributor has proven experience in your target market. But there are many other factors to consider:
Are they well located, with the geographical coverage you need?
Are they well established in the market, and how do they compare with their own competition?
Look at the product lines they currently sell - will your product fit in well?
Ask about their strategy for the next five years - does it fit well with your objectives in the market?
How large and experienced is their sales team? Is it well managed and given effective incentives?
Can they provide you with market research to feed into your sales forecasts?
Do they have the warehousing, servicing and other facilities you're looking for?
It's also important to look into their financial standing to ensure you're dealing with a reputable business that can be relied upon to pay you. This can be more difficult with overseas businesses, but it may be possible to conduct a status query through your bank.
Make sure any agreement with an agent or distributor is formalised in a clear written contract. It's worth seeking expert advice - eg from a lawyer with trade-related experience or your local UK Trade & Investment team. Make sure you are satisfied with every part of the contract. Read more about getting paid when selling overseas.
Key contract points to consider include:
- Parties - the names and addresses of the businesses involved, and the nature of the relationship, eg agency or distributorship.
- Products - a clear description of your goods.
- Territory - the geographic area within which the agent or distributor will sell your goods.
- Exclusivity - will they have sole rights to sell your goods? If not what are the exceptions? Can they pass their job to a third party?
- Transport - whose responsibility? Your obligations should be clearly set out in a written contract using Incoterms 2020.
- Pricing - what price will you receive from a distributor for your goods? What price will an agent charge their customers?
- Commission - what commission will an agent receive?
- Payment terms - when will payments be made, in what currency, and at what exchange rate?
- Period - set a termination date for the agreement, and include clear provisions for ending the agreement before that date.
- Confidentiality - make sure that sensitive information about your business or products is protected.
- Intellectual property - what rights will the agent or distributor have to use your business name, brand names, trade marks etc? Read more about intellectual property protection overseas.
- After-sales care - for example, product liability, insurance and warranties. Who is responsible at each stage of the trading process?
- Marketing - what promotional activities will support your products and who will pay for them?
- Jurisdiction - which country's rules will apply to the contract?
Top tips for export success
Before you make your first move into an overseas market, it's essential that you get the best advice and support for your specific business. This will increase your chances of export success. There is a range of support available to new and established businesses to help you start trading successfully outside Northern Ireland.
1. Register for training programmes: Training programmes and seminars provide an opportunity to get a feel for the potential of overseas markets. There is a range of export training and support available for you to access including:
- Invest NI Going Dutch
- Danske Bank Export First
- NI Chamber Connecting for Growth
Read more about export training programmes.
2. Get in-market support: Once your business decides on your chosen market, there are numerous schemes to provide ongoing support:
- Department for International Trade Overseas Market Introduction Service
- Invest NI Trade Advisory Scheme
- Invest NI Solex
Read more about in-market support for exporting.
3. Do your research: It's important to know which markets offer the best fit with your business so that you can effectively target your export activity. Focused market research will increase your chances of successfully selling into markets outside Northern Ireland. Research support includes:
- Invest NI Business Information Centre
- Enterprise Europe Network
- InterTradeIreland Acumen programme
- InterTradeIreland Elevate programme
Read more about research support for exporting.
4. Get advice: There are several sources of advice for businesses in Northern Ireland wanting to trade overseas:
- Invest NI workshops, Export Development Service, Legal advice, translation services
- NI Chamber Export Documentation and Chamber Connections
Read more about advisory support for exporting.
5. Search for opportunities: Having knowledge of specific products or services that are in demand outside Northern Ireland, and keeping up-to-date on the latest contract opportunities, can help boost your business performance and profitability. You should consider:
- Invest NI Tenders Alert Service and tender guides
- NI Chamber Connecting for Growth
Entering new markets - BubbleBum (video)
BubbleBum is the maker of the world's first inflatable car booster seat for children. Their award-winning seat fits into a bag or glove compartment and is sold in over 20 countries.
CEO and Founder, Grainne Kelly explains the preparation needed when planning to enter new markets. She details the support they receive to help achieve this. Grainne also shares her experience of the challenges and benefits that breaking into new markets brings.