Exporting your products to new markets is an exciting challenge for any business and there are good reasons for doing so. Exporting allows a business to expand its turnover and often with comparatively little capital outlay. Trade in new markets also protects a business against exposure to economic downturns through diversification.
There are various strategies to choose from including one or more of the following:
1. Exporting direct to customers in that market
2. Creating a new entity/branch for your business in that market
3. Appointing an agent
4. Appointing a distributor
5. Licensing rights in the products to a third party
To export direct to customers in a new market from the UK a business should identify applicable regulations and in particular import and export controls. A good place to start is https://www.gov.uk/starting-to-export/overview. To get a ‘head-start’ in a new market, the services of an agent, distributor or licensee can be employed. The legal considerations of adopting those strategies will be discussed in a separate article.
Rather than exporting to a new market from the UK, a new entity can be created in the new market (Foreign Direct Investment). This entirely new operation can allow a business to circumvent trade restrictions and avoid currency fluctuations. It also allows for greater control and involvement than the appointment of a third party agent or distributor.
A ‘greenfield’ or ‘brownfield’ approach can be taken to foreign direct investment.
A greenfield approach involves establishing an entirely new legal entity. From a legal risk perspective, establishing a subsidiary company is generally preferable to simply creating a new overseas branch of an existing business because the risks of the new venture can be isolated from the existing business. Laws equivalent to those of England and Wales cannot be presumed to apply in foreign jurisdictions however and your solicitor should check and advise you on whether a parent company is isolated from the liabilities of its subsidiaries to the extent that they are in England and Wales. To incorporate a new company in a foreign jurisdiction the services of a company formation agent should be employed to ensure compliance with the relevant laws.
A brownfield approach involves acquiring a business in the target market by merger or acquisition. Adopting a brownfield approach brings the advantage of expertise and connections in the target market but a far higher degree of due diligence should be exercised. In an acquisition of the shares in a target company, the buyer will acquire any liabilities as well as any assets, unless steps are taken to separate identified liabilities from the target company. Even in a non-share acquisition, the laws of the target market can operate to transfer certain liabilities to the buyer. A company acquiring a business in England for example will automatically assume all liabilities associated with employees of the target.
Whichever strategy is chosen it should involve the services of solicitors and accountants both in the target market and in the business’s home market. Farleys offer advice both to businesses exporting products overseas and to businesses based outside England and Wales looking to export into the UK.