Advice

Understand routes to market

An overview of the common routes into export markets, and their advantages and disadvantages.

Last updated 28 October 2019

There are many possible routes into export markets. Often, certain routes will be more appropriate depending on the market and your level of exporting experience. For example, initially you may decide to export directly to overseas customers to test the market. If that goes well, the best way to increase sales may be to identify a good agent or distributor who can assist in building customer relationships.

As market share increases companies often consider the next major step is to set up a business in that country or enter into a joint venture agreement. The rewards and control are higher but so are the risks as it can be a significant investment.

The main ways to enter an export market are:

  • direct sales
  • use an agent or distributor
  • use licensing or franchising
  • create a joint venture agreement
  • set up a business abroad

Direct sales

Direct export sales involves contacting and selling to an overseas customer without using an agent, distributor, partner or other intermediary.

Advantages: greater control over customer engagement and price.

Disadvantages: it is necessary to have the resources to find clients and deliver in the required time and at a competitive price without any support in the market.

Learn more about how to enter a market through direct sales.

Use an agent or distributor

Agents and distributors work on behalf of an exporter, introducing their products or services to potential clients in an agreed territory (usually a country). The agent is paid on commission whereas a distributor purchases products and acts as a re-seller.

Advantages: market knowledge, experience and contacts provide the opportunity to grow your exports more quickly.

Disadvantages: the relationship with the agent or the distributor needs to be set up and managed well. Disagreements can arise about commissions, margins and prices. It can be difficult to access information about the market.

Learn more about how to enter a market using an agent or a distributor.

Use licensing or franchising

Licensing is the granting of a right to do something in return for a royalty payment. The licensee is effectively paying for the use of intellectual property covered by patents, trademarks, copyright or design rights.

Advantages: licensing allows you to take a product to market without the expense of setting up locally.

Disadvantages: the costs of registering all the intellectual property in advance of any income and ensuring the licensee will develop the market, as royalties are dependent on sales growth.

Learn more about how to enter a market using licensing or franchising.

Create a joint venture agreement

An international joint venture occurs when two or more companies come together to form a new business and share costs, profits and losses.

Advantages: they enable a UK company to establish a presence in an overseas market to capitalise on opportunities, without taking on the full responsibilities and costs.

Disadvantages: not having direct control, and difficulty in monitoring performance in an overseas market whilst ensuring an equitable financial input and return.

Learn more about how to enter a market by establishing a joint venture agreement.

Set up a business abroad

To fully develop an international market a company can set up a local office, wholly owned subsidiary or make an acquisition.

Advantages: as the UK company owns the overseas business there is total control over how it operates and grows the market.

Disadvantages: any of the possible business models will represent a major financial investment so there is significant risk if it goes wrong.

Learn more about how to set up a business abroad.