Routes to market
How to choose the right route to market
View transcript for Episode 17 - Route To Market recording
Direct sales
Firstly, direct sales to businesses or consumers. Direct sales will avoid the need for agents or distributors, giving you more control over price and customer engagement. However, this route can make it difficult to find client. And a lack of market presence, language and cultural experience can also limit growth.
So perhaps you might choose to use an agent or distributor. They will already have market experience and contacts. But it comes with extra cost and the need to negotiate things like commission and exclusivity rights.
Another option could be to use licensing or franchising models which could mean taking a product to a market without the local set-up costs. However,royalties are dependent on the rate of licensee development of the market.
Alternatively, you could explore creating a joint venture to share costs, profits and losses. You'll have less control and there could be extensive legal work involved in set up. But partners can bring in valuable local knowledge, experience and contacts.
Finally, you could set up a business abroad by opening a local office. There are both higher costs and risks involved. So well-constructed legal agreements are vital. But this will offer you total control and more potential for fast growth.
What you’ll learn
- the main routes to market
- how to consider the suitability of each for your export business
5 primary ways to enter an export market
The most successful route into a market is the one which best fits your product and the country you’re selling to. But your appetite for growth and risk may also be a factor.
There are 5 primary ways to enter an export market. Below, you'll learn about each way in more detail.
Direct sales to businesses or consumers
Direct export sales involve contacting and selling without using an agent, distributor or other partner. This can be business-to-consumer, or business-to-business. You may decide to export directly to customers via your website to test the market.
Pros
- More control over price and customer engagement, since there are no intermediaries
- Website and social media can be an easier, cheaper entry point, especially for retail goods in complex markets like China
Cons
- Can be difficult to find clients
- Lack of market presence, language and cultural experience can limit growth
Use an agent or distributor
Agents and distributors work on behalf of an exporter, introducing their products or services to potential clients in one, or occasionally more than one, market. Agents are paid on commission, and distributors will actually purchase your products and act as a re-seller. You might find the best way to increase sales may be to identify a good agent or distributor to build deeper customer relationships.
Pros
- Market knowledge and experience can mean your exports grow more quickly
- A great way to access many contacts in the market
Cons
- Needs to be set up carefully and managed well to avoid disagreements on commissions, exclusivity, margins and prices
- Extra cost, which will need to be factored into pricing
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.
Pros
- You can take a product to market without the expense of setting up locally
- Licensee or franchisee may have valuable market experience
Cons
- Cost of legal advice and registering all the intellectual property in advance of any income
- Royalties are dependent on rate of licensee development of the market
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.
This can be a good option when your market share increases, though for some markets and situations, having a local partner is a requirement from the outset.
Pros
- Establish a market presence with less responsibility and cost
- Partner can bring valuable experience and contacts
Cons
- May be extensive legal work and bureaucracy involved
- Less control, for example in performance management and financial inputs and returns
Set up a business abroad
To fully develop an international market, you can set up a local office, wholly owned subsidiary or make an acquisition. The rewards can be great, but the need for very careful planning and well-constructed legal agreements are vital.
Pros
- You have total control over operation
- There’s more potential for fast growth
Cons
- It’s a major investment of resources and finances
- Higher levels of risk
Increasingly, direct to consumer and direct to business sales are made via websites. But trade shows or overseas missions, or their virtual equivalents, can also be a really good way to find customers yourself.
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