Choosing right route to market is vital
Where can fast-growing companies look to continue their expansion? Ward Hadaway commercial law partner Damien Charlton gives some pointers on international trade.
MANY of the businesses in the Fastest 50 have already achieved notable success with their overseas activities and with economic growth rates in countries like China and India barely affected by the global slowdown, more companies are looking abroad to expand their enterprises.
So from a legal perspective, what do companies exporting for the first time need to watch out for?
One of the key decisions is choosing the right route to market. You could appoint an overseas agent who sells on your behalf, appoint a distributor who buys from you and sells on his own account, use a franchising model or create a joint venture with an overseas partner.
Each of these routes has its own practical and legal implications and businesses need to think carefully about what they want to achieve before choosing which route to take.
You also need to think carefully about the choice of your agent, distributor or joint venture partner. Find out who you are going to be dealing with, do background research, visit them and try to ensure that they are a good match and have the right resources, contacts and know-how to deliver what is required.
When you’re ready to make a legal agreement with your international partner, consider carefully which country’s laws it should be made under. Every country’s laws are different and will have a different approach to commercial agreements. Should a dispute arise, a decision on the outcome could be made outside the UK, which may not be to your advantage.
If you are happy for the agreement to be governed by the overseas country’s legal system, it is a good idea to use the services of a local lawyer. No matter how good your UK adviser is, they will not have the same inside knowledge of the potential pitfalls awaiting the unwary in a foreign legal system.
Local lawyers will also have more knowledge of a country’s particular legal quirks and unwritten rules which could prove crucial.
New legislation has also made it more important than ever for UK businesses to tread carefully when trading abroad.
When it is implemented in April next year, the Bribery Act will create a corporate offence, of which a UK company can be found guilty if someone associated with them gives a bribe to get a business advantage for that UK company.
Someone associated could include an overseas employee, agent or subsidiary. British businesses therefore need to prepare for the implementation of this new law, have anti-bribery policies in place and ensure they take adequate steps to prevent any overseas partner getting them into trouble. There can be a difficult balance to strike if you are selling into a country where business “inducements” are commonplace.
With any international venture, it is important to ensure you retain control of what goes on. In the case of a joint venture, how much input will you have into how it is run? How much time can you afford to devote to the venture without it affecting your core business?
Not every attempt to trade overseas is successful and so you need to think about how to end any arrangement that you enter into. If you are planning to use an agent to sell your goods overseas, consider putting performance clauses in agreements to allow you to change partners if the original is not up to scratch.
For joint venture agreements, ensure you have an exit strategy in place just in case the relationship turns sour.
Finally, getting proper professional advice is vital when it comes to international trade. From the outset, the right legal, financial and insurance advice can really put you in the picture when it comes to the nitty-gritty of trading abroad.
Proper professional advice can also save you money and help you to avoid the pitfalls which the unwary trader can encounter.
For further details on any of the issues raised by this article, please contact Damien Charlton on 0191 204 4265 or email damien.charlton@wardhadaway.com
