There are a host of reasons why UK businesses choose to export. These can include:
- Accessing new markets – this may be natural expansion or because the domestic market is at or near saturation
- Developing new sources/streams of revenue
- Leveraging off ‘Brand Britain’ – undoubtedly many overseas customers actively seek British-made or branded products, often due to their quality, craftsmanship or leading-edge nature
- To take advantage of an unexpected or unsolicited opportunity
- To spread the risk – the ‘not having all your eggs in one basket’ argument
- Taking advantage of exchange rate fluctuations
But what should you consider and bear in mind from a practical and legal perspective?
Selecting your Market(s)
You have taken the decision to look beyond UK shores to market your products or services, but which territories should you sell into? Are you going to go global from the outset, or build slowly by trialling in one or more markets?
Again, various factors may dictate which market or markets you should select for your expansion abroad:
- Should you choose geographically proximate countries – perhaps those just across the Channel such as France, Benelux and/or Scandinavia?
- Or English speaking countries such as USA, Canada, Australia and South Africa?
- Does your product or service appeal to certain markets and/or industry sectors only? Any point in trying to sell ice to Eskimos?
- Cost – how much can you afford to or do you need to invest? What is your budget?
- Cultural considerations – is it going to be hard or even impossible to sell certain products into certain countries – indeed, are there export licensing requirements, or any export restrictions or embargoes?
- What are the risk factors to consider? And how can you reduce or minimise these?
Choosing your Strategy
How should you approach a particular market or markets? Are you going to do it yourself and/or with the help of others who may be more familiar with local markets and requirements?
A number of possibilities exist:
- Agents – are you going to appoint an overseas agent to procure orders for you? If so, you need to tread carefully as certainly in Europe there are commercial agency laws that protect agents, including by imposing obligations on principals who appoint agents to pay them compensation or indemnity payments on termination. Generally, there are no competition law considerations to worry about with agencies, as the principal and agent are (in most instances) considered as one person from a legal perspective, the agent being an extension of the principal. Normally, the contract for the sale of the goods will be between the exporter and the customer. It is prudent, and in some cases a legal requirement, for the exporter to have written contract terms in place with the agent.
- Distributors– unlike agents, distributors buy and sell goods for their own account, taking on the risk in reselling those goods. The exporter will usually sell the goods to the distributor at a discount. Competition laws may apply and would therefore need to be considered carefully. For example, the exporter must not influence the distributor’s resale price for the products purchased. Competition laws may apply and would therefore need to be considered carefully. For example, the exporter must not influence the distributor’s resale price for the products purchased.
- Representatives – some jurisdictions (e.g. the USA) offer an alternative to an agent or distributor, known as a sales representative. In effect, this is a type of agency and so similar considerations to those for agents will be relevant.
- Franchising or Licensing – for established businesses that already franchise in the UK, or whose business format can easily be replicated, franchising may prove an excellent way to develop a brand overseas. For some types of business, or where the exporter does not want the same degree of involvement that a franchise requires, a licensing arrangement may be preferable. Competition laws may apply and would therefore need to be considered carefully. For example, the exporter must not influence the distributor’s resale price for the products purchased.
- Joint Ventures – this may involve a commercial agreement where both parties contribute capital, resources, etc. to a collaborative arrangement, or a joint venture company or other vehicle in which both parties take a stake – the latter is common in many Middle Eastern countries. Extracting profits, tax considerations and local legal and regulatory requirements will all be relevant.
- Overseas Branch or Subsidiary – if you want more control/involvement, setting up of an overseas branch of a UK company or, alternatively, setting up an overseas subsidiary company or similar vehicle, may be the solution. However, there will be local registration and/or legal formalities to attend to and tax advice is likely to be necessary.
Other factors to bear in mind include:
- Language – will local language skills be required? Can you rely on your agent or distributor for these? Does your website, marketing and technical literature need to be translated?
- Regulatory requirements – what local regulatory requirements do businesses need to comply with? Are there specific regulatory requirements for your particular type of business/sector/product?
- Customs – what are the local requirements relating to customs clearance, import duty, etc.? Will your agent or distributor deal with these aspects for you?
- Logistics and Red Tape – who will be arranging shipment, insurance and local delivery?
- Time Zones – might the location of your customers give rise to issues over technical and other support? Will you need local support?
Whatever strategy or strategies you select in relation to a given market; it is imperative that you put robust contractual arrangements in place.
Some agents or distributors will, no doubt, prefer a fast and loose arrangement, but that is open to risk (for example, disputes over which law applies, what terms might be implied into the contract, etc.) and it is certainly advisable to have proper contractual arrangements in place from the outset.
Key points to address in any contract will include:
- Nature, Scope and Duration of Appointment – will the appointment be an Exclusive, Non-Exclusive or Sole one?
- Territory – what country or geographical area are rights being granted in respect of?
- Responsibilities and Obligations – setting out the respective rights and duties of both parties
- Prices, Discounts, Payments and Royalties – ensuring the receipt of payments
- Intellectual Property ownership, protection, licensing and enforcement – making sure you brand is protected is paramount
- Confidentiality – your agent or distributor will have commercially-sensitive information regarding your business and customers, so you need to make sure it is protected
- Termination and Rights on Termination – including rights to customer lists (where data protection will need to be addressed too)
- Restrictions – both during and post-termination
- Governing Law and Jurisdiction – vital where one or more parties are non-UK parties
- Dispute Resolution – how disputes will be resolved and the mechanism for doing so
- Anti-Bribery and Corruption – stringent UK laws apply and compliance is mandatory, so it is essential to ensure your agents etc. comply too – any chain is only as good as its weakest link
There may be data protection implications including Brexit v data protection.
Inevitably, consideration needs to be given to any taxation issues resulting from doing business overseas. You should also seek advice on the tax issues from your tax adviser.
Regulatory and Compliance
Your products may be compliant with UK and/or EU laws, but are there any different or additional local requirements that you need to satisfy to be able to market your products in some other jurisdiction? For example, if you supply pharmaceutical products to the US, do these meet FDA and other requirements?
It may be that your agent or distributor will have experience of local regulatory and compliance procedures and can manage that for you. Or you may prefer to undertake that yourself or engage a third party to do so. Timing will need to be factored in, especially if the process is a protracted one.
Depending on how you intend to operate, doing business abroad may require a raft of insurances, such as public and general liability, employer’s liability, product liability and professional indemnity to name a few.
It may be reasonable for you to impose some obligations on your distributor to effect insurance cover, but you will need to have certain insurances in place, such as product liability cover. Just because you have insurance that covers you in the UK or EU, does not mean that cover applies elsewhere – the US in particular is often excluded from UK policies, so you should check or ask your lawyer or broker to review your policy for you.
If you do place the onus on a distributor or other party to effect insurance cover, you need contractual rights to check that such insurances are properly effected, for appropriate minimum cover levels, cannot be cancelled or amended without your knowledge or agreement and that (where necessary) your interest is noted on the policies or that you are a named additional insured.
Protecting Intellectual Property
This is another area that can cause considerable angst.
Protections in the UK or EU are no guarantee of protection elsewhere. Proper advice should be obtained from the outset so that appropriate registrations and/or other protections can be put in place before contracts are signed and/or goods supplied.
Local legal advice should be sought, especially for higher risk countries.
Also, a certain amount of due diligence will be necessary. For example, make sure your trademark(s) and/or trade name, or indeed any patent you own, does not infringe those of any business already operating in the territory in question.
Domain names can be an issue. Often a local agent or distributor will want a local website in their national language. Do you allow this? Do you permit them to register any domain name?
You must exercise caution here. It may be preferable for you to acquire and retain control of website domain names. Perhaps you can allow the local agent or distributor a sub-site of your own website – for example, you own the .co.uk or .com website but allow your French or Spanish agent to have/operate the .fr or .es websites, respectively, although you may want those sites to feed into yours. In that event, you should consider whether you should own the .fr and .es domains – it can make life much easier as and when the relationship comes to an end.
How we can help
Our team is experienced in supporting exporting businesses and can assist you with drafting and negotiating the contractual documentation to support your strategy. For further information, please contact us.
Disclaimer: This article is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from taking any action as a result of the contents of this article.