Economic difficulties over the last two years have led many businesses to consider whether they should take the step overseas, and those that are already exporting, to start looking further afield. Fast growing developing countries in Africa and Asia offer huge potential.
But there are risks associated with exporting to the developing world. You need to take the right steps to protect yourself and have a strategy in place before you start. Here are some things to consider:
1. Know your market
It may seem obvious, but before you start you need to make sure that your products and services are going to be in demand in your target market. This is particularly important in developing market, where incomes and consumer tastes are completely different from the UK.
Even once you have identified the market, you need to have some insight into the customs and standards of your target country. This is when it is invaluable to have some local knowledge on your side. Otherwise, you risk wasting resources selling your products or services in the wrong places or in the wrong way.
2. Getting the right structure
Sometimes it’s possible to export goods and services from the UK simply by encouraging customers to come to you. Internet based businesses can use this technique particularly effectively. However, for more complex goods and services,it’s necessary to be closer to your customers, particularly when trying to build the success of your business in the longer term.
One effective way to do this is by arranging for a distributor or an overseas sales agent to sell your goods in your target market. However, the agent or distributor will bear a huge responsibility for the success of your overseas operation, and it is crucial to find someone that you can trust.
In some cases, it is practical to set up an overseas branch office or some other local presence for your business. But this requires a lot of commitment. You need the right personnel in your local branch, and providing the right level of support, supervision and resources can be a challenge.
3. Getting the right contracts
However your operations are structured, you are going to need to give thought to having the right contracts in place.
In the UK you can often enforce agreements that are reached informally or orally – when you deal with other legal jurisdictions, this is not so easy. You need to make sure that your contracts can be enforced without involving you in disproportionate effort and expense. You are likely to need arbitration clauses, since arbitrators” awards are much more widely enforceable than court judgments.
The ideal is to have contracts governed by English law, as you can then use your UK advisors to draft them. If another country’s law is chosen, you will need input from lawyers in that country. You also need to decide the venue of any arbitration. London is a well known arbitration centre, but it may be necessary to agree a neutral venue such as Geneva. You do not need to choose a venue which matches your choice of law.
Also, remember to check who is entering into the contract with you. The best drafted contract in the world is useless if one of the parties did not have authority to enter into it. You need to verify the position of the person negotiating with you. Do not assume that titles such as director or manager mean the same as they do in the UK.
4. Financial risks
This is another major issue. Chasing debtors is difficult enough in the UK, without having to chase them abroad. You need to consider how to give yourself security in your contracts, and how to protect yourself from currency fluctuations. Letters of credit and insurance products can help, but you have to remember that these come at a cost.
5. Keeping out of trouble
Developing countries are sometimes politically unstable, and often corruption is prevalent amongst officials and the courts. Whilst regulation is often less rigorous, it can be even less logical than in the UK. Keeping your business out of harm’s way demands the right local savvy, but this is not always enough. The Bribery Act may give you problems. Don’t think you can simply adopt the customs of your target country wholesale that may land you in serious trouble back in the UK.
Nathanael Young is an Associate at SA Law, specialising in commercial litigation and cross-border claims.