UKTI has an ongoing programme of research that looks into the effect of exporting on UK companies across the economy.
The research offers an insight into the ways UK businesses are doing business abroad today, and how businesses can thrive in today’s new era of internationalisation.
As part of UKTI’s research, we asked those firms who already have the bumps and bruises from doing business overseas what the most effective ways are to get in to a new market and build sustained success.
Even allowing for the many different nuances for each sector and market it is fair to say that there are four main ways in which to sell your product or service overseas: selling direct, selling through local agents or distributors, contractual methods and setting up an overseas site. The popularity of each method is shown above.
The vast majority (87 per cent) of UK firms that are active overseas sell direct to businesses or individuals and almost half (46 per cent) of firms only sell direct. The use of the internet for direct sales has clearly become an important part of selling overseas with almost a third (31 per cent) of firms reporting that at least some of these sales were made through the website. In total 4 per cent of firms are ‘web-only’ exporters.
When we asked relevant companies why they chose to sell direct almost three out of four (73 per cent) said it was the best way to build up a strong working relationship with overseas customers, and two thirds (66 per cent) because it was the best way to ensure quality.
Using local agents or distributors
Using people on the ground, who understand the culture and business networks in a country, is often the best route to market for UK firms. However, the failure of an arrangement with an overseas agent or partner can be both expensive and time consuming. 31 per cent of firms that planning to start exporting in the next year intend to use agents or distributors, compared to 41 per cent among those already active abroad. The more experienced a company is at exporting, the more likely they are to use this method.
When we asked relevant companies why they used local agents or distributors almost three-quarters (73 per cent) said it was because ‘they were better placed to identify potential customers. Simplicity is also seen as a common benefit – agents or distributors enable you to access international markets while avoiding logistics issues and many other trade- related barriers.
Marian Brooks, Executive Director, Cambridge Education said, “Cambridge education is a provider of education services and for the past eight years, in the United States for example, our company has grown its export activity through partnering with more than 2,500 schools in more than 100 districts across 22 states.”
Around one in ten firms use licensing or franchising agreements in order to grow through export. Both these methods can have a considerable initial cost and may require legal resources in order to be applied fully. This perhaps explains why they are used more commonly among larger firms and those with the most substantial growth plans.
The licensing and/or franchising method is also more commonly used by those companies defined as ‘innovative’ i.e. they have dedicated resources for new product or service development. In this area issues of IP protection are also important, and around 14 per cent of companies, according to one survey, found protecting their IP to be a major problem overseas. Specialist support on intellectual property protection is available from the Government’s Intellectual Property Office:
Using an overseas site
Only just over 10 per cent of firms have taken the decision to set up an overseas site in order to export. Among those firms over three-quarters (76 per cent) used this site as a distribution or sales office and a quarter use it as a production site.
The majority of firms with overseas sites (51 per cent) only set up an overseas site after ‘testing the market’ through one other method (most commonly selling direct). However, it is interesting to note that for a fifth of these firms, the first way in which they did business overseas was through establishing an overseas site.
To read the full document where this information came from, please click here;
Bringing home the benefits: How to grow through exporting (.pdf 2.63 MB)