The Five Steps to Success in International Business

1
The Five Steps to Success in International
Business
Step One Prepare Step Two Find the Right Mark
et Step Three Find the Right Partner Step Four
Structuring the Relationship
2
Step Four Structure

• Personal relationship is key
• Put in writing
• Letters of intent
• Choice of entities

3
Structure Choices

• Indirect
• Distributor (reseller, OEM, VAR)
• Sales representative
• Agent
• Franchisee
• Licensee

• Direct
• Branch office
• Subsidiary/affiliate
• Joint venture

4
Factors In Deciding

• Amount of business
• Level of resources for management
• Costs
• Nature of partner

5
Distributor v. Sales Rep

• Distributor
• Buy and resell goods
• Compensation is margin
• Specific territory
• No authority to obligate supplier
• Maintain inventory
• Minimal supervision of supplier
• Customer support
• No PE for supplier

• Sales Rep
• Introduce sales
• Commission
• Territory
• No authority to obligate supplier
• No inventory
• More supervision, but still independent
• Customer support?
• No PE for supplier

6
Agent

• Best to avoid
• May need to use in Latin America

7
Franchise

• McDonalds, Starbucks, car dealers, etc.
• Similar to distributor
• Three key elements in US
• Use of name
• Payment of fee
• Control of method of operation
• Other countries have different definition

8
Licensing

• Authorizing use of intellectual property to
  produce/resell goods
  
• Issues
• Quality control
• Protection of IP
• Control of sales
• Coordination of production
• Payment - Royalty

9
Royalty Options

• Per unit
• Percentage of profit
• Percentage of gross revenue

10
Royalty Illustration

• Facts
• Foreign licensee
• Produces/sells
• Cost 80/unit
• Overhead
• Retail price 100/unit
• Sells 100 units
• 10,000 gross revenue
• 2,000 profit

• Royalty options
• Per unit
• 10/unit x 100 1,000
• of gross revenue
• 10,000 x 10 1,000
• of profit
• 2,000 x 50 1,000

11
Text/Chapter 10

• Export Management Company
• Similar to Distributors Sales reps
• Located in HOME country
• Trading Companies
• Distributors/Sales reps
• Japan/Korea

12
Direct

• Branch
• Subsidiary/affiliate
• Joint venture

13
Branch

• Extension of home company
• Liability for all debts and obligations
• Registration
• Local representative
• Bookkeeping complications
• Tax issues
• PE for home company
• Reporting requirement

14
Representative Office

• Type of branch office
• No registration necessary
• No PE for tax
• Only limited activities
• Gather information
• Research

15
Subsidiary

• Not a branch office
• Involves creation of a separate legal entity
• Subsidiary Company is owned by parent company
• Affiliate Company is owned by owner of parent
  company

16
Subsidiary

• Most common direct approach
• Each country different
• Registration
• Difficult to terminate
• Creates PE

• Japan
• 7 or more promoters
• Minimum capitalization 100,000
• 3 directors, including 1 Japanese
• 1 statutory auditor (kansayaku)

17
Joint Venture

• Loosely defined
• Joint equity venture
• Paper JV