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EU - Market Entry Strategies

3.2 Market Entry Strategies

While the absence of internal borders and restrictions on most forms of intra-EU commerce  makes the European Union an attractive single market, it is important to keep in mind that the market is a differentiated one, with specific supply and demand needs varying from  Member-State  to  Member-State.  A  pan- European business strategy is critical but exact market  entry  strategies  should be considered on a country-by-country basis. Ref: EU Member States' Country Commercial Guides Methods of Market Entry.

The traditional means of market entry fall into three broad categories: direct exports, indirect exports/partnerships/alliances/foreign direct investment (FDI).

  1. Direct Exports: Market and sell directly to the client.

It has advantages because it can: give a higher return on your investment than selling through an agent or distributor; allows you to set lower prices and be more competitive; and gives you
 
close contact with your customers. A Caribbean food company may sell its products directly to end users in the EU such as hospitals, schools or businesses. In this scenario, the manufacturer is responsible  for  shipping,  payment  collection, and  product  servicing  unless  other arrangements are made.

However, there are disadvantages to direct exporting since you do not have the services of a foreign intermediary, therefore you may need a longer time to become familiar with the market; and your customers or clients may take longer to get to know you, and such familiarity is often important when doing business internationally.

  2. Indirect exports: You market and sell to an intermediary such as a foreign distributor.

The EU distributor is a merchant who purchases goods from an exporter (at a wholesale price) and resells it for a profit. The foreign distributor generally provides support and service for the product,  thus  relieving  the  manufacturer  of these responsibilities. The distributor usually carries an inventory of products and a sufficient supply of additional product and also maintains adequate facilities and personnel for normal servicing operations.  Distributors  typically handle a range of non-conflicting butcomplementary products. However, end users do not usually buy from a distributor; they typically buy from retailers.

A Caribbean food company may also sell directly to an EU retailer, although in such transactions, products are generally limited to select product lines. This method relies mainly on traveling sales representatives who directly contact foreign retailers, although results might also be achieved by mailing catalogs, brochures, or other literature. The direct mail approach has the benefits of eliminating commissions, reducing traveling expenses, and reaching a broader audience.

You can also retain a foreign agent or representative who does not directly purchase the goods. The representative uses the company's product literature and samples to present the product to potential buyers. A representative usually handles many complementary lines that do not conflict. The sales representative usually works on a commission basis, assumes no risk or responsibility, and is under contract for a set period of time (renewable by mutual agreement).  On the other hand, an "agent" means a representative who normally has authority, perhaps even a power of attorney, to make commitments on behalf of the firm being represented (it is important that any contract states whether the representative or agent does or does not have legal authority to obligate the firm). For many new exporters, an intermediary may be the best way to enter a market.

  3. Partnerships/alliances/foreign direct investment: Another option is a partnership at home or abroad or alternatively, establishing a commercial presence in the overseas target market (FDI).

A well-structured partnership can benefit both parties in the following ways: Your partner can complement your capabilities and provide the expertise, insights and contacts that may make the difference between success and failure. Each company focuses on what it does and knows best. Both partners share the risk.

In a partnership, you can also pool ideas and resources to help keep pace with change as well as approach several markets simultaneously. Your partner may provide technology, capital or market access that you might not be able to afford on your own. Strategic alliances can also be very profitable. One of the easiest ways to export is to form an alliance with a company that has a product or service that complements your own. Then you can save money by using the other company's distribution and marketing expertise.

Alternatively, establishing a commercial presence or production hub in the overseas market via a subsidiary of your existing enterprise may also be a viable option for some producers.  The major deterrent to this approach is the considerable amount of capital which might be initially required and therefore, this approach may not suit smaller and less endowed producers. However, for the producer for which this approach is feasible, establishing a commercial  presence in a European market can generate considerable benefits as it eliminates costs and uncertainties associated with transportation from the Caribbean to Europe. It also makes it much easier to supply the specific and  other European markets directly. As a result of the EPA, any producer that   establishes a commercial presence in Europe can also move certain key personnel to the market.

Some producers may prefer not to establish a production hub abroad and in such a case, consideration could be given to setting up a marketing office in one or more EU country or even entering into a licensing arrangement with an EU producer to manufacture your product. Once the exporter has a commitment to the market and anticipates considerable business activity in Europe, a marketing office can act as the importer of the parent company's productand is the principal developer of all sales related activities. As is the case in establishing a production hub, setting up a marketing office would also allow the firm to move certain key personnel such as managers to the marketing office in Europe.