John Pickervance, Head of Commercial, Forbes Solicitors
International trade offers significant potential both for businesses and the economy; recent research from Santander suggests UK coffers could benefit to the tune of £93.5bn if SMEs were to realise their global aspirations, while creating an additional 1.9million new jobs.
While many businesses are interested in trading internationally, it can be a complicated and daunting process and companies often lack the expertise and know-how to make it happen. The most common barriers are trading arrangements, logistics, laws and regulations, and the costs.
Ahead of International Trade Week this week we’ve outlined the key considerations for businesses looking to trade beyond the UK, advising brands on the commercial legalities:
Trading arrangements; understanding the options
Beyond direct sales, there are several potential trading arrangements for businesses to consider, namely the agency, distribution or franchise routes. An agency arrangement will involve appointing an agent to sell a company’s goods or services on their behalf, while a distribution arrangement will see a distributor purchase product directly from a manufacturer before reselling them. In contrast, a franchising agreement will see a franchisee granted a license to distribute a product or service, with support from the franchisor.
While for some businesses the choice of arrangement will be clear and straightforward, others will need to take the time to carefully consider the options and differing legal considerations attaching to each type of relationship before making a decision.
Ensure legal compliance in different jurisdictions
It is important to ensure that a business’ interests are not only safeguarded when entering new markets, but that the groundwork is laid to facilitate a positive relationship with new partners.
It goes without saying that laws vary by country, meaning companies should take appropriate legal advice to ensure they don’t fall foul of legislation. It is prudent to pay particular attention to anti-corruption and anti-bribery laws, which could prove costly not only financially but to a brand’s standing and reputation.
Companies opting to sell directly, buying and selling from third parties in foreign jurisdictions, will need to consider a range of factors to ensure compliance when trading overseas.
Businesses may consider putting in place a Memorandum of Understanding or Heads of Terms prior to implementing a formal Commercial Agreement governing the formal trading relationship and businesses should give due attention to elements including International Commercial Terms (Incoterms), Inspection, testing and approval, language of governing law and jurisdiction. Aspects like security need careful consideration should the company consider there to be heightened risk but options are available including drawing on performance guarantees and bonds, for example. From a formality perspective, we would advise businesses obtain two signatories in order to execute legal documentation and in some cases, process payments. These are all important decisions which require time and experts with expert knowledge and experience.
Produce thorough terms and conditions
It is vital to have contracts and terms and conditions in place from the outset, and to ensure that the documents not only cover all bases but are regularly updated. Contracts should provide absolute certainty around the content and scope of the agreement between parties. It will allocate risk, mitigate against potential issues and ensure that parties are clear about their obligations. There are a number of aspects that should be expressly addressed, including payment and terms, delivery agreements, necessary insurance and any transfer of titles.
Having the right documentation in place will avoid unnecessary time and expense drawing up and negotiating terms for specific transactions. And where obligations cannot be carried out, action can be taken quickly, resolving any issues as quickly as possible.
Protect your Intellectual Property rights
When trading internationally for the first time, it’s important that companies take the time to review their Intellectual Property rights to ensure that all bases are covered; this includes IP associated with the brand as well as individual products and any packaging. Businesses should check that existing IP does not infringe the rights of third parties residing in foreign territories and then take steps to ensure that it is protected in each of the countries in which services or goods will be marketed.
This should be one of the first actions for companies expanding internationally; without the right IP rights, trading arrangements with agents and distributors could encounter issues. It is important that businesses protect their brand in any countries they wish to start marketing in.
Ensure compliance with export controls
The export of goods must be compliant with certain controls – these include policies and legislation which must be adhered to. Businesses should take the appropriate legal advice to prevent breaching any of these rules – the penalty for doing so can be significant. Companies may also need to secure export licenses for products and may be liable for certain duties.
There’s no doubt that international trade offers exciting and potentially lucrative opportunities for UK businesses – with the right advice and support, particularly when it comes to commercial law, companies and brands can ensure that they’re positioned for success, while mitigating risk.
