Article for Sunday Business Post, Sunday 8th July 2012
Many businesses are looking to enter new markets to increase sales. With a population of 65 million-compared to 4.5 million in Ireland – Britain has oblivious potential for exporters.
Last year, Irish exports rose by almost 5 per cent to a total €171 billion. The figures, released by the Irish Exporters Association represented a significant €8 billion jump, making Britain our second largest export market behind the US and just ahead of Belgium.
I would advise aspiring exporters to spend three to six months researching and planning their entry route. You have to understand:
– The customer’s needs;
– The market;
– The competition;
– Distribution channels;
– Pricing structure;
– Cost structure;
– Local business regulations;
– The Culture;
The tax structure should be an important consideration at the planning stage. You need to determine the best structure for your business for trading in the British market. For Example, should you set up a branch of your existing business as a subsidiary company- or a separate standalone company altogether? Then they are other options, such as partnering with an existing local partner or setting up a joint venture operation. Should you appoint an agent or a distributor?
The headline corporation tax rate in Britain is 24 per cent, for small companies with profits of £300,000 or less, the rate is lower at 20 per cent. No matter what structure you adopt, once your business is operating through a “permanent establishment” in Britain, it is subject to the tax rates that apply there. A permanent establishment refers to a fixed place of business, through which the business of an enterprise is wholly or partly carried on. Examples include a factory, office, branch or place of management.
While any new operation is likely to be loss making, the Irish company get an effective cross-border loss relief in the case of branches. In addition, if the British venture fails, no company wind up costs are incurred in reversing out of the market there.
Consider incorporating once the operation begins to make profits using one or two possible structures.
– Subsidiary: Suitable where Irish and British operations face a similar degree of risk.
– Company: Suitable as a means to “ring fence” the business risk in Britain from Irish operations.
The most important thing when deciding to start exporting to Britain is not to think of it as “Exporting”. Instead ask yourself:
– How can we do this in such a way that drives up the value of our business?
– How can we do it in such a way so that customers in Britain will unreservedly recommend us to other new customers?
Ideally, you should take an active role in getting face –to –face with strategic customers and avoid, at all costs, getting too involved with third parties.
Your research into market entry should never start with distributors, agents or any other third parties. It should always begin with customers or consumers of your product or service.
This is particularly true of sectors that have well-established traditional distribution systems and business models.
Our most successful clients around the world are those that have succeeded in breaking down existing systems, creating new models and establishing new and better ways of doing business. Pat Sutton, Managing Partner, O’kelly Sutton, Kildare. www.okellysutton.ie