Market entry strategies
Developing a solid knowledge of your EU market or markets will help you select the best entry strategy for your company. Getting your entry right helps you operate efficiently in the local market and contributes to your competitive advantage there.
You can choose from several strategies from direct exporting to building your own facility in a member country. The major approaches are described below.
In this chapter
With this approach, you export and sell directly to international buyers without using the services of an intermediary such as a distributor or agent. Your customers may be either individual consumers or local businesses.
3.1.1 – Direct exports to EU consumers
You make your products known to EU consumers and present them in a way that will appeal to local needs, tastes and values. To do this properly, you’ll need to adapt your product and your marketing materials and messages to your specific EU market. If you’re unfamiliar with the local culture, getting this right can require a lot of effort—but you’re unlikely to succeed if you can’t manage it.
3.1.2 – Direct exports to EU businesses
In this model, you sell directly to EU businesses that use your product for their own purposes, perhaps in manufacturing goods of their own. Business customers can be much easier to identify than consumer-level buyers, since you can often meet them at trade shows. Note that an EU business that is not the end user of your product, but on-sells it essentially unchanged (except, perhaps, for the packaging), is considered an intermediary.
Language barriers, cultural differences and unfamiliar ways of doing business can be challenges for Canadian companies that want to enter the EU market. The best solution may be to use intermediaries who are familiar with local conditions. Good intermediaries can help you find customers, arrange distribution channels, handle documentation, clear your goods through customs and provide after-sales service.
The three most common intermediaries are agents, distributors and export management/trading companies. To find one, check with your contacts at the Trade Commissioner Service, with EDC’s on-the-ground representatives in the market and with your sector’s trade associations.
Other companies in your sector may be willing to share information about their experience with intermediaries. You may also connect with potential intermediaries by attending trade fairs. Wherever you find them, always apply careful due diligence to make sure they’re the right fit for your needs.
There are three basic types of intermediary:
3.2.1 – Agents
An agent is an individual or firm you employ, usually on commission, to sell your product to wholesalers, retailers and sometimes end users in the target market. Unlike distributors, agents do not at any time own the products they represent.
Agents can also handle the local promotion and marketing of your products through channels such as trade shows, social media, billboards, direct mail and newsletters. They often have territories and sell to a particular set of customers. They may also represent products that compete with yours.
Unless agreed to otherwise, the agent is responsible only for taking orders for your goods and then forwarding those orders to you. Filling the orders, shipping the goods to customers and collecting payment is your responsibility, as is setting your product’s local price.
3.2.2 – Distributors
Distributors buy your product from you and then sell it to end users at a markup that provides them with their profit margin. They can represent you in all aspects of sales and service but may handle products that compete with yours. Unlike agents, they buy your product outright, warehouse your goods as needed, handle all local orders and shipping, and are responsible for customer credit risks.
Distributors represent you in the territory specified in the distribution contract, and can do it on an non-exclusive or exclusive basis. If it’s non-exclusive, you’re allowed to have more than one distributor in the territory. If it’s an exclusive contract, you agree to only use one distributor in the territory.
3.2.3 – Export management and trading companies
These businesses handle multiple aspects of exporting, such as market research, transportation and advertising. Some firms buy your product outright, while others may act as agents on commission. The major advantage of using one of these firms is the immediate and easy access they provide to the market.
Dealing with cultural differences
In cultural terms, the EU isn’t a single market—it’s a mosaic of markets where living standards, social values, consumer tastes and business etiquette differ from one place to another, sometimes sharply. If you’re going to succeed in the EU, you need to be aware of these differences and adapt your business and marketing strategies to match them.
In a business context, for example, meetings in Germany are highly formal and follow precise agendas. They are aimed at reaching a business decision and are not intended to be forums for discussion. In Spain, in contrast, meetings tend to be mainly for the exchange of ideas and may not immediately lead to a decision.
To complicate matters further, many EU countries have strong regional cultures within them. Northern Italy is different in many ways from the southern part of the country, and Belgium is home to three cultural regions (and has three official languages!).
There are many web-based resources that will help you learn about the business and consumer cultures of the EU. A good one is Passport to Trade, which concentrates on the business side of things. Visiting your target country, after due preparation, is also an invaluable way to learn how to navigate the local culture.
Direct exporting and using intermediaries aren’t the only ways of doing business in the EU. Many Canadian companies start that way, but then discover that establishing a business in the EU could help them expand their European operations.
3.3.1 – Types of EU presence
Most Canadian companies establish either an affiliate or a sales office in one of the member countries.
Affiliates
An affiliate (sometimes called a subsidiary) is a company you set up to serve your interests in your target market. Usually, its size is unimportant—you may be using it merely to establish an EU presence, or you may intend it to become a full-scale manufacturing firm with millions of dollars in annual revenues. In either case, it operates as a local EU company with respect to regulations, laws and taxes.
Sales offices
If all you need is a basic EU presence, opening your own sales or marketing office (sometimes called a branch office) may be the answer. In most cases, however, a sales office does not have the same freedom of action as an affiliate and can only perform basic functions such as market research and identifying customers. As a result, Canadian companies frequently opt for affiliates.
3.3.2 – How to set up an EU presence
The rules and requirements for setting up an EU presence vary from country to country. The Start and Grow section of the Europa web site provides many resources to help you do this, including the national contact point for each EU nation. These contact points provide information about:
- Licences, notifications or permits needed to start a business
- Requirements for offering services on a temporary basis
- Recognition of professional qualifications and regulated professions
- Labour and social laws
- Rules for public procurement
A strategic alliance is a cooperative arrangement between your company and one or more other businesses. It can take many forms, such as technology transfer agreements, purchasing and distribution agreements, marketing collaboration or joint product development. Ideally, the strengths of your two firms will complement each other and the alliance will enhance your joint competitiveness.
In a joint venture, your company and an EU firm cooperate to achieve a specific business objective. This cooperation could be a simple partnership that is limited in scope or duration, or it could involve a long-term investment of funds, facilities and resources to establish a separate company.