Outbound International Business Taylor’s Six Steps for Succeeding in International Business Paul Taylor Taylor & Parrilli Global Law Office

Taylor’s Six Steps for Succeeding in International Business 1. Commitment 2. Plan 3. Market 4. Partner 5. Structure 6. Maintain

Step One: Commitment Goldmine v. quagmire Mindset Time commitment Management commitment Resource commitment

Step Two: Plan Accident v. design

Step Three: Market Careful analysis of best markets Factors: – Population – Wealth – Cultural issues – Political stability – Competition – Regulatory environment – Exchange rates – Economic situation and trends – IP protection - infringement issues – Tax issues – Nature of product

How to Gather Information? Personal network Associations Government – US government – State – Other On-line

Step Four: Partner Take time to look How to look? Gather information Make priority list Make contact On-going discussions Narrow list and decide

Step Five: Structure Personal relationship is key Put in writing Letters of intent Choice of entities

Choice of Entity Indirect Distributor (reseller, OEM, VAR) Sales representative Agent Franchisee Licensee Direct Branch office Subsidiary/affiliate Joint venture

Franchise Similar to distributor Use of name Payment of fee Control of “method of operation”

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

Royalty Per unit Percentage of profit Percentage of gross revenue

Direct Branch Subsidiary/affiliate Joint venture

Branch Extension of home company Liability for all debts and obligations Registration Local representatives Bookkeeping Tax issues – PE for home company

Subsidiary Common Each country different Registration LLC-type entities Difficult to terminate Creates PE

“Representative Office” Unique entity in some countries Branch office, but no “PE” No registration required Limited activities

Joint Venture Loosely defined Joint equity venture “Paper” JV

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

Exclusivity Good for supplier or not? Bad: Could get stuck with bad distributor Good: Gives distributor incentive to work hard Key: Give exclusivity, but include protection

Exclusivity Term of agreement Territory definition Minimum performance standards

Pricing Antitrust laws: – Cannot control retail price – But can provide guidance: MSRP Not applicable to sales reps

Ordering Procedures Watch “battle of the forms” Use rolling forecast?

Shipment Key is risk of loss Incoterms

Payment Payment up front “Open account” (e.g., “Net 30”) – Security interest – Retention of title Letters of credit

Tax Issues ???

Marketing Give autonomy to distributor Keep some controls – Pre-approval of advertising materials – Marketing plan/forecast – Marketing report

Customer/Technical Support Shift to distributor/sales rep? Provide initial and on-going training Provide other support – By telephone/fax/ – By mail – In person

Protection of Intellectual Property Trademarks Copyrights Patents Trade Secrets

Trademarks Name, design or logo that attaches to a product or service Country by country USA is “first to use”; rest of world is “first to file” EU: Community Trade Mark Madrid Protocol

Copyrights Protection on use of “expression of idea” in a tangible form – Books, sound recordings, software Berne Convention

Patents Protects functionality or design of an “invention” – Novel – Useful Software Country by country $$$

Trade Secrets Confidential, nonpublic information Examples: – Coca Cola formula – KFC recipe Most countries protect Key: Disclose only with restrictions – Confidentiality Agreement – Nondisclosure Agreement

Compliance with Foreign Laws Examples: – Registration of contract – Registration of product – Exchange controls – Labeling requirements Put on distributor’s head, but be aware

Liability Issues Shift to distributor Make a good product Clarify responsibilities in warranty language Warning labels Training Insurance

Termination Contract provisions: – Termination for Cause – Termination for Convenience – Termination for Insolvency Country laws

Dispute Resolution Choice of law – Home law – Distributor’s law – Compromise – UN CISG Choice of venue Choice of mechanism – Litigation – Arbitration – Other

US Laws for Exports US export licensing Antiboycott compliance Foreign Corrupt Practices Act

Step Six: Maintain & Change Commitment to customer Commitment to partnership Need to travel May need to change relationship