Internationalisation

The term “internationalization” can refer generically to all the activities undertaken by a company to operate in foreign markets, or – more specifically – to the process through which the company organizes its direct presence, in a stable form, in one or more foreign countries. The stable presence must be implemented in one of the forms permitted by the host country; among these, therefore, the most appropriate one for the specific case must be identified. This evaluation must be conducted considering both the objective that the entrepreneur has set and the measure of risk they choose to assume. Our professionals have developed extensive and solid experience in supporting companies in internationalization operations, both in the strategic planning phase and in the implementation phase.

Forms

Foreign offices (Branch – Subsidiary)

Although the two terms are often used as synonyms, normally (the distinction is not always present in different countries) the subsidiary, from a legal standpoint, is not fully autonomous from the parent company, and the latter can therefore be called upon to answer for the obligations assumed by the former. The branch, on the contrary, is an autonomous legal entity, and as such enjoys the benefit of limited liability in relation to the economic activity carried out (subject to the possibility provided in various legal systems – in the presence of certain management situations – of also involving the parent company’s liability).

Contractual Joint Venture

It is the preferred form of cooperation among parties intending to establish a temporary alliance, suitable for achieving a specific common objective. The bond that is established is exclusively contractual in nature and does not give rise to a new legal entity. It is often used by companies to carry out works that exceed the economic capabilities and competencies of each of them in relation to a particular deal, or to test a cooperation with a view to the possible establishment of a company in the future. Not giving rise to an autonomous legal entity, any liability limitations agreed upon in the internal relations between the contracting parties are not valid vis-à-vis third parties.

Corporate Joint Venture

An instrument used for creating a lasting alliance, which leads to the creation of a new legal entity, chosen from among the corporate types available in the country where operations will take place. It is the form of internationalization most often used by SMEs that decide to undertake long-term projects with a local partner.

Representative Office

Often used in the first approach to a foreign market, it creates a very simple structure, suitable for carrying out mainly activities of managing local relations, market research, promotion, and similar activities. It is an organizational form present (albeit with some differences) in virtually all foreign legal systems, in which – with reference to it – the provision of lack of legal personality and absence of authorization to conclude contracts is generalized.

Management of Warehouses Abroad

Useful for optimizing transportation and delivery costs and times, they are often located in countries that can serve as “bridges” to other neighboring countries, considered targets of commercial expansion strategies. When organized in the form of customs warehouses, they defer the payment of duties to when the goods have found their final destination. In practice, SMEs often establish the warehouse at their local commercial partner’s premises (consignment stock agreement).

Strategies

The strategic motivations that most frequently lead the company to organize its stable presence in one or more foreign countries are generally attributable to the types summarized below. It is important that the structuring of the operation ensures as much as possible (especially through the use of contractual provisions) the pursuit and maintenance over time of the strategic objectives that the company intends to achieve through the operation itself.

Localization in “mature” economy countries

1. Foreign offices

• direct management of commercial distribution (market control);
• more efficient management of distribution and after-sales service;
• adaptation of the product/service to local market needs;
• more favorable overall “legal environment” (bureaucracy, taxation, etc.)

2. Joint ventures

• synergies in the offering of products and services;
• participation in tenders;
• “technological partnership”: pooling of economic resources (and consequent risk sharing) to tackle the commitment of research and development of a specific project, and for its subsequent joint exploitation.

Localization in emerging countries or LDCs

1. Foreign offices or joint ventures

• guarantee of continuous supplies at competitive costs, with direct control of the supplier (with or without partial or total relocation of production capacity in the country of origin);
• (partial or total) production of products on site, aimed at distribution in the domestic market of the host country and in neighboring markets;
• adaptation of the product/service to local market needs;
• local production to follow a strategic customer (leading company) already established in the host country;
• facilitate participation in public tenders.

2. Representative offices

• deepen knowledge of the local market and area; initiate relations preparatory to commercial development or a subsequent more structured establishment.

Contractual Provisions

The drafting of contractual agreements between the parent company and local entity represents a not particularly complex step if the foreign structure is 100% owned by a single company (in any case subject to issues related to transfer pricing); however, it constitutes a delicate junction if the operation involves the participation of multiple parties. Whether one wishes to create a structure jointly owned by several Italian companies (which for example intend to approach their presence in the foreign country in an aggregated form), or whether one wishes to create a joint venture with a local partner, there will be a need to prepare clear and precise rules in the relations between the parties. The presence of multiple partners, in fact, normally implies the need to manage partially coinciding and partially divergent interests. Practical experience shows that the partners’ interest rarely limits itself to the simple financial return on investment (dividends). Normally, in fact, the desired advantage is to be found elsewhere: supplies at competitive prices, market control, higher margins, etc. The circumstance that, through the instrument of establishing a jointly owned company, the partners pursue more complex strategies, implies that a series of issues must be analyzed with due attention, and incorporated carefully and with foresight into contractual agreements, to limit and manage the risk of conflicts in the medium-long term. Issues such as: the right to use the trademark, technological support and related conditions, supply prices and methods for their subsequent revisions, are only examples of situations that require careful contractual regulation.