Legal considerations for internationalising your business
The expression “evolve or die” perfectly reflects the reality facing Spanish businesses today. The decision to internationalise your business is essential if a company is to grow and avoid being overtaken by the relentless forces of globalisation. However, alongside significant competitive advantages, international trade also entails a number of legal risks that must be carefully considered.
What options are available when internationalising your business?
1. Internationalising your business through exporting
This involves a straightforward international sale of goods transaction, carrying a relatively low level of legal risk provided that the importing company, the method of payment and the appropriate Incoterm (International Commercial Term) are carefully selected. It is generally the most suitable option for businesses entering international trade for the first time.
This approach can provide even greater legal certainty where the company appoints a commercial representative with expertise in the target market to promote and sell its products on the company’s behalf.
2. Internationalising your business through subsidiaries or branches
Establishing a subsidiary offers significant advantages to the parent company, including financial benefits, increased business opportunities through local market knowledge, and savings in transport, logistics and production costs.
From a tax perspective, this option may also prove advantageous where the jurisdiction in which the subsidiary or branch is established applies lower corporate tax rates than those applicable to the parent company. However, this method generally involves higher costs than exporting, whether or not a commercial representative is appointed.
3. Internationalising your business through strategic alliances
This model is particularly attractive for businesses seeking to enter a foreign market. It is based on the alignment of interests between two or more companies pursuing a common objective through the reciprocal sharing of resources in order to achieve growth.
Its legal framework is typically established through a cooperation agreement, which defines the rights, obligations and contributions of each participating company. In essence, the arrangement facilitates the transfer and pooling of resources to promote business growth.
The principal disadvantage of this model is the potential loss of control over strategic decision-making, together with a reduction in market share, which must be shared among the parties to the cooperation agreement.
4. Internationalising your business through intermediaries
Under this approach, another company assumes responsibility for managing sales in foreign markets. The legal relationship is generally governed by commercial contracts tailored to the particular business model, such as distribution agreements, commercial agency agreements or commission agreements, among others.
FAQ – Legal considerations for internationalising your business
Why is it important to internationalise your business in today’s market?
Internationalising your business enables it to adapt to an increasingly competitive global environment, diversify commercial risks and take advantage of new growth opportunities, thereby reducing the risk of being displaced by global competition.
What is the simplest way to internationalise a business?
The most straightforward option is direct exporting, which involves an international sale of goods transaction with relatively limited legal risk, provided that the importer, the payment method and the appropriate Incoterm are selected with due care.
What are the advantages of internationalising your business through a subsidiary or branch?
Establishing a subsidiary or branch provides greater knowledge of the local market, reduces logistics costs and may offer tax advantages where the host jurisdiction has a lower corporate tax burden.
What are the legal risks of establishing a subsidiary abroad?
The principal drawbacks include increased operational and structural costs, together with the legal and tax complexities associated with conducting business in another jurisdiction.
What are strategic alliances in the context of business internationalisation?
Strategic alliances are based on cooperation agreements between businesses that share resources, expertise and commercial objectives in order to gain access to international markets.
What are the disadvantages of international strategic alliances?
They may result in reduced control over business decisions and a loss of market share, which must be shared with the other parties to the cooperation arrangement.
What role do intermediaries play in business internationalisation?
Intermediaries enable businesses to delegate the management of overseas sales to third parties through commercial arrangements such as distribution, agency or commission agreements, thereby facilitating access to new markets.
What legal issues should be considered when internationalising your business?
Businesses should carefully assess international commercial contracts, the applicable legal framework, payment methods, tax risks and the legal obligations arising in the target jurisdiction.
Is it advisable to obtain legal advice when internationalising a business?
Yes. Specialist advice in international corporate and commercial law helps businesses minimise legal risks, structure transactions efficiently and ensure compliance with all applicable legal and regulatory requirements.
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