International business entry mode

Introduction:

Nowadays, trough globalization and the opening of country’s borders, the economy tend get more global. Countries are now related trough their economy, which pushes more, companies to expand themselves all around the world. Usually companies from developed countries are pushed to target other markets caused by the saturation and lack of opportunities lack of theirs.  Sometimes the legislations between two different countries can be completely different. To implement themselves in a new-targeted market, companies have to adapt themselves and create agreements with local partners to facilitate this process. In order to avoid any failure, they often analyze and identify the opportunities and alternatives to integrate themselves and gain profit.

As a French company called EDF, built in 1946, we are mainly specialized in energy supply. We provide different kinds of energy, traditional but also sustainable ones. Our company is actually facing a difficult period trough it’s profit deficit and new legislations concerning nuclear energy in France, which is actually the main energy we produce. We are already implemented in different countries such as United Kingdom, India or even South Africa. Thanks to new global initiatives like the COP 21, the global economy fully supports new sustainable energy projects. The main product we want to sell is Hydroelectric-generating station that is considered as a green energy.

We decided to target an Asian country with a developing economy where our project could fit perfectly. Vietnam is a country in a very good economic growth situation, which could be a very attractive place for our business. It has a political stability that is quite safe. It has a high potential for direct foreign investment and its economic freedom is in expansion.  They have also an important credit of human resources and they workforce is cheap, motivated and really adaptable. Today Vietnamese law encourages foreign investment trough new favorable investment policies. But the government as a kind of monopoly mainly occupies the Vietnamese energy market. There is also a big amount of energy project while the demand of energy is constantly increasing. In addition it is a strategic place to spread our product in neighbor countries.

Unfortunately, it still has some disadvantages. Administration procedures are very long. Corruption is a main issue and is very difficult to fight against it. Obtaining a certificate of investment can be a hard task. Infrastructures are weak and competitors tend to sabotage other projects. This is why we are going to analyze in this report in a first a part the different legal relationship that we could by comparing them and identify their different aspects and effects they possess. In a second part we are going to establish mainly the different components and criteria of our possible agreements and related to our strategic plan.

1. Different legal relationships: advantages and drawbacks

1. Agency alternative:

Agency also called law of agency is a type of English law. It is a very known practice to endorse legal relationships between parties. The principle is quite simple: during the establishment of a contract the principal gives the ability to an agent to execute the contracts trough his name. In other words, the agent represents the principals and deals with a third party. The agent, in most of the cases, negotiates the contract with the third party but contractual relationships are mainly established between the principal and the third party. This kind of practice is mainly used by limited companies. The principal usually relies the responsibility of concluding the contract to the agent.

They are two types of contracts. The first one is called the disclosed agency. In this situation, the third knows that the agent represents the principals and also knows his identity. The second one is called undisclosed agency. The third party ignores the presence of a principal. Usually, Third party is convinced contracting only and directly with the agent without knowing the fact that he is representing someone.

Principal and agent are related trough obligations, duties and liabilities. Both of them have to respect them with care and due diligence in order to be successful.  The principal has to inform in detail the agent about his intentions and provide him all the necessary information he needs. In the other part, the agent has to respect all his contractual obligations. He has to mainly defend the principal’s interest and avoid all kind of conflict situation with the third party.  The principal can rely the contractual power to the agent trough different ways and degrees.

This kind of practice can be in some cases very helpful. When for example your company doesn’t have good negotiators and salesman, engaging an external agent can be very advantageous.  It can be in some situations easier to get a contract with the third party. Most of companies that use this kind of methods are limited companies or SME’s with a low brand image and power of bargaining.

In our case, we are semi-public company who belongs to the French states with an international reputation. Relying this kind of responsibility to an agent could be extremely risky for our project. First of all, the scale of our project is too important to use this alternative. By taking an agent, we loose, in certain parts, control of negotiation. In this case we are talking about a direct negotiation with the Vietnamese government, which creates a very high importance and responsibility. To conclude this solution can definitely not fit to our strategy.

b- Distributor alternative:

The distributor alternative also called distribution law is a type of legal relationship. In this case we also three parties but the distributor replaces the agent. The contract is concluded between the supplier, which is our company in this case, and an intermediary who is charged to distribute the product in the targeted market.  In other words, it is a type of contracts that defines the terms and conditions of the products distribution.  It mainly defines the supply channel of your company in the foreign market.

In this case you sell directly the product to the distributors who will then sell it to retailers. Generally the contracts are composed of shipping terms, consumer protection, co-operative advertising and others. Sometimes they can also be multiple levels of distributors. It is mainly used for the sale of FMCG’s and mechanical products.

The advantage of this kind of practice is that the distributor usually has a well-established network in the foreign country. That means, that you don’t to look for the demand and put effort on creating partnerships and customers. It will easily facilitate the penetration of your product in the market.

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