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Country Commercial Guides FY 2000: United Kingdom Report prepared by U.S. Embassy London, Released July 1999 Note*

IV. MARKETING U.S. PRODUCTS AND SERVICES

-- Distribution and sales channels:

The Commercial Service of the U.S. Department of Commerce has a range of services designed to help U.S. firms identify prospective distributors or sales and service representatives. These include the fee-based Agent/Distributor Service (ADS) and the Gold Key Program. American companies initiate the ADS at their Export Assistance Center in the U.S.; the Gold Key may be commissioned directly with the Commercial Service post. ADS applicants specify the profile of their ideal prospective representative, and the Commercial Service searches for appropriate local companies that have a specific interest in representing them. The Gold Key service schedules face-to-face meetings with business prospects, either as a follow-on to a successfully completed ADS, or as a separately organized program of meetings with prospective representatives, end-users or joint-venture partners. The achievement of mutually agreed objectives has consistently proved the value of the ADS and Gold Key programs as export promotion tools.

Counseling provided by the Commercial Service to U.S. firms intending to establish a presence in the U.K. can include market research, advice on regulations, the provision of business contacts and networking opportunities, and assistance with product launches and marketing campaigns.

The U.K. has a full range of product-specific distribution and sales channels. These channels range from sales subsidiaries of foreign manufacturers to import houses that purchase and sell on their own account. Between these two extremes are resellers, commission agents, specialized importers, brokers, and importing distributors. The distinction between the various types of marketing channels is not clear cut, and a considerable variation exists for even a single group of products.

-- Typical product pricing structures:

U.S. export market prices should reflect all of the actual cost components, even for shipments to a related company. Shipping, insurance, financing charges, customs duties, storage, distribution, advertising, sales, after-sales service, ultimate profit and any other transaction costs should be examined individually, and included in the CIF price. -- Use of agents and distributors; finding a partner:

National laws governing the relationships between agents and distributors and their suppliers are broadly harmonized throughout the EU. EU Directives establish the rights and obligations of the principal and agent, the agent's entitlement to remuneration, and the conclusion and termination clauses of agency contracts. The law appears to favor the agent rather than the principal to such an extent that most agency arrangements within the EU have been terminated in favor of distributorships. -- Franchising:

The Commercial Service is equipped to advise U.S. exporters and new to market companies in virtually every business sector. In addition to the promotion of conventional products and services, we promote market access through various business formats including franchising, direct marketing, and licensing and joint ventures.

Franchising now accounts for approximately one third of U.K. retail sales in those sectors that host franchise operations. More than 40 North American-origin franchise systems operate in the U.K., with more than 4,000 franchised units employing 30,000 full and part-time staff, and generating a turnover of $1.65 billion. The most popular franchise businesses are in food and beverages, hotels, car rental agencies, printing and copying, and auto services.

The Office of Fair Trading (OFT) is the regulatory body that provides consumer protection in franchise operations. The OFT seeks to ensure that the franchise promotes a genuine product or service, and is not a pyramid sales scheme. Since the major U.K. banks recognize the value of successful franchises, they evaluate the business prospects and local credit needs of franchise schemes, and can provide advice and investor leads to U.S. franchise operators considering U.K. market entry.

-- Direct Marketing and the Internet:

Affordable transatlantic telecommunications, low cost bulk mailing rates, and the use of credit cards for international transactions have made direct marketing from the United States possible. Public confidence in the accuracy of remote billing, data security, and certainty of delivery is increasing at a time when the Internet is also becoming an accepted marketing tool. These factors combine to make direct marketing of many types of goods and services worth considering.

The Advertising Standards Authority (ASA) has established a code of practice for direct mail advertising and for list and database management. The code and the supplementary rules can be obtained from the ASA, Brook House, Torrington Place, London WC1E 7HN; telephone: (44) 207-580-5555; fax: (44) 207-631-3051.

-- Joint-ventures/Licensing:

Joint-ventures and licensing are often used to maintain a competitive advantage in the British market. Joint-ventures and licensed production may be eligible for U.K. investment grants and financial assistance, and will provide for relief from import duties.

-- Steps to establishing an office:

Establishing a branch office is an inexpensive and simple procedure, involving the notification of the parent company's registration details to the Department of Trade and Industry's Registrar of Companies. There is no need to complete the registration process before commencing operations, as the branch office of a foreign parent is given a one-month grace period.

Setting up a subsidiary company is equally easy, although using a local accountant or law firm for filing purposes may make the task even easier. Inexpensive pre-registered companies can be purchased from company formation agents, allowing new-to-market companies to start trading with limited liability immediately.

-- Selling factors/techniques:

EU and national legislation govern exclusivity in agency and supply agreements, purchasing contracts, and contract terms. U.S. manufacturers and exporters are able to appoint exclusive agents, and to determine the methods used to promote the sale of their products.

Practices of regulatory concern are those that distort trade to the benefit of the suppliers and to the detriment of competitors or end-users. Recent legislation gives some exemptions to vertical agreements between manufacturers and their resellers, requires disclosure of certain types of inter-company commercial arrangements, and gives powers of investigation and enforcement to the regulatory authorities.

-- Advertising and trade promotion:

Trade promotion materials prepared for use in the U.S. market may need to be modified for local legal, cultural, and other differences. In addition to advice that the Commercial Service offers, local advertising agencies and marketing consultants can provide appropriate professional guidance. Also, the Advertising Standards Authority oversees the practices of the advertising industry and enforces the provisions of the British Code of Advertising Practice (CAP). Advertisers should become familiar with CAP recommendations.

-- Pricing products:

The U.K. is a highly competitive but also highly receptive market for U.S. goods and services. When pricing products for sale in the U.K., U.S. exporters should be aware of the additional costs that could otherwise undermine profit margins. In addition to the EU's common external customs duty on imported goods, a local value-added tax of 17.5% is charged on the majority of goods sold in the U.K. The cost of freight, insurance and customs clearance will further diminish margins, as will commission payments made to agents.

Because the U.K. market is smaller than the U.S. market and does not benefit from the same degree of economies of scale, local retailers have tended to seek a higher profit margin than is customary in the United States. Countering this tendency toward higher prices, the availability of similar goods throughout the European Single Market introduces competitive pressure to keep prices down.

Companies trading with the Euro zone may wish to invoice and receive payment in Euros. The banking mechanisms are in place to facilitate this preference, but few British companies have opted for the Euro as their principal trading currency.

-- Sales service/customer support:

Having an advanced economy, the U.K. offers a full range of sales and after-sales support services independent of those of the original equipment manufacturers. Advice on accessing these may be obtained from the Commercial Service at the American Embassy.

-- Selling to the government:

Most U.K. Government departments are subject to the GATT Government Procurement Code, which requires that qualified foreign bidders should be given equal access to public sector contracts. Urgency or national security reasons can be used to justify procurements outside GATT rules. As there is no widely-available U.K. Government journal, procurement intentions are published in the EU Official Journal and in specialized industry-specific publications.

The Ministry of Defence (MoD) publishes information on its future projects and procurements in a biweekly Contracts Bulletin, which is available to U.S. subscribers. Nonetheless, most U.S. defense companies require more lead-time than the bulletin provides, and need detailed guidance on the complex rules and bid evaluation criteria used in this sector. To remedy this, the Embassy's Office of Defense Cooperation (ODC) has prepared a handbook of unique insights and case studies in U.K. defense marketing for U.S. companies. The handbook is updated at least yearly to incorporate changes in U.K. Ministy of Defence policy, procedures and/or organization.

The handbook is a briefing tool that supplements the practical advice that can be obtained directly from the ODC in London. This advice includes insight, guidance, status and advocacy to support U.S. defense contractors competing for sales and cooperative development programs for defense equipment and services, including missiles and defense systems, munitions, sensors, ships, planes and helicopters.

Larger defense contracts awarded to non-EU contractors require the negotiation of industrial participation (IP/offset) arrangements. The IP arrangements are separate from the procurement contracts, but supervised by the MoD's Defence Export Services Organization (DESO). Contact data for MoD and the ODC is given in Chapter XI, Appendix E. of this Guide.

-- IPR protection:

IPR protection in the U.K. conforms to the harmonized approach adopted by the EU, the World Intellectual Property Organization (WIPO) and GATT. The U.K. is a member of the Paris Union International Convention for the Protection of Industrial Property (1958 Revision), and the Bern Convention. U.K. patent, trade mark and copyright protection is afforded by the Patent Office and Trade Mark Registry, an executive agency of the U.K. Department of Trade and Industry. Britain's record of compliance is good, and rare instances of IPR infringements are remedied by civil litigation. In the case of counterfeit goods imported into the U.K., additional safeguards are afforded by local government Trading Standards Officers, by the Office of Fair Trading, and by HM Customs & Excise.

-- Need for a local attorney:

Circumstances in which an attorney would be necessary are very similar to those in the United States. Many large U.S. law firms maintain branches in London or work in cooperation with local British lawyers. The US Embassy maintains a list of law firms with offices in the U.K.

-- Performing due diligence checks:

The Commercial Service has discontinued the preparation of International Company Profile (ICP) reports in the U.K., as good private-sector alternatives exist. Banks, accounting firms, credit agencies and risk management companies provide a full range of reporting services that U.S. companies can use. Service providers include the U.K. subsidiaries of the American-owned Dun & Bradstreet, Equifax, and Infocheck.