We have already discussed in other articles how the Piggy Back has established itself as a very common strategy for entering new international markets.
On this occasion, we will explain what the Piggy Back contract consists of, which in the end is what this strategy is based on.
What is the Piggy Back contract
The Piggy Back contract occurs when two companies from the same country, one that already operates abroad (usually a large company) and one that does so nationally and is usually smaller (generally an SME), They come together so that the little girl can access the new market in which the large company is established.
That is to say, The local company takes advantage of the larger structure of the company that operates internationally, to sell its products.
It is a really beneficial export method for many small businesses that cannot operate internationally on their own, and, in this way, they do it through the sales channels of another larger company.
If you want to know if Piggy Back is a good option for your company, take this questionnaire:
Piggy Back Contract Features
- The company that operates abroad allows the local SME to use its network of contacts to market its products internationally. Of course, in exchange for a commission.
- For the local SME, the contract Piggy Back It means cost savings and elimination of certain entry barriers such as administrative procedures or logistics problems. It also makes entry to international markets much faster than through other channels..
- It is a rather peculiar contract, since it has aspects of other more frequent contracts such as commission, distribution and leasing of services, For example.
- The company that operates internationally does not receive any transfer of ownership of the products sold by the local SME, but receives a commission for it. It is the figure of the intermediary.
- The type of commission received by the company that provides sales channels to the local SME is between 3% and 20% on the sales obtained by the local SME. Also A fixed plus is added for structural costs.
Piggy Back Contract Example: PayPal and Ebay
To understand it better, we can use the companies PayPal and Ebay.
In the late 90s and early 2000s, the now giant PayPal was created and “came into play.”
Initially it was not well established in the electronic commerce of the time as a payment method company. Even so, they did not give up and They decided to use another company's channels.
That company was Ebay, which at the time was already established in the e-commerce market.
PayPal went to eBay to offer itself as a payment method in exchange for a commission that eBay took, and that's what happened.
At the beginning of its life as a company, PayPal had to use the Ebay platform to offer its payment system, since Ebay It was already established as a large website for buying and selling products over the Internet.
FAQs
It is an agreement between an SME and a large company whereby the former will use the structure of the latter in a foreign market in which the latter already operates in exchange for a commission, among others.
The Piggy Back contract is complex in itself. To write it, you must attend to both the real needs of your company and the collaboration you have reached. The best thing to do is to put yourself in the hands of lawyers who are experts in internationalization.
Piggy Back has become established as an entry strategy into international markets. This is because it allows you to operate in a new market using the structure of a large company, resulting in “implementation” in less time.
Conclusion on what the Piggy Back contract consists of
In conclusion, the type of contract Piggy Back It is recommended for companies that want to operate internationally and cannot do so, either due to a lack of resources or means to do so.
It is very useful when it comes to starting to fit a local company's product abroad.
As a first step to internationalize SME sales, it is very beneficial.
Although it is not useful for all types of companies, in the end the company that leaves the sales channels can take a significant percentage.
For example, for a company with enough capital to invest in establishing sales abroad, it would not be profitable to do a PiggyBack.
Contract Piggy Back Furthermore, it is not generic, but very peculiar, with typical characteristics or clauses of other contracts, but it can undoubtedly provide opportunities abroad to those companies that want to do so but are unable to do so on their own.
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Internationalist trained at the Complutense University of Madrid with broad interest in international climate issues, micronations and the Latin American region. Master in International Trade.
