Piggy Back It has become established as a common strategy for entering new international markets.
On this occasion, we will explain what the Piggy Back contract consists of, which is the foundation on which this strategy is based.
What is the Piggy Back Contract?
El Piggy Back Contract It arises when two companies from the same country collaborate.
One of them already operates abroad (usually a large company), while the other does it at a national level and is usually smaller (such as an SME).
Through this agreement, lSMEs can access the new market where the big company is established.
In other words, The local company takes advantage of the structure of the international company to sell its products globally.
This is a beneficial export method for small businesses which, on their own, cannot operate internationally.
In this way, they take advantage of the sales channels of a larger company.
Features of the Piggy Back Contract
By this contract, The company that is already operating abroad allows SMEs to use their network of contacts to market products internationally., in exchange for a commission.
For SMEs, this contract represents cost savings and the elimination of barriers such as administrative procedures or logistical problems.
Furthermore, facilitates a much faster entry into international markets compared to other methods.
It is a peculiar contract, since it shares aspects of other more common contracts, such as commission contracts, distribution o provision of services.
The company that operates internationally does not acquire ownership of the SME's products. It simply acts as an intermediary and receives a commission for the sales generated.
The percentage of commission It usually ranges between 3% and 20% on sales obtained by the SME, in addition to a fixed bonus for structural costs.
Piggy Back Examples: PayPal and eBay
A clear example of this strategy is the collaboration between PayPal and eBay.
In the late 90s and early 2000s, PayPal, then a new player in the e-payments sector, failed to establish itself in the e-commerce market on its own.
However, he decided to take advantage of another company's channels.
This company was eBay, which was already well established in the e-commerce market.
PayPal offered its services as a payment platform to eBay in exchange for a commission.
Thanks to this collaboration, PayPal was able to use eBay's platform to expand, as the latter was already a reference site for the purchase and sale of products online.
Frequently Asked Questions (FAQs)
It is an agreement between an SME and a large company whereby the former uses the infrastructure of the latter to access a foreign market in exchange for a commission.
The Piggy Back contract is a complex agreement.
When drafting it, it is important to consider both the specific needs of the company and the terms of the established collaboration. It is best to consult lawyers specializing in internationalization.
Piggy Back has established itself as an effective strategy for entering international markets.
This is because it allows SMEs to operate in new markets using the structure of a large company, facilitating faster “implementation”.
Yes, a piggy-back contract is a commercial agreement that governs collaboration between two companies for international expansion. Through this agreement, a smaller company can access global markets by leveraging the infrastructure and distribution network of a larger company.
The piggy-back contract shares elements with other collaboration contracts, such as distribution or commission contracts. However, its main difference is that the company facilitating the internationalization does not acquire ownership of the products, but rather acts as an intermediary, earning a commission on each sale.
SMEs that use the Piggy Back commercial contract can expand without major investments in logistics, marketing, or infrastructure. It also allows them to overcome administrative barriers and quickly access new markets without assuming the same risks as traditional internationalization.
This type of collaboration agreement is especially useful for companies that want to expand internationally but lack the resources to do so independently. It's also an effective strategy for companies looking to test a market without making a large initial investment.
Conclusion on the Piggy Back Contract
In short, the Piggy Back contract is Ideal for companies that want to operate internationally but do not have the resources or means necessary to do it on their own.
It is particularly useful for a local company to introduce its products into foreign markets. As a first step towards internationalisation, this strategy can be very beneficial for SMEs.
However, It is not applicable to all companies, since the company that provides the sales channels can take a significant commission.
For example, a company that has enough capital to establish its own international operations would probably not find it profitable to use a Piggy Back contract.
In addition, this type of contract is not standard, but it has very specific characteristics that distinguish it from other types of agreements, although it can offer great opportunities to those companies that wish to expand and cannot do so on their own.
RRYP Global, lawyers of international contracts.
