Over the past few years, the economic and technological landscape has become increasingly positive to the development of new technologies, among software exportation. Consequently, Brazil has experienced significant growth in the number of software and technology companies, especially in the form of startups.
As these new-format companies evolve, it’s natural for them to seek new markets through internationalization. Let’s see how this can be done.
Please contact us here if you would like help from our lawyers in your case.
Author: Leonardo Almeida Lacerda de Melo
The past decade, particularly the last three years, was marked by the COVID-19 pandemic. There has been a considerable influx of entrepreneurs in the technology sector (techs) who have been able to generate innovative ideas with the democratization of communication and digital programming. During the mentioned pandemic period, the market itself offered a considerable amount of products and services that promoted greater digital connectivity among people and many ways to digitally offer various products.
This supply made a positive impact on the technology market. For example, Fintechs (startups focused on financial technology) alone received an investment volume of $3.7 billion USD in 2021, double the previous year’s volume, and four times the volume of 2019, according to data from the Distrito portal.
Given the favorable market conditions, it is opportune for many software companies to consider the internationalization of their products through exports, which, being (generally) 100% digital (either products or services), can occur with much greater ease. Let’s now explore the basic aspects of software exportation.
Step-by-Step Guide for Software Exportation
To engage in exportation, a company should focus on a specific procedure that starts with preparation and research. Only after identifying the target market should the actual software exportation process begin using various formats, which will be addressed shortly. Let’s start with a brief step-by-step guide for software exportation.
The first step for a company is to conduct an analysis of potential consumer markets worldwide. The initial research should encompass an examination of potential consumer markets in the target countries. The goal is to identify a niche market that is sufficient to cover the export operation costs in the early years.
However, the research should not be limited to the market itself. It is necessary to analyze the regulations that the software may be subject to and evaluate if the product or service complies with all local regulations. A tax study is also required to assess the final price passed on to the consumer and whether it is suitable for the target market under analysis.
After conducting preliminary research and identifying a potential new market to enter, it may be necessary to adapt the product/service for exportation, starting with the language. Depending on the cultural differences and market needs of each country, various adaptations may be necessary when introducing the product to a new market.
For example, let’s consider a product in the Lawtech industry that aims to facilitate law firm management. Due to differences in laws between countries, law firms may have different structures and specific needs in each potential consumer market. Hence, adaptation becomes necessary.
Registration and Intellectual Property Protection
It’s valid to mention, as a precaution, that intellectual property registrations through the INPI (Brazilian National Institute of Intellectual Property) do not automatically provide international protection. Therefore, before offering the software to different countries, it is in the exporter’s interest to seek proper protection in the target country, likely through the WIPO (World Intellectual Property Organization).
Only through ensuring intellectual property protection for the software that the company safeguard against the indiscriminate use of its product, thus preventing the target market from being flooded with similar or identical products.
Setting up an After-Sales Structure
Prior to actual exportation, it is important for the software exporter to establish an appropriate after-sales structure for the modified product in the target market. This may require customer support personnel who are fluent in the foreign language, specific support for that product and other measures that maintain the post-sales standards of the domestic market.
In order to retain customers and ensure a healthy presence in the target country, the after-sales aspect should be defined in advance and prepared to handle the expected volume resulting from software exportation.
Study and Implementation of the Export Plan
Once the market, product, structure, and legal protection are defined, the company must choose the most suitable strategy for exportation. The options can range from simple digital distribution of the product to establishing a subsidiary or branch in the target country.
The choice of strategy should be guided by the information gathered in the previous stages, particularly during market research. The nature of the software to be exported should also be taken into consideration, whether it is off-the-shelf software or a SaaS (Software-as-a-Service) model.
For larger markets, to take advantage of possible tax reductions, a more robust export plan involving the establishment of a subsidiary or controlled company in the target country may be more economically viable. For smaller ventures involving software that can be sold entirely online, online sales may be sufficient. Next, we will explore in more detail some software exportation options that the market offers.
Different Methods of Software Exportation
After acquiring the necessary information regarding the target market, its regulations, and taxation, the exporting company should design the appropriate export operation plan, which will involve the strategy to be used for making its software available in the foreign market. Let’s now explore some approaches that the company can take for software exportation.
Online Sales and Distribution
Selling software through 100% digital means presents a cost-effective solution for making it available in markets worldwide, especially in B2C (business-to-consumer) sales. This can be done directly through the company’s website.
However, the exporter should be mindful of the regulations in the target country, such as the requirements for commercializing their software and the possible need to maintain a local representative or resident. Among other issues that may be required for the proper regularization of their product/service.
Sales through Commercial Representatives
Having commercial representation is one of the main ways to enter the international market for software. It involves appointing a representative who will be responsible for selling the product inside the destination country. Having a local representative showcasing the product can lend greater credibility to it for foreign buyers, especially in B2B (business-to-business) sales, where the purchasing company may require local representation to handle potential disputes arising from the product sale.
A joint venture involves a cooperative agreement with a local company for the provision of the exported product/service. This entails establishing strategic partnerships with existing companies in the target countries, where both parties contribute resources, knowledge, and expertise to jointly develop and market the software. This approach can help share risks and costs, leverage local knowledge, and allow for better adaptation of the software.
Opening a Branch or Subsidiary
This approach requires a greater investment but offers better efficiency in entering foreign markets, where the company establishes its own physical presence through either a branch or the opening of a new controlled company in the target country. The goal is to instill maximum credibility in the consumer market and potentially benefit from tax advantages by treating profits from the domestic market as those generated by the branch or subsidiary.
Opening such a branch or subsidiary requires careful consideration of all stages of the software exportation plan, as it involves directly hiring employees, acquiring property, and maintaining separate tax declarations as a national company, among other related matters.
The Need for Specialized Assistance for Software Exportation
As demonstrated, software exportation is a process accessible to many companies that have gained a certain level of maturity in the market or even those that are specifically focused on exporting their product or service to a particular country. However, it’s in the exporter’s best interest to seek specialized assistance at all stages of the planning process.
The purpose of specialized assistance is to identify the most cost-effective and financially advantageous pathways for exporters. This may involve analyzing the regulations of the target country, choosing the best exportation method, and providing guidance on various aspects throughout the execution. Such as representation contracts, tax compliance, intellectual property rights, and other matters of interest to the exporter.
A Koetz Advocacia convida advogados autores para colaborar em nosso site, para discutir assuntos internacionais e migratórios.Saiba mais