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representative office of a company is an office established in a foreign market to perform marketing functions, data collection, and other operations that do not involve the sale of products or the provision of services. A key characteristic of a representative office is that, by definition, it cannot be involved in transactions, billing, or any other form of buying or selling products.
Activities of a representative office
Representative offices are mainly used for two activities that complement the main functions of the company:
Representation of the parent company
managing information
When representing the parent company, a representative office can contract and communicate with local partners on its behalf (e.g. organize meetings, send partners information to the parent company, etc.).
In managing information, a representative office may conduct market research, organize marketing campaigns, and collect data from customers. It also serves as a point of contact between head office and customers when no other communication channels are available.
In general, a representative office is a way for a company to venture into an unfamiliar foreign market without taking too many risks. This is because, in many countries, establishing a representative office is easier than opening a branch office - since representative offices cannot sell any products or services, they are often less strictly regulated than other types of companies. Representative offices require fewer resources (logistics networks, specialized sales staff, warehouses for goods) to perform their main tasks, so in case of failure, withdrawing from a particular market will not be overly costly.
Advantages of a representative office
A representative office has several advantages over other ways of representing a company in a foreign market:
Easier registration and management
Representative offices cannot conduct business transactions, which is why they are not as strictly regulated as other companies in many countries.
Ability to open bank accounts
Although representative offices are limited in their functionality, they can still be used to open corporate bank accounts for their parent company in a foreign market.
Easy first market entry
Representative offices are an advantageous solution when the parent company is unsure whether or not to expand into a specific foreign market, as they allow it to enter the market for initial research without the need to establish supply chains, a customer base, etc .
circumvent restrictions
In certain jurisdictions, branch offices and other forms of corporate representation with the ability to conduct transactions are prohibited or subject to certain restrictions. Representative offices are a way to enter the market bypassing these restrictions.
