A 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
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 – since representative offices cannot sell 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 is not overly costly.
Advantages of a representative office
A representative office has several advantages over other ways of representing a company in a foreign market:
Simpler registration and management
Representative offices cannot perform business transactions, which is why in many countries they are not regulated as strictly as other entities.
Ability to open bank accounts
Although representative offices are limited in terms of their functionality, they can still be used to open corporate bank accounts for their parent company in a foreign market.
Simple initial market entry
Representative offices are an advantageous solution if the parent company is not sure whether to expand into a particular foreign market or not, as they allow it to enter the market for initial research without the need to establish supply chains, a customer base, etc.
In certain jurisdictions, branch offices and other forms of company representation with the ability to engage in transactions are prohibited or subject to certain limitations. Representative offices are a way to enter the market while bypassing these restrictions.