What is piggyback?

Piggybacking is an arrangement where a company that wants to export its products abroad utilizes the tools of another company's distribution network already established in the foreign market, in exchange for compensation.

In practice, it is an agreement distributed as follows: an exporting company makes its own sales network available to a local company, the important thing is that the products of both companies are complementary and not competing.

Why does a company decide to enter a foreign market?

The piggyback agreement originates with two types of companies:

• Carrier: the company already present in the market that handles the distribution of the product;
• Rider: the company that wants to enter the foreign market.

Thanks to the piggyback agreement, it is precisely the rider who benefits. Thanks to the carrier, it can quickly enter a foreign market with minimal organizational and commercial efforts.

The decision of a company to enter a foreign market through a piggyback agreement is based on various characteristics:

• The stage of the product life cycle;
• The purchasing propensity of consumers in the target market;
• The direct and indirect competitors.

In essence, such an agreement constitutes an alternative investment when there are not enough resources available for direct investment, or even when it is difficult to enter a certain distribution system.

The cost of distribution occurs in the form of a commission, when the rider pays the carrier.

In conclusion, thanks to the piggyback agreement, the local company is able to collaborate with a foreign manufacturer, while the operating costs remain its responsibility.