Partners Can Facilitate International Expansion
Small companies often have limited resources which can severely restrict their expansion options. They may not have the money to set up a local subsidiary. Let alone several subsidiaries in multiple country regions. Their only option may be to find a suitable partner who can facilitate their International Expansion.
Identifying Regional Markets
Imagine for instance a small B2B company called ACME, that provides highly specialized solutions into niche markets. Because the markets are limited, the company soon outgrows its domestic market and management considers overseas expansion as a viable option to increase revenue.
One of ACME’s managers, Marissa, who enjoys traveling abroad and meeting new cultures has been assigned the project. She has already spend considerable time identifying target regions where she expects ACME’s products might find interested customers. After presenting the findings to the entire team, it is agreed that ACME must find a way to enter the largest of the identified geographical markets.
The entire management team agrees that they want to export directly to the region. They are averse to the indirect export method, and they do not have the resources to set up their own subsidiary in the region. This time, Marissa is challenged to find distribution partners to enter the market.
Marissa executes on her plan to identify potential distributors:
- She contacts potential customers and ask who they would suggest she work with?
- She visits a trade show in the target region, and talks to local companies active in the target market.
- She asks her home country’s trade representative for suggestions.
- She contacts the trade associations in the target region connected to ACME’s industry
- She draws ACME’s value network of customers, suppliers, competitors and complementary partners, and researches what type of network partner could possibly play a role in supporting distribution into the region. Then she sets out to learn more about this type of partner in the target market.
She compiles a list with six potential partners and makes a presentation to the management team.
Identifying And Weighing Selection Criteria
The management team creates a list of criteria they will use to select the proper distribution partner. Eight criteria are identified as being important. They criteria are weighted as some are more important than others. Financial strength, market knowledge and cultural fit are identified as the most important criteria. The VP of Sales, John, and Marissa are tasked with visiting each of the identified partners, and report back to the team.
Forty-five days later, John and Marissa present their findings. They scored the different distributors and identified the top 2. The CEO will now visit the top two and decide which of them will be selected. He takes Marissa on the trip, and when they return, the choice is made.
The CEO has given Marissa and ACME’s Corporate Counsel, Bob, the task to negotiate an agreement with the distributor. Marissa and Bob immediatly decide to develop a BATNA (Best Alternative To A Negotiated Agreement) based on discussions Marissa has had with the six distributors she met during the search. Bob and Marissa feel that any of the six partners will easily agree to such a BATNA.
Marissa knows that the business culture in the region they target values longterm personal relationships. She invites the distributor to negotiate the agreement. The visit will allow the distributor to meet with top management and get to know the factory. Marissa wants to show ACME’s commitment to the relationship and schedules specific activities for both parties to get to know each other outside of the negotiations.
The negotiations require another visit by the CEO and Marissa to the distributor, but result in an agreement both parties can accept. The agreement is not as all-encompassing as Bob would have liked, but the CEO and Marisa both feel that it will be a good basis from which to build a long lasting relationship in a changing business environment.
Marissa is made responsible for the relationship, and the real work begins.
Marissa knows that partner mindshare is important to the relationship. If she can increase mindshare, chances that the partner will promote ACME’s products, and realize higher sales, will significantly improve.
Mindshare is typically a function of:
- the alignment of interests and business goals of exporter and the chosen partner.
- the commitment the parties have to each other and the existence of trust. If the distributor carries several manufacturers with competing products, commitment to a new manufacturer may be low, and ACME will have to find a way to increase commitment. Under no circumstance may ACME act in a way which undercuts trust. The distributor could easily sever ties.
- cooperation between the parties. The partner may require pre-sales technical help during part of the sales cycle, or maybe they want ACME to supply marketing material in an easily modifiable format, so it can be adjusted for the target market.
Marissa realizes she has taken on a large responsibility. The growth of ACME rests upon her shoulders.