In business just as in personal life finding a partner is very important to reaching your full potential and growing. Different cultures, geographies, tyrannies of distance and cross-culture misunderstanding all lean towards partnering as a fast efficient and effective mode of new market entry. Finding the right partner is something you should not rush and likewise something you’re your business should drive rather than be driven towards by direct approaches from potential overseas partners. In this post we talk through how Creatovate works with our clients to help them find the perfect match and create what we hope will be long lasting profitable relationships for our clients and their partners in market.
When looking for a partner to help you market, sell, distribute and store your goods in market you will inevitably have to give up some margin in the value chain between you the producer and the end customer and consumer of your products. One of the most important factors in the equation will be the gross margin or ‘cost of doing’ business requested by your partner in market. We do not recommend you start talking about this immediately but leave it till last or second last but it is an important piece of the puzzle you need to take away from any potential partner conversation. What margin do you and they need to make a living? What trading terms are they requesting? Allowances for date and damage stock? How much do you need to allocate for customer trade spend? Advertising and Promotion support? What forms of business reporting do they use and how frequently will you see sales numbers, forecasts, stock reports?
The mere fact you are considering entering into a partnership or distribution agreement in an overseas territory is demonstration you are seeking to leverage the skills, capabilities, networks and trading relationships and infrastructure of another party. Leverage is a key means to grow your business and just as in financial leverage can help grow your business leveraging partnerships can increase your scale and size very quickly if done well. The types of questions and leverage opportunities you are looking for could include partner reach and channel coverage – do they reach all or most of your potential sales channels? How have they grown in the past with other principals and what other principals/brands/products do they have in their stable that you can leverage in co-promotion opportunities e.g. If they are importing wine and you are cheese brand can you partner up for promotions? What is the extent of their customer and supplier relationships and are they complementary to your own brands/products/services?
One of the pillars of any successful market entry strategy will be a mode of entry that demonstrates capability to succeed. Recognise you are in a foreign territory. Rules, regulations, customs, consumer and customer behaviours and attitudes are different to your home country. Capability of your local partner will be multi-faceted including the vital first priority – People. What are the competencies of their trade marketing, sales, management? Systems and Processes – what means do they have to manage order to delivery, accounts receivable, warehousing and distribution, sales and marketing? Infrastructure – what level of competency and capability do they have to adequately warehouse and distribute your goods to customers? Do they have their own facilities or is it outsourced to reliable and reputable third parties? If they are outsourced to third parties are those facilities professional, efficient and well kept. Make sure you visit the infrastructure facilities where your goods will be warehouse. If you can afford the time and cost attempt to follow the first shipments from your factory through the entire supply chain to make sure your goods arrive in the customers and consumers hands in the same condition they left your factory floor.
One of my earliest leaders and mentors, Dr Ong used to say there is only one good trading partner ‘one where you fill their rice bowl’ or in other words one where ‘if they don’t sell your products, they don’t eat that night’. This is the defining characteristic in terms of partner choice. Do you go for ‘lean and hungry’ or ‘small and nimble’ or ‘large and well established’? There are potential costs and risks for picking either / or option. How willing is your trading partner to invest in building your brand with you. Will they share promotion costs and expenses below the line to drive sales? What split is fair and reasonable to you and them 50/50, 60/40, 70/30? How passionate is your potential partner for your business? Did they approach you or vice versa? Do they have a passion for your products and category? What is their expectation from you in terms of marketing and promotion and price support to drive their sales and your brand equity in their market?
Image courtesy of Far Reach
Transparency builds trust and open and honest dialogue and exchange of each other’s interests, operating margins, business models and a general willingness to do a full work-back and/or up on costs and margins in the value chain is important. Does your potential partner have a mission, vision and values that align with your own? Are they equally interested and keen in doing the business with you and will the relationship be win-win and generally equal in nature or win-lose or disproportionate in the value created and shared you and your partner? Your initial face to face meetings and ways of sharing information will be an important indicator of your future working relationship. We all seek to build solid long lasting partnerships so open and honest feedback and dialogue is most welcome.
What is your potential partner’s reputation and intimacy with the local trade like? Has their business just started or has it been trading for years with credibility in the trade in the market you are seeking to enter? How long has the ownership structure and senior management been in place. What are the staff turnover like and their relationship with local government, customs, officials, etc. What are the differentiating factors for this partner compared to the rest of the options available to you to choose from in this market? You partner will be the face and arms and legs of your brand on the ground so it is vitally important they act with integrity.
7. Conflicts of Interest
Conflicts of interest can occur frequently when you are seeking a trading partner who has experience with the types of goods or services you sell. Trade partners can only get that practical experience by selling competing brands or their own and that is a conflict with your interest to see them focus solely on selling your brands. Alternatively do they have business with common end customers selling adjacent category products or are the products they sell in the same category as your own from distinctly different geographies with distinctly different prices and positions in the market? These factors are very important to consider as ideally you want a partner solely focused on selling your products and not in a dilemma as to which principal in your category to devote their time and attention and focus.
Anyone can have a go at selling something and anyone can try and drop prices relative to the incumbents or competing brands in your category. Knowledge brings wisdom in terms of a context that your trade partners can use to help educate customers why they need to pay more for your products or how your products or services can improve their own business performance. Knowledge about your own business and a genuine interest in your plans, research before you meet and some care and diligence in forming a possible partnership are all indicators of a passionate partner who values long term over short term opportunity. To truly lead a category on the ground in the market overseas the potential partner will also need in depth customer, category and consumer knowledge and show some willingness to invest some of their own resources behind gaining that wisdom.
Does your potential trade partner have capability or partnership opportunities you can leverage to create value 1+1=3! Do they have customer partnerships that can create new products, services and development down the line, do they have access to local manufacturing facilities should you decide after a successful export market entry strategy that you would like to manufacture your brand locally? Are they open to partner more intimately down the line in terms of marketing and distribution – Joint Ventures or introduce you to other principals with whom you can partner up in multiple markets? This is the longer term horizon 2 or 3 opportunities that you are thinking about should this trading relationship go well in the early years and your business get off to a good start. How can we form a more connected deeper engagement with or through our partner in market to grow further in that country or other countries internationally?
Rather like a job interview meeting face to face with potential partners, reviewing their office, staff, logistics, systems and capability you are assessing if they have the skills, experience, competencies and passion to partner and do your business. If key indicators 1-9 are all positive and you are feeling this partner has the potential to be “the one” for your business the next logical step is to ask and then do some reference checks. You should ideally reference check your trade partner from both sides. What other principals can you talk to who can speak positively of their trading relationship with your potential trade partner. Likewise, what customers of theirs can you talk to assess their service levels, reliability, and ability to deliver on their promises and supply products consistently?
10 x 10 = 100% perfect match! You are unlikely to find the perfect match in life and reflecting on your personal and professional relationships to date will highlight that fact. However, you can see that one possible way to independently evaluate multiple potential trade partners might be to use a scorecard rating each potential partner on these 10 factors with a highest possible score of 10 for excellent or 1 for no/low score. This can help you objectively as well as subjectively evaluate your perfect match! Creatovate developed the above tool for trade partner screening and matching in partnership with one of our first clients when looking for “the perfect match” for them and we have successfully used this tool with multiple clients since, receiving positive feedback and builds on the tool. You can create your own ‘perfect match’ scorecard and series of key factors and indictors that works for your business, product or service. We wish you well in your search for love and a long lasting business partnership.
Dermott Dowling is founding Director @Creatovate, Innovation & International Business consultancy. Creatovate help businesses create, innovate and growth through sustainable innovation processes and spreading their wings outside their home base.