Category Archives: International Business

Build your Beer Brand and Business Internationally

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Before you send your beer outside your home country and build your brand and business internationally there are a few critical decisions you need to plan.  We will share those key decisions and discuss in more depth with 3 Australian craft breweries – Kaiju Beer, Prancing Pony and Hawkers Beer exporting around the world at the upcoming Australian Craft Brewers Conference in Adelaide on Thursday 27 July 2017 from 2pm – 2.45pm in the Kegstar Room.

Come and join us for Export – Triumphs and Tribulations and gather some usual insights and learning shared by Callum Reeves – Chief Boss @KaijuBeer; Corrina Steeb – CEO and Co-Founder @Prancing Pony; Mazen Hajjar – CEO and Co-Founder @Hawkers Beer and Ben Giles – Senior Trade Advisor at Austrade as you seek to export your beer, brand and business internationally.

  • Where to go? Before you venture off-shore and start shipping or brewing your beer in overseas lands you need to decide Where to go? Which market(s) are best suited to your product(s) in which order of priority? There are a myriad of factors and indicators you can use to help you come to this conclusion.  Unfortunately, in export and in small business too often we see “reactionary undirected spray and pray” approaches to export as opposed to “deliberate, considered, choice based strategic decision making” when it comes to the first fundamental question to answer: Where to go?  Working with many food and beverage clients and delivering capability courses on behalf of the Australian Government to food businesses across Australia we have narrowed the key factors to consider to 5 underneath which you can come up with some lead indicators to make a measured and objective decision on where to go? 1st, 2nd, 3rd… etc in terms of international business development:
  1. Socio-demographics – it is easy to get blinded by the newspaper headlines – like 3 billion middle class drinkers in Asia by 2030 (Rohde, 2012) but you need to dig past the headlines to see that middle class is defined as annual per capita expenditure between US$3,650 and US$36,500. Our work with premium quality food clients suggests you look past the simple population to define your target in terms of age, income and urbanisation and other socio-demographic indicators including penetration of high disposable income luxury chain retailers and/or disposable income for food and entertainment.
  2. Market Attractiveness – the obvious one – what do the numbers say? How much volume, value, cumulative annual growth and more importantly $/L are drinkers willing to spend on beer and other parallel world beverages (alcoholic or non-alcoholic). Some markets may appear huge on the surface in terms of consumption and volume e.g. China but you need to dig again below the surface to see that the average price of a domestically brewed draught beer of 500mL in China is 6.00 ¥ or A$1.15 per pint vs the average Imported Beer 33cl bottle 15.00 ¥ or A$2.88 per 330mL bottle or 250% more for 33% less beer and that is mainstream beer before we even get into craft beer pricing differentials compared to domestic and/or other imported craft beer brands.
  3. Open to Trade – Which markets are open? Importing and exporting a lot of beer around the world? You can dig for data in this space as well to use you head as well as your heart when you consider where you can relatively easily ship your beer in terms of foreign markets.  Common data sources available to mine in this space include ABS statistics for outbound Australian exports (follow the leader) or UN Comtrade for import / export data.  You need to be across your HS Codes and where possible use multiple data sources to triangulate the information.  Knowledge of Free Trade Agreements and where the tariffs are and where they are falling fast is also an important indicator of opportunity.
  4. Market Deterrents – You need to be aware of behind the border trade barriers or markets that have product registrations or stringent labeling guidelines like local language labeling and/or religious certification before port of entry. Some Asian markets have their own local equivalent of a Food & Drug Administration and require product registration before entry including: Thailand, the Philippines and Indonesia to name but a few.
  5. Dispersion – highly concentrated markets either in terms of supply side power of suppliers or retail side in terms of power of buyers are more difficult to penetrate for obvious reasons. Where you see a concentration of market share in a few strong local players or a concentration of market share on the retail side of the value chain you will need to factor in a higher % share of the value chain to the retailers.  Markets with retail duopolies or oligopolies that extract high retail margins not only include Australia but New Zealand, Singapore and Hong Kong as well.

  • How to enter? Once you have narrowed your choice of market(s) to enter to your top 1 or 2 or 3 in terms of order of priority and opportunity you are now able to head to the market and test your hypotheses and validate your assumptions on the right mode of market entry to successfully set up your brand and business in that host country. Depending on how deep your pockets are or the pockets of your investors and shareholders there are three key modes of market entry:
    1. Export the most common and lowest risk first entry mode of many small businesses you need to also take note of the different modes within export and the pros and cons of each entry mode from selling locally to an Australian Based Consolidator or using a local agent to using an in-market agency or selling to a local importer and distributor or direct to an end retail customer. Fundamental to your success in export will be partnering up with the perfect partner to help you implement you go to market launch plan and activate your brand in the host country. Some tips and guidance on how to objectively measure and evaluate a perfect partner for distribution are outlined in our Creatoblog – Looking for Love .  You would not marry someone sight unseen over the internet without meeting them, first would you? So, why would you ship your precious beer sight unseen to an inbound inquiry when you have not checked out the warehouse, distribution, sales and marketing capability of a potential importer in a foreign country?
    2. Contractual modes of market entry include two very common to the brewing industry – licensing and contract manufacturing. Brewing under licence is common for “large multinational brewers” and we might see more of this in craft in the future if craft beer drinkers start to base purchase decisions on factors like freshness and brewed locally for sustainability reasons.  While uncommon to date in craft beer there are some businesses already experimenting with this entry mode the most notable close to home example being Yeastie Boys brewed under licence in UK by Brew Dog and in Australia by Nomad.
    3. Investment is the preferred mode of market entry of the well-resourced large multinational enterprises in search of fast growth. Investment modes of entry include Joint Ventures, Strategic Alliances, Greenfield Investment and Merger & Acquisition.  Some recently publicised equity raisings in craft beer have indicated this mode of entry is under serious consideration for notable northern hemisphere craft brewers looking to more aggressively expand their businesses into the US, Australian and Asian Markets (Kamps, 2016 and The Drinks Association, 2017).

  • When to enter? Finally you need to allocate sufficient $/people/time to resource a go to market launch and activate and generate trial and repeat purchase for your beer in the new host country. You need to be strong at home before you head overseas as your Homebase will fund the early years of investment in your off-shore markets.  There are many ways to get your beer in the hands of drinkers and it is vital you resource your business with sufficient funds and people to support your brand during the vital Go to Market launch phase as the saying goes you only get one chance to make a first impression and there are many great craft beers out there!  Some innovative collaborative ways to activate and share the cost of activating your brand in foreign lands are evident in both craft beer and independent wine and worthy of a closer look:
    1. Brewers Association – Export Development Program (EDP) – set up by the Brewers Association in 2004 the EDP objectives include educating international trade and media about US craft beer diversity and informing BA EDP members about international opportunities based around a host of support activity from participation in trade shows, competitions, seminars, inbound buyer missions, export market research and promotion through international media.
    2. New Zealand Beer Collective – friends abroad the NZ Beer Collective is the collective pooling of resources of 5 Kiwi Craft Brewers to enter the UK market and make a bigger dent together than they can make individually pooling their resources to assist with trade activation and distribution. The members include 8 wired, Renaissance Brewery, Three Boys Brewery, Tuatara, and Yeastie Boys and the Collective was established in was formed in 2016 to act as exclusive importer, national distributor, brand management and sales of the New Zealand Beer Collective in the UK market.
    3. The Craft Beer Clan of Scotland – a collection of 35 Scottish Craft Breweries collectively marketed by J W Filshill Ltd, a wholesale business based in Glasgow and run by very experienced international liquor executives they market collectively their craft beers into fast growth craft beer markets like North East and South-East Asia.
    4. Margaret River Wines – 14 winemakers, ranging from some of the region’s smallest to biggest, are stocking their product in four stores branded “Margaret River Wines” in China. And there are plans afoot to open another six by year’s end, and up to 300 within three years (Pancia, 2017). Teaming up they can directly distribute and educate the Chinese wine drinkers on the premium value and position of “Margaret River Wines”.

Exporting can be a great way to diversify your business, reduce risk and increase scale and economies of production in your brewery at home, not to mention the brand equity and business value you can create abroad if you do it well. Come along to the Australian Craft Brewers Conference in Adelaide on Thursday 27th July 2017, and join us in the Kegstar Room for Export – Triumphs and Tribulations with shared experiences from three Australian craft brewers who are already exporting and be informed of the Government support and assistance available to you from Austrade.

Bibliography and References:

Australian Government (2017) DFAT https://ftaportal.dfat.gov.au/ Free Trade Portal viewed on 11/07/2017.

Austrade (2017) What is EMDG? https://www.austrade.gov.au/Australian/Export/Export-Grants/About/what-is-emdg viewed on 02/07/2017

Australian Brews News (2016) Yeastie Boys announces Sydney venture http://www.brewsnews.com.au/2016/11/yeastie-boys-announces-sydney-venture/ November 14, viewed on 02/072017.

Australian Bureau of Statistics (2017) International Trade http://www.abs.gov.au/International-Trade

Beertown NZ (2016) Yeastie Boys’ future is in the UK http://beertown.nz/wellington/273-yeastie-boys-future-is-in-the-uk Mon, 12 Sep. Viewed on 02/07/2017

Brewers Association (2004) Export Development Program https://www.brewersassociation.org/business-tools/exporting-beer/join-the-edp/ viewed on 02/07/2017.

Cost of Living in China  https://www.numbeo.com/cost-of-living/country_result.jsp?country=China

Creatovate (2014) Take your business off the Road to Nowhere into Lands of Opportunity https://creatovate.wordpress.com/2014/07/23/take-your-business-off-the-road-to-nowhere-into-lands-of-opportunity/ July 23.

Creatovate (2014) How to enter new markets…Export https://creatovate.wordpress.com/2014/10/09/how-to-enter-new-marketsexport/ Oct 9.

Creatovate (2014) Looking for Love? Partnering for growth internationally https://creatovate.wordpress.com/2014/06/19/looking-for-love-partnering-for-growth-internationally/ June, 19.

Creatovate (2014) How to enter new markets…Contractual Modes of Entry https://creatovate.wordpress.com/2014/11/19/how-to-enter-new-markets-contractual-modes-of-entry/ November 19.

Creatovate (2014) How to enter new markets…Investment modes of entry https://creatovate.wordpress.com/2014/12/04/how-to-enter-new-marketsinvestment-modes-of-entry/ December 4.

Chloe Fraser (2017) First Margaret River wine store opens in China https://thewest.com.au/news/busselton-dunsborough-times/first-margaret-river-wine-store-opens-in-china-ng-b88460098z Fri 28 April. Viewed on 02/07/2017.

Haje Jan Kamps (2016) BrewDog brewery raising $50M from the crowd to secure U.S. expansion https://techcrunch.com/2016/08/04/brewdog-equity-crowd/ August 4, viewed on 02/07/2017.

Anthony Pancia (2017) Margaret River wine producers see big future in exports to China as demand grows http://www.abc.net.au/news/2017-05-12/margaret-river-wine-producers-see-big-future-in-exports-to-china/8519932, May 12, viewed on 02/07/2017.

David Rohde (2012) THE SWELLING MIDDLE, Davos, http://www.reuters.com/middle-class-infographic retrieved on 2/07/2017.

Efic (2017) About Efic https://www.efic.gov.au/about-efic/

Food Innovation Australia Ltd (FIAL, 2017) Export Development Program https://fial.com.au/export-market-activity viewed on 02/07/2047.

The Drinks Association (2017) BrewDog announces plans to build Australian craft brewery http://www.drinkscentral.com.au/4751?Article=brewdog-to-open-australian-brewery April 12, viewed on 02/072017.

UN Comtrade (2017) https://comtrade.un.org/ viewed on 02/07/2017


Think Inside the Box

think-inside-the-box

Think Inside the Box – Where is your Food Coming From?

Strolling the many beautiful aisles of BiG (Ben’s Independent Grocer) in Kuala Lumpur earlier in the year with an awesome Aussie food client I was suddenly struck by one product that jumped right off the shelf and slammed me in the face!  Amongst a sea of 50,000+ products (the average number of skus in a supermarket) and BiG is one of the best supermarkets I have ever visited and that’s quite a few in quite a few countries.

What captured my attention from One Degree Organic Foods was firstly a QR code front and centre of pack with a call to action to discover the ingredient story and what’s actually inside the box!  Funny you would think you could just read the ingredients panel for that information wouldn’t you?  You might also expect to see the usual blah blah blah statements that hide the truth on that same ingredient panel. Statements like “made from local and imported ingredients”, “sourced locally where possible”,…etc etc.  Not here, the family who own and operate One Degree Organic Foods are farmers themselves or as I like to call them farmpreneurs – the new breed of farmers who are entrepreneurs taking their value added brands and food products directly to consumers and baring their all in the name of authenticity and pride and passion!

We can not say it better than the owners so I will just quote what they say on their website: “We’re not a conglomerate, nor a big-box retailer, nor a chemical company with a food division. We’re a family who cares deeply about family farmers and the integrity of your food.” Does that resonate with you? It did with me in a busy brilliant independent grocer in KL, Malaysia in a cereals aisle that had local and imported options from the 4 corners of the globe to choose from.  I ended up standing at the shelf scanning QR codes and watching engaging YouTube videos of Pecan farmers in Peru, Buckwheat growers in central Canada and connecting with the passion these farmers showed to their land and the ingredients inside the box!

This is example is not only good social business its smart business and its smart marketing.  The best of the best in my mind.  Brilliantly efficient and transparent in a modern age where BIG is bad – who trusts large Multinational Profit Shifting Corporations anymore these days?  In fact in food, many have resorted to ‘faux branding’ creating cottage brands and hiding behind PO Box or Head Office Addresses with ABC Pty Ltd passing off a mass produced food item as something akin to a cottage industry startup family food brand.  If they are not creating ‘faux brands’ they are buying the genuine article and bringing them into their fold – founders and all to run alongside their mainstream food brands.  I have spoken  and written about this recent trend at Food&DrinkLive! in Sydney, Australia 2015 and in an earlier CreatoBlog Think, Act, Adapt and Innovate like a Startup!

Shoppers and consumers are asking nowadays – where is my money going? When I shop whether locally at an independent grocery store or with a major national supermarket chain they are already making a decision as to where they invest their hard earned $$$.  After get to the supermarket shelves or jump online you faced with 100s upon 100s of brands to chose from before you make another decision as to which company will you support. That support is being consciously or unconsciously driven more towards small, independent, family owned businesses more than ever before and there are many reasons for those choices.

Think about your own shopping decisions you take.  Of course price is important and as the famous jingle goes “everyone loves a bargain! ”  However do you also think of the following factors in your decisions at the shelf or when shopping online?

  • How is this food grown? How are the animals treated? Is it sustainably farmed?
  • Is this a genuine real article?  How much has my food been processed, added to, tampered with and packaged up?
  • Where is this food from? What about the ingredients that go into making it? Is it safe to eat and feed to my family?
  • Who am I supporting here? A large multinational or a family owned or small business?

Brands BIG and small need to start to think! act…and adapt to these fast changing times.  Technology is making it practical and cost effective for small to meet BIG and beat them on the playing field. Why? Because they come from a place of realness and not marketing puffery. Consumers connect with founders and their startup stories cooking on the stovetop, growing and processing their own farm produce and packaging up and telling their story in a way that is authentic and real.  You can not copy that if you are a large Corporate and it outpositions BIG as BAD and small is GOOD!

The examples we can list of brands that are doing this well is long and numerous but the list of brands NOT doing this is 100+ times longer.  Why not, take the opportunity to use technology to connect with consumers and customers and share your story? The time is now – there has never been a better time to be a farmpreneur or a small food producer. Here is a few other great examples you might like to explore and if you are interested in taking your own business to the next level of consumer connectivity give us a call or drop us a line.

We love working with independent family owned fast growth businesses @Creatovate.  In fact, we have by accident or choice managed to specialise in it with a focus on the twin pillars of sustainable (profitable) growth – Innovation and International Business – what are you waiting for? Get out and tell your story – its real, it’s authentic and consumers and customers want to hear from you!

If you are interested to come and hear Dermott talk about creating value for consumers and customers in consumer packaged goods you might like to come to Changing the Landscape – The Flexible Packaging & Label Makers Association on 10-11 November 2016 in Melbourne, Australia.  Dermott will give a keynote talk on 11 November titled – Creating Value for your customers in the 21st Century for FMCG’s

Dermott Dowling is Managing 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.

Bibliography & Additional Sources:

http://www.consumerreports.org/cro/magazine/2014/03/too-many-product-choices-in-supermarkets/index.htm viewed on 16/9/2016

The Big Group: http://thebiggroup.co/BIG/?p=about

Transperant Supply Chain https://www.onedegreeorganics.com/transparent-supply-chain and our team https://www.onedegreeorganics.com/our-team

 

 

 


When to enter new markets?

First and foremost we stood back and used our head as well as our heart to determine Where to go? 1st, 2nd, 3rd, etc.  Secondly, we looked at each market on our Market Opportunity Index© and worked through the appropriate market entry model: Export, Contractual or Investment?  Last, but not least we need to time phase our market entry over the coming horizons of growth so that we can competently and capably execute on our international business strategy.

One of the most enduring and misunderstood growth strategies used in business today is the McKinsey ‘Three Horizons of Growth’.  Having worked in large corporations for well over a decade and consulted to both large and small businesses for several years now I often hear comments from busy executives in corporates and business owners alike “we will do core (Horizon 1) activities this year, then get to international markets (Horizon 2) next year and then start creating new products for those markets (Horizon 3) in 3 years’ time”.  The reality is you need to be working on all 3 horizons of your business growth simultaneously to build a sustainable business growth platform for your business.  Of course you cannot spend equal $/people/time on all 3 horizons but you need to be clear in your choices, communicate them widely across the business and allocate some of your precious scarce resources to all 3 horizons to realise the growth that comes from effort exerted in the ‘now’ that will payback ‘years’ into the future.

McKinsey Model: Three Horizons of Growth (Coley, 2009)

McKinsey 3 horizons of growth

Creatovate has been privileged to work with clients who clearly get the need to plan the “When to enter?” in their international business strategy and work simultaneously on all 3 Horizons of Growth – defending and extending their current home base(s), building momentum by entering new international markets and allocating some of their scarce resources (the most scarce being their time) to creating options for future new market entry which may also entail new market entry models.

Let me share an example.  One of our clients knew they needed to grow fast in their existing ‘hub’ or core home market(s).  They did not want to distract unnecessarily their executive team in their home market(s) with international business opportunity in the immediate term.  They engaged Creatovate as consulting partners and together we set a clear choice based strategy for international growth that had a clear structure with hub or home markets to focus 100% on their patch whilst simultaneously supporting the international business development unit (a dedicated small team).  The leader(s) in the International Business Development unit worked with Creatovate to identify, rank and prioritise new markets for entry and systematically we phased those markets for entry over 3 time horizons, knowing some would be easier to enter than others for example using perfect partners and easier modes of entry like export.  However, our client did not stop there allocating some precious resource: $/people/time and strategic foresight to simultaneously explore and create future options for business growth in difficult but very large new markets that would require more complex entry models like contractual and/or investment.

Speed bumps and unexpected surprises hit them hard in one core home or hub market.  However, the work for international business growth has been done and they are in the very fortunate position of having a queue of difficult to enter highly attractive growth markets sitting in their new business development pipeline ready to activate.  Contrast that story with the vast majority of businesses who are spending almost 100% of their $/people and time defending and extending in their saturated core home market(s) and quite simply can never get out of the daily grind to contemplate growth outside their home base.  I know which business I want to be working with and a part of especially at their budgeting and strategic planning cycles when the topic of ‘new horizons of growth’ comes up for discussion.

The need to focus and split your scarce resource allocation wisely over your core Horizon 1 business – say 60%, and emerging new business – say 25% and finally creating options for future new businesses – say 15% is not simply the domain of big business.  Creatovate has also been privileged to partner with a family owned client business who has very successfully extended and defended their core home market, entered a new market adjacent to their home country and built significant momentum from a standing start in less than 18 months and created a viable new business venture into another new and highly competitive and complex country all in the space of 2 years and all with a team of less than 10 full time employees.  The When to enter? question is vital to your business planning and differentiates the true growth businesses from those that are simply ‘doing the business’.

The lifespan of a company today is getting shorter and we do not have to look far for evidence of this fact.  The average life expectancy of a multinational corporation-Fortune 500 or its equivalent-is between 40 and 50 years. A full one-third of the companies listed in the 1970 Fortune 500, for instance, had vanished by 1983-acquired, merged, or broken to pieces (Business Week).  To increase your business chance of survival we believe you need to work on more than 1 Horizon of Growth and we believe you need to work on all 3 Horizons of Growth simultaneously.  Reach out, give us a call, send us and email, share your thoughts and comments and experience with us.

Without a clear strategy of Where to Go? How to Enter? Export? Contractual? Or Investment? And lastly but not leastly When to enter? You risk making mistakes and damaging your growth plans.

Dermott Dowling is Managing Director @Creatovate, International Business consultancy. Creatovate help businesses grow outside their home base from market entry strategy to route to market to go to market launch. Contact Dermott if your business needs help expanding your business internationally.

References:

Steve Coley (2009) Enduring Ideas: The three horizons of growth  http://www.mckinsey.com/insights/strategy/enduring_ideas_the_three_horizons_of_growth     retrieved on 12/02/2015

http://www.businessweek.com/chapter/degeus.htm  viewed on 12/02/2015


How to enter new markets…Investment modes of entry

Investment

Investment modes of entry are the most significant in terms of investment of your resources – $, people and time and correlating to that can be your most rewarding and risky entry mode.  Following on from the all-important Where to Go? Question as you plan your international business growth strategy is the “How to enter new markets?” Question.  In this our third post of our How to enter new markets …, the first being Export and the second being Contractual  we will explore 4 common Investment modes of entry, their objectives, advantages and disadvantages and pitfalls to be aware as you undertake potentially your most rewarding mode of new market entry.

joint venture

1. Joint Venture

Collaboration between two or more known parties with mutual interest that may or may not necessarily be equal in shareholding and usually relates to a single product or market. Fundamental to building any Joint Venture will be trust and mutual interests and understanding.  Often a ‘marriage of equals’ is favoured over an elephant and a flea type joint venture despite the obvious attraction for the flea to partner with an elephant for growth opportunity.  Finding, getting to know and understanding your joint venture partner(s) interests is fundamental as you are literally ‘getting into bed with a foreign company in a foreign land so best you look for your ‘perfect partner’ wisely and use your head as well as your heart in the decision or match making process.

The advantages of a joint venture are that they are good for accessing manufacturing and/or distribution in markets that are hard to enter e.g. Japan or Korea.  They also help to break down ‘physic distance’ or bridge cultural divides where two cultures come together that are very different as they force parties to get to know each other much more deeply than simple transactional business and take time to understand the host market for your new business.  The disadvantages are they take time to a) find the right partner and b) build the relationship of trust to the point both parties are willing to invest and share resources and profit rewards. They can create competitors and if there is misunderstanding or disagreements they can end badly for the foreign company entering the new country e.g. Danone & Wahaha Joint Venture in China that turned sour or Carlsberg & Thai Beverage falling out after 12 years together in Thailand.  Common interests and mutual benefits may dissolve over time and this is something each party needs to be aware of and plan for alternative dispute resolution in their JV agreements should separation become a reality down the line.

Strategic_Alliances_are_Built_Around_Trust_1

 2. Strategic Alliances

Independent partners come together and develop a long term vision or strategy to cooperate rather than compete in the territories of the alliance.  There typically are no equity investments or binding agreements although that may eventuate over time.  The relationship is organised along horizontal lines with sharing of technology, knowledge, systems and resources.  Strategic Alliances are commonly used in the Airline industry e.g. Star Alliance or Oneworld to pool planes and resources.  Alliances are a great way to share the capital cost of accessing new markets.  Another well documented Strategic Alliance that resulted in cross country and company equity investment that has endured in a hyper competitive industry is the Nissan Renault Strategic Alliance.

Advantages of strategic alliances are that they do not require immediate equity investments or binding agreements however that can also result in less commitment to overcome initial challenges by the parties to the alliance.  Alliances can be good for product, market and distribution development.  The fact there may not be a solid binding agreement locking the parties together or binding agreement means it is likely they can dissolve once the initial mutual agreed objective is met.  For further tips and guidance on building great alliances you can read Kanter’s blog on 15 Steps for Successful Strategic Alliances (and Marriages).

Greenfield Investment

3. Greenfield Investment

The type of investment is where companies typically build plant, infrastructure or manufacturing and sales capacity from the ground up in the foreign host market. In addition to creating new facilities the parent company will create new jobs hiring local and placing international staff in many cases to run the new subsidiary offshore.  The advantages of Greenfield investment are 100% control of your own destiny on the ground overseas and there are often local host government tax incentives to invest and build infrastructure behind their trade borders.  You immediately avoid costs of import/export, tariffs, and behind the border trade barriers.  Questions you need to consider before such significant investment include if you are not working with local business partners, are you confident you can independently source raw materials, manage and access local government departments, understand local customer preferences and recruit, train and retain talented local staff?  The risk level for Greenfield Investment increases significantly with the cross cultural differences or psychic distance and we advise extreme caution in this regard if your business home country and host country are polar opposites in terms of culture and ways of doing business.  This mode of entry tends to be favoured by well-resourced large multi-national corporations or in countries neighbouring or close to home markets where cultures are not that divergent.

M&A

4. Merger & Acquisition (M&A)

Refer to the consolidation of companies. A merger is a combination of two companies to form a new company, while an acquisition is the purchase of one company by another in which no new company is formed (Investopedia, 2014). More common than uncommon these days as firms seek faster growth “let the buyer beware” is our caution here as it has been widely researched and documented the vast majority of M&A activity does not deliver a return on investment over time.  Study after study puts the failure rate of mergers and acquisitions somewhere between 70% and 90% (Christensen, et al 2011).

The attraction and advantages of M&A include almost immediate access to the new host market with new capacity, people and incoming knowledge and systems to take your own goods or services to market.   Other perceived advantages include a diversification of product and service offerings, an increase in plant capacity, larger market share, utilization of host market operational expertise and research and development (R&D) and a perceived reduction of financial risk compared to greenfield investment.

Time and time again however, we see the same scenario play out post M&A with culture clashes, turf wars, different processes and systems not integrating as easily as planned and dilution of a company brand (Dumon, 2014).  In addition the acquirer often overestimates the synergy savings that can be extracted and in seeking to extract cost saving often dilutes the strength of the independent businesses and brands in the process.

Summary

Investment modes of entry are not for the weak of heart or mind.  Be prepared to stump up more capital, invest more of your top talent time and scarce resources to make new alliances, joint ventures, Greenfield Investments or M&A activity a success.  If you seek to form alliances or joint ventures be sure to use your head as well as your heart to find the perfect partner.  If you seek to be in control and make your own Greenfield Investment or undertake M&A take stock of the cultural and physic differences in your host market.  Audit your own company capability to integrate smoothly into the host market and your understanding of the local culture, customs, and ways of doing business and rule of law and how to interact with government in that market.  Do not be afraid to ask for professional help and services and look to your networks in both your home and host market for case study examples of successful and unsuccessful Investment entry modes into the new market.

Please feel free to add your own comments and experience on investment modes of market entry below and reach out to us for a follow-up face to face discussion at no obligation on your objectives for international business expansion.  Without a clear strategy of Where to Go? How to Enter? Export? Contractual? Or Investment? And lastly when to enter? You risk making mistakes and damaging your growth plans.

Dermott Dowling is Managing Director @Creatovate, International Business consultancy. Creatovate help businesses grow outside their home base from market entry strategy to route to market to go to market launch. Contact Dermott if your business needs help expanding your business internationally.

References:

Clayton M. Christensen, Richard Alton, Curtis Rising, and Andrew Waldeck (2011) The Big Idea: The New M&A Playbook https://hbr.org/2011/03/the-big-idea-the-new-ma-playbook/ar/1   viewed on 4/12/14.

Marv Dumon (2014) Biggest Merger & Acquisition Disaster http://www.investopedia.com/articles/financial-theory/08/merger-acquisition-disasters.asp  viewed on 4/12/2014.

Rosabeth Moss Kanter (2010) 15 Steps for Successful Strategic Alliances (and Marriages), June 10

https://hbr.org/2010/06/15-steps-for-successful-strate HBR Blogs retrieved on 28 Nov 2014.

http://www.investopedia.com/terms/g/greenfield.asp viewed on 4/12/2014.

http://www.investopedia.com/terms/m/mergersandacquisitions.asp  viewed on 4/12/14.


How to enter new markets…Contractual modes of entry

contractual-modes of entry

2014 is shaping up as a pivot point for Australian International Business with Free Trade Agreements now signed for the Big 3 markets in North Asia – Japan, South Korea & China and commitments well underway in Indonesia and now India to conclude agreements.  Following on from the all-important Where to Go? Question as you plan your international business growth strategy is the “How to enter new markets?” Question.  Following on from our How to enter…export blog post we now turn our attention to common contractual modes of market entry and examples highlighting the pros and cons of each entry mode.

intel licensing

1. Licensing

Licensing is the contractual granting of intellectual property rights which could be in the form of technology, patents, or trademarks to brand usage with some common examples from the technology field being Intel or Dolby or in the field of brand trademarks Disney or Barbie. More often than not the licensee will pay a fee for licensing the technology or trade mark which could be a % royalty of sales or a fixed fee for the technology, product or service provision.  Advantages for licensing are the rapid diffusion of technology or brand awareness for relatively low capital investment.  Licensing is a low cost of entry mode and may lead to possible further direct investment with licensees down the line.  A relatively safe and low risk way to test the market before significant capital investment.  Risks include the limited contact with customers who are managed by licensees and reduced ability to control the end products or services delivery.  You are relying on contractual enforcement of controls and in some markets it is difficult to use legal redress with business partners to disagreements upon implementation.  You are also disclosing IP knowledge which can lead to technology transfer and future unwanted competition.  Good examples of this are well documented in technology sector where O.E.M. (Original Equipment Manufacturers) later use their smarts developed from making others equipment to launch their O.B.M. (Own Brand Manufacture) often with additional features and benefits and disrupt the incumbents in their own industry e.g. ASUS laptops from Taiwan.

McDs Franchsing

2. Franchising.

Franchise contractual market entry modes are commonly used in the quick serve restaurant industry globally and notably world renown examples include McDonald’s and Starbucks whilst closer to home Australian build brands like Boost have used Franchise market entry modes successfully to expand internationally.  Another world renowned brand that uses wholesale franchising is the Coca-Cola Company of Atlanta granting franchise rights to global bottlers to manufacture, distribute and market their beverages in overseas territories.  The Franchisor will retain the intellectual property rights to the recipes, formulas, ways of working or operating the businesses and grant the rights to operate and sell their products or services and brand usage rights to the franchisee in exchange for ‘key money’ and quite commonly a % royalty of sales in exchange for systems knowledge, operations manuals, training and development and often shared pooled marketing.  Other examples of franchising in retail might include car dealer networks or petrol retailers who are franchise retail operators for the vehicle manufacturers or fuel manufacturers.

Advantages of the franchising entry model is similar to licensing lower capital outlay upfront and more rapid diffusion of brand and operating footprint leveraging franchisee capital investments.  Controls using franchise agreements over operating procedures, product mix sold and pooled and managed marketing communications of the brand. Risks to manage include finding and managing the master franchise holders and individual franchisees.  Reduced direct customer contact and requirement for sufficient customer service controls and reliance again on contractual modes of enforcement when disagreements arise between franchisor and franchisees.  Lastly there is a profit sharing arrangement with franchisee operators inherent in the agreements as opposed to a wholly owned subsidiary type of operation so whilst upfront capital investment is less it is likely overall long term returns may also be diminished due to profit sharing with local operators.

contract-manufacturingnew

  1. Contract Manufacturing.

Increasingly common and very widespread nowadays for a number of reasons. Contract Manufacturing is a contractual mode of market entry that can give your brand and company local manufacturing cost advantages whilst you still retain marketing, sales and distribution rights and responsibilities for your brand. Advantages of contract manufacturing or sub-contracting include saving in capital expenditure and reduced upfront risk associated vs. a Greenfield manufacturing plant in a foreign country.  You are able to leverage skills and local capability and resourcing of your 3rd party manufacturing party and in some cases you may also be able to leverage their distribution and marketing and sales networks as well.  There is opportunity for two-way technology transfer and learning and of course this is an associated risk to bear in mind with regards to intellectual property around your product composition or manufacturing process.  Examples of contract or sub-contracted manufacturing include the car industry and in particular car parts for later assembly by the auto-manufacturer. It is widely used in the food industry by both retailers and manufacturers and may also be used in home as well as host markets.  In beer for example where freight costs may be a high component to overseas markets and freshness is important you will often find major multinational global brands “Brewed and Manufactured under licence by…” as another example and in many cases they will leverage another brewers distribution, sales and marketing capability with contracts as well.

turnkey

  1. Turnkey Operation

Turnkey Operations are contracts for construction of operating facilities that are transferred to the owner after commissioning for a fee. Most common in large multi-year projects like construction of infrastructure like airports, oil refineries, power plants, roads or railways they are a way for the owners to mitigate risk up front by contracting away the associated management risks of building a major project in a foreign nation.  Advantages include contracting out some of the associated risks of managing a major construction project and the associated reduced management time as its more a case  of fund it, get it build and then take over once it is commissioned.  Risks include the associated technology transfer risks that the sub-contract manufacturer may become a future competitor in your industry with knowledge gained during the build phase.

Mgt Contract

  1. Management Contract

Under a management contract mode of market entry one company provides another company with managerial expertise for a specified period of time. This maybe in exchange for a lump sum payment or a continuing fee on a % of sales value or volume for example. Sectors that commonly use management contracts are utilities services and it may be possible in developing markets where they need assistance from developed markets to manage new infrastructure like water management for example.  Another example might be public council services such as lawn mowing and parks maintainenece and building management services provision which can also be international in scope and nature.  Management contracts maybe useful entry modes where the home party has knowledge and expertise but cannot own the assets off-shore and the other party has a dependence or reason for management expertise.  It can also serve as a useful lower risk learning experience into a foreign territory.  Risks include reliance on the contract for enforcement and remuneration and the possible limited time span.  In addition it may be hard to create and grow any brand equity or awareness in the case of some contract management services.

Contractual modes of entry will inherently rely on trust and relationship building between both parties and important criteria should be considered before you enter into contracts with companies in overseas markets.  Firstly, are you talking to the right partners?  Are they your perfect match?  You also need to bear in mind the rule of law and alternative dispute resolution options in the host country.  Many markets have different legal systems and different levels of respect for contracts as a means of doing business.  Before considering contractual modes of entry our advice is to talk to professional services organisations with experience in this field and others in your industry at home to get a good understanding of the risks and rewards and how to mitigate risks and maximise the success criteria.

Please feel free to add your own comments and experience on contractual modes of market entry below and reach out to us for a follow-up face to face discussion at no obligation on your objectives for international business expansion.

Dermott Dowling is Managing Director @Creatovate, Innovation & International Business consultancy. Creatovate help businesses grow outside their home base from market entry strategy to route to market to go to market launch. Contact Dermott if your business needs help expanding your business internationally.


How to enter new markets…Export

Export

Alarmingly only 7% of all Australian businesses earned overseas income in 2011-2 down from 9% in 2006-7 (ABS, 2013).  Of that group just under 1% account for over 70% of international trade value.  In Australia’s case that group is dominated by the big miners in particular (Austrade, 2014).  There are barriers to taking the first steps towards international business and the top two cited is local culture and regulations.

As a result it is hardly surprising that most Australian businesses will expand to neighbouring markets with common language or cultural heritage like New Zealand, Singapore, the UK or the USA before considering more culturally divergent markets like Indonesia, Japan or China for example.  As a business owner considers firstly, ‘Where to go?’ and then ‘How to enter?’ they will often opt to get involved in international business by one of the lowest risk and reward options of exporting their goods or services or importing overseas goods and services.

Taking a consumer packaged goods or manufactured goods perspective there are several ways for businesses to begin exporting their goods to overseas markets which we will detail below:

Export Merchants

1. Export Merchant at Home or Australian Based Consolidator.

Here a home base company or merchant will buy the goods on behalf of overseas customers and make payment in local currency and arrange all shipping, documentation and clearance of goods via sea or air freight to the foreign destination.  This was more common in the past and still exists with regard to smaller enterprises or smaller markets where consolidation of goods at port of despatch helps to reduce freight costs and makes business dealing simple for the goods manufacturer.

Export Agent

2. Export Agent at home.

Here an agency or agent is used in the home country or place of production to seek out and negotiate pricing and contract with overseas customers on behalf of the manufacturer. The agency is rewarded most often with a commission on the sale but the contract is between the goods manufacturer and overseas customer.  This arrangement is commonly used where the manufacturer has low export knowledge and awareness or contracts and relies on the agent to negotiate a fair and reasonable price for the exporter.  As technology evolves and the world shrinks virtually with the internet we are also seeing the emergence of export agencies or facilitators at home like AusPost who will partner locally based small and medium size enterprises to facilitate listing their goods for sale on large eTail/Commerce websites especially in China like Tmall inside Australian Pavilion shops and pages with their connections to both China Post and Alibaba (owners of TMall) facilitating end to end delivery of goods.  Likewise, VECCI can facilitate the development of an individual customised microsite that will sit in the Australian Pavilion on yiguo.com a large Shanghai based B2B and B2C eCommerce website to assist your company in showcasing its products.  These facilitators and eCommerce providers will assist with goods clearance and import, website/shop set up and provides an avenue for small and medium size business in particular to test their products and get direct consumer feedback in foreign countries.

Overseas Agent

3. Agency in foreign country.

The agent identifies a buyer and negotiates with both parties (exporter) and buyer (the importer) on prices and delivery details. It is then the exporter’s responsibility to ship the goods to the importer and receive payment and pay an agreed rate of commission to the overseas agent.  Overseas agents are invaluable where cultural and linguistic barriers might otherwise prove unsurmountable and give confidence to the importer who is dealing with someone on their own home soil.  This type of arrangement tends to be more common in cultural diverse or distinct markets e.g. Korea where an Australian company maybe uncomfortable with the language and cultural and business challenges and seek an agents support to begin the trade and relationship building.  For the exporter it is important to know their agent is working for them and not competitors in the same category of business and for the agent it is important as s/he builds up the exporters business and contacts s/he is not cut out as the middle (wo)man who enabled the trade to be established.

Importer Distributor Retailer

4. Direct export to an importer/wholesaler/distributor/retailer.

Direct export requires a deeper knowledge of the foreign marketplace and would normally follow a trade discovery market visit or existing agency relationship. It also tends to appear where parties on both sides are of sufficient scale to support international business dealings and is common in medium to large size consumer goods companies for example.  Increasingly today we are also seeing direct export from consumer goods manufacturers to retailers as both sides look to maximise their share of the value chain.

Overseas Branch

5. Overseas Branch Office

The most significant investment for export/import is establishing and overseas branch office that maybe focus on the market it is based or a regional holding company or base from which to expand into neighbouring territories. Normally employed only after significant trade has been established and sales have plateaued or by large companies with significant resources required to invest in local business licence to operate, rental of offices, hiring staff and establishing banking and legal facilities.  Some countries are easier to establish branch offices than others and even actively encourage it as part of their economic growth plans.  The World Bank issues annual rankings on countries ‘ease of doing’ business and Singapore tops the list followed by Hong Kong, New Zealand and the US.  Australia ranks 11 after UK and Norway on that list while some markets near us like Indonesia rank 120 or the Philippines 108 indicating the importance of upfront thinking and work on ‘where to situate’ your overseas branch office.

As you can see from the relatively fastest, lowest risk and lowest reward ex/import market entry model you can see there are at least 5 possible entry models to begin international trade.  The appropriate model for your business will of course depend on a number of factors including your size, turnover, international business experience, products or services and overall objective for going international.  We highly recommend you contact us or other professional international business consultancies and government bodies with experience in the area like Austrade and your local State Government services and Chambers of Commerce to do the ‘upfront thinking’ before you jump into international business. Unpicking unsatisfactory trade relationships is time consuming and costly to your business and reputation.

Please feel free to add your own comments and experience on export/import international business entry models below and reach out to us for a follow-up face to face discussion at no obligation on your objectives for international business expansion.

Bibliography & References:

Australian Bureau of Statistics (2013), ‘Selected Characteristics of Australian Business’, cat. no. 8167.

Austrade (2014) http://www.austrade.gov.au/about-austrade/news/latest-from-austrade/2014/australias-international-business-survey-2014 retrieved on 10 Oct 2014

Bruno Mascitellia & John Tinney (2012) The Global Business Environment: An Australian Perspective McGraw Hill.

The World Bank Group (2014) Doing Business Internationally http://www.doingbusiness.org/rankings retrieved on 2 Oct. 14.


Take your business off the Road to Nowhere into Lands of Opportunity

Road to Nowhere
How to use Upfront Strategic Thinking to Drive Profitable International Business Growth

Authors: Dermott Dowling @Creatovate & Kevin O’Reilly @Radar Insight

Five Factors to consider with your head, before following your heart into international markets.

International Business market choice is often based on ‘gut instinct’ decision making, retrofitted later with logic that backs up your initial assumptions. This can lead to costly mistakes and valuable scarce resource waste when wrong choices are made.
How do most businesses find themselves offshore? In one word: Dragged, and usually the result of a direct approach from either existing customers or a potential overseas trade partner. We believe one of the 3 keys to successful international business is use of deliberate, upfront rigorous strategic thinking, planning and risk analysis before deciding “Where to Go” first, second or third as you take your business offshore.
We know that any business growth journey starts with defining the challenge and mapping a journey before you set sail. That is why we are championing a new approach to driving profitable expansion into international markets. Following the 5 key factors outlined in this report have helped and will continue to help our clients use ‘more head and a little less heart’ initially in their market choice decision making.
This report outlines the data and decisions required to understand the five factors at play. We were able to build the Creatovate Market Opportunity Index© decision tool through our work with our clients, and wanted to share our learning with the business community.

Partnering with a consumer goods client, we undertook the challenge to help facilitate their Asian export strategy in terms of decision making “Where to go? First, Second, Third, etc” using a pure data approach, before we facilitated and encouraged the overlay of their own subjective lens and ‘gut instinct’. This mix of slow and fast thinking is vital to getting a balanced and aligned strategic choice on ‘Where to go?’ Our goal was to rank countries analysed based on their performance across 5 key factors (each broken into client specific indicators or markers. Using independent research data, extrapolated across attractiveness rating scales we were able to compare and contrast the opportunity presented by targeting China (huge population, low average wage, less international brands on shelf) to that of Singapore (geographically closer, smaller population, higher disposable income, free trade, etc).
This report will walk you through that thinking process, step by step. We hope you will see similarities to your own international business challenge and see opportunity to utilise or adapt the learning to your own context and International Business growth challenge.

Factor 1: Market Attractiveness

country attractiveness

The most common starting ground for any business looking at which overseas country to sell their products and services is going to be the usual market research sourced through global data services providers like Euromonitor, Marketline, Nielsen, Canadean, etc. You could populate the indicators under Market Attractiveness with literally dozens of sub indicators but in the interests of clarity and not confusion we picked 5 key sub indicators to give us a sense of absolute size of market opportunity and attractiveness in terms of market growth. It has been noted before you are often better to enter a small but fast growing market as opposed to a large and static one.
I. Volume – what is the absolute volume of your business products/services sold in the country?
II. Value – what is the absolute value of the market in terms of retail sales for category?
III. $/Kg or $/L – this is an important measure for a consumer goods product especially for Australian consumer goods manufacturers. In our case our lenses were focus on Asia and it was important we identified markets that had high enough retail prices per Kg or L of product sold to justify a high cost of goods Australian made food so there is sufficient margin in the value chain for all participants.
IV. Consumption per capita – are we looking at a market with a ready and available appetite for your food or beverage or a market that is currently no/low consumption and will require education as to the products benefits from consumption?
V. CAGR or cumulative aggregate growth rates – in our case we took a CAGR average of the past 4 years market value growth rate to determine if there was a rising tide that would float all boats including new market entrants or a static or even worse in decline market opportunity.

Factor 2: Sociodemographics

sociodemographics

Population and demographic information is vitally important in your decision making on which markets to focus on when considering international business. China might be a great market opportunity from a first glance at the absolute population and yet further probing and understanding of sub-indicator factors like the one child policy and an aging population vs. say India by comparison might suggest it is more attractive to the cruise line business than say children’s food products. In our case we were conscious to also look at ability to pay and buy premium imported foods in our markets under study. For this reason we included other sub indicators to give a more rounded view on the absolute numbers of mouths and pockets that can afford our clients products.
I. Population – absolute numbers are hard to ignore but feel free to use filters over the core consumer target age group for your business products or services.
II. PPP per capita – widely regarded as a better and fairer indicator or relative wealth by a nation than the more tradition GDP per capita this is again a fast indicator for overall wealth.
III. Disposable income per capita – we were fortunate to be working with a data set that included this level of detail which helps in the sense of what available funds do consumers in the country have to spend outside their daily necessities to live?
IV. Food expenditure per capita – a key indicator in our client project as they are selling food is the amount spent per household or able to be spent on weekly food purchases. This sub-indicator could be adapted to your own business category of products or services.

Factor 3: Open to trade

international_trade

Our client first consideration was immediate opportunity to export/import their products into the region of study. As such a key factor for us was the local markets or countries openness and willingness to trade with the country of origin – in our case Australia. Our focus needed to search and discover data from international and domestic data sources on volumes of international trade and imports in the food category (open to trade), volumes of the category currently exported into the region and to what countries (follow the leader) and last but not least any visible or unforeseen barriers to entry. This factor became complex rather quickly requiring a mix of sub indicators that contributed to an overall factor score in terms of attractiveness.
I. Volume of Imports – MT, $/Kg and $m – this was the sub-indicator of the country openness and scale of trade both in absolute volume, value and $ per weight/volume measure.
II. Volume of Exports – sourcing data from the local industry association we were able to determine the absolute volume of the client’s category of products exported to each country in the region. This is a ready sub-indicator to open to Austrade in the sense open acceptance of imported goods from Australia in those countries.
III. Barriers to Entry – a mix of quantitative and qualitative judgements or indicators we utilise the apparent barriers like Tariffs, Quota restrictions, and some ‘behind the border’ barriers like Product registration requirements and estimated time to register or local labelling laws.

Factor 4: Dispersion

dispersion

Working in the Fast Moving Consumer Packaged Goods industry where the majority of products sold are through retailers and increasing modern retailers like supermarkets, hypermarkets and convenience stores it was important we believed to include some country analysis and understanding on concentration of power of buyers (retailers), suppliers (local manufacturers) and penetration of private label products in that country. For this reason we used 3 key sub-indicators to get a sense of dispersion in the country which would suggest competition is less intense and more room for a new entrant vs. highly concentrated and difficult to penetrate the new market.
I. Concentration of Retailers – what is the combined market share of the top 5 retailers? In markets like Australia where we have a highly concentrated retail landscape with two retailers dominating 70% of available market share the trading terms and margin requirements with those retailers is understandably high relative to a highly dispersed retail market.
II. Private Label Penetration – if Private Label has penetrated the category and to a high % of total category share the correlating thinking is that there will be less willingness by customers to range new lines/brands/products in the category as they concentrate on incumbent market leaders and building their own exclusive or private label brands.
III. Concentration of Manufacturers – what is the combined market share of the top 5 local food manufacturers in the category you have entered? If that market share is high there will be higher profitability with those manufacturers and a willingness to go above and beyond to stop new entrants getting a food hold in their category.

Factor 5: Innovation Intensity

innovation intensity

Factor number 5 we wanted to check was the relative level of innovation intensity in the country and category under examination. Whilst a higher level of innovation intensity would indicate consumer and customer willingness to trial new products and brands it might also suggest a higher level of competitive intensity and greater need for our client to continuously refresh their product offer both at home and off-shore. We selected three sub-indicators here to give us an overall sense and impression of which markets are open to new ideas, products, allow functional or nutritional health claims for foods and what % of total turnover in their country and category is from New Products launched in the past 3 years.
I. New Products launched in the past 3 years as a % of total value of sales in the category
II. Claims permissible – in your category space. Are the claims you can make on your products at home where they are successful allowed in the new country you are about to enter?
III. Health claims premium – if you are selling products that make beneficial health or functional claims how much of a price premium are similarly claiming products getting in the market under study?
Working through the above 5 factors and their 3-5 sub indicators across a mix of independent data sources enabled us and our clients to take a step back unbiased independent look at the region and rank the markets. We also developed a subjective scorecard that could be used to align key leaders in the client business around discussing which markets will be a focus for entry in the short, medium and longer term horizons so that preparation, planning and time critical steps could be taken across the board to manage a phased approach to international business growth. Heart is good and if the Head matches up with the heart or the slow thinking matches the fast thinking gut reaction you know you are onto a winner and ready to take that next step forward to answer our next question: “How to enter?” the new market and what market entry model to use? More on that front in our next post. We trust this critical thinking approach to the Where? Question will give you some data and knowledge to think about in your context and the ability to turn that learning into wisdom. Please do not hesitate to get in touch with us if you would like to do something similar or different relevant to your context and challenge as you create, innovate and grow your business internationally.

About the Authors:

Dermott Dowling is founding Director @Creatovate, Innovation & International Business consultancy. Creatovate help businesses create innovate and grow through innovation and spreading their wings outside their home base. Contact Dermott if you and your business needs help improving your innovation processes or expanding your business internationally.

Kevin O’Reilly launched Radar Insight after seeing too many products launch without the insight or clarity required to be successful. Contact Kevin to hear how consumer research & product evaluation can help tailor your product to your target market.

 


Looking for Love? Partnering for growth internationally

10 KeyInternational Partnerships Eyes to unlock a Perfect Match and grow your Business Internationally

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.

 

 food-industry-scale-efficiency1.     Efficiency & Scale

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?

 

Leverage

2.     Leverage

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?

Capability

3.     Capability

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.

Need

4.     Need

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?

Open & Honest

5.     Open

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.

reputation

6.     Reputation

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.

 

Possible-Conflict-of-Interest

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.

Knowledge

8.     Knowledge

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.

Opportunity

9.     Opportunities

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?

References10. References:

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?

Scorecard

Scorecard

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.


Persistence & Determination are Omnipotent

In the confrontation between the stream and the rock, the stream always wins; not through strength, but through persistence.”  — Buddha

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The leaves are browning, the mercury is dropping and the rains are more frequent.  Rather like the changing of the seasons a lot of businesses in traditional industries with traditional ways of working are finding sales, margins and profits are fast browning off like the autumn leaves.  Today many businesses caught in a sales, margin or profit eroding death spiral the typical management reaction is “restructuring or rightsizing” or “cost reduction” which inevitably forgets the most important R – “Rethinking” how we can remodel businesses to be more innovative and ultimately more profitable.

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Starting Creatovate two years ago I decided to focus our consultancy services and efforts to help client’s growth through what I personally believe is the most sustainable growth pathway – Innovation and International Business expansion.  At its most basic definition innovation can be described as “change that creates economic value”.  You must be either reshaping value chains to remove cost and / or create value i.e. reduced cost and/or increase prices to customers and consumers.  You can also typically expand your business into one of 3 new quadrants using the Ansoff matrix – new products or services development to existing markets (bottom right quadrant), enter new markets with existing products or services (top left quadrant) or take the bravest bet which is new products and/or services to new markets (top right quadrant).

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Ansoff Matrix:  http://www.quickmba.com/strategy/matrix/ansoff/

Standing still is not an option in business today.  You will get run over by new entrants, or incumbents who are running faster than your business or sideswiped by other businesses you did not even see out of your peripheral vision who enter from completely different market spaces with new products and/or services that better meet your customers’ needs (top right quadrant innovators).  Starting any new business is not easy and having worked for large multinationals for over 15 years and with well-established clients over the past two years I can honestly say that no one business is safe in the ‘new economy’.  Complacency will be the seeds of your business demise.  From the Board level to the mail room roles will continue to be constantly restructured and re-scoped and I am afraid to say often without enough upfront ‘Rethinking’.

“Industrial Relations” was a widely used word in the 1990s which later became “Human Relations” and is now more commonly titled “People & Culture” in large progressive modern organisations. During my post-graduate Bachelor of Commerce in Management Honours thesis study I examined Industrial Relations in the Airlines Industry and quickly discovered here was an industry that would always be placing immense pressure on the ‘People’ component in the Value Chain of the Airline industry for the simple reason the typical airline cost structure is divided into 3 almost equal components: 1/3 on planes, 1/3 on petrol and 1/3 on people.  As much as an Airline would like to negotiate a good deal on planes that is going to be difficult when your choices are limited to either a Boeing or Airbus Jet plane and as much as Airlines would like a better deal on their fuel bill that negotiation will also be difficult as Shell, Exxon Mobil and BP will have a view on fuel prices and continued upwards direction.  So People become front and centre in the ‘cost reduction’ eyes of management and to this day Airlines management are still in a constant struggle with how to get the best out of their people for the least possible pay!

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Scattered throughout the many loss making Airlines globally there are a few stars making money and my bet is they will have a better strategy and culture to differentiate themselves and possibly a better business model e.g. Southwest Airlines or Air Asia.  Walking into the Ansett NZ head office in 1996 to talk to the Airline Pilots Association union representative I noticed immediately a quote on the wall from Sir Reg Ansett the founder of the Airline that has gone the way of many today post his time in the cockpit “Nothing in this world can take the place of Persistence.”    That quote was on a plaque with Sir Reg Ansett name attached to it but its origins came from the late U.S. President Calvin Coolidge and its full quote is “Nothing in this world can take the place of persistence.  Talent will not: nothing is more common than unsuccessful people with talent.  Genius will not: unrewarded genius is almost a proverb.  Education will not: the world is full of educated derelicts.  Persistence and determination alone are omnipotent.  The slogan ‘press on’ has solved and will always solve the problems of the human race.”

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President Coolidge quote and Buddha’s quote brings me to one more thing I have come to realise over the past 20+ years studying, working and consulting.  In the ‘East’ businesses persist and are patient.  Suntory management in Japan became famous for its willingness to wait a long time for results. The company took 46 years to make a profit on beer and 14 years for one of its biotechnology units to genetically engineer a blue rose, thought to be a symbol of the impossible (Kachi & Dvorak, 2014).  Compare this approach to the one most common in the ‘West’ where the constant demands for 10%++ top line and bottom line growth year on year is simply put “unsustainable”, especially if all we are doing is running on the spot and demanding ‘more for less’ from our ‘People’.  Where is the ‘Culture’ that says, ‘persist’, ‘explore’, ‘adapt’, and ‘go again and again and again’ until you turn a dollar, convert a customer, open a new market or create a product or service that solves a new or existing customer’s problem?

Today, with technology front and centre in our lives and as ‘software eats up the world’ around us and computers, apps, robots and systems replace the ‘people’ in many business processes it is doubly and triply important business leaders and their people, Stop! Think! And take a leaf from the wise men and women of the East.  Pause, take the time to reflect, think and then Act! Be brave in your restructures, remodel your business models and take controlled bets with new businesses, new products, and new services into new markets and new and existing customers.  You can no longer win in the bottom left quadrant of the Ansoff matrix and if you are not already moving to the top left or the adjacent right and planning and implementing a manageable bet into the top right quadrant you risk facing the same fate as the late Ansett Airlines.  Every industry is rapidly becoming another Airline industry.  Strategic choices rest with everyone in your business from the boardroom to the factory floor and whether you are a winner or loser in the long race to the finish line depends on how you get the most out of your ‘People’ and create a winning ‘Culture’.

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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.

References:

Hiroyuki Kachi & Phred Dvorak (2014) Wall Street Journal, January http://online.wsj.com/news/articles/SB10001424052702303819704579320470878396540, viewed on 8th May 2014


Can you hear me?

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Listening to the lessons of a thriving and successful $3b start-up – Cochlear

Cochlear is a $3.3b market capital ASX top 100 listed enterprise, with sales of $750m per annum, employing 2,700 employees globally, publically lauded for its highly innovative ‘bionic inner ear’ that has been implanted in over 300,000 ears globally.  When the opportunity arose to hear Dr Jim Patrick, Chief Scientific Officer who has been with the business since start-up and Lyndal York, Chief Financial Controller speak at a business breakfast I was not going to miss the opportunity to ‘listen and learn’!

Nowadays with a head of steam behind them, an R&D spend that is 13% of total revenue, 300 R&D staff, 120 collaborative projects and 140 collaborative partners on board it is easy for Government politicians, business press and the community to see Cochlear continued growth and success as inevitable.  Not to mention the amazing world first ‘bionic ear’ they invented.  However, what is less visible today is the critical points at Start-up that Dr Jim shared which were vital to Cochlear birth and early development of this Australian global start-up success story.

1978 The first cochlear recipient Rod Saunders

Jim cites early on two key founders at instrumental in the birth of Cochlear, Dr Graeme Clark, the early inventor who was profoundly impacted by his own father’s deafness and Paul Trainer a medical devices entrepreneur who established the Nucleus Group in the 1960s.  The story is well chronicled on the Cochlear website: http://www.cochlear.com/wps/wcm/connect/au/about/company-information/history/history Dr Graeme Clark was instrumental in getting the initial idea to a vital “proof of concept” with a multidisciplinary team @University of Melbourne which included key staff from varied faculties including Engineering, Physiology, Psychology, Speech Pathology, and Computer Science, to name a few.  We see this time and time again in ‘breakthrough innovation’ that a multi-disciplinary team from a wide variety of backgrounds and experience bring out the best in terms of ‘breakthrough’ new thinking and technologies.

1981 Paul Trainor to start commercial development of multi - channel cochlear implant

Paul Trainor, the medical entrepreneur and founder of the Nucleus Group was instrumental in setting up Cochlear in the early 1980s post the first initial proof of concept Cochlear implant in 1978 and following phase 1: 1979 when the next two subjects received prototypes, a global market survey was undertaken and a development cost plan was completed.  Paul sounds to me like a modern entrepreneur who used attractive financial staff incentives, created competition for resources within the Nucleus group and between start-up teams and used attractive financial rewards for risk taking and bravery in the early stages of Cochlear implant development.

Government Commercialisation: 3 phases of funding totalling $10m over 6 years 1979-85

Government assistance and funding in the early phases of development from funding the University of Melbourne team to come up with the original prototype in 1978 through to $400K of funding in 1979 for 2 more subjects to be implanted, a global market survey and a development cost plan, through to phase 2 $1.6m for development of prototypes and implanting a further 6 subjects and finally phase 3 $3m to send a small team to the US to undertake a FDA trial and further commercialisation work was critical to the business becoming what it is today.  Overall Dr Jim estimated the Australian Government initial seed capital funding to total $10m which if you look at the market capital of Cochlear today ($3.3b) their staff numbers (2,700) and annual R&D spend ($100m) this $10m was very well invested in the early 1980s!

1992 First paediatric cochlear implant recipient Pia Jeffrey Sydney

Children began receiving implants in the 1990s and today if a child under 1 year old is implanted with a Cochlear device they will develop speech and hearing at the same rate as normal hearing children.  Cochlear $750m in sales are split 40% in the Americas, 40% in Europe and 20% in Asia Pacific and the company is headquartered in Sydney inside MacQuarie University, in a state of the art research and development, clean room manufacture, warehouse and distribution centre opened in 2010.  With 60% market share, $500m in R&D investment over the past 5 years and over 120 collaborative studies and projects underway the company certainly has a pipeline of innovation to come and is active in the global acquisitions space.  It is easy to see why Cochlear has received over 50+ industry awards and accolades. What are not so easy to see today are those vital early key success factors in the late 1970s and early 1980s to get Cochlear up and running as a fledgling Aussie start-up.

Distilling all the learning from Jim some of the key success factors vital to Cochlear beginning and continued growth are detailed below.

Key Success Factors:

  • Driven co-founders – Dr Graeme Clark (personal desire) and Paul Trainer (medical entrepreneur)
  • Multi-disciplinary start-up  team from a wide variety of faculties and backgrounds
  • 3 critical phases of commercialisation funding over 6 years from the Australian Government
  • Tiger team of talented and well rewarded scientists and business entrepreneurs to prototype, test, develop and FDA trial their early devices
  • R&D Investment , now 13% of Total Revenue | R&D Tax concession helps | $500m in R&D over past 5 years
  • Collaborative studies and projects – over 120 today and over 140 collaborative partners
  • Portfolio of hearing solutions and technologies
  • Location in Sydney: inside MacQuarie University, close to Hospitals, and other partners
  • Leadership – Smart, Stable and driven to succeed.

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.


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