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 are just some of the reasons that partnering is a fast, efficient and effective mode of international market entry.
Finding the right partner is something you should not rush and, likewise, something ,your business should drive rather than be driven towards by direct approaches from potential overseas partners.
In this article, I’m going to share how Creatovate works with clients to help them find the perfect match and create, what we hope, will be long lasting, profitable relationships in international markets.
1. Efficiency and 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.
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, it is an important piece of the puzzle you need to understand from any potential partner conversation.
Things to consider in initial conversations with a potential international partner include:
What margin do you and they need to make a living?
What trading terms are they requesting?
What are the allowances for dated and damaged stock?
How much do you need to allocate for customer trade spend?
What advertising and promotion support will be provided?
What forms of business reporting do they use and, how frequently will you see sales numbers, forecasts, stock reports?
The mere fact you are considering entering into a partnership or distribution agreement in an overseas territory, is demonstration you are seeking to leverage the skills, capabilities, networks and trading relationships and infrastructure of another party.
Leverage is a key means to grow your business and, just as in financial leverage can help grow your business, leveraging partnerships can increase your scale and size very quickly, if done well.
Consider these questions to define how much leverage a partner can provide:
Do they reach all, or most, of your potential sales channels?
How have they grown in the past with other companies, brands or products?
What other companies, brands or 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?
Are their existing customer and supplier relationships complementary to your own brands/products/services?
One of the pillars of any successful market entry strategy, will be a mode of entry that demonstrates capability to succeed.
Recognise you are in a foreign territory. Rules, regulations, customs, consumer and customer behaviours and attitudes are different to your home country.
The capability of your local partner will be multi-faceted. Check that the partner company capabilities include:
People, which is possible the biggest priority, to have good people on the ground in the new territory.
Competency in trade marketing, sales and management.
Solid systems and processes. How do they manage an order to delivery, accounts receivable, warehousing and distribution, sales and marketing?
Robust infrastructure. What level of competency and capability do they have to warehouse and distribute your goods to customers?
Owned facilities or, facilities that are outsourced to trusted third-parties.
If the facilities 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 warehoused. 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 customer’s hands in the same condition they left your factory floor.
One of my earliest leaders and mentors, Dr Ong used to say, “There is only one good trading partner ‘one where you fill their rice bowl.’”
In other words, a good trading partner is 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. You have three options. Do you pick a partner that is:
‘lean and hungry’, or
‘small and nimble’, or
‘large and well established’?
There are potential costs and risks for picking any of these options. Consider these questions to help choose the right partner:
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? Is it 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?
Transparency builds trust. There needs to be open and honest dialogue between your company and the potential partner. There should also be an exchange of each other’s interests, operating margins, business models. Plus, both companies need to have a willingness to do a full work up of costs and margins in the value chain.
Questions to ask yourself to understand how open a potential partner is, include:
Does your potential partner have a mission, vision and values that align with your own?
Are they equally interested in doing the business with you?
Will the relationship be win-win and generally equal in nature or, is it 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.
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.
Consider the answers to these questions to gauge a potential partner’s 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 market you are seeking to enter?
How long has the ownership structure and senior management been in place?
What is the staff turnover?
How is their relationship with local government, customs, officials?
What are the differentiating factors for this partner compared to other options to enter this market?
7. Conflicts of interest
Conflicts of interest can occur 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. That is a conflict with your interest to see them focus solely on selling your brands.
Perhaps, the products they sell in the same category as yours are 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.
Alternatively, you may want to look for a business that has common end customers but is selling adjacent category products.
Anyone can have a go at selling something. Anyone can also begin discounting in your category to compete with incumbent brands.
Knowledge of the local market is wisdom your business needs. Use the wisdom of your trade partners to educate customers about why they need your product or, why your product is priced at a premium.
Find a partner that knows the market and has a genuine interest in your plans. If the partner has researched your business, operations, products and comes to a meeting armed with this kind of wisdom to share, this shows a real interest in making the partnership work.
To truly lead a category on the ground in an overseas market, 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.
Think about the business opportunity in the longer term. If this trading relationship goes well, what can happen beyond the first few years?
Think about the answers to these questions:
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? Would they consider joint ventures or, introduce you to others where you can partner up in multiple markets?
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?
It’s rather like a job interview, meeting face to face with potential partners. But you are also reviewing their office, staff, logistics, systems and capability. You are assessing if they have the skills, experience, competencies and passion to partner with your business.
If key indicators in the items 1-9 are all positive and, you are feeling this partner has the potential to be “the one”, the next logical step is to do some reference checks.
You should ideally reference check your trade partner from both sides. That is, which other partner businesses can you talk to about their trading relationship. Likewise, which of their customers can you talk to assess their service levels, reliability, and ability to deliver on their promises and supply products consistently?
Do your due diligence!
10 x 10 = 100%
It’s the perfect match!
In reality, you are unlikely to find the perfect match that scores 10/10.
However, you can see that one possible way to independently evaluate multiple potential trade partners might be to use a scorecard. Use the above 10 points to rate each potential partner. Assigning a 10 for the a highest possible score and, one for no/low score. This way, you will have a numeric value that indicates if a potential partner is suitable.
This can help you objectively, as well as subjectively, evaluate your perfect match!
Creatovate developed the above tool for trade partner screening and matching. Now, 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.