| Finding the Right Overseas Representative |
By G. Alfred Kennedy and Albert L. Zucca
Special to The Black Business Journal
As the owner of a profitable, competitive small to medium-sized firm, you have made the critical decision to explore the international potential of your company and its product or service. You recall a Coopers & Lybrand Trendsetter Barometer two years ago which indicated that companies forming alliances with other firms are growing by 50% more than those that do not. Also, that 50% of firms involved in alliances market their product/service internationally, versus only 30% of those that do not form alliances. It is this latter point that led to your decision to explore opportunities in overseas markets.
Your research revealed that the right foreign partner would offer prospects to share risks and resources, to expand your product line, capture a respectable share of a particular market, and increase revenues and company growth. You are aware of the downside risks but, you remembered the advice which launched your company against the advice of family and friends, "nothing ventured, nothing gained."
This is a major decision which requires a thorough review of your firm's modus operandi, your product or service and the support capabilities they require, the strengths and weaknesses of your management team, and how you do it as an entrepreneur. You have researched potential markets and you have selected the market that offers optimum prospects for your product or service. In essence, you are comfortable with your capabilities. The old adage says: "A wise man knows his limitations...and his strengths."
A key element to success in a new market, particularly an international market, is finding the right joint-venture partner or distributor. From considerable experience abroad working with visiting and resident members of the American business community, we can tell you there is only one way to select a distributor or joint-venture partner - carefully, very carefully. Much is at stake in selecting the right representative for your company - perhaps the future of your business in a new market.
It is de rigueur to do the due diligence; ask yourself the right questions. More important, seek the right answers to the questions. For example: How do you find the right trade partner (domestic or international) as your firm's agent or distributor? How do you distinguish your firm from your competition to attract a foreign partner, to provide you with capital, technology, and/or market access, that will give your product a competitive edge in the new market you have selected? You are interested in working with an international investor in opening up a new market for your product/service. The new investor seems to want to dominate your business operations, taking majority control. How do you prevent this? These questions represent a few of those you must respond to. Let's review some approaches to the issues these questions raise. We will assume at this point that your principal interest in an overseas partner is to act as an agent or distributor.
Finding the Right Partner
Pay Attention to Details - The Value of Due Diligence
Homework is also important to understand the culture of the foreign market at least minimally, to know such things as the general laws and procedures locally for contracting representatives. Some country's laws, for example, may not honor the provisions you have negotiated dealing with commissions and remuneration, and grounds and timing of contract termination. Study available literature, sources of which are mentioned below.
Therefore, naming a foreign partner now that you have decided to go global will be one of the most important strategic decisions you will make as the owner of a small to medium-enterprise. You have done the research. You have selected a market in which your product or service is competitive. You may need a foreign partner with capital, technology, and the market access that will give your product a competitive edge in this new market. The competition is fierce. What distinguishes you from your competitors?
Know Your Competition: Then Adapt
If financing is an issue, show off to international capital markets your product or service. Participate in an international trade show or exhibit. Meet with international financiers. In all instances, demonstrate a willingness to be open-minded about probable changes in production processes that enhance quality, packaging, or fashion appropriateness. It should be understood that some of the required changes may affect your relationship with employees, your bankers, and perhaps your national distribution system. Flexibility is important. At the end of the day, potential foreign partners see no value in wasting time to change management attitudes. What will attract someone to your firm is a willingness on your part to accept reasonable change to meet competitive demands in the overseas market you have selected.
Market share is an important index to a potential foreign partner. If you can describe practices that led your firm to an increased scale of operation and that have controlled your costs, you become more attractive to a potential foreign partner.
In addition to utilizing technology to learn about your competition, there are other valuable sources of information. Trade literature, the local and national Chambers of Commerce, State and federal trade missions to overseas markets, foreign clients, and databanks available through the U.S. Department of Commerce are veritable treasure-troves of information. Not to be overlooked is the value of attending trade shows specific to your industry.
First Impressions - False Conclusions
There are those agents whose approach is generally passive and are in the business of collecting clients and products to demonstrate volume, thus remaining competitive. You have to deselect these agents early in the process. Give the seeming disinterested agent the benefit of the doubt. Generally, they have the greatest potential to become the performer you seek.
Become familiar with all the companies your intending agent represents and, if he handles your competitor, tread lightly. To get the high performer, you quite literally have to woo them; you have to sell your company and its product to them. Salesmanship is important. Part of the preparation that is instrumental in a successful initial approach is a strong, marketable and focused introductory letter. Your objective is to arouse an intending partner's interest. The letter should highlight the credibility of your firm and its products. Above all, describe the value of this proposed opportunity. Presentation to a potential distributor or partner cannot be underestimated. Therefore, have your proposal translated into the appropriate language by professionals indigenous to your target market who have a strong working knowledge of terminology relevant to your industry.
If You Want Success, Choose the Best
A systematic approach to partner identification followed up by steps to make strong trade partner relationships is a ticket to future sales success. This approach outlined above is low cost and should significantly reduce the risk of entering into a non-productive relationship.
Using Public Sources of Information, Services
As mentioned above, trade shows can be useful to you in several ways: enhance your domestic line and attract potential foreign distributors. Trade shows have gained in importance in the last five to ten years. According to World Trade magazine (September 1999), trade shows are number three in the marketing mix after personal sales and direct marketing in the budget. Your competition will either be on display or in attendance. When visiting a trade show, talk to your competitors and to their clients. Ask the clients why they chose a particular competitor, i.e., product-line, quality, follow up, lower costs, delivery time, etc. Then go through the process described above to make changes in your own company.
Creating an Effective Relationship with a Foreign Partner
Arrange a meeting beforehand with representatives of the embassy representing the country of your prospective foreign partner to try to get an understanding of these distinctive foreign customs.
The more you learn, the greater your confidence in your ability to negotiate a comfortable relationship, particularly going beyond the agency relationship and toward joint-venture. You have a variety of options to move the negotiations forward if you reach an impasse on control issues. For example, in lieu of majority control, you might be more amenable to offering a more substantial share of the profits from this new market than you otherwise would have done. Another option might be to offer a franchise. Again, be flexible and be creative. The goal here is to get to "yes - we have a deal."
The tactical objective of seeking a foreign partner is to move your business from entry-level in a new market to the next level within a certain time limit you must define. The central question in the entire process is, does this partnership or this distributorship relationship enhance your ability to do so? If you have approached the selection process methodically, using good judgment in selecting your market, setting up screening criteria in picking the best of the best, and negotiating and closing consonant with the foreign cultural framework, the answer will be "yes." You can look forward to years of productive and stimulating work in an overseas market.
G. Alfred Kennedy is a former senior Foreign Service officer with the U.S. Information Agency and the U.S. Department of State in Washington, D.C. He was the U.S. Consul General in Toronto, Canada (1993-1996), a Senior Advisor to former Commerce Secretary Ronald H. Brown, and a Deputy Assistant Secretary of State with the U.S. Department of State. Mr. Kennedy served in Italy, Germany, France, Belgium, the Republic of the Philippines and South Korea. Currently, he is a partner and owner of Source International, Inc., an international consulting firm with headquarters in the Washington, D.C. Area. Web site: www.sourceinternationalinc.com. He is a contributing editor of The Black Business Journal.
Albert L. Zucca is a retired U.S. Foreign Service officer and international consultant, currently Vice President of Patuxent International Corporation in Maryland. He has lived and worked in Europe, Southeast Asia, Africa, and Latin America for extended periods, specializing in investments and trade promotion.