Right-Sizing Channel Partners for Your Newest Products

In the electronic component market today, precious little money is available to invest on inventory that has little chance of moving off the shelf. With operating margins in component distribution under increasing pressure, the battle over bin space and inventory spend is not getting any easier.

While some may argue we are on the upside of recovery after a long and deep recession, distributors are looking forward and seeing many red flags when it comes to doing business in the new year. First, if short- or long-term debt are part of your operating scenario, it seems likely that your cost of capital will be going up soon as interest rates begin to climb from levels they’ve been for the past couple of years. Sure, large distributors can carry lots of inventory, but manufacturers had better be sure it’s going to move if they want distributors to take it. And with distributor margins continuing to get condensed, the decision on which parts go on the shelf becomes a fairly easy one. With new products, not only are manufacturers asking distributors to cover the cost of inventory investment, they have no guarantees that the parts will actually find a home among design engineers looking to develop their own next great product. And what’s that Mr. Customer, you want to EXTEND your payment terms? If I’m going to spend a penny on it, it better have legs.

Consider this situation from the perspective of the supplier. In a rotten economy over a two-year period, component manufacturers have stayed busy, feverishly developing new parts which they hope will sustain them until a solid recovery is under way. As these products begin to come out of development and into the market, the component supplier needs a distribution channel willing to accept new- and possibly unproven- products, as well as to help carry the burden of inventory investment, demand creation, order fulfillment and marketing. After all, he’s the manufacturer. His distributor partner should take all of his parts and put them on the shelf gladly, right?!

Don’t hold your breath Manufacturer. First, consider industry in US history. Look at any mature manufactured product in the US and you quickly find a pattern. You can start at the beginning and look at the paper and textile industries. Follow those with any other industry you choose. Furniture, maybe? How about cars? Calculators, TV, electronics, computer, software, etc. Not convinced. Maybe drill down a bit more then: capacitors, printed circuit boards, fabricated sheet metal, molded plastics. It is starting to happen in earnest with even the stalwart old power connectors which were never on the radar of the consumer products focused Asian manufacturers. The path toward the maturity of the market as well as the broad decline of the domestic market associated with these industries is the same- and they all lead to Asia. Notice, though, our choice of terms: “decline”. Go back to our start. You see, while it has been reported, for example, that the paper business is dead in the US, this industry is actually on a comeback. Why, you may ask? Specialization and focus on specific- and high margin- business. Sure, they took a beating by Asian countries able to manufacture the same product at a much lower cost. But ingenuity, investment and a significant amount of re-tooling has allowed them to refocus their businesses on segments that offer better margins. Segments that, up until a few years ago, didn’t even exist within the paper industry “target customer” profile.

Any product is susceptible to aggressive competition from overseas manufacturers. None is more susceptible, however, than a product which shares a few key similarities: high volume; made using plentiful, well-trained, low-cost labor; being built on well-developed equipment with repetitive processes; can be easily shipped. Despite the hopes of the US in the early part of the 21st century, this is now true for high technology products, medium volume products, as well as medical products. Where it isn’t yet true is on higher margin specialty, niche or new products looking to be designed into, used, or sold to customers here in the US.

Now consider the typical supply chain against this same backdrop and it is remarkably consistent. Large distributors continue to focus on transaction volume as they work to increase their inventory turns on “A” moving parts. Limited resources require sales efforts to focus on the higher volume customers. As EMS business grows exponentially, large Asian distributors are becoming larger and gaining increasing shares of the market. As these Asian distributors grow larger, they continue to pressure margins and gain marketshare, as domestic distributors see the onset of broad declines.

Distributor: Let me get this straight, you have a new part that has never seen the light of day, and you want me to invest in inventory on the chance that it could be a winner?

Supplier: Yes. How many will you take?

As the Manufacturer, you already know how difficult it can be to get the attention and mindshare you need from the large distributors on your latest products. After all, you do have your broad line suppliers. Perhaps they are a national or even an ultra-national or multi-national. Suffice it to say, they are big, they are dependable and they take and move product. But when it comes to new products, you know you have a hole.

What to do? Right-size.

That’s right. You remember right-sizing when it first hit the lexicon during the recession in the late eighties. Back then, companies were adjusting their workforce to match the requirements of the situation and economic times. Well, that’s what we are talking about here as well: match your needs with those distributors who are out there focusing on specific products and specific markets. You wouldn’t hire a municipal salt truck to sprinkle salt on your asparagus. So don’t ask the Big Disty’s to present your product to their customer list. With 500+ suppliers all trying to get the same amount of attention from the large distributors, you are going to get lost in the sludge.

Today’s smaller, regional, specialized and niche distributors are focused in on the social media shift which has suddenly made the playing field surprisingly level. These distributors have the resources available to them now to immediate get your message out to users across multiple social media sites and forums used by engineers, buyers, tech writers and other users. What’s more, you are a big fish to these smaller distributors. A little attention paid to these distributors can go a long way to getting a toehold in the customers where these companies do very well. There are hundreds of these smaller distributors who are willing to share the burden of new products. With parts on the shelf, salespeople on the street and a willingness to move new product for a higher-than-market margin, right-sizing can be exactly what your new products need to get their very own set of legs.

Asian TV Channels Available In The USA

Asian TV channels now available in the United States can enhance the viewing pleasure of many Asian Americans. Keeping up with events in their homeland is as easy as turning on the tv. There are a lot of channels available now from Directv and Dish Network. So for those who are not aware of them, we have Korean and Vietnamese channels. They are listed below.

DirecTV Korean

CTS is a premium network which brings to you 24 hours of Korean Christian programming, including sermons, testimonies, praise and worship, documentaries and news.

MBC One of the most watched channels, MBC is a 24 hour Korean broadcast network. Catch some of the most popular children’s programs, latest news and drama everyday.

SBS Stay in touch with what’s happening in Korea through this 24 hour channel with latest information, variety shows, and hit dramas.

SBS Plus Catch the best of Korean “Halliyu” with popular drama, movie programs, and other original programs – 24 hours a day.

YTN Korea’s first round-the-clock news network.

Directv Vietnamese

SBTN Saigon Broadcasting Television Network is the first 24-hour Vietnamese programming network in America which broadcasts a great mix of news, sports, variety, movies, talk shows, children’s programming and more – all in Vietnamese.

TVB Vietnam Catch up on the best TVB dramas and telemovies from past and present dubbed in Vietnamese including themes such as martial arts, costumes, episodic, modern action and situation comedy.

VHN–TV A visual treat for those of you who want to get acquainted with the Vietnamese customs and traditions, this channel believes in creating awareness and education. Features news, drama, education, public service, comedy (traditional and contemporary), entertainment and variety programs.

Dish Network Korean

ARIRANG TV broadcast live from Korea 24-hours-a-day, Arirang TV showcases entertaining and informative programs for viewers of every age and background. Programming includes Korea’s latest box office releases, news, sitcoms, dramas, quiz shows, financial updates, music, documentaries and current affairs programs.

BTN is a 24-hour Korean-language Buddhist channel. BTN’s programming includes Buddhist news, ceremony, priesthood, worship, mass, world temple tour, vegetarian cooking, meditation, yoga, missions and much more from Korea.

JSTV is the #1 rated 24-hour-a-day Korean-language Christian channel in North America. JSTV’s programming includes Christian related news, business, music, bible studies, gospels, worship services and much more. JSTV will also broadcast locally produced programs and programming from the Korean broadcasting channel commonly referred to as CBS.

KBS WORLD, a Korean-language channel with English subtitles, is a general entertainment channel which is the oldest and most popular broadcasting station in Korea. Programming includes the most watched news, sitcoms, dramas, documentaries and current affair programs.

ONGAMENET is a top-rated 24-hour Korean-language gaming channel. Ongamenet’s programming includes gaming industry news, video games, pro-gamer league, competitions and other game-oriented programming straight from Korea.

WOW-TV is a 24-hour-a-day Korean-language business news channel broadcast from Korea. WOW-TV’s programming includes economic updates, the latest stock market information, real estate, e-business, news and much more.

So there you have it, 14 different channels. Entertainment for the whole family, young and old alike. Instead of seeing a five minute clip of news from the Asia, watch indepth coverage of the same event. It’s like bringing your homeland in to your livingroom.

What’s Missing in Your Indirect Channel?

Entering or expanding your presence in the Asia Pacific region invariably requires working with an indirect model engaging channel partners in one form or another, for all or part of your business. There have been many and varied ways of recruiting, enabling and managing your channel partners, just as many agreement types to work with, all well documented, all well researched. We have, over our years of experience, witnessed those that have worked, unfortunately many more that have not. After thirty odd years of business, many organizations in the IT sector continue to struggle with the complexities of an indirect route to market, nowhere more so than in Asia Pacific.

Of course there will be academic nomenclatures for some of the more common scenarios exhibited, however we have provided a slightly more descriptive categorization of those we come across commonly, all have something missing in the relationship.

“Dump and Run’ Model

Mr Vendor recruits Mr Channel Partner, seemingly with all the right criteria followed for selecting the perfect partner. The agreement is negotiated, the contract is signed, hand shakes and bows exchanged. Mr Vendor hands over a box of collateral, some CD’s and manuals, a help desk number, a web address and gets on the next plane returning home, heading straight for the fax machine to collect the flood of orders. Obviously a slight exaggeration, yet not an uncommon approach to partner recruitment.

Clearly partnerships require commitment from both parties. On one side the commitment to enable and transfer skills and knowledge, on the other a commitment to provide capable resources and focus, and a mutual commitment to agree a business plan, with continued review and measurement.

“Show Me Yours First – Stand Off” Model

These agreements take a form where Mr Vendor won’t provide anything or make any significant commitments until Mr Channel Partner first shows some commitment to the ’cause’, maybe hiring dedicated staff, allocating marketing budget or opening the ‘kimono’ up to the customer list.

Mr Channel Partner on the other hand hesitates to provide or commit precious funds and resources until Mr Vendor shows an active desire to support through supplying qualified leads, committing to free training or allocating resources to work with Mr Channels Partner resources. After a time with each waiting for the other to make the first move and not living up to expectations, little if any business is written and the partnership fades with both parties moving on to other pastures.

‘Indirect Is Cheaper’ Model

Many unfortunately still look to the indirect channel model as a free or cheap entry into a market with an expectation of huge success. The indirect model in any of its forms requires discounts, infrastructure and support, by implication there is a cost to this. It should NEVER be considered free.

What should be expected from any indirect channel model is a broader reach into previously unavailable markets with access to domain expertise and or regional experience at a better return for each dollar of outlay. Straight forward, right? Not for all unfortunately.

One all too common example is relatively successful and established organizations making the decision to change to the ‘cheap’ indirect model, significantly downsizing or closing local operations, not implementing a channel enablement and support infrastructure, nor managing the customer expectations. The expectation being revenue and maintenance renewals will continue and grow and the partners would carry on business as usual. The results, not surprisingly, are usually massive drops in revenue, defection of customers, partner dissatisfaction, low staff morale and competitor successes.

‘The Silver Bullet’ Model

Many organizations enter a market such as Asia Pacific looking for the ‘silver bullet’ channel partner, the one that has the contacts, the relationships, technical and sales skills, support infrastructure to sell and support their products – the obvious choice for the desired market segment. Of course this is the perfect scenario. What is often missed is that these channel partners (likely larger organizations) will have a sales force paid on gross profit, already committed to selling known products from multiple vendors with targets like any other sales force.

Ask yourself the question: Will a salesperson focus on a new, unknown, difficult to sell product with a slightly higher margin or will they go and achieve their quota with what they know and what is currently selling, even though the margin may be slightly lower?

‘Committed Start-Up’ Model

Relative to the above, seemingly a reasonable approach. Mr Start Up Partner will be keen to prove themselves, hungry for revenue, eager to impress, often with a specific domain expertise and driven to build their business. Everything that one could want in a sales force. Sometimes. What about resource availability and quality? What about scalability? Smaller organizations will be juggling issues like cash-flow, breadth of relationships, depth of contacts? Again, there are numerous examples of these well intentioned ‘partnerships gone wrong’.

‘You Need Us More Than We Need You’ Model

Typically either Mr Vendor or Mr Channel Partner are a recognized brand in their specific market, sometimes even both. The one more recognized in the market to which the other wants access plays hard ball, or more often, an individual charged with the relationship, suddenly wants to show their value and plays hard ball. A relationship built on animosity from the outset, destined for the ‘seemed like a good idea at the time’ pile. These relationships do have much to offer when executed correctly but can be difficult to manage or negotiate if either party believes they are in the dominant position with little to gain.

If all of these scenarios sound unfamiliar … then credit to your channel people, they should be rewarded handsomely as your channel is most likely working well for you, with mutual benefit.

But if any sound a little too familiar then … the big question! “What IS missing in my indirect channel?”

It’s not difficult to search out the plethora of material on the ‘6 things’ or maybe even ’12 things’ you must do to make a channel partnerships work. Or, on how to select your channel partners with what criteria etc. All these will have valid guidelines, all will have important aspects you should take note of and incorporate in your channel approach. Most will highlight aspects of company alignment, market segmentation, sales processes, clear rules of engagement and documentation of mutual expectations combined with constant, open communications, some identify a need to support your channel partner through resources and infrastructure, even funding of direct sales support during the enablement stage. All of which is correct and important.

Personally I like to boil things down to their simplest level, a common denominator or two. In this instance there is a fundamental state of mind that determines whether the partnership will succeed or fail, the one thing in the scenarios above that is missing.

A level of desire and ability to INVEST.

Each of the scenarios fail due to a lack of investment and we are not talking only of financial investment. We are talking about investment in all its forms – time, resources, focus, commitment and financial.

The ‘dump and run’ model lacks investment in support and commitment; ‘show me yours first’ lacks investment in the relationship and building trust; ‘indirect is cheaper’ lacks investment in many areas and so on. I’m sure you get the point.

Think of it this way, you would not expect your bank to pay you a dividend or interest income if you have zero dollars invested in your account. So it is amusing and somewhat worrying when speaking with seasoned and generally successful executives who seek to expand into Asia Pacific, actively avoiding investment in their channel development, yet they maintain high expectations of results. This is no more important than in Asia Pacific, a region accepted as requiring a strong indirect channel strategy to succeed, built on commitment, relationships and mutual trust.

The summary

The key to a successful channel partner strategy and in turn a business that will grow and gain strength year on year is simply, a commitment to invest appropriately based on the returns required and expected. Namely in the areas of:

o Understanding the market through research and segmentation.

o Partner selection and due diligence.

o Partner enablement (resource allocation & execution support).

o Support infrastructure and partner management.

o Communication, relationship and trust building.

o Regular and focused reviews.

Like all good things, successful, mutually beneficial relationships require commitment, focus and effort – there are no short cuts, there is no money for nothing. Your outcomes, returns and profit is directly proportional to your desire and ability to invest in your channels.