Expanding Internationally – What Makes a Good International Channel Partner?

It’s easy to look for channel partners overseas and there are many countries where they will all be clamoring over you but how do you know which ones are any good? They will all tell you who they know and how they are connected to very senior dignitaries of high ranking, high profile people – I have even had guys show me photographs of them standing side by side some high flyer and claiming to be his old school pal. Don’t get fooled so easily, these are the front men many of the less than professional companies send out to get us foreigners on the hook. Another ploy I encountered one time was getting a phone call in my hotel room about 3 hours before my departure flight from a guy who told me he had an imminent order to place for  similar goods and needed to see me immediately. It turned out he was the cousin of a guy I had been talking to a few days earlier from another company and he was trying to steer me to his company away from his cousin – it didn’t take me long to realize I was been toyed with and I dropped both of their companies from my list but things like this do happen.

So how do you avoid being fooled by the sharks? Well to start with make sure you conduct lots of good market research or have professionals do this for you. Contact your local trade mission in the country you are interested in and get their advise and recommendations, use valuable networking contacts from people that have years of experience in these markets, attend trade shows specific to your industry in their country to see which companies are prominent and professional.

To get really good partners you have to think like they do, put yourself in their shoes. If you are thousands of miles away and 6 to 18 hours time difference what would you be looking for from your principle. What motivation would you need to choose your supplier over that of the competitors? Having worked for a very successful overseas high tech distribution company I can tell you – in short they are looking at products or services that they can introduce to their market as if they were launching their own market leading brand. The detail behind this and what I have encountered personally will hopefully provide you with a better understanding of what makes a good International channel partner can be categorized as follows:

Channel Partner Expectations

o    A good channel partner will want his supplier to be a leader in their respected home and/or international market place. The company I worked with would not even touch any supplier that was ranked below number 3 in terms of their home market share.

o    The product or service has to be competitive when put out to the local market. This also filters back down to the transfer price or distributor discount they will expect. The margin a channel partner will expect to make depends on the volume and value of sales, i.e. if they are selling many thousands of pc’s then a very low margin, often less than 10% but if it is lower volume higher priced goods then it will be much higher. At my company we were selling the latter and we always looked to make a gross margin of between 33% and 40% after landed and cleared costs.

o    Quality has to be in line with market expectations – if you are supplying to a Japanese company who is going to OEM your product they will probably want to send their QA people over to your manufacturing plant to conduct their own audit and recommend changes.

o    Local warranty obligations must be met – some countries demand 2 years and so if you only give 30 days in the USA you will need to factor this. Some suppliers agree to ship an excess of products to cover this e.g. ship 102 for every 100 ordered.

o    They will expect to receive excellent back-up and support services and be treated as if they are an extension of your ‘family’, which in a sense they are as they are representing your interest in their country. This applies across the board to all aspects of contact with them from sales management, tech support through to warranty back-up and service support and sometimes even access to your in-house maintenance and fault logging and tracking systems.

o    They will expect first class references of other users of your products/services and to be able to put these forward to their client base. Occasionally this might even mean one of their clients requesting a visit to one of your customers somewhere in the world.

o    They will expect to ride on your marketing campaigns and have access to your marketing materials and literature copy. They should be taking full advantage of this in their local advertising, promos and trade shows.

o    Today many channel partners expect their international suppliers to have a well documented ‘Partner Plan or Program’ which clearly sets out the expectations and obligations of both parties.

o    They expect to be successful and will not be interested if it is uphill work to get there.

o    They don’t want obvious channel conflict. If you are appointing multiple channel partners in one country then try and differentiate between them e.g. one selling to government only another to automotive industry only or by geographical coverage.

o    They want access to your senior management, this may be for escalation purposes but very often in Asia it is a cultural issue and they will not get sign off until peer level executives have met, looked in to each other’s eyes and feel comfortable.

o    Day to day channel management will be anticipated to be done by one of your mature professionals and not passed on to an office junior the moment the contracts are signed.

o    They expect to succeed! They are not doing this for you, they are doing it for themselves and to make money out of your resources.

o    They do NOT expect to be usurped. No channel partner will commit to a venture if they were to even think that if they made it a success that you would then enter the local market directly and cut them out.

Channel Partner Profile

o    They should have a good track record of successfully introducing other ‘like’ products or services into their local market. Hopefully you will not be their first overseas supplier and they will have done this before and know how to trade with other international companies.

o    They will be major players in your industry sector in their country.

o    They should NOT be representing any of your competitors, feel free to ask them this direct. The last thing you need is to sign a lengthy contract only to find out they are gate-keeping your product out of the market.

o    They should be an established and solid company – get your financial guys to check them out and run appropriate financial checks. Of course this should be a prime function of appointing any third party channel partner.

o    They should be respected by the end user client base – do some research by getting in touch with customers direct and asking their opinion of the ‘XYZ company’, would they be happy to buy from them if you appoint them?

o    They should have a good public profile and be recognized as an ethical company.

o    They must have great networking and contacts with the right level of people.

Channel Partner Commitment

o    They must be prepared to commit resources – where I worked the management put in a new team of 6 recruits to focus on the new product we signed up for.

o    They must be financially committed – this doesn’t mean giving you a good initial stocking order (although this is nice) but committing through their management hierarchy to support this whole venture. It means funding training, which could be overseas, possible product localization and translation of manuals and literature, marketing, product launches, road shows, trade shows, advertising, sales initiatives and campaigns etc.

o    They must commit to an after sales support function for servicing clients and providing warranty obligations. Ideally they should integrate your products into their existing service management structure.

o    They should be results driven and want a quick return on their investment, the keener they are the sooner you will see results.

I have worked on both sides of the fence and been responsible for global expansion by appointing channel partners throughout Southern Africa, Western Europe, the Middle East and the Far East. I have always taken on the task with a project based approach and because I understood their motives and drivers and what makes them tick was a tremendous asset to me. The most successful channels have all been dedicated and committed to long term success and not just in it for a quick buck. I’m not saying you will find exactly the right match as we all need to compromise at times but if you set out your stall up front then you will be much closer to selecting the best available partner(s). Good Luck!

If after reading this you find it might be too much of a daunting task don’t panic – there’s lots of companies looking to expand internationally and there’s lots of help out there for them, this is exactly why I created Expand Internationally. Feel free to drop me a line!

Latin America Distribution Channel for Newbies

When I am at an event with colleagues that are not yet doing business in Latin America, I am often asked the same questions. This leads me to believe that these are the topics that most people interested in the Latin American channel would like to learn about. So I thought it would make an interesting article to answer these questions here for those that are new to our channel in this region of the world.

How big is the market?

Latin America is comprised of over 20 countries, which is home to approximately 550 million people. Because their buying power is not as high as it is in the USA or more developed countries, they are much more price sensitive. A rule of thumb to use from a manufacturer’s perspective is the 5% rule. The 5% rule is that sales of your product line will be approximately 5% of your revenue in the USA. Obviously this is not set in stone and some companies reach 10% and higher, however it is a quick barometer of what to expect in the region.

As for specific markets, here they are in descending order: Brazil, Mexico, Argentina, Colombia, Venezuela and Chile. These top six countries represent 80% – 85% of the total Latin American market, depending on who’s numbers you want to believe, with Brazil being the largest and representing approximately 45% of the entire Latin American market. All the other countries not in the top six will make up the remaining 15% – 20% of the total market.

Is there a technology gap?

Back in the late 80’s and early 90’s, there was somewhat of a technology lag in Latin America. While more mature markets in that time-frame were selling IBM ATs, Latin America was still buying IBM XTs (I realize I’m dating myself here but it helps make my point). This was due to a lag or gap in technology where the Latin America market just wasn’t aware of the newer technologies available. However, since the mid to late 90’s, Latin America is up to speed on the latest and greatest product offerings coming from the Americas, Europe and Asia. However, today in some countries we have a financial gap, and not a technological gap. Why a financial gap? It comes down to buying power. For example, if you have a bank branch manager that makes $12k per year and needs to order 500 LCD monitors for his branch, they will go with the smaller size LCD because of the difference in price. A US$20 difference per monitor on a 500 unit deal is almost equivalent to his salary for one year. In the USA and other mature markets, when the difference for an LCD monitor is US$20, most consumers go with the newer, larger models because US$20 doesn’t represent a significant amount of money.

Does this mean you will sell only older technology in this region? The answer is definitely not. The channel in Latin America is well-versed on the new technologies and the example above applies to certain countries that offer opportunities to move some product in your warehouse. However, by no means underestimate or treat customers in Latin America as technologically inferior as this is a sure fire way to get them to buy your competitor’s products.

Do customers expect credit terms?

The direct answer is YES. There are many large, well-established companies in the market and they do expect payment terms. Most will ask for 60 day terms using the reasoning that it takes much longer for the product to reach them, however the grand majority have net 30 day payment terms. Smaller companies may opt to pay cash, but you will still get some resistance to do business with you. Most suppliers pay for credit insurance to hedge their receivables from any large defaults on payment. There are also organizations that allow you to share credit information with others in the channel such as the NACM ( National Association of Credit Management ), which keeps close tabs on common customers and have a warning system should a customer fall behind on his payments with another NACM member.

Many suppliers entering the market usually start with cash terms and then offer small lines as the business grows with their partners and they feel more comfortable working with them.

Is it safe to travel to Latin America?

Traveling to Latin America is like traveling anywhere else in the world. If you are in a large city, whether it’s New York, Tokyo or Mumbai, there is going to be crime. So it pays to play it safe and not be alone wondering out in the streets or stand out too much from the crowd. Sporting expensive electronics, watches, handbags and jewelry is probably not a good idea. In some cities like Mexico City, taking a cab off the street is not recommended either. Either have a customer drive you, use a cab from the hotel, or have someone call a cab for you and they will ask for you by name when the designated cab gets there. After 20 plus years of travelling into the region, I have never had an incident thus far. Now I’ll probably get ripped off on my next trip for having written this last line!

Well, I hope these questions are questions you would have asked. I realize the answers are rather short and to the point, without too much explanation or room for grey areas, but for time’s sake, we have to keep it this way. Obviously these topics can be really delved into, but we’ll leave that for some other time.

Feel free to contact me with any specific questions or comments.

Live a Travel Channel Life – 5 Tips For Global Nomads

There is a growing number of people around the world throwing their cares to the wind, quitting their jobs, and making a new life for themselves on the open road traveling from country to country. Whether you are making an all-out lifestyle change or easing into it a little at a time, there are tricks and techniques for doing it right.

To life like a star of the travel channel, try these 5 tips:

Tip #1: Carry only the essentials from country to country:
When you embark on your journey, you may find yourself packing two nice, big suitcase full of clothes and goodies from REI. Hint: try narrowing your luggage down to what will fit in a backpack or a single suitcase. Either way, as you travel from country to country, you will notice that your list of essentials grows shorter. All you really need is a bit of cash or travelers checks, your passport, maybe a good travel guide and a couple changes of clothing.

Tip #2: Buy cheap:
If you are going to make a life or significant hobby out of living the travel channel life, you need to learn the insider secrets to buying cheap airfare. Do the research ahead of time. For you, airfare will become as significant an expense as is a mortgage and car payment for your more sedentary friends and family. Do your homework now and save thousands and thousands down the road.

Tip #3: Know the best countries to visit for saving your cash:
As you can imagine, the cost of traveling and living in the various countries of the world differs dramatically from country to country. If you are planning to life for months or years away from home, plan your global route according to your budget. For example, if you are planning to travel Asia, visit South and Southeast Asian (e.g., India, Thailand, and Vietnam) when you are low on cash. If you just made a withdrawal from the bank account in your native country or got a paycheck from your online business, head to East Asia (e.g., Singapore, Hong Kong, and Japan) to see the sites there. The same pattern applies in the Americas, Africa, and Europe as well.

Tip #4: Double up when you can:
If you are traveling along, you will find that it is usually very easy to meet people on the road. When you do have the opportunity to meet up with someone you can trust with whom you can share accommodations or even a taxi ride to the airport, I highly suggest doing so. At the same time, you will need to say goodbye to these travel bodies not infrequently, so be big enough to say “I have to go my own way now” then the time comes.

Tip #5: Use Internet cafes to maintain a travel blog:
Traveling this big world can be pretty lonely sometimes. A great option that global travelers have today that was not there even a few years ago is to keep a travel blog. Your regular entries of text and (when possible) photos will give you a sense of continuity and will give your friends and family back home a much better sense of what is going on with you as you have the time of your life.

To live a travel channel life, make sure you educate yourself about how to buy cheap airfare and accommodations. Be sure to pack only the essentials and educate yourself ahead of time about which countries will be cheaper to live in. And, take advantage of the Internet to keep yourself centered and your family and friends up to date.