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!

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.

Why Sports Marketing and Sponsorship Is Becoming Popular in Asia

Asia has no doubt now become a marketing playground for multinational brands and businesses to expand their niche beyond normal reach. Many companies have recognized that sports have an incredible potential to be turned into an influential and lucrative marketing tool for any brand’s growth and it certainly outshines traditional marketing efforts by reaching a mass which far outnumbers those of any other channels.

Brands are able to capture an unbridled passion with sports which it could not achieve through other platforms. A sports sponsorship can reach large numbers of people by bridging the divide between label and consumer, allowing people to engage with the sport or its star players on a more personal and emotional level. It is no longer an advertisement waiting to be skipped; it becomes the energy that ignites the sport. The brand will be seizing the prospect of lifetime loyalty with their consumers by investing in relationships rather than advertising which prove to be a more economical and cohesive approach to marketing.

For example, 192 million people tuned in to their television sets to watch Southeast Asia’s national football competition the 2010 AFF Suzuki Cup, and a total of 15 million people watched the two final leg games in record breaking numbers. The enormous viewership clutches the attention of millions of fans across the region, not to mention the sell-out crowd at the stadium, followers on social networking sites and many more viewers of its online broadcasts. A survey has shown that traditional above-the-line advertising at such level would cost significantly more while yielding smaller impressions and revenues.

Sponsorship opportunities will affect a company’s market segment by offering them the chance to develop awareness and devotion to the brand. The passion derived from the target market is what the brand relies on to achieve a positive sponsorship. By putting together their own brand values with that of the sport, companies are able to uphold its brand trust, effect buyers’ spending trends and better capitalize on customer relationship.

A compatible sponsorship will leave a strong impact on an audience and will likely rouse a surge in sales and profitability. Therefore, it isn’t all just about jumping on the bandwagon like everyone else but a careful selection process needs to take place beforehand to maximize the brand’s visibility and exposure in line with its core values and objectives. Sports marketing have revolutionized the way brands are being depicted to consumers. It pervades more advertising channels and cuts your costs, targets a broader and more focused group, and is definitely more effective than traditional marketing activities.