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Here is a case for distribution:
A U.S.-based software firm was attempting to enter Asian markets. It thought the quickest way to success was to find accomplished distributors who would carry its software. U.S. firms experience an 85 percent failure rate selling to Asia, so this firm wasn’t willing to undertake heavy investments there. After spending months finding a Singaporean distributor, the firm thought it had gained a foothold in Asia. All the signs were good: Singapore is a technologically advanced, English-speaking market. While its population is only about 3 million, it can be a springboard to the rest of Asia. This distributor was selected because it had many major accounts, and experience selling them foreign software.
The firm learned the Singaporean legal process mirrored the United States’ in terms of due diligence, negotiation and contractual obligations.
A year after this distribution partnership was formed, there were no sales. The U.S. firm thought the distributor was lazy. Additionally, the firm thought that since the distributor wasn’t keeping its end of the bargain, its partner was unethical.
To start to understand this quagmire, let’s see what the expectations were – and what went wrong.
The reality of a distributor not selling aggressively isn’t unique to Singapore. This complaint is commonplace throughout Asia and the rest of the world. It’s important to understand what distributors do and what they expect.
Think of a distributor as a convenience store. The store may carry many items, but doesn’t seem to vigorously sell or market most of them. The store leaves the marketing up to its suppliers. Thus, Coca-Cola will run promotions in convenience stores more often than the store itself will push the soft drink.
The same is true for distributors. It’s best to think of them as aiding in logistics more than marketing. There are exceptions to this rule, but usually distributors are driven by their clients.
Once demand for a firm’s product is stimulated, good distributors can work well with qualifying prospects, financing, delivery, merchandising and collection. Generally, they leave the marketing to their vendors. This can often be a huge mistake in International Business.
Distributors often have two main questions when they meet with suppliers:
1) What will you do to stimulate demand (advertising, public relations, direct sales)?
2) What is my cut?
Researching the market, the promotional tools available and answering these questions satisfactorily will give the partnership the right start. In the United States, a software distributor will have a sales force, but the sellers will have a selection of products to offer. In software, we often refer to these parties as VARs (value added resellers).
The VAR will be interested in how its suppliers will aid in sales.
Will they advertise?
Will they attend sales meetings with them?
Will they train its sales force?
Will they supply relevant, professional marketing materials?
Will key executives be available when needed?
Have they built a strong brand, and are they protecting the brand?
Are they providing any marketing dollars or in-kind contributions (such as company vehicles, cell phones, offices and call center services)?
Obviously, a distribution strategy needs to be well thought out. Add a foreign country like Singapore to the mix, and it gets even more complicated.
In examining our example firm’s assumptions, it’s wrong to suggest the distributor is “lazy” when much of the above criteria aren’t met.
“Unethical” is a term that should never be used in international business. Ethics are a suit of clothes, and your ethics don’t equal my ethics, which don’t equal Singaporean ethics. The distributor may think the U.S. firm is “unethical” in that it expects to immediately enter a new market and displace longstanding vendors.
U.S. firms fail in Asia often because they haven’t invested enough. Investment is necessary in, for example, research, market strategy, training of key personnel and distribution support.
Singapore offers several advantages to U.S. firms wishing to lose their innocence in Asia, but in reality, Singapore is very Western. This English-speaking modern market is relatively small, and engages in customs and protocols quite different than those of Japan or even China.
Much of U.S. firms’ discussions with the Singaporeans were of a legal nature: minimum sales requirements, margins, product rights, etc. Yet discussions with distributors should be largely focused on client support and marketing. Talking about legal matters was of little help.
While Singapore’s technological advantage eases business transactions, it tends to also narrow the United States’ technological lead. Singaporean technology works well. The U.S. firm’s added value would be greater in a different Asian market.
Last, many firms throughout the world feel that “once distribution is won, the deal is done.” In addition to many of the support techniques, it’s vital to develop a personal relationship with any Asian business partner. Frequent visits to the distributor and its key clients are necessary.
A solid Asian distribution strategy should encompass continuous support, both on business and personal fronts.
When was the last time you took your distributor to dinner?
. In a recent poll, Americans feel (by a 4:1 margin) that the UK’s decision to leave the European Union is about anger and dissatisfaction.
The main reasons the UK voted out were: immigration and donation. The UK’s immigration is three times higher than the government-set targets. And in the EU, the UK is a donor nation…which means it contributes more to the EU than it receives in hard currency.
But what does all this mean for Americans? There are many international business videos that may offer advice. But how do we start?
Start with personal investing. Stock markets overreact to news like this, and a general feeling of insecurity can abound. Investors are looking for safe places to put their money, and right now, the UK isn’t one of those places.
Insecurity in personal finances breeds fear in business deals. Investment bankers have been reporting that deal flow has all but halted. If you are negotiating with a British firm now, you will be delayed or even stopped by the paralysis.
As the Brexit process plays out, the British Pound will continue to drop against the relative value of the dollar. Hotels. British goods. Even companies. We can use fewer dollars. Thus, if your firm has a healthy appetite for risk, now may be a good time for an acquisition in England.
This is likely. And lets not forget what effect Greece had on all the world markets. Greece has 11.03 million people and the UK has 65 million (6.5 times larger). Imagine the effect a bad recession in the UK would have on world trade, stock markets, travel and interest rates?
What is happening in the UK could happen elsewhere. Scotland and Wales have already made rumbles about staying with the European Union. Other countries are considering whether or not the EU is in fact a good deal for them.
•End of the British springboard
Many a U.S. firm has expanded internationally by first going to the UK. The thought behind that (right or wrong) was that the countries both speak English which cuts down on communication errors. Additionally, since England was part of the largest single market in the world, firms could gain a foothold there and expand into the continent. With the antagonism that accompanies the Brexit (after all, they are leaving a club) British goods may not be that welcome.
•Advice for US firms
Shore up your deals in the UK with contingency plans. Make sure you have a way out if recession or even fear take over in the negotiations.
Spread your risk. Make sure the the UK isn’t your only European ally. Investigate Scandinavia, The Netherlands and other countries.
Deal in dollars. Use the dollar for your base currencies in all deals. Pay the conversion fee but bank on the safer currency.
Remember, its a British decision, not ours. We can take the opportunity try to be politically neutral.
Work with countries on an individualized basis. Even if (e.g.) Sweden stays in the EU, remember that are still Swedish, with their own language, norms and value systems.
Take a look at this international business video and learn in 1 minute what can happen when a firm fails to translate their materiel!
Many times, U.S. companies want to sell their products overseas, but aren’t willing to make the required investment to do it right. For primary markets that a firm is really wants badly, going cheap isn’t advisable. But it can be done less expensively – if you get a partner, and if you’re careful. International business videos can help!
It is the duty of executives to asses the overall health of their companies. This is no easy task. Assessments can become quite complex and overwhelming. Start out simple: Ask yourself these 4 questions to determine what area you should be looking at. Having trouble answering these questions or unsure of your answers?
By now, everyone has seen the news that China has devalued its currency. This means the Yuan Renminbi is weaker. When you exchange currency, you can now buy more Yuan for each dollar spent. If China is really the world’s second largest economy, than the Renminbi (People’s Currency) effects world markets. China is always accused of currency manipulation. Who is to blame? Who can be blamed in international business?
This is being criticized by every foreign government and many businesses that trade with China. After all, if Chinese money is weaker, that means that US products sold into China become more expensive. Take the example of Mandarin Oranges for sale in China, but imported from the USA. An 8 kg box costs between $20 and $30. With the weaker Chinese currency, this could cost 25 percent more this year. Thus, the imported oranges are more expensive and the Chinese will buy less of them from the USA, critics say.
On the flip side, items we buy from China will cost less. Importers of (e.g.) Chinese toys will pay less. If the US importers keep the price constant, then the importers will benefit and make more money.
Here is the problem. If your firm is selling a price-based commodity to Chinese buyers (rice, soy, oil, hogs, corn, cotton, etc.) your sales may suffer because your price is too high.
But if you are selling iPhones or BMW’s, the higher price may not matter. Higher prices may even work as an advantage, because the products are more expensive and hence more prestigious. Are we really going to once again, blame currency instead of the real problem….our laziness to go after and service global markets efficiently?
The savvy leader is inclined to search abroad for any and all potential new markets for their product or service. New markets offer the possibility of increasing total revenue and/or decreasing the costs of goods sold, thereby increasing profits. Entering new markets may also allow a company to follow its existing customers abroad, attack competitors in their home markets, guarantee a continued supply of raw materials, acquire technology or ingenuity, diversify geographically, or satisfy the stockholder’s desire to expand.
In many cases, with many companies, it is survival. There simply isn’t enough domestic demand to keep many firms in business, without going overseas.Hence the need for International Business.
Once management has made the decision to expand and has determined the target market or markets, the next question is obviously, “how”. Selecting a mode for entering or expanding in a foreign market is one of the most crucial strategic decisions that can be made by a company. Weighing all factors and choosing the proper mode of entry can result in huge competitive advantages, while making a poor decision can lead to the demise of the company.
Often, international people without the knowledge base or the necessary contacts are tasked with “going international.” 99% of the time, they will fail.
Foreign market penetration can be done by a variety of different methods; each possibility should be assessed before the process begins.