Teaming up with a business that already has feet on the ground can bring huge gains. Whereas your business probably has specialist expertise in a particular field or technology, your partner will have deep local knowledge and a nuanced understanding of ‘how things work around here’.
If you get it right, this kind of alliance can turbocharge your entry into a new country. Your partner gets the benefit of your expertise, and you get to leverage their connections, distribution networks, and brand, drastically shortening the time it takes to penetrate the market, and helping you avoid rookie mistakes.
Unfortunately, most companies don’t get it right when it comes to partnerships and alliances. According to Boston Consulting Group, more than 2000 strategic alliances and partnerships are launched worldwide each year (between big players) and this number is growing at around 15% annually. But more than half of all strategic partnerships fail, a third of companies that take part in alliances struggle with them and only 9% consistently build alliances well.
Here are some of the common mistakes and problems that crop up with strategic alliances:
- Not enough planning. Often, companies jump into international (and local) partnerships without much planning. The alliance seems like a good idea and looks like a good fit, so they take the plunge without doing due diligence, or thinking through how likely an alliance is to work. I’ve made this mistake in the past… and I can confirm that the results are not pretty.
- No framework. International partnerships frequently fail because they lack a framework to guide both sides as they work together.
- Weak relationships. Partnerships and alliances fail because people don’t put enough work into creating great relationships, either upfront or on an ongoing basis.
The result? Things get messy, and the price is high. A Harvard Business School / Accenture study found that the 15 most successful alliances added $72 billion in shareholder revenue over two years, while the same number of failed alliances cost companies $43 billion.
So, how do you find and engage great local partners? Just like in the personal sphere, a great international partnership (or any business partnership for that matter) is all about building a relationship where everyone’s needs are being met.
Understanding the problem you need to solve and the potential benefits that any partnership could bring to your clients and your company in the new market you’re targeting are the first step in the process. You need to be able to clearly answer the questions:
- Why are we doing this?
- What challenges do we believe this partnership will solve?
- What challenges will we be able to solve for our partner?
It is critically important that you understand in detail the problem that you are trying to address with a partnering option. That way you’ll be able to decide whether it’s better to build your own distribution and sales network, outsource it, or ally to grow.
The actual task of finding a local partner in a new country can seem extremely daunting, especially when you don’t have many connections there. And it’s no secret that sourcing partners from trade directories or striking up alliances with distributors who ‘discover’ your company at trade fairs can have very mixed results.
It’s often tempting to work with people who approach you and really want to work with you, especially if you don’t have a lot of alternatives. But here’s the truth: the most eager potential partners may be precisely the wrong people to work with, because it’s frequently the case that the arrangement serves their interests better than it serves yours.
So when an agent or distributor you meet at a trade show tells you how much they love your product and how keen they are to take it on, stand back and do your analysis. Make sure that the partnership is one that will really serve your interests before you sign up. The take-home message here? ‘Select partners. Don’t let them select you.
This is the time to tap the network. You may not know many people, but you probably know a few. Ask colleagues in-country for recommendations about organisations you could potentially partner with. Call your national or state trade representative and ask their advice about reputable firms that you could approach. Get involved with bi-lateral business chambers and industry associations and see who you can meet through those avenues.
- What problem can be addressed more effectively with this relationship?
- Does this partnership fill a hole or a need for both parties?
- Is there good alignment between the companies? Do we share the same values?
- Is there too much of an overlap in products and services?
- What are the strengths and weaknesses?
- Can the cultures fit together?
- What is the size of the opportunity?
Skip this step at your own peril! It is harder to do due diligence on a potential partner who is located in another country, but it’s worth the effort. I cannot overstate how important it is to do due diligence on people and companies that you intend to partner with overseas.
It can be difficult to assess who you’re jumping into bed with, especially in a foreign country, (because in small, expatriate communities people often won’t tell you explicitly if someone has a bad reputation), but hooking up with the wrong partners can have catastrophic financial and reputational consequences for your business in that market.
One you’ve found a potential partner and both sides have agreed that the partnership is a possibility, you’re ready to explore a potential alliance.
Before you sit down to negotiate the deal, it’s vital to set the stage for a collaborative relationship. A good way to do this is to create a framework that spells out in detail what the potential partnership will entail so that the parties can work out whether a relationship is mutually beneficial and, if it is, how the partnership should operate. You can do this by answering big-picture questions such as:
- What is the vision, strategy and mission of the alliance?
- What factors are drawing the companies together?
- What are the opportunities for collaboration and what are the potential liabilities?
- Are the two companies’ goals aligned? Can they work effectively together?
- What is the value proposition for the customer?
- What is a possible joint solution? How could it be deployed to the customer?
- Will the companies target a specific customer base / segment?
- What is the delivery, service and support strategy for the joint offering?
- What will constitute success and how will it be measured? What are the milestones in the relationship?
Once you get clarity on these questions there are a bunch of further steps to getting the partnership set up and working smoothly, but if you get these initial steps right, you’ll be well on your way to creating an international partnership that works.