This blog originally appeared on Amex Open Forum and is reprinted here with permission.
For many businesses, the key to significant growth lies in international expansion. If you expand to different countries, you get access to faster growing economies than the U.S. and you lessen your dependency on a single market.
Because international expansion involves selling in countries with different languages, cultures, and regulations, most businesses will need to find a local distributor.
It is not easy for a small business with limited resources to locate, negotiate with and then monitor the right partner. Nor is it cheap. In return for their expertise and ready network, you can expect to pay anywhere from 5 per cent to 20 per cent of sales.
These seven steps should help you in your efforts.
Choose your market carefully. Small companies often enter a country simply because they are introduced to a local distributor. But Duncan McCampbell, president of McCampbell Global in Minneapolis, says this is not the best idea. “The best way to go about this is to have a method for vetting countries, choosing one or two, and making a very deliberate effort to find partners in those places.” How to do that? First, consider whether you want to start with a country where English is spoken regularly or you’d prefer to target a fast-growth country like China or Brazil. Also, evaluate government rules. The more heavily regulated the product or industry, the harder it will be to do business there. And investigate how prevalent “facilitation payments”—otherwise known as bribery—is in a particular country. The U.S. Department of Commerce and local trade associations should provide clues to these answers.
Tap a wide range of sources. To find possible distributor choices, it’s best to take as many avenues as you can. “I don’t believe in going down just one route,” says Laurel Delaney, who heads GlobeTrade, a management consulting firm specializing in international business for entrepreneurs. Perhaps the most cost-effective place to start is by joining appropriate groups focused on international trade on LinkedIn. You can also attend nearby trade shows.
According to McCampbell, foreign distributors frequently attend such conferences looking for new partners. In addition, Gold Key Matching Service, offered through the Commerce Department, provides a customised service through which you can work with specialists in different countries able to help you contact vetted distributors. Your state trade office might also have useful information.
You also can hire a consulting firm specializing in international business. That won’t be cheap, however. McCampbell Global, for example, charges about $5,000 to $10,000 to set up shop in English-speaking countries.
Meet them in person. Finding candidates is only one part of the puzzle. You then need to travel to your targeted country and meet them face-to-face. “Relationships are the holy grail of cross-border business,” says McCampbell. It can be a time-consuming process, involving at least several long dinners or other get-togethers. That’s especially true in China and many Latin American countries which, according to McCampbell, place a particular importance on relationships in business.
Visiting in person also helps you assess distributor’s operations. “You want to see their warehouse, for example, how products move in and out,” says Delaney.
Consider the matter of support. If you’re selling a product like software, your partners can’t make a sale and run. They’ll also need to provide the necessary ongoing support. To make sure they have the right tools, you may have to translate your web site into their language or provide product documentation.
Create a contract carefully. Your distributor will most likely represent other companies. But McCampbell tells us, “You want your product to get the attention it deserves.” Include sales targets for specific shipment amounts in your contract. And stipulate that the distributor can’t sell a competitors’ product. It is also important to hire a lawyer with negotiating experience in the country you’re entering.
Arrange for periodic check-ins. Since your distributor will be operating far away in unfamiliar markets you need ways to monitor their activities and results. At minimum, demand monthly reports with specific metrics. If they can’t agree to that, you need a different distributor.
Plan ahead. If sales really take off consider setting up your own office with a dedicated sales manager. You’ll need to hire a local, probably through an international headhunter. Or you can poach someone from your distributor. But be careful, especially if there are only a few players to choose from. “What goes round comes round,” says McCampbell.
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