Forward-thinking companies know that planning for global success is a 21st century necessity. But, equipped with only cursory market knowledge, business structures and cultural awareness of their international target markets, how does a company proceed?
The task begins with homework that includes market research and competitive analysis. Is the new market entry strategy an impulsive market follower tactic, or has the company conducted careful research to determine market potential and customer needs? But, even careful research cannot guarantee success. There are numerous examples of failed technology alliances and consortiums in chip making, graphics, hardware and software that could have flourished with expert assistance.
Learning about the tools used to establish an international presence can mean the difference between success and failure. The three primary methods to establish cross-border relationships are strategic partnerships, alliances and joint ventures.
A strategic partnership is a legal agreement that assigns specific tasks to the separate entities in each country. For example, a U.S. company manufactures the product, provides basic marketing materials and ships the product to the foreign country, while the local partner handles the importation process, local distribution, pricing, marketing and advertising.
An alliance is a more formal agreement that details the responsibilities of the key players, specifies shared goals, outlines performance measures and identifies problem resolution procedures. A joint venture represents a co-investment in a third entity that will serve both companies in the foreign market in their combined business goals.
Cooperative ventures can expand the market potential for each partner if they are clear on why each party has entered into the agreement. Do they have complementary strengths? Are their corporate cultures in harmony? Is the initial goal market entry or business expansion? Does each company have the top-level support, management infrastructure and financial capabilities to support the partnership? What happens when problems arise? Once these questions are answered, the development of a comprehensive, detailed agreement will enhance the likelihood of success.
When expanding internationally, many companies attempt to use alliances with major players such as Cisco, Intel or Microsoft to facilitate foreign market expansion. These alliances do not guarantee success – signing the agreement signals the beginning of the hard work. Each side needs a champion to drive the alliance and maintain corporate support. Primary reasons that cross-border partnerships fail include a lack of coherent objectives and strategy, cross-cultural conflicts, an absence of rules detailing expectations and operating procedures and inadequate contingency plans to respond to unexpected rapid market changes. To succeed, it is vital to understand the other companys values and style. The dissolution of the two-year joint venture between the Fiber Optic Division of New York-based Corning and a similar division of Mexican glass manufacturer, Vitro, created huge losses for both companies. What happened? There was a huge gap in business styles. Corning is a typical American entrepreneurial, fast-moving company that found it impossible to work with the slow, traditional, patriarchal executives at family-owned Vitro.
Since failures occur even when companies conduct research, it is worth the investment to get expert advice. A companys objectives and strategy determine what kind of expertise might be needed and can include specialties such as an entity formation expert, a firm familiar with a specific product line or a specialist in distribution, manufacturing or marketing. Working with experts requires the same due diligence as entering into an alliance with a foreign company. Its safest to work with a known resource – someone who has been recommended by a trusted source or an expert who has earned a solid reputation and is often quoted in the press. Give the candidate insight into the companys goals, and then ask specific questions such as: What qualifies you to introduce us into this market? How long have you worked in this market? Have you lived there and do you speak the language? Have you set up an operation there? What resources and contact networks do you have? What is the greatest challenge in expanding into this market? Are you a member of a professional association such as the Institute of Management Consultants? A knowledgeable expert with relevant experience can save a company time in establishing systems for safe distribution, pricing and positioning.
Strategic alliances are no longer a luxury for companies expanding internationally – theyre necessary for survival. An alliance greatly expands both companies potential and allows them to succeed where, otherwise, one or the other would surely fail. To structure a successful alliance, companies need the help of experts who can open their eyes to differences between the home turf and the overseas market. Expert resources can help companies avoid costly mistakes, accelerate their market entry and ensure rapid gain in market share.
David Talon is a Senior Consultant at Haig Barrett Associates with offices in Los Angeles, London and New York. Mr. Talon helps companies accelerate their success in international market expansion. For further information, call 212-502-1118, e-mail Mr. Talon at [email protected] or review the Web site at http://www.haigbarrett.com