How To Evaluate Foreign Country Entry Strategies

During the careers of international executives, many are confronted with the important question of how to establish and evaluate foreign distribution strategies and partners. To do this, consider the seven “Cs.” These include commitment, cost, continuity, coverage, capital, consistency, and control.

1. Commitment

It’s imperative that management provides a full-resource commitment to its international business models, as well as ample time and resources to create an entry model designed to successfully penetrate new markets. In addition, management needs to be open to new, and possibly more costly distribution channels.

In various African, Asian and Eastern European markets, a distribution channel may need to be developed from scratch or significant product packaging adaptations may be required to allow new partners to sell in-country. In addition to internal commitments, management also needs to commit to developing the relationship with its new-found partners.

All too often, management has made impulsive decisions at great costs. Simply consider companies such as Wal-Mart and IKEA, and their poor market entry strategies into China. Little or no adaptations in their business structure or business models significantly contributed to their management decisions to curtail operations.

2. Cost

The cost to establish a distribution channel — defining capital investment needs and estimating maintenance costs — must be determined and accepted. These costs can be in the form of product discounts, inventory shipped to distributors, extended finance terms to allow distributors more time to gain product exposure, joint marketing campaigns, etc.

In addition, budgeting for ongoing promotional expenses, such as marketing, product samples and brochures, must also be part of company’s financial commitment. Ignoring a frank discussion in these areas often causes problems later.

3. Continuity

Consider this: you found a new distributor and the key person you are working with is planning to leave, or the owner is planning to retire. What do you do? It’s best to understand the short and long-term business strategies of your partner to avoid being surprised by personnel changes. And have an action plan designed to minimize the negative impact should changes occur.

Do you really want to sign with a distributor that only has an office in one city and covers a small section of the country?

Most distributors are small family affairs. As a result, it’s generally best to take a long-term business view to understand the various implications you may face. You also need to ensure that the deal you are offering your local partner is the best deal. Thus, you don’t want your partner to find a competitor that provides a more attractive incentive or price. And keep in mind that loyalty can be short lived. As soon as a better deal comes along, your distributor may drop you.

Another factor: what happens if your distributor is aligned with political power brokers and the political climate changes? A change in politics can sometimes eliminate your efforts overnight. While working for an international seed company in the early 1980’s, for example, I had to change our company relationship with our Venezuelan partner when the relationship became ineffective due to political changes.

4. Coverage

How large is the target market and is it fully covered? Is it possible to give your distributor additional markets to allow it to sell more? Do you really want to sign with a distributor that only has an office in one city and covers a small section of the country?

It’s often best to find a distributor that can cover an entire country or is not opposed to you hiring additional representatives in order to gain full market coverage. Additionally, if your product requires after-sales service, consider if the distributor is capable or has access to sales support.

5. Capital

Consider the prospective partner’s position and whether he or she has enough capital on hand to finance operations. If not, does he or she require funds to purchase initial inventory, perform product roll-outs or increase office or warehouse space? If the answer to any of these questions is yes, consider the prospect’s ability to obtain financing from various sources.

6. Consistency

Consistency is important in the distribution system from one country to another, and from one region to another? However, in some circumstances, a different avenue may be more advantageous.

For example, a former client in the animal health sector primarily sold its products through veterinarian clinics. However, when that client opened in Panama, it agreed to partner with a large-scale wholesale company that distributed animal feed and seeds. This enabled the U.S. firm to gain quick entry into the Panama market with 100 percent coverage.

In another example, a hybrid seed company in Spain changed its packaging to accommodate for the sale of fewer units — one to five kilo bags — at the distributor level. This enabled the company to gain access to a small, but profitable farm market. As a result, the firm was able to gain additional exposure in a region that did not have easy access to hybrid seeds. Consequently, it’s best to keep an open mind and adapt if a new approach will gain greater market exposure for your product.

7. Control

It’s important to have a degree of control in the distribution process. To achieve this, it’s highly recommended to invite foreign distributors to the United States for annual planning meetings for the purpose of enhancing rapport, building trust, better understanding respective agendas, determining each others’ strengths and weaknesses, sharing competitive intelligence, and establishing minimum goals for sales quotas, advertising exposure, and the number of staff to hire.

And very importantly, operating in a transparent manner is vital. A distributor does not want to learn from competitors that the prices, terms and warranties you offered are out of line.

About The Author Paul Daemen

Paul Daemen has more than 30 years of multi-industry experience and hands-on knowledge in 54 countries. He has been involved in global marketing, strategic planning, operations, business development, and implementation. Paul also is an adjunct Professor at three universities.