Simplify Your Small Business Expansion Through Partnerships

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When it comes to new markets and expanding your small business globally, you will likely face an uphill battle.  You may have challenges with start-up costs, you may have distribution challenges, and you may have gaps in your knowledge of the specific market.  These issues are difficult enough by themselves, but are even further magnified when your new market is in another country.  An effective way to overcome these challenges and gaps and to limit your exposure is through partnerships.  (We recommended The Borderless World, by Kenichi Ohmae in a previous blog posts, but if you’re thinking about international expansion, it’s worth noting again here as he goes into length on this topic).

Partnerships serve as a means of leveraging the strength of another party to help you accomplish your own goal.  Consider, for purposes of discussion, that you are a producer of cosmetics in your home country and you want to enter the Chinese market.  As we mentioned in a separate post, Doing Business with China 101, China represents a very different market and doing business there is likely to be far different than your home country.

So in this scenario, you and your leadership team decide that China could be a great place for you to go with your business to increase revenue and sales.  China, of course, represents a massive market place and offers great potential to help you grow. Upon that idea sinking in, it will immediately be followed by a hundred questions.  Where should we put our offices?  What costs will you incur?  How do we make sales contacts?  What are the laws of business in the People’s Republic?  Partnerships allow you to leverage the other party’s expertise and knowledge so that you can answer these questions.

Here are some reasons you might want to consider a partnership:

Reducing Your Startup Capital – Like all areas of business, it takes money to make money.  Regardless of how you choose to reinvest into your growth, you’ll have to allocate some capital.  If your cosmetics company needs to establish a local manufacturing plant and regional offices in China, you will have to commit a significant amount of your own funds in order to do so.  As a lower risk alternative, partnering with a company that has existing equipment that can be used to manufacture your goods locally can save you significant fixed startup costs.  Thus, partnerships can limit some of your out of pocket expenses to free up cash for other activities, as well as reduce your upfront risk.

Leveraging Distribution Networks – So you’re looking to sell your cosmetics in the Chinese market.  How would you distribute the goods there?  What sort of relationships would you need to get the best pricing on bulk shipping?  And how can you be asured that your products are being delivered on time? By partnering with an established firm, you can tap into their existing distribution channels in the local country or region.  Keep in mind that this is not necessarily just their own delivery trucks and equipment, but also the pre-existing suppliers and service providers they use in their own business. You may want to offer distributing their goods within your home country network to make the relationship more beneficial.

Knowledge of Local Business Regulations – Particularly when looking to expand into another country, partnerships offer you existing knowledge of rules and regulations that you would otherwise have to learn on your own.  What kind of licensing do you require?  Are the rules different for local versus foreign entities? For your cosmetics company entering China, the regulations are likely to be quite different than in your homw country and may cause difficulty for you.  Partnering with a local entity can help your business establish a footing more smoothly than if you go alone because they will already have worked out the legal and regulatory details.

Marketing Knowledge – So your firm is entering China and you want to sell to Chinese consumers.  What methods of marketing cosmetics work in China?  What types of things do Chinese consumers value and should you tweak some of your products for things like scent, color and packaging?  How do Chinese consumers buy cosmetics?  Online, or in brick and mortar stores?  You may be able to get a footing beneath you in China, but being able to sell products to recover the costs is important. Having a partner to help you answer these types of questions can save you a great deal of effort and unnecessary cost. After all, they’ve already figured it out.

It should be stated that while the context here is predominantly global for purposes of discussion, expansion into new territories within your own country or region are also perfect contenders for such partnerships.  At their core, partnerships are about maximizing your company’s strengths and your partner’s strengths to create mutual benefit for both of you.  Your business success should not be defined simply as beating your competition, but instead by maximizing your profit.  If you’re cosmetics firm could increase discrete profit by 20% by leveraging a partner in China even if it meant letting someone else in on your business, would you do it?

Partnerships are not easy, and they do take work just like any marriage.  Many partnerships struggle because they become more about controlling the other party, rather than profit.  This is particularly true with companies in the West who tend to focus on control, whereas Asian countries will tend to focus on mutual benefit.  Further, partnerships are not for everyone.  Perhaps the only suitable partner you can find is your primary competitor, and you’re unwilling to share your proprietary information with them.  A forced partnership is unlikely to get you what you want and should be avoided.  But as a general business strategy, partnerships can offer distinct benefits to your company while simultaneously limiting your risk and exposure.  There are many examples of good partnerships (Again, Ohmae cites several examples in Japan) where both parties are better off with the partner than without.  The key in looking at partnerships is to keep your eye on the primary goal: maximizing profit.

Have you considered a partnership?  We’d love to hear about it.

Other Resources:

What We Can Learn From Dial Up Internet (Blog Post)

A Baseball Guide to Management (Blog Post)

Horizontal Integration and Business Strategy (Blog Post)

 

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