Simplify Your Small Business Expansion Through Partnerships

February 17, 2014 Business Strategy, Customers, International Business, Marketing, The Manager's Resource Handbook

Using Business Partnerships To Fuel Growth

When it comes to new markets and expanding your small business globally, you will likely face an uphill battle. You may struggle with start-up costs, you may have distribution challenges, and you may have gaps in knowledge of the specific market you target. These issues are difficult enough by themselves, but are even further magnified when your new market is in another region or country. One way to overcome these hurdles, mitigate risk, and bolster your expansion effort is through business partnerships.

What is a Partnership in Business?

Partnerships are arrangements between two organizations that leverage the strengths of each party to help both accomplish their respective goals. Partnerships can exist in the form of joint ventures, distribution agreements, or simple licensing agreements.

Consider, for purposes of discussion, that you are a producer of cosmetics in your home country and you want to enter the Chinese market. China is a very different market and doing business there is likely to be far different from your home country.

In our fictional scenario, you and your leadership team decide that China could be a great market to increase revenue and sales. However, since your company does not currently do business in the country, there are many questions you need to answer. Where should you put your offices? What costs will you incur? How do you make sales contacts? How will you distribute your product within the country? What are the laws of business in the People’s Republic? Faced with such a broad set of unknowns, a partnership that allows you to leverage another party’s expertise and knowledge can help you answer these questions.

Here are four reasons you might want to consider a partnership to expand your business.

1. Reducing Your Startup Capital

Like all areas of business, it takes money to make money. Regardless of how you choose to invest in growth, you’ll have to allocate some capital. But small companies have less access to such funds, and carry a greater amount of financial risk when compared with larger, more established firms.

RELATED: How to Sell Beer In China

Back to our example, if your cosmetics company needs to establish a local manufacturing plant and regional offices in China, going it alone would require you 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. They may also have vacant office space you could occupy.

Thus, business partnerships can limit some out-of-pocket expenses to free up cash for other activities, as well as reduce your upfront risk.

2. Leveraging Distribution Networks

Selling and distributing a product also comes with cost and complication. Distribution networks, marketing campaigns and logistical support all require in-depth knowledge of the market.

In our cosmetics example, when looking to sell your products in the Chinese market, how would you distribute your goods there? What sort of relationships would you need to get the best pricing on bulk shipping? How can you be assured 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.

Characteristics of Success in a Business Partnership:
Mutual benefit to both parties (financial, distribution, etc.)
Minimal direct or head to head competition
Willingness to share knowledge
Complementing technologies or customers
Well-established in respective markets

Partnering with someone to utilize their distribution network is not necessarily just using their own delivery trucks and equipment. You can also capitalize by using their pre-existing suppliers and service providers. You may even want to offer distribution of their goods within your home country network to make the relationship more beneficial.

3. Knowledge of Local Business Regulations

Knowledge of and compliance with local regulations present major barriers that must be overcome when looking to expand into another country. What kind of licensing do you require? Are the rules different for local versus foreign entities? How are taxes handled? To reduce this obstacle, a business partnership with a local organization can offer you instant awareness of rules and regulations that you would otherwise have to learn on your own.

For your cosmetics company entering China, the regulations are likely to be quite different from in your home 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 of working in China.

4. Marketing Knowledge

After you’ve worked through the distribution challenges, the regulatory limitations and investment needs, it’s time to actually sell your product. It’s especially important to recognize that the advertising and selling methods you use at home may not work when selling in another market or country. Again, finding a partner who understands local consumers and purchasing habits is highly advantageous.

Let’s return to our example of entering the Chinese market to sell your cosmetics. What methods of marketing cosmetics work in China? What types of things do Chinese consumers value? 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?

After all the hard work you put into entering the market, the last thing you want to do is fall short obtaining the sales you were after in the first place. Having a partner to help you customize your marketing efforts to the local market can save you a great deal of effort and unnecessary cost. After all, they’ve already figured it out.

Is a Business Partnerships Right For Your Company?

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 the relationship.

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 arrangement is unlikely to succeed and should be avoided.

Still, as a general business strategy, partnerships offer distinct benefits to your company while simultaneously limiting your risk and exposure. There are many examples of good partnerships illustrated by Kenichi Ohmae in his book, Borderless World. Ohmae provides case studies where both parties are better off with the partner than without.

The Takeaway on Partnerships

It should be stated that while the context here is predominantly global for purposes of discussion, a partnership can also help you expand into new territories within your own country or region. 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.

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