A foreign partner: A potential ally

Breaking into a foreign market takes a tremendous amount of work. To speed up the process and improve your chances of success, it may be a good idea to team up with a foreign partner who is already well established in the market you are targeting. A good foreign partner can save you months or years of hard work and many trips abroad, enabling you to get your export business off the ground more quickly. Your partner can show you shortcuts, accelerate your penetration of the target market and act as an extension of your business in that country, an ambassador of sorts.

Do you need a foreign partner?

You may need a local intermediary if:

• you are not familiar with the local language, culture, market and business environment
• your product or service has a relatively short lifecycle and needs to be marketed quickly to an established customer base
• business relations or the type of product or service requires rapid, personalized after-sales service
• customers are nationalistic and reluctant to buy from foreign companies
• you have to keep the product in stock in the target country

You should not use a local intermediary if:

• customers prefer to deal directly with the manufacturer (exporter)
• as exporter you wish to keep tight or total control of the delivered product (e.g., products with warranties)
• you export complex products that require you to be on the ground and in direct contact with the user (e.g., high-tech equipment or software)
• you cannot find intermediaries that meet your requirements

What makes a good foreign partner?

Doing business with an intermediary who will act on your or your company's behalf in a new country may be an attractive option, but it can involve risks that are sometimes hard to assess. A foreign partner can put its sales force, customer base, knowledge of the market and local business practices, reputation and financial resources to work for your project. However, it can turn your life into an unending nightmare if its own failures mar your company's image in your home market.

The fact that your partner acts in good faith does not necessarily make it a good business partner. The following questions will help you find the right match:

• Is your business vision and that of your prospective partner compatible?
• Is your prospective partner familiar with your products and industry?
• What is your potential partner's specialty (field of expertise)?
• Are its future plans consistent with its abilities and achievements?
• What can it offer that you cannot do yourself?
• Does it insist on territorial exclusivity?
• Will it be allowed to sell your competitors' products?
• What is it looking for in this business relationship?
• Does it also view you as a partner?
• What is its reputation in its own market?
• How does its sales force measure up?

Some entrepreneurs will team up with the first friendly person they meet in the targeted country as long they can speak English. However, just because someone is German doesn't mean that they can do business successfully in Germany, and the same is true for all nationalities.

Selling yourself

Many international business plans call for finding a good partner in the targeted country. But all too often, they give no explanation on how to proceed. You need to ask yourself a few questions before starting your search:

• What type of partner is best for your project?
• How do you find that partner?
• How do you convince it to team up with you or your project?

Before asking your new intermediary to sell your products in its market, you first have to sell yourself. What do you have to offer? Reciprocity and a balanced sharing of benefits is the key to any long-term business relationship. Make sure you mention this in your sales pitch.

Before signing an agreement with a potential international partner, you must set out clear goals in the contract. That way, if your partner fails to comply with these clauses, the agreement can be terminated. It is also recommended that you get a legal opinion before signing. In many situations, you should register your company name and trademarks to prevent them from being misused.

Agent, distributor, wholesaler… Which should you choose?

The partner's rights and obligations, and the terms and conditions of the partnership will vary with the type of intermediary selected.

Manufacturer's agent

Generally speaking, a manufacturer's agent or sales agent receives a commission rather owning the merchandise. The agent's role is essentially to promote and sell the exporter's products and report on customers and the target market.

Distributor

A distributor, generally based in the foreign country, buys and then resells the merchandise, according to a price structure established with the exporter (or set by the distributor itself). The ties between exporter and distributor are relatively strong, and agreements often include exclusivity and non-competition clauses.

Wholesaler

A wholesaler buys the products from the exporter and resells them on its own terms. Its obligations to the exporter are essentially limited to paying for the goods. Wholesalers are not required to provide their suppliers with information and can procure goods from other national or international suppliers.

A variety of other types of partnerships can also be considered (e.g., broker, franchisee, co-investor, etc.), depending on the nature of the project, the company's needs and the market situation.

Before meeting with your potential intermediary for the first time, you should prepare a profile of the ideal candidate and a list of its responsibilities, for example, prospecting, sales, negotiating, transaction settlement, market analysis, after-sales service, technical assistance, payment collection and so on.

Where to look?

There are a number of ways of finding a foreign partner. You can get the names of distributors, agents and brokers from industrial directories and associations, certain foreign ministries and trade delegations or the Internet. Attending trade shows in the target country and asking your customers or suppliers for referrals are other effective approaches for finding a reliable partner.

Breaking into a foreign market is an exciting, sometimes grueling adventure and you may not be able to go it alone. A foreign partner can be a powerful ally, as long as you choose wisely. Be thorough and make sure the partner you pick provides good references from credible sources to avoid having a foreign asset turn into a foreign liability.

You can count on Desjardins's expertise to help you do business internationally, maintain good relations with your foreign customers and suppliers and manage your business risk. Contact Desjardins International Services