5 Things a Local Partner Provides When Taking a Brand Global
Internationalizing is a daunting task for a brand looking to expand beyond its domestic territory. Partnering with a local company eases the process of entering a new market and conducting daily operations once established. Regardless of past reputation and assets, multimillion dollar mistakes and losses can occur without a strong local partner.
In 2006, for example, a leading multichannel consumer electronics retailer from the United States acquired China's fourth-largest appliance and consumer electronics retailer for $180 million and embarked on a campaign to spread into the Chinese market. Within a year, the American retailer opened its first store in Shanghai. Nine other stores opened over the course of 2007-2011. By February 2011, all of the stores were permanently closed.
Likewise, an American toy brand with an iconic history and devout customer base domestically had its sights set on expanding into China. In 2009, the brand opened its first global flagship store in Shanghai. After staking $30 million into the Shanghai location, the store closed its doors after only two years in business.
With big investments come huge risks. To mitigate issues that would undermine efforts to expand globally, partnering with a local company can provide the following:
1. Knowledge: Business practices vary from country to country. The same techniques that work in the U.S. won't necessarily yield the same results in Norway. A local partner that possesses detailed knowledge of local culture, consumers, B-to-B and B-to-C practices, and unspoken rules of conduct will help avoid lost-in-translation miscommunication, faux pas, poor performance and eventual premature closure. Partnering with a company that already has established relationships and a business footprint is beneficial to penetrating a market by unburdening the task of developing local business connections that can be critical to success.
2. Channels: A partner provides a comprehensive B-to-B and B-to-C market entry concept. Partners are able to support opening monobrand stores and aligning with similar local stores to develop shop-in-shop projects. Management and training for staff can be conducted by the local company for both stores. If a brand isn't pursuing brick-and-mortar shops, a partner can help identify and negotiate with local distributors, retailers, shopping malls and department stores to carry the brand's products. To further minimize risk, the local partner is the only contractual party in these relationships.
3. Legality: It's important for a brand to be aware of the local laws and restrictions on business practices and commercial operations, especially with foreign products. To protect a brand, regardless of previous international registration, companies must be registered in the new country of business. If a brand has no subsidiary in the target market, a partner can be the importer of record to remain in compliance with the regulations on imported goods.
4. Fulfillment: A local partner mitigates financial risk for the brand by assuming responsibility for the products ordered in the new market. An infrastructure must be in place to provide a full package of fulfillment solutions, including organizing the importing process and quality inspection report. The brand ships products delivered duty paid to the partner's local distribution center. The partner then helps to send products to retailers and handle receivables.
5. Branding: A strong partner connects brands with retailers that will represent their brand in the best way. It's able to provide brand consultation to ensure the brand has local appeal and is only distributed by the best retailers, in accordance with the brand's identity and targeted consumers, and prevent retailers that don't fit with the brand from ordering. The local company also lends support with industry tradeshows and exhibitions, and makes arrangements for order meetings with retailers.
A strong partner provides expertise and counsel, combined with existing, first-class local infrastructures, for internationalization. It understands the target market and what it takes to succeed. With a full-service partner in a new market, a brand can focus its priorities on the product, production and marketing, and be less concerned about the risks of going global.
Uwe Bald is vice president of international business development for Hermes, an expert provider of internationalization services to Europe, Russia, China and Brazil.