Wednesday, April 16, 2014

207- Simplify Your Small Business Expansion Through Partnerships

Simplify Your Small Business Expansion Through Partnerships

Simplify Your Small Business Expansion Through Partnerships

When it comes to expanding your small business into new markets, you will likely face an uphill battle. You may have difficulties with start-up costs, you may have distribution challenges, and you may have key gaps in knowledge of your desired market. These issues are difficult enough for any small business, but are even further magnified when your new market is in another country. An effective way to overcome these challenges and to limit your risk is through partnerships.

Partnerships serve as a means of leveraging the strength of another party to help you accomplish your 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. 

In this scenario, you and your leadership team decide that China could be a great place to expand your business. After that idea sinks in, it will immediately be followed by a myriad of questions. Where should you put your offices? What costs will you incur? How do you 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:

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 capital. If your cosmetics company plans to establish a local manufacturing plant and regional offices in China, you will have to commit significant funds in order to do so. By partnering with a company in China who already has the equipment and capacity necessary to manufacture your goods, you can save on significant startup costs. Partnerships can limit some of your out-of-pocket expenses.

Distribution Networks - You are 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? By partnering with an established firm, you can tap into their existing distribution channels. Keep in mind that this is not necessarily about their own delivery trucks, but rather their entire network of pre-existing suppliers, service providers and pricing agreements. You may want to offer distribution of the partnering firm's goods within your home country to make the relationship even more beneficial.

Knowledge of 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? For your cosmetics company entering China, the regulations are quite different and may be difficult for you to interpret. Partnering with another entity can help your small business establish a footing more smoothly than if you go alone.

Marketing Knowledge - By entering China you will need to sell to Chinese consumers. What methods of marketing cosmetics work in China? What types of things do Chinese consumers value? How do Chinese consumers buy cosmetics? Online, or in brick and mortar stores? Having a partner to help you answer these types of questions can save you a great deal of effort and avoid unnecessary cost. A good partner will have already figured it out.

Partnerships are not easy, and they do take work just like any business marriage. Many partnerships struggle because they often become an issue of control, 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 might not want to share your proprietary information with them. A forced partnership is unlikely to get you what you want.

It should be stated that while the context here is predominantly global in nature, expansion into new regions within your own country also creates opportunity for a partnership. A sound business relationship requires both parties receive a benefit that would otherwise not be available to them without the partnership. Further, your business success should not be defined simply as beating the competition, but instead as maximizing your profit. Partnerships offer distinct financial advantages to your small business while simultaneously hedging some of your risk. 

At their core, partnerships are about maximizing the strengths of both you and your partner in order to create mutual value and benefit.

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