Expanding Internationally – What Makes a Good International Channel Partner?

It’s easy to look for channel partners overseas and there are many countries where they will all be clamoring over you but how do you know which ones are any good? They will all tell you who they know and how they are connected to very senior dignitaries of high ranking, high profile people – I have even had guys show me photographs of them standing side by side some high flyer and claiming to be his old school pal. Don’t get fooled so easily, these are the front men many of the less than professional companies send out to get us foreigners on the hook. Another ploy I encountered one time was getting a phone call in my hotel room about 3 hours before my departure flight from a guy who told me he had an imminent order to place for similar goods and needed to see me immediately. It turned out he was the cousin of a guy I had been talking to a few days earlier from another company and he was trying to steer me to his company away from his cousin – it didn’t take me long to realize I was been toyed with and I dropped both of their companies from my list but things like this do happen.

So how do you avoid being fooled by the sharks? Well to start with make sure you conduct lots of good market research or have professionals do this for you. Contact your local trade mission in the country you are interested in and get their advise and recommendations, use valuable networking contacts from people that have years of experience in these markets, attend trade shows specific to your industry in their country to see which companies are prominent and professional.

To get really good partners you have to think like they do, put yourself in their shoes. If you are thousands of miles away and 6 to 18 hours time difference what would you be looking for from your principle. What motivation would you need to choose your supplier over that of the competitors? Having worked for a very successful overseas high tech distribution company I can tell you – in short they are looking at products or services that they can introduce to their market as if they were launching their own market leading brand. The detail behind this and what I have encountered personally will hopefully provide you with a better understanding of what makes a good International channel partner can be categorized as follows:

Channel Partner Expectations

o A good channel partner will want his supplier to be a leader in their respected home and/or international market place. The company I worked with would not even touch any supplier that was ranked below number 3 in terms of their home market share.

o The product or service has to be competitive when put out to the local market. This also filters back down to the transfer price or distributor discount they will expect. The margin a channel partner will expect to make depends on the volume and value of sales, i.e. if they are selling many thousands of pc’s then a very low margin, often less than 10% but if it is lower volume higher priced goods then it will be much higher. At my company we were selling the latter and we always looked to make a gross margin of between 33% and 40% after landed and cleared costs.

o Quality has to be in line with market expectations – if you are supplying to a Japanese company who is going to OEM your product they will probably want to send their QA people over to your manufacturing plant to conduct their own audit and recommend changes.

o Local warranty obligations must be met – some countries demand 2 years and so if you only give 30 days in the USA you will need to factor this. Some suppliers agree to ship an excess of products to cover this e.g. ship 102 for every 100 ordered.

o They will expect to receive excellent back-up and support services and be treated as if they are an extension of your ‘family’, which in a sense they are as they are representing your interest in their country. This applies across the board to all aspects of contact with them from sales management, tech support through to warranty back-up and service support and sometimes even access to your in-house maintenance and fault logging and tracking systems.

o They will expect first class references of other users of your products/services and to be able to put these forward to their client base. Occasionally this might even mean one of their clients requesting a visit to one of your customers somewhere in the world.

o They will expect to ride on your marketing campaigns and have access to your marketing materials and literature copy. They should be taking full advantage of this in their local advertising, promos and trade shows.

o Today many channel partners expect their international suppliers to have a well documented ‘Partner Plan or Program’ which clearly sets out the expectations and obligations of both parties.

o They expect to be successful and will not be interested if it is uphill work to get there.

o They don’t want obvious channel conflict. If you are appointing multiple channel partners in one country then try and differentiate between them e.g. one selling to government only another to automotive industry only or by geographical coverage.

o They want access to your senior management, this may be for escalation purposes but very often in Asia it is a cultural issue and they will not get sign off until peer level executives have met, looked in to each other’s eyes and feel comfortable.

o Day to day channel management will be anticipated to be done by one of your mature professionals and not passed on to an office junior the moment the contracts are signed.

o They expect to succeed! They are not doing this for you, they are doing it for themselves and to make money out of your resources.

o They do NOT expect to be usurped. No channel partner will commit to a venture if they were to even think that if they made it a success that you would then enter the local market directly and cut them out.

Channel Partner Profile

o They should have a good track record of successfully introducing other ‘like’ products or services into their local market. Hopefully you will not be their first overseas supplier and they will have done this before and know how to trade with other international companies.

o They will be major players in your industry sector in their country.

o They should NOT be representing any of your competitors, feel free to ask them this direct. The last thing you need is to sign a lengthy contract only to find out they are gate-keeping your product out of the market.

o They should be an established and solid company – get your financial guys to check them out and run appropriate financial checks. Of course this should be a prime function of appointing any third party channel partner.

o They should be respected by the end user client base – do some research by getting in touch with customers direct and asking their opinion of the ‘XYZ company’, would they be happy to buy from them if you appoint them?

o They should have a good public profile and be recognized as an ethical company.

o They must have great networking and contacts with the right level of people.

Channel Partner Commitment

o They must be prepared to commit resources – where I worked the management put in a new team of 6 recruits to focus on the new product we signed up for.

o They must be financially committed – this doesn’t mean giving you a good initial stocking order (although this is nice) but committing through their management hierarchy to support this whole venture. It means funding training, which could be overseas, possible product localization and translation of manuals and literature, marketing, product launches, road shows, trade shows, advertising, sales initiatives and campaigns etc.

o They must commit to an after sales support function for servicing clients and providing warranty obligations. Ideally they should integrate your products into their existing service management structure.

o They should be results driven and want a quick return on their investment, the keener they are the sooner you will see results.

How Choosing The Right Leasing Partner Can Affect Your Business

If your business involves manufacturing goods, selling goods, warehousing or any other type of customer-oriented process, you will need equipment in order to operate it successfully. This would normally mean investing a considerable amount of your start-up funds into purchasing what you need. The smartest way to avoid bankrupting your business from the start by increasing your overhead is to lease the equipment, usually at an attractive monthly rate, with affordable terms. But how do you go about choosing the right leasing partner?

Why a Leasing Company?

The right leasing company can save you thousands of dollars every year in overhead by providing you the equipment you need to operate your business, at a fraction of the cost. Just outfitting today’s business office, even one department, like customer service, for example, can mean investing thousands of dollars in computer terminals, servers, phone lines and personnel. Instead, a good leasing company can provide you with all the equipment you need, plus service and other amenities for a few hundred a month, instead.

The range of leasing companies out there can be as varied as private businesses themselves. There are small companies that cater to both consumers and businesses alike, and can be availed upon to rent everything from kitchen equipment to furniture to computers. Still others are larger chains that specialize in the needs of particular business sectors, like manufacturing, printing, hospitals and automotive. And, then there are the corporate owned lease agents, backed by inexhaustible funding from parent corporations. Which one you choose will depend upon criteria that should be exercised so that you can make the correct choice.

What to Look For When Choosing the Right Leasing Partner

You can get referrals through networking with other business owners, or you can search for leasing companies through the Internet or advertisements in trade journals. However you find candidates, there are certain criteria to keep in mind when checking these firms out. Prospective candidates for your business should have the following qualities that will make them viable partners for leasing equipment for your business needs: experience, expertise, good reputation, the ability to perform to your expectations, and the ability to forge a good working relationship with you.

During your interviews with potential candidates, pay close attention to their responses concerning working with others in your field. This will give you an idea of how much experience they have in providing the type of equipment necessary for operating your own business successfully. Be sure to ask about the terms of their leases, including monthly payments, renewal fees, repair and replacement conditions on the equipment, and upgrades on equipment. Most leasing companies will offer special programs on certain types of equipment, and may offer free upgrades on leased items when new advances in technology come along.

The Final Decision

One important factor in making your final decision may concern whether or not you should work directly with a leasing firm, or to go through a leasing broker. A broker acts through placing your lease with any firm they have an arrangement with, and your lease will be forged with the broker, not necessarily with the actual leasing agent. This can make the difference when it comes to servicing the equipment you lease, and you may wind up paying fees that you may have been able to avoid by dealing directly with the leasing agent yourself.

Finally, when narrowing down the list, get bids from the final candidates. Leasing equipment is a market driven field, and by getting as many bids as you can, you should be able to achieve some benefits from competitive pricing and terms of the lease. Never, ever, give deposits in advance. All monies exchanged should be done at the creation of the lease contract, with assurance of delivery, not in advance. The choosing of the right leasing partner can be the most crucial business decision you will make during your start up, so do your homework and consider all elements presented before making your final decision.

What Now For Automotive Suppliers?

Chrysler, the #3 American car manufacturer filed for bankruptcy protection with 39 billion more in debts than assets. General Motors (GM), the #1 American car manufacturer filed for bankruptcy protection with 91 billion more in debts than assets. Since February 2000, employment in motor vehicles and parts has declined by approximately 50 percent. (Source: Bureau of Labor Statistics) So what is to become of the automotive suppliers?

Maybe we can all learn from the state of Michigan. Michigan is helping automotive suppliers transition to biomedical device production. The biomedial sector is GROWING at around 5.7% per year and the U.S. is a leader in biomedical exports in the world. (Would you want something installed in YOUR body made in a foreign country?) Automotive suppliers have many of the same skills, capabilities and systems in place to produce biomedical devices… it is a matter of retraining workforce, tracking all raw material lots into a batch of products and understanding ISO 13485. Michigan has provided training for some automotive suppliers to transition to biomedical devices and Michigan is launching a fund to help manufacturers diversify into new emerging sectors such as medical devices. The Michigan Economic Development Corporation (MEDC) recently unveiled the Michigan Supplier Diversification Fund. Its first program, the Michigan Loan Participation Program, will address the current lack of bank financing available to companies that are attempting to diversify. Under the loan program, the MEDC will partner with private lenders to offer loan participations with little or no interest payments for a specific period of time.

I recently attended an event in Ohio about Transitioning Ohio Manufacturers to Medical Device Production and had a few takeaways:

Biomedical has three categories from simple tongue suppressors to heart valves and there are regulations associated with each category

It may take 3-7 years to get a product to market
If a manufacturer wants to get involved in biomedical it begins with early relationships with biomedical companies while they are developing the prototype with the upside that the manufacturing contract may last 10 years or more
Ohio has established incubators for biomedical devices – one across from the Cleveland Clinic and BioStart in Cincinnati
ISO 13485 covers medical device production
Medical devices go through a decontamination phase via gamma radiation or electronic beam. For example, regular plastic or metal devices can go through a decontamination process and then be sold as a higher margin biomedical device.
GMPFirst.com – for Good Manufacturing Practices (GMP) for Medical Devices
DeviceLink.com – to learn about the Medical Device Industry

Future Visions of the Auto Industry and Automotive Advertising Based on What Was and What Is

Auto industry social networks all have different rules and protocols to create their unique identities in the auto industry and the inter-dependent automotive advertising industry. While there are differences in format, content and contributors they share the common goal to educate their community members by sharing best practices and insights with the concept that a rising tide floats all boats. To provide clarity and share my vision of the future of the retail auto industry and automotive advertising it must be framed it in the context of our changing geo-political and economic environment. Once the foundation of today is built on the broad picture of our world economy and politic, then the role of the Internet and related technologies can be applied to the one constant that we can all depend on — human nature — to help define tomorrow as I see it.

Any competitive business model must be built to accommodate tomorrow as well as today. Today is obvious. Sales volume, profit margins and inventory are down across all brands. Consumer confidence is falling as unemployment is rising even in the face of the expected temporary increase when the million plus census workers and various government employees — such as the sixteen thousand IRS agents to police our new health care system — are artificially added to the equation. Wholesale and retail credit lines are restricted by both natural business cycles and government intervention. Our economy is directly linked to the world economy along both monetary and political lines and the United States as well as our European trading partners are faced with excessive debt and unstable monetary systems. Our monetization of our debt — basically the fact that we loaned ourselves the money we needed to fund our growing debt by printing more money, since no one else would lend it to us — has insured the inevitable inflation of our dollar or some similar correction to our monetary system. This anticipated correction is already supported when observing the situation maturing in Greece, Portugal, Spain and other European Countries tied to the Euro and the International Monetary Fund, (IMF). No one has a crystal ball, so the only way to plan for tomorrow is to recap today’s critical issues that didn’t exist yesterday. It is these changes in — what was — vs. — what is — that will likely define — what will be and the actions that auto dealers and automotive advertising agencies must take to remain profitable and competitive in unchartered waters.

The current administration was voted in on a platform of hope and change with the expectation that the promised transformation of America would take place within the confines of our constitution and in consideration of our established belief in a free marketplace. The redistribution of wealth was understood by most to reflect the giving nature of the American people as a moral and sharing society. Unfortunately, the transformation began in ways that could not have been imagined by the majority that voted for it with an agenda that is only now coming to light. The inherited financial burdens on our banking system that justified the need for change were matured across Republican and Democratic party lines — as evidenced by the contributions of Fannie May and Freddie Mac to our mortgage crisis and the preferred treatment enjoyed by the unions, Goldman Sachs, AIG and other entities on Wall Street supported by the progressive political movement that is represented within both parties.

By way of disclaimer, I recognize that approximately 30% of our population believes in the collective — We the people — and the associated movement for the — workers of the world to unite — vs. the framers of the constitution that defined it as the individual — We The People — and the rights of the individual as a contributing member of the whole. That said, as the President has clearly stated, elections have consequences and I will attempt to limit my comments and future visions to only those actions that have or will have a direct impact on the auto industry and the automotive advertising agencies that are engaged to serve it.

The empowerment of the unions in the formation of Government Motors is already impacting the marketplace even while it is being challenged in the courts. The mandated consolidation of the retail distribution channels for General Motors and Chrysler preserved the interest of the unions over the guaranteed bond holders and independent dealers contrary to established rules of law. This precedence diluted expectations of both investors and corporations to rely on binding contracts and individual rights in favor of the collective we that our evolving society is expected to serve. Recent adjustments to the language in a variety of Federal powers have impacted previously accepted State and individual rights which must also be considered when projecting the future of the auto industry and automotive advertising — if not our country as a whole.

For example, the change in the definition of eminent domain from taking personal property — for public use — to the new definition — for public good — has already resulted in private and commercial property being taken at distressed market values and given to other individuals that promised a higher tax base to the governing authority based on their position that the additional tax revenue was for the public good. Similarly, the ownership of water rights in the United States has been changed from the previous Federal ownership of all — navigable waterways — to include — all waterways — such as ponds, surface streams and basically any water that the government determines can be used for the public good. The potential impact on the farming industry and our food supplies evidence a shift in government control of society that must be considered when projecting the future of any industry — including our beloved auto industry.

Given the government takeover of the banking industry, General Motors, Chrysler, Health Care and Student Loans that are now part of our history, the point becomes self evident. These single word changes and government takeover of entire industries for the public good dilute individual and corporate rights in favor of the rights of the collective. This is a basic step in the process of redistributing the wealth in accordance with Socialistic and Marxist principles. I am not judging the validity of any of these differing political philosophies since it would risk my ability to remain unbiased in my evaluation of present and pending opportunities in the auto industry. My intent is not to defend our previous constitutional republic over the shift to a Socialistic or Marxist democratic society, but rather to apply them when preparing a business model moving forward for my auto dealer / vendor clients and affiliated automotive advertising agencies.

For example, the recess appointment of Craig Becker as member of the five seat body of the National Labor Relations Board, (NLRB), suggests the intent of the administration to resume its push for the Card Check Regulation that is designed to facilitate unionizing all businesses in the United States. Recess appointments are an accepted practice used by previous administrations to bypass the Congress and the Senate to fill cabinet positions with individuals that are often blocked by partisan agendas. However, Mr. Becker was challenged in a bi-partisan manner based on his role as a senior attorney for the Unions including the CIO and the Service Employees International Union, (S.E.I.U), just before his appointment. The NLRB decides cases involving workers’ rights which directly impacts larger issues between Democrats and their labor allies vs. stated Republican party interests and those of the corporate world When coupled with the intent of Card Check regulation to eliminate the right of workers to a private vote to determine if a business can be unionized, the likelihood that retail auto dealerships will be forced to become union shops becomes a real possibility. The regulation also allows the government to intervene in the event that an employer challenges a union take over with a Federal administrator enforcing the union proposals as to wage and other terms and conditions of employment pending a final determination. Based on reduced sales volume, profit margins and increased costs of doing business the inevitability of these privately held dealerships collapsing under the financial weight of union demands is painfully obvious to any auto dealer that understands his cost of sales line items and their impact on his shrinking bottom line.

Similarly, the administration’s success in manipulating the processes in the Congress to pass its version of Health Care reform will increase expenses to auto dealers regarding insurance costs for their employees either in the form of forced coverage or penalties which must now be factored into projected operational expenses. These expenses may pale in comparison to other increases in the cost of doing business if the administrations’ next stated goal to enforce Cap and Trade regulations are passed. This legislation promises to raise the cost of electricity and other costs of goods in America on many energy related fronts.

For those not familiar with Cap and Trade regulations, think of it as a tax on carbon emissions that would be collected by yet another government controlled body to pay restitution to third world countries who have been breathing our pollution and suffering from its impact on global warming. Of course the same scientists that collected the evidence that global warming exists which supported this legislation have since reversed their position while confessing that they manipulated the data. However, that revelation has not slowed the administrations’ desire to move forward. In fact, they have empowered the Environment Protection Agency, (E.P.A.), to intercede and impose carbon taxes by claiming that carbon is a poisonous gas which they are authorized to restrict. Either way, the taxes will be imposed on American industry while other industrialized countries have already reversed their positions on imposing these same fees. This inequity in manufacturing costs will further reduce the ability for American manufacturers to compete in the world economy and will likely force the exit of many carbon producing industries to countries that do not impose these additional costs while taking their jobs with them.

Itemizing — what is — vs. — what was — has little value other than to cause panic when people realize that there is little that they can do to reverse the changes that they voted in. However, if properly framed in a problem solution format it can provide an opportunity for those that accept — what is, forget — what was, and work towards — what can be. Now comes the good news!

The solution to surviving the promised redistribution of wealth from the perspective of auto dealers and automotive advertising agencies lies in their use of technology to reduce and even eliminate certain fixed and semi-variable expenses. Brick and mortar facilities are often financed with mortgage terms and/or rent factors that were based on now dated real estate values and anticipated sales volume and profit margins to carry the debt service. The commercial real estate bubble of over one trillion dollars coming due over the next eighteen months with no current resource of funds to replace maturing commercial mortgages promise to exasperate already reduced equity positions for auto dealers. The related unsustainable debt service demands a change in the ways that vehicles are sold in the United States; can you say Internet!

Similarly, current staffing needs are often related to processes that are labor intensive. The associated human resource expense and exposure is based on a business model that is antiquated in the face of potential union intervention and government controls; can you say Technology!

Tax consequences resulting from LIFO credits that impacted auto dealerships who could not maintain inventory levels projected in their annual computations due to issues beyond their control are eliminating annual profits. As a direct result of all of these cumulative issues, even captive lenders are balking on maintaining floor plan credit lines or real estate mortgages. Minimum working capital requirements for auto dealers faced with reduced sales, profits and equity to present as collateral for much needed financing has severely limited dealer options to acquire funds to maintain operations.

As already hinted, the solution lies in shifting the focus form brick and mortar facilities to new online virtual showrooms and other Internet based applications that provide more efficient selling processes. Of course real world facilities for sales and service are still part of the projected solution as are the people that will be required to staff them. All processes start and end with people and human nature has and will survive on the Internet. However, the allocation of these resources and the associated expenses must be reduced in the face of the changes already in place as well as those being contemplated to accommodate our new role in a world economy.

Today’s car sales person must be educated to use new technologies and Internet based selling systems much like previous generations needed to be trained with the skills of a mechanized society versus an agricultural one. Computers are already an integral part of our culture so the transition shouldn’t be as hard as some may perceive. Similarly, large central distribution channels that used to provide efficiencies for manufacturing and retail outlets have been replaced by more cost effective online linked resources across the World Wide Web that reduce fixed and semi-variable expenses in a shared manner that didn’t exist before the Internet Super Highway.

Consumers have already been empowered by the Internet to bypass the auto dealer in both the real and the virtual world as the source for the information that they need to purchase a vehicle. Seeking the path of least resistance to satisfy a need is an established element in human nature. An auto dealers ability to accommodate their customers preference to be in charge of their vehicle purchase will be the key to their survival now and in the future. Online customer interaction platforms already allow a dealer to accommodate a two way video communication with real time interaction with the online shopper/buyer sourced from data on the auto dealer’s DMS and linked to their CRM. The transparency of this negotiation process allows the dealer to crash through the glass wall of the Internet with the ability to push and pull the same material that they can at their dealership. The result is the opportunity to accommodate an online transaction with the inevitable ability to reduce staff and facility needs in the real world along with the associated expenses and increased profits.

Social networking is another technology based solution that capitalizes on human nature which promises to change the face of the auto industry and the resources available to automotive advertising agencies to help their auto dealers sell more for less in the future. Consumer centric inventory based marketing platforms fueled by social networking communities that provide word of mouth advertising to virally extend the auto dealer’s branding and marketing messages represent the next generation of applied social media. C2C marketing messaging to social networking communities from the inside out vs. the now dated attempts to market to online communities with B2C messages from the outside in builds on established protocols in social media. Next generation platforms promise to monetize social media for automotive advertising agencies with integrated Ask-A-Friend / Tell-A-Friend features that allow online shoppers to solicit opinions from friends and family. Customer driven posts on their Face Book page drags the dealership and their vehicle into the conversation with the obvious advantage of the increased exposure and the associated viral coefficient to extend their message and online footprint for potential customers linked to the initial online shopper. Google agrees as evidenced by their weighted consideration of real time social media which quantifies the R.O.I. for the dealer with improved S.E.O. for the sourcing dealer’s expanding virtual showroom.

Other technology based solutions that improve online marketing processes converts the pictures on an auto dealer’s web site to professional quality videos with human voice placed on the auto dealer’s site, all third party marketing sites and even the search engines through a dedicated API with You Tube — further evidence the ability of auto dealers to expand beyond the limitations of their brick and mortar facilities and in-house support staff. Extended social networking platforms which allow an auto dealer to empower their sales staff to develop their own websites to market to their spheres of influence with management controls to moderate content and monitor use to prevent employee abuse exist today with the promise to be more widely used tomorrow to build the vision of what will be in the face of a challenging economy.

To extend my vision for the auto industry beyond the technologies that exist today requires a similar understanding that expenses and staff need to be consolidated beyond current expectations. Limited resources for consumers to purchase, finance and/or lease their vehicles won’t eliminate their need for transportation. Future financial instruments that are a hybrid of a lease and a rental agreement could allow consumers access to a pool of vehicles in a convenient central location where their Drivers License could act as a key and a charge card to apply charges against pre-paid transportation credits deducted by their employers and controlled by the government to track personal activities and location along with socially accepted consumption of our limited resources. I recognize that the big brother flavor of that vision may seem foreign in the context of what was and is, but we are talking about what will be based on the new collective society that our country has moved towards.

As for the role of the OEM and the auto dealer in the future, it would be reasonable to accept that the government’s existing control of the auto and banking industry will extend into the energy industry which will set the stage for the government determining which vehicles could be manufactured and/or imported and placed into the transportation pools with the locations determined by public transportation hubs that link to local distribution centers. The government currently owns 51 % of all real estate in the country through their mortgage interests in Fannie May and Freddie Mack and the pending commercial real estate bubble promises to shift a great deal more to public control. In addition. the government has recently changed the funding available to both organizations to be considered unlimited with the full faith and backing of the United States Treasury. That action coupled with the previously stated changes in eminent domain and the fact that millions of acres of resource rich land was recently acquired by the government to build additional — national monuments — suggests that land will be made available as needed to accomplish this community transportation system for the public good. Of course government employees will be needed to manage and staff these transportation hubs which would likely represent the auto dealer of the future.

Simply put, my future visions of the auto industry and automotive advertising is built on the past and the present with a recognition of what will be if we continue on the path that we have already chosen. I assume the constant of human nature and the role of technology in our evolution to date with the expectation that neither will change. Of course, there are consequences to elections so I suppose that I should update my projections after November, 2010 and the presidential election in 2012. In any case, the movement from the real to the virtual world has already started and will surely continue so that part of the vision should remain clear.