A usual strategy for successful market development in the emerging markets is to leverage the network and knowledge of a well established local partner. While such partnerships often lead to short-term market traction, over the long run, these partnerships can become the source of the biggest threat for the company (OEM).
In emerging markets, the business and regulatory environments are often very different and these companies, logically enough, decide to work with in-market experts, who usually end up being local distributors who know the market, have existing relationships, and, most importantly, have boots on the ground.
This distribution arrangement often becomes a “growth catalyst” for the local partner’s brand. Attributes that were historically associated with the OEM’s brand become connected to the local partner’s brand. This puts local partners in a unique position to market a very competitive product offering by leveraging their (a) original capabilities (local network, cost advantages) and (b) newly developed intangible assets (strengthened brand promise).
Over time, with increased competition, the differentiation doesn’t necessarily come from technology, but rather from the speed and reliability of the service provided to the customer. It is at this time that the (bargaining) power shifts to the local partners.
This leads to the Brand Paradox. When customers are asked about the brand of products they prefer, they usually respond — “we follow local retailer/brand’s recommendations.” The OEM’s brand becomes less important with most of the market power moved to the local partner. This worries the OEMs. Can they dare to alienate one of the largest retailers in the country to build their own channels? Can they compete against their own distributor, who knows more about them, than they know the newer market?
Resolving the paradox
OEMs want to grow into new geographies and will need to rely on local partners. What are they to do?
(i) Partner reputation: The goal should be to select partners who have a track record of good behaviour, who have demonstrated that they can be trusted over several years across a variety of product categories.
(ii) Scope of partnership: While incentivising for sales is necessary, it’s important to ensure that partners are incentivised and required to share customer information and feedback, and consults with the OEM before offering any other services to the customer base. Any promise to the consumers has to be with acceptance of both the partners.
Be a good partner
Much like any other relationship, distributor partnerships need to be nurtured. OEMs should ensure that their distributors succeed as businesses, and not treat them simply as channels. Global OEMs have decades of experience, deep functional expertise, relationships, and other capabilities which could help their distributors succeed creating true win-win partnerships.
Don’t forget the customer
OEMs that struggle tend to focus all their efforts on sales through the newly established distributor challenge and fail to establish any sort of meaningful relationship with customers.
One firm, a large industrial products manufacturer, took a very innovative approach to manage the quantum of investment required. The firm tiered its customers according to value and developed a strategy for each tier separately, investing more and meeting its most valuable customers one-on-one and taking more of a mass-market approach with the lower value customers.
This allowed the firm to keep a pulse on the market and provide input to its product development, resulting in market-appropriate products. The answer lies in getting closer to the customer.
Sridharan is Corporate Advisor; Raju is Co-Founder - The Propel Labs; and Batra is Serial healthcare entrepreneur