Supporting a global value chain
For small- to medium-sized U.S. OTC manufacturers, the choice of going global usually forces a tough choice: selling directly to one or two important key accounts vs. working with a local distributor partner. It’s like having two little angels or devils (or one of each) sitting on your shoulders and whispering really wonderful things.
The key accounts usually push hard on receiving preferred pricing which then makes it difficult later on to support a value chain that could include a distributor partner. Attractive margins are very challenging to maintain for all concerned. Do you pick the angel/devil of volume and distribution in an important account vs. the devil/angel of having a long term Partner helping you build a brand/business?
But first, a step back. Going global isn’t easy. The hurdles are daunting even for a market next door like Canada, let alone the European Union, Asia or beyond. Regulatory, logistics, pricing, marketing, packaging — the list is seemingly endless. How do you register your products? What regulatory authorities have a say about your products, and what claims are allowed or more importantly not allowed? Will the trade demand too much and erode margins? What changes and languages will be required on packaging? Can your logistics systems handle the increased complexity? Will your brand message resonate elsewhere? Do you have the right people to manage the international business? Is all of this really worth it or should I just focus on the domestic U.S. market?
After 30 years on the international side of business for U.S. companies, the answer to “is it worth it” is not unlike the answer my wife gave when we were a recently married two job couple and had one car. I was a heavy traveler and she only had the car when I was away, as my commute was not doable by public transportation. When asked which she preferred, a husband or the car, her answer was “it depends on the weather.” The answer to going international is also the same: It depends. From my experience, the answer is usually yes. (And yes, the answer to the first question is to get a second car.) Think of international as another growth initiative with a different risk profile. Early on, focus on a few key markets and some of them, but not all, WILL grow. A U.S.-only strategy is like putting all of your eggs in one basket — one very large basket. Going global broadens the risk. A pragmatic executive weighs the risks and rewards. With the right approach, an international business can become an important part of any P&L.
So, here a few rules of the road:
Long term vs. short term. The two choices above — go direct vs. partnering with a distributor — are not mutually exclusive, but are challenging to manage. Absent setting up your own local subsidiary (another option), a local partner is the longer term choice in my experience. There is no substitute for “feet on the ground” and, more importantly, understanding the cultural nuances. I will write about Canada in an upcoming blog, but let me be very clear: There are differences even with our close northern neighbor, and there is no quicker way to alienate them than by treating them like the 51st state. The more important conundrum is what to do if an important key account offers an opportunity to deal with them directly. The retailer — and this includes e-commerce — is trying to arbitrage the potential cost of your partnership and the need to support marketing and sales efforts by giving you instant access and distribution. If you can cut the deal and still allow for a distributor setup, that’s the preferred route. After all, if you were a Canadian distributor, would you be interested in a line without Shoppers Drug Mart volume because the manufacturer had a direct contract? Not likely.
Does your overall P&L allow this? Going global is not an opportunistic venture. It’s a strategic decision that will require investment. Is your U.S. base big enough, or do you have enough financial resources that will allow for consistent investment-spend brand support? If you are a brand builder, avoid a trader mentality unless you compete solely on price and you have the lowest COGs or willingness to take a thin margin — or both. Brands matter and cost money to build.
Which countries? Don’t chase every export opportunity. A focused approach and a carefully crafted expansion strategy are essential. It probably makes sense to look at North America and possibly the developed Asia/Pacific and Western European markets first. There’s no need to leap frog ahead to smaller, generally more challenging markets.
Be “all in” or don’t go. Going global is a risk. Are you willing to see your international efforts through to the end? There will be tough investment choices — put more money in a U.S. marketing program, prioritize manufacturing when short of a particular SKU etc. Know these answers ahead of time.
Assuming you’ve made the strategic leap, there really is a whole world waiting for you.
Ed Rowland, founder and managing partner of Rowland Global LLC, has more than 30 years of international experience in the OTC and consumer world with Fortune 50s, as well as boutique firm consulting. He founded his own consultancy two years ago and assists companies in growing their global business. More details are available at Rowland-Global.com.