Partnering for overseas manufacturing – how to make 1+1=3 ?
Let us say you are a midsize company, with a robust technology and a strong market presence in your country. Your expansion strategy has taken you to overseas markets in the last few years. Now you need local manufacturing there due to cost, regulatory or strategic consideration. You need not go for creating your own set up.
Instead, you can use Partnering as a powerful business tool. Not because resources are limiting you. Because by working together with a local partner you can achieve goals that are out of reach by yourself. Combine your expertise & reputation with the partner’s local knowledge & set up. You can achieve a Go to Market speed & competitiveness rarely possible to achieve on your own.
New age business requires newer ways of partnering
Joint ventures or technical collaborations were the main partnering types in the past. Certainly, so in the automotive industry. These are excellent long-term methods of collaborating but are not the only ones. There are other practices which we can borrow from other industries. Check out these two for example.
Licensing of technology:
Chemicals, food processing & hospitality sectors use this way of partnering for ages now. Automotive industry has been shying away from this easy & quick way of partnering . You can stick to your core competence and leave the rest to experienced local partners. Both can reap the benefits in a win-win manner. You license the technology to the local partner and transfer the necessary knowhow. The local partner does everything else like sales, production, supply, customer support etc.
Contract manufacturing or industrialisation partner:
This is another efficient & fast way of partnering for overseas production. Extensively used by Electronics & Pharmaceutical companies but grossly under-utilised in Automotive. You come with product & production know-how and handle the business acquisition & final supply. You may also ship in some core technological parts from your own facilities overseas. The local partner procures the rest and produces as per your process & quality systems. Low investment, high efficiency, rapid go to market !!
Two factors that can make 1+1 = 3 or zero. Be very careful
Market Awareness & introduction before searching for partner:
This factor is very important, but often neglected. This is especially crucial when you enter into a new country market along with a partner. Most companies start looking for prospective partners straightaway. They go through consultants, their embassies or chambers of commerce. You should spend some months doing a market study and reaching out to as many customers as possible. Present your solution and listen to them. You will have a strong market grasp. You can then do partner search & negotiations from a position of tremendous strength. A European precision machining company asked us to do partner search for them in India. We had to convince them for a thorough Market Introduction & Awareness exercise first. This took us over 4 months of intense customer meetings & discussions. We asked them to make a short visit to India. We went together, meeting customers, competitors & regulators. They had started with a goal to set up a general-purpose business for different segments. But this exercise showed that their best opportunity was in 2 segments only. That too around 4 large customers, who were keen to give them long term profitable business. A location & profile for a potential partner, completely different from what they started. Imagine. What a total waste it would have been!
The second make or break factor is of course the selection of right partner.
Picking a good alliance partner is a lot like finding the right doubles partner in a game. Complimenting capabilities and perfect alignment can create wonders. The absence of these can spell disaster.
But how do you determine who should be your partner? How do you assess prospective partners?
We recommend a 4-step process for effective partner tie up:
Compatibility Check: You do a thorough reference checking and interact with the prospective partner. Do that in different setting such as the work place, at an informal dinner meeting, meeting with colleagues & meeting with family. Is this company’s culture and management style compatible with yours?
Alignment check: Are their goals and strategies aligned with yours? This is one factor where anything less than 100 % should not be acceptable. Even a slight misalignment can create a discord. It will build intense stresses in the working of partnership later. You should deep dive into the target company’s goals and objectives. Determine if they are synergistic with yours. One hundred per cent, else No Go. We helped a European company to partner with a local partner for industrialisation. One partner was many times larger than the other one. But their goals & expectations from each other were so aligned ! It almost seemed like Jazz, each building up on the other in a symphony.
Collaborative quotient check: Being a team player Vs Solo player is the in the DNA of a company. It evolves as a part of its culture. It’s very helpful to know what kind of partnering culture the target organization has. You can check how their existing partnerships are going. One of the best ways is to talk to one or more of the target company’s existing partners . Their collaborators, suppliers, service providers. Ask them what their experiences have been.
Capability Check: This is most obvious factor and everyone does it. That is why I have kept it in the end. This assessment is most effective when done in a purpose-based manner
Partnering for overseas manufacturing is an efficient strategy. But for making it effective in reality you need to play the game right from the word go.
For more information on Partnering search and Mediation. Write to me at sudhir.nerurkar@quanzen.com
