Woodward Partners Updates
Woodward's Management Updates provide you with the latest thinking on the issues you face. Subscribe to Woodward Partners Updates to receive direct emails with our most recent articles, interviews, and insights into the challenges facing businesses in Asia. Subscribe Here >>June 2009 Partnering For Success - Ways To Ensure your Partners Are Making You Money
Firms operating in Asia widely accept the fact that external relationships with other companies are essential to viable success. Whether it be a firm’s relationship with downstream channel partners, internal constituents, or buyers, complex cooperative partnerships in Asia act as the bloodline to the heart of a firm’s success. But how does a firm integrate strategy within the broad notion of relationship management? How can a firm avoid the pitfalls of so many business horror stories of external relationships gone wrong?
The managerial decision to enter into a partnership with another firm, such as a distributor or service agreement, can be extremely complicated. The company must consider protecting its resources and market positioning while at the same time maintaining its strategy and mitigating risks of lost profits, reduced leverage, or much more. Asia presents many risk factors – unreliable data, volatile markets, unfamiliar and/or unscrupulous business practices, etc. – that can create resource-consuming distractions for your business. We’ve all heard widely publicized stories of partnerships gone wrong in Asia such as Groupe Danone/ Wahaha in China that have ended in loss and damage. External relationships with other companies are necessary and vital to the success of a firm- especially in Asia where expectations of relationships are different than in the West. Is there a way to support managerial decisions to structure optimal external partnerships while at the same time employing strategy to avoid inherent risks?–There is.
Governance Value Analysis (GVA) provides a framework to understand and structure optimal external partnerships and avoid their inherent risks. It is a model that seeks to address marketing strategy decisions, particularly those concerning cooperative relationships. Resources, positioning, and governance structure all affect the success of a firm’s strategic decisions. GVA was first introduced in 1999 by Mrinal Ghosh, an Associate Professor of Marketing at the University of Arizona’s Eller College of Management, and George John, the Chair in Marketing at the University of Minnesota’s Carlson School of Management. Woodward Partners recently sat down with Dr. Ghosh to discuss how GVA provides a framework for aligning a firm’s channel relationship structures with its strategy and resources, thus enabling the firm to understand and structure optimal partnerships with other firms.
Dr. Ghosh: An optimal governance structure should create generated joint value. It should also protect a firm’s resources. There are many types of relationship structures to consider. Should a relationship with another firm be based on arms-length exchanges or a cooperative partnership with information sharing? When should a firm choose to vertically integrate instead of opening up to the market? Not all firms react in the same way because of firm-specific differences and other factors that affect decision making- such as positioning, trust, conflict of interest, etc. Governance Value Analysis (GVA) takes this fact into consideration.
WP: With so many factors to consider, how does GVA help managers make these difficult decisions when partnering with another firm?
Dr. Ghosh: By providing a framework for understanding and structuring optimal partnerships, GVA can influence firm strategy in business partnerships. The key is the model’s ability to pinpoint what factors affect the type of structure that a company gives to relationships with downstream channel partners, distributors, retailers, and so on. Each firm has a distinctly different set of specific resources that are different than their competitors. These brand resources, technology resources, managerial resources, and so forth affect how relationships should be formed with others. GVA improves managerial decisions by taking into consideration how these resources and positioning within the market affect the design of the supply chain.
WP: What steps should a company go through in the process of choosing the best relationship structure with external partners?
Dr. Ghosh: Firms first need to identify their resources that they possess such as positioning within the market, brand identity, and resources such as technological capabilities. Next, they need to identify the activities that will support and protect their specific assets. The value of the brand is communicated through certain activities, so the firm needs to seriously consider what steps it needs to take in order to protect this positioning. For example, firms might consider where not to sell the product, the level of product expertise needed from distributors, and other specific requirements for those who would be selling the product or services.
Once firms have done this, they must determine the relationship structure that compliments the firm’s strategy while protecting its resources and positioning. Firms may determine, for example, that a national distributor, series of distributorships, or even establishing their own distribution shop is best for their needs. This choice depends on the amount of control needed by the firm, the conditions within the market, and the brand identity as specified above. And what about the incentives in this relationship? It is easy to say, ‘I want this to be done,’ but who is going to do it? This is the part where you have to identify the incentives such as margins- who gets what- and consider constraints.
WP: Through your framework, have you seen examples where companies could have benefited from considering all these factors before entering into external partnerships?
Dr. Ghosh: Certainly. Take, for example, the decision to have vertical or forward integration in distribution. Strategic factors have to be considered to determine options. This is a balancing act between the beneficial control firms can have when they vertically integrate and the capital intensive costs that arise. Toyota’s manufacturing, for instance, is highly vertically integrated due to the company’s positioning on reliability. To support their brand positioning, Toyota can justify the high costs of vertical integration for the ability to ensure reliability through high control and protection of their assembly line technology. Our analysis framework shows that the more specific the investment such as knowledge intensive operations with specific technology, the more likely it is that a company would benefit from internalizing an operation. Smaller firms cannot vertically integrate as easily since the upfront costs often outweigh the benefits. GVA helps identify these options and the corresponding governance structure that best supports the firm’s resources. Without the best relationship structure in place, given the circumstances, a firm runs the risk of losing precious assets such as profit margins.
WP: For Western firms, the process of entering into partnerships with Asian companies is complex, to say the least. Are there cases of Western firms entering into partnerships in Asia who could have benefited from GVA?
Dr. Ghosh: Yes. We applied GVA to a case study of a Western firm’s recent expansion in Thailand. In this example, the Western firm had a strong brand and chose to distribute its products in Thailand through a national distributor. The distributor had a reputable national brand name but not a global one. At first glance it would seem that the Western firm would have a superior position in which to create a relationship with this distributor. It would be easy for the distributor to work with a strong brand name product that would be easier to sell. One would think that the Western firm with the strong brand equity would be in a position of power to negotiate a contract with a distributor for a low operating margin. However, while the brand of the national distributor gave the Western firm credibility in Thailand and a powerful distribution channel in the country, it also created a scenario in which the Western firm relied upon the distributor and reduced its own bargaining power.
Through this cooperative relationship with the Thai distributor, the firm had placed itself in a vulnerable position. In this arrangement, the Western firm faced the risk of entering into a dependent relationship with the distributor who now had high leverage and great bargaining power with the firm. Before entering into a cooperative relationship, the Western firm should have first questioned what the national distributor in Thailand was capable of. Take for example, they have to train their sales people to go into the middle of nowhere trying to sell the product. Are they really good? What are they saying about the brand? The governance structure that the Western firm chose has risks that are difficult to measure. It is so important that these non-observable, non-measurable efforts need to be considered before choosing the governance structure. To account for these risks, the GVA model calls for a firm to impose certain restrictions on the distributor. GVA calls for a contractual safeguarding against these kinds of performance ambiguities. For example, the firm can choose a governance structure and demand the creation of certain kinds of training, marketing, and logistic procedures by its chosen distributor.
Despite having a powerful brand equity, the Western firm should have first identified its market position and valued resources and then decide upon the governance structure that would best protect itself from the supplier becoming opportunistic. While taking into consideration a firm’s resources, positioning, and context, GVA shows that firms with strong brand equity should avoid relational governance structures such as cooperative partnerships. Rather, firms with strong brand equity should use market governance- arms length relationships- that allow for greater safeguarding. As brand equity increases certain bargaining power is reduced.
WP: Dr. Ghosh, thank you for your time and for sharing your insight with us.
For Western firms, the process of entering into partnerships with Asian companies is complex with many risks to consider. Considering the varying perspective and emphasis placed on relationships in Asia, a firm needs to integrate strategy within the broad notion of relationship management. GVA, a framework to structure optimal external partnerships and avoid their inherent risks, applies to both large and small firms either operating in, or considering entry into, Asian markets. Working through distributors in foreign markets entails many risks, and key factors need to be taken into account when selecting the right partners to structure relationships. Many Western companies come to Asia with advanced technology and other assets, such as brand names, but the distribution partners here also hold assets. Structuring the relationship so that both partners are aligned strategically and remain so over time requires careful thought—Woodward Partners helps firms align these relationships effectively.
Strategically assess the best opportunities for growth in Asia.
Understand how your company can best capitalize on growth opportunities while quantifying the risks involved.
With the economic recession looming over company budgets and expectations, a comprehensive assessment of new Asian markets and a thorough understanding of the accompanying risks are even more critical than ever. When making the move to expand into Asian markets, managerial intuition is not enough. Many companies make the common mistake of deciding to enter a market based solely on financial quantitative analysis, ignoring many factors that are more difficult to measure but have a significant impact on success.
As Rob Salomon of the NYU Stern School of Business explains,
"Expanding abroad must be done from a position of strength. It is not the answer for all firms. So when a company considers entering a market, it must properly modify the estimated potential opportunities of the foreign market with the high costs and risks associated with the country's actual conditions. But how does the company offset the risks of these political, economic, and cultural differences while adapting the business process to the foreign market? To succeed the company must first strategically quantify the softer side of risk to truly understand the costs of entry."
Woodward Partners' Acumen tool provides the critical ability to accurately assess overseas opportunities by measuring factors such as social, political, economic, cultural differences, in addition to the standard financial measures to provide a complete picture of the risks and opportunities of expansion.A hypothetical situation
Your company considers Asia as a region to cultivate new revenue streams.You assign one of your managers to conduct a thorough strategic analysis of the major Asian markets and design initiatives for those markets that best match your current capabilities. Next, you conduct a rigorous financial analysis of those initiatives, carefully quantifying all of the increased risks that you will face in Asia. Finally, you develop robust budgets and action plans to implement your business development initiatives and manage the attendant risks.
That's what you would do. That's what you have always done. ...Right? Or is this process just a business school fantasy that only the largest, most deep pocketed companies can afford? For those who have put together an analysis, is the assessment truly comprehensive for each major decision? Have all the risks, from which recommendations were made, been properly identified?
The real world examples of market development in Asia are less idealized. More typically, countries are identified, partnerships are formed, and distributors are selected more on the basis of prior business relationships than upon careful strategic planning. A country portfolio analysis may have been performed. However, this analysis usually focuses on market size and growth rates without any rigorous consideration of the very real risks in international development.
The current economic climate demands a highly efficient deployment of resources to increase revenue and cut costs. Asia may seem to have tantalizing potential for increasing revenue, with its combination of large population and under-developed markets. However, your experiences in Asia and the stories you have heard about the market dynamics may make you uncertain about realistically increasing your sales and profitability by focusing on Asia.
With limited resources and limited market knowledge, is there a way to proceed in Asia that efficiently AND rigorously evaluates opportunities? There is.
A more effective approach
When investing in overseas markets, many firms overestimate the opportunities and underestimate the costs that exist. These mistakes are often costly. Risks to investment include a variety of factors such as fragmented markets, isolation from critical social networks, difficult political and institutional environment, and prohibitive cultural factors. Many of these considerations, such as those that are political, religious, or even technological in nature, are often hard to quantify and difficult to accurately measure with limited market knowledge.
Woodward has developed Acumen, a systematic approach to quantifying the risks associated with economic, political & cultural factors. When coupled with our deep experience in Asian markets, Acumen supports robust decision making for market entry, strategic investments, and other growth initiatives.
The Acumen model helps companies evaluate significant international investments by quantifying social, political, religious, economic, or technological factors which are normally not factored into investment analyses. Measuring critical risk factors will enable companies to develop a more robust evaluation of overseas investments, more accurately reflect key differences between markets, and invest with confidence.
Companies often ignore many of these risks because they are not readily quantifiable. This would seem to be the domain of only those companies that have the resources to apply very sophisticated and thorough quantitative analyses.
Our partner in developing Acumen, Prof. Rob Salomon of the NYU Stern School of Business, says that this tendency to ignore factors which are complicated and difficult to measure is more common than not - even in larger, well established companies.
"The difficulty of estimating overseas opportunities is largely due to a lack of quantifiable measures regarding social, political, religious, economic, or technological factors. These factors are critical inputs to the international investment decision, but are difficult to quantify, so they are often made based on managerial intuition." According to Professor Salomon, "It is much easier to estimate demand where we know what a country's population is, we know what their disposable income looks like, and we know what GDP per capita looks like. However, China is a collectivistic country and United States is an individualistic country. How do I factor that into my demand equation?"
The Acumen model draws upon a wide body of current research data to calculate robust risk adjustment factors. Using the model under the exclusive agreement, Woodward is able to conduct market analyses to help companies assess any market, to create sound forecasts of future cash flows, and help companies implement a comprehensive strategy supported by a complete assessment of the risks involved.
Your management team can draw upon Woodward's experienced professionals, subject matter experts, and strategic tools - such as Acumen - to identify opportunities, design action plans, and implement new growth initiatives in Asia. We understand the importance of prudent action in Asia. Our team at Woodward Partners is dedicated to helping your company to develop new streams of revenue from Asia in a highly efficient and effective manner.
Matt Mathias is the US Director of Woodward Partners, based in US. He specializes in helping companies develop strategic and operational plans to achieve profitable sales growth in Asia.
Despite the current financial turmoil, longer-term prospects for developing countries remain positive, and companies that can effectively access these markets have the opportunity to position themselves for significant growth. Woodward Partners recently spoke to Mr. NG Choon Peng, Regional General Manager of Leo Pharma Asia, about the factors that drive success when entering or expanding in Asian markets.
For many Western companies seeking to enter Asian markets, a local distributor or on-the-ground agent is often assumed to be the obvious low cost, low risk mode of investment. Many companies interested in entering a market are primarily focused on finding the one person that can help them generate immediate cash flows in that country and help them avoid making major costly mistakes.
However, there are significant risks to working with distributors. Often, distributors make little investment in a company's products and sacrifice long-term growth in order to maximize short-term margins. Some distributors are more concerned about adding new product lines than supporting the ones they already represent. Some distributors lack deep knowledge of your specific market and companies often find it very difficult to set expectations for their distributors and manage their performance.
Woodward Partners recently spoke with Mr. NG Choon Peng, Regional General Manager for LEO Pharma. Mr. Choon is responsible for managing 15 countries in Asia for LEO Pharma. He has extensive experience working with distribution partners around the region.
WP: What are some of the challenges you have faced in working with distribution partners in Asia?
Mr. Choon: I have worked with many distributors over the long-term, and have well established relationships. Some of the challenges I have faced include ensuring that distributors are focusing enough attention on our products and dedicating an adequate amount of time. Convincing partners to invest in new products that come online has also been a challenge. And there have been times that I have encountered differences in how distribution partners manage and incentivize the sales staff that are representing our products in the field and have felt the need to step in to that process.
WP: What suggestions would you give to those who are unfamiliar with working through distribution partners in Asia?
Mr. Choon: I would caution those who are unfamiliar working in Asia that the expectations of relationships are different.
WP: In what ways are they different?
Mr. Choon: In Asia, business relationships are based on a combination of contractual and, more importantly, personal relationships. There is an understanding of commitment to help each other in times of need once a relationship is established that goes beyond any formal agreement. The relationship is not merely a contract.
WP: Are the terms not important? Not followed?
Mr. Choon: By way of example let me tell you a story about a particular company and the difficulties they encountered in working with Westerners. There was a partner in Asia, who had worked with my company for many years. Mr K, who worked for a partner distributor, had helped start our business in this Asian country early in his career, had progressed through the ranks to become the head of our business for the distributor there. He had devoted a great deal of his career to us and helped grow our business in this Asian country over the long term. We had helped him get through the tough times during the Asian financial crisis.
I visited Mr K to discuss our business. The meeting with his staff went fine, but he seemed unhappy. I invited him to ride in the car with me on the way to dinner to talk privately. During the ride, he opened his heart. He was frustrated because he felt the company was not living up to its relationship. The relationship between Mr K and my company had in recent times been managed by a Westerner. He had felt for some time that we did not care about the relationship. The Westerner would not budge on some very small issues that were not in the contract. It seemed to Mr K that there was no longer a relationship - therefore, there was no longer any context for working together.
At this point, the phone rang. I recognized the ring tone on his phone. It was the commercial jingle for one of our products.
As his call ended, we pulled up to a traffic light and stopped. He pulled out a small marker, carefully etched a character in the palm of his left hand, presented it to me and asked me, "Do you know what this means?"
I recognized the written character and said, "Yes, this is Yi ()".
"Choon Peng", he said gravely, "we have lost this. I grew up with your company. I built my early career on your products. You all gave me much of my early training and helped me so much. We have built this business together. What has happened to our relationship?"
WP: What is the significance or meaning of this character, Yi ()?
Mr. Choon: It means friendship, righteousness, brotherliness. It comes from an older meaning of deep bonding between warriors. To him, we did not have a real relationship anymore that enabled us to do business together. He could not count on us to help him. His commitment remained, however, and he felt alone and used.
WP: The expectations of the relationship between the Western manager and your partner were very different.
Mr. Choon: Yes, our Western manager had a very different view of the relationship. The transactional view of the relationship had created a great deal of tension.
WP: How can Western managers avoid this?
Mr. Choon: First of all, know how to align interests. For a Westerner, defining the terms of the contract is the way to align interests. This is no doubt important to both Western and Asian parties. But, it is only a starting point. Westerners are often surprised at how Asian partners appear unprepared for contract negotiations. To Westerners, Asians often seem unprepared to discuss in detail how the business will be conducted. To Asians, on the other hand, Westerners often appear too eager to try to win a battle on every small point in order to extract as much value as possible for themselves. For Asians, the contract is the starting point - it establishes a framework and states intentions. The contract indicates that a relationship will be established and provides the context for the relationship. The contract is not the relationship. Defining terms to the level of detail that Westerns are used to may not protect your interests in the way you expect. Taking your case to the courts in many jurisdictions in Asia will not help you. Even as it is still important to ensure a contract is well-drafted, cultivating a good partner relationship is paramount to business partnership success. Executives will be tested on their listening skills and their demonstration of a high level commitment. Senior management from headquarters needs to be visibly committed to the relationship. This includes listening carefully, paying attention and voicing appreciation for the partner. The partner will not expect senior management to be involved on a day-to-day basis, but they do expect senior management to listen, appreciate the interests of both parties, and be prepared to act in a way that is consistent with both parties' understanding of the big picture.
WP: What would you recommend to firms who are considering Asian markets and need to manage these relationships?
Mr. Choon: Most importantly, have someone close to the ground in Asia representing your interests - either someone physically in-country, OR someone who is out frequently on field visits. Distributors are managing their own business. They are concerned with maximizing margins and they look for products that will be a cash cow for their bottom line. This is understandable, but it can be difficult to ensure that your partners are paying enough attention to your strategic products. It is important to have the right people representing your interests - who know local business culture such as the body language, the different degrees of yes or no. It is critical to have a representative to fill the inevitable gaps in knowledge and expectations.
WP: Thank you, Mr. Choon, for taking the time to sit with us and share your experience and insights.
Avoiding the pitfalls of setting up operations in Asia
The challenge for Western companies establishing or expanding operations in Asia, is to effectively manage their presence in Asia, while building the close personal relationships required to succeed. Many companies choose either the high risk, low cost option of using a local distributor, or the low risk, high cost option of setting up their own offices. Both options have advantages and disadvantages. Using a local distributor may be a cheaper option, but limits the opportunity to develop a deep understanding of the market. Setting up your own offices, involves high cost, but provides good opportunities to develop market understanding and build relationships.
An alternative option, often recommended by Woodward Partners and which has been utilized by Mr. Choon, is to appoint an on-the-ground representative experienced in establishing operations in Asia. If the representative is experienced in setting up distribution partnerships, they will help you structure your relationship with distributors, set targets and develop processes to manage the relationship effectively. More importantly, the representative can act as a conduit to obtain feedback information about the market and culture, while helping you develop the relationships to create a foundation for significant growth.
Recessions do not impact all companies equally. The impact an economic recession will have on your company will depend on a number of factors including:
• The strength of your balance sheet
• The industry in which you operate, and
• How you manage the recession.
Some companies grow during recessions, and many gain ground on their competitors - particularly those that can achieve growth without adding to their cost base.
Many Western companies operating in Asia do so through a myriad of supplier and distributor relationships. Operations grow organically over time. Distributors are engaged in what are deemed attractive markets, and a regional sales office is eventually established. The network of internal and external parties is often extensive and spread across vast geographies, different languages, and distant cultures.
In managing international operations, firms rely on processes and structures that have been successful in optimizing operations and governance structures in home markets. However, in Asia, business practices and industry dynamics may be fundamentally different in ways that are not readily apparent.
Opportunities to achieve cost-neutral growth can be created by optimizing operations and governance structures and adapting them to the fundamental differences in business practices and market structures encountered in Asia. Value Network Analysis (VNA) is an effective methodology that enables firms to uncover these differences and retool their approach to Asian markets.
VNA views the entire value creation system from the top down. It enables firms to visualize and understand how value is created, reveal gaps in collaboration, and develop effective governance capabilities. It encompasses in its scope the internal and external participants in a value network and captures both tangible transactions and intangible knowledge flows.
Many Western firms with operations in Asia Pacific struggle with the complexity of operations and face challenges in governing a disparate value network. VNA offers a high level, efficient way to gain clarity and pinpoint deficiencies in operations and governance before committing significant resources to new infrastructure.
Woodward Partners conducts VNA for Dakota
Dakota, an American industrials company, had years of experience in Asia, but was experiencing stagnant growth. Like many companies, Dakota had grown organically over time. It had engaged a range of distributors in various countries and established a regional sales office. The network of internal and external parties was extensive and spread across vast geographies, different languages, and distant cultures.
In managing international operations, Dakota relied on processes and structures that were successful in the US and Europe. Dakota's operations and governance structures were not optimized for Asian markets. The industry value chain in Asia was different from that in the US and Europe - decision makers and purchasing processes were unique in each country.
Without understanding the different business practices of Asia at a sufficient level of detail, Dakota's efforts to optimize operations and governance structures with traditional tools (e.g. processes, procedures and organization charts) were ineffective. As a result, Dakota was missing significant value-creating opportunities, by not maximizing potential profits or minimizing costs.
Woodward Partners assisted Dakota identify ways of achieving cost-neutral growth by undertaking Value Network Analysis (VNA). Beginning at the source of revenue (the customers), Woodward Partners worked with Dakota's management to identify the internal and external participants in delivering value to the customers, capturing both the tangible transactions and intangible knowledge flows. We developed a map of the industry value chain and captured the current and potential ways that Dakota interacted within the industry value chain. We identified new opportunities for Dakota to participate in the industry value chain. Dakota's new mode of operating in Asian markets included a new customer base that the company did not interact with in other markets. We helped Dakota understand these new customers and design new regional team structures to capture these new segments.
Woodward recommended specific action steps to assist Dakota manage their network more effectively and grow their market share, including:
• Refocused primary investment from China to Japan which provided the option to sell differentiated, higher price product
• Revitalized joint venture relationship in Japan by identifying profitable new segments to focus on
• Developed segment focused teams and regional support structures to effectively target profitable market segments in key Asian markets
"Woodward clearly understood our needs right from the beginning... Outstanding work ... Woodward delivered real value for us"
- Regional Director, Asia Pacific
How VNA can help you achieve cost neutral growth
The concept of the value network is important for large and small companies, for those firms operating in Asia, and for those who are considering entry into Asian markets. VNA offers firms a new methodology for efficiently and effectively managing the complexity of operations in Asia, for understanding how to build and manage the relationships which are critical for success in the region.
Mathew Cobbett is Director of Woodward Partners Asia Pacific, based in Singapore. He specializes in helping companies understand their networks in Asia and identify ways to manage the network to improve organization profitability.
Despite their size and strength, many multinational companies struggle to make money in Asian markets. Matt Mathias describes three common mistakes that multinational companies make in Asian markets and how to avoid them.
Appointing a local distributor or agent is often assumed to be the obvious low cost, low risk mode of investment in Asia. However, these relationships often result in a complete outsourcing of strategy - the consequences of this are often costly and appear much later. For example, an automotive aftermarket supplier with a long history in Asia maintained a network of distributor relationships throughout the region which had lasted for decades. Over time, the company realized that its growth had stagnated and that its market share was being devoured by lower priced Chinese and Korean competitors. The company's distributors had been content to maintain a roster of customers while broadening their product range by signing onto relationships with manufacturers. The company realized that it had outsourced its entire strategic management role - development of strategy, tactical action plans, and implementation - to a third party. Profit margins, brand, and customer relationships were in the hands of distributors who had squandered the business.
Woodward Partners Solution
We helped the company re-gain control of the business by restructuring its distributor relationships. The reconstruction included building direct relationships with retailers and wholesalers through a certification program. This program allowed the company to manage margins throughout the supply chain, control the brand, and monitor customer relationships. Gaining control of strategy, tactics, and implementation allowed the company to face new competitors with the full force of its global organization.
Customers in Asian markets often respond to different value propositions from customers in the US or Europe. Even within Asia, value propositions vary from country to country. A healthcare products company was a world leader in technology which spanned a wide variety of products. With a broad product range and deep experience, the company was uniquely positioned to offer an integrated solution; a bundle of products and services that worked well together. This bundling strategy was exceptionally profitable in Europe and the US. The company was proud of its technological capability and aggressively promoted its integrated solutions. For many years, the bundling strategy was highly successful in India. However, the company eventually discovered that local competitors had become surprisingly adept at producing low priced, highly localized versions of certain solution components. Customers began to pair these cheaper components with the company's own products to build customized solutions at a lower overall cost. Global management refused to believe that customers everywhere would not appreciate the value of an integrated solution. The company was too late in understanding the reality in India and lost substantial market share in a short period of time.
Woodward Partners Solution
Woodward Partners helped the company understand that it would continue losing customers rapidly if it persisted with a bundled solution. Forging strategic relationships with local competitors, the company broadened its product range to include local components. Innovative new solutions offered to all customers included the option to choose cheaper versions of certain components manufactured by local competitors. Recognizing the unique customer requirements in India, the company strengthened customer relationships by leveraging the dynamic competitive landscape.
Customer segments often differ significantly in Asia - the result of unique characteristics of the industry value chain. It may be possible to discover entirely new customer segments by reevaluating your position in the value chain. A construction products manufacturing company held a dominant market position in Europe and the US. Within these markets, the company traditionally sold through distributors to general construction contractors. While this model worked in other regions, it failed in Asia-Pacific. Despite significant investment, the company struggled to grow in several promising Asian markets.
Woodward Partners Solution
Reevaluating the broader industry value chain, the company discovered that potential customer segments in Asian markets differed widely from those in its original markets. The company found that the real decisions makers for purchasing tools resided, in most cases, not within general contractors, but within property developers. Faced with a stagnating business built on the wrong sales channel, the company restructured itself around new customer segments. The entire sales and marketing effort in Asia was refocused on property developers. Through a fresh perspective on the industry value chain in its Asian markets, the company was able to craft a unified strategy targeting the right customer segments.
Matt Mathias is a Director of Woodward Partners based in the USA. Matt specializes in helping companies profitably enter new markets in Asia.