Entering Developing Markets: 6 Supply Chain Questions to Ask – Part 2

Last week we reviewed the first 3 questions to ask when establishing a supply chain in a developing market:

  1. How good are the estimates for market size and share, and the sales projections that are based on them?
  2. What is the preferred supply-chain model?
  3. How much is it going to cost?

This week we follow on with a discussion of the next 3 questions which you will need the answers to:

  1. Which skills will you require in supply chain and supporting functions?  It is going to be very difficult to answer this question before you have the answer to question 2.   At one end of the spectrum, a supply chain can be as simple as selling to an importer who has an established distribution channel in the market.  In this scenario, the supply-chain resources are likely to be limited to some degree of control over the logistics function, and possibly some product development support for licensing and registration.  At the other end of the spectrum is full manufacturing and end-to-end ownership of the distribution channel.  This approach will require the development of a large multifunctional team that has very significant cost and human resources implications.   A new market entry on this scale can overwhelm the ability of existing supply chain operations to provide the training and skills required.  An inability to recruit, develop and retain the necessary numbers of associates required has also been a key reason why market entries fail or perform below expectations.  It is not just the Human Resources function that will be impacted.  Finance, Information Technology and Legal/Regulatory organisations, not usually considered part of the supply chain will be similarly stretched, and can also be reasons why supply chains fail.  Be sure that the skills demanded by your supply chain model can be brought to the project.
  1. How long will it take?  Clearly this also depends on the supply chain model that has been chosen.  If physical facilities, such as factories, distribution centres and branches are required they will become a major element of the project’s critical path.  Regulatory and licensing can also be long lead-time items that are difficult to predict timings for.  Add in challenging weather conditions and poorly developed local infrastructure for roads, utilities and telecommunications and the risks to the project timeline grows quickly.  If you are looking for ‘first-mover advantage’ in a developing market, also be aware that it requires significantly more time and effort than following an already established entry route.  Do you have the depth of resources to maintain the effort?
  1. Will your supply-chain be attractive to your consumers, and secure from the competition?  In developing markets, you are, by definition creating something new.  The supply chain you create will in part determine the success of the new consumer proposition you are developing.  Will it provide products at a cost your customers can afford, where they want them, and when they want them?  Will the products look good and perform well when you get them there? In developing markets, these supply chain performance attributes can be your major strategic advantage.  Also important is the security of the intellectual property that differentiates you from potential competitors.  For consumer packaged goods, how easy is it to counterfeit the packaging and formulations?  Can the distribution channel you have created be exploited by the next wave of market entrants?  If you are using local manufacturers, will they produce and market products for rival companies? I t is probably impossible to defend against all competitive activities, but take care to identify which part of your business is essential to success and make sure it is protected.

There are of course many more supply chain questions that will need answering when entering a new market, but in our experience they stem from the decisions that will be made when answering those above.  New market entries are expensive and high risk: Using untried and untested resources at the crucial planning stage compounds the chances of failure.  Having experienced management support on the ground to provide the answers that best suit you is vital.

 

If you want to learn more about the Cosmapec approach to new and developing markets, visit us at http://www.cosmapecsupplychainmanagement.com

Developing Markets – Why Local Knowledge is Crucial

So you want to grow your business by entering a new market.  You’re well represented in the developed world, and your market research indicates your product will also appeal in developing markets. But, the legal and regulatory environment in developing markets is complex and varies substantially from country to country.  In some markets joint ventures are expected, or foreign ownership of strategic or politically important businesses is highly regulated.  Some business models, for example direct-selling in China, may come with heavy restrictions.  In other markets cultural factors may be stronger influences than the legal structures.  You also are aware that intellectual property rights are often considered secondary to the need for technological development and growth.  So how do you get the product there legally, at an affordable cost and keep your intellectual property intact?

The key learning from successful market entries is that there is no one right answer, and that the answer will vary from country to country.  There are however guiding principles. Maintain as much ownership independence as possible.   Ideally 100 % ownership, but if joint ventures are essential, ensure you retain majority ownership.  Be sure to maintain as much of the intellectual property in house by keeping key processes fully owned or outside of the target market.  Protect yourself, and do not expect the legal system or local officials to be sympathetic in the event of a dispute.  Foreigners or foreign companies are often considered rich enough to be able to absorb costs, even if the law is on your side.

Whilst legal expertise is essential in most markets to avoid the obvious miss-steps, make sure to also understand how the local bureaucracy will expect you to conduct business.  The written letter of the law, and the local implementation is often considerably different.  Winning the trust of local officials is essential, and particularly in Asia may require substantial investments in time to do this.  If you are competing against local businesses, the officials can often be accused of different regulatory treatment for foreigners.  This may mean they will need to show exceptional due diligence for your licenses and permits.

Local officials may also be under pressure to raise revenue targets, or collect more fees for permits, or simply to increase investment in their jurisdiction.  Knowing what is important to them, and how you can help contribute to their success is something you need to be aware of.  So if you don’t speak the local language and do not know how to gain access to these crucial decision makers, how do you do this?  Over many new market entries, in many countries, experience has shown that it needs a combination of skills: Firstly, the ability to understand the needs of companies expanding internationally, and particularly the requirements for transparent corporate governance; Secondly, experienced local associates who are directly employed by, or working exclusively for the benefit of the company.   Yes this all takes time, and the up-front investment can be high. However the costs of getting it wrong can be substantially higher.

 

If you want to learn more about the Cosmapec approach to developing supply chains in new markets visit us at http://www.cosmapecsupplychainmanagement.com