International ventures: You've gotta have friends

June 2003

Venturing into an international business market is a lot easier with a friendly overseas partner, say Bell Gully partners Simon Martin and Wayne Hudson.

When you venture into the global marketplace, going it alone is not an option.

Setting up a global empire will quickly blow your budget, no matter how good your product.

Even at the height of the dotcom boom, a network of overseas offices bled one set of NZ entrepreneurs dry before they could gain traction in their chosen markets.

This advice may seem at odds with recent research by Trade New Zealand and UCLA's Anderson School of Business, which suggested that New Zealand companies needed a physical presence in the US in order to succeed.

However, on closer reading, the research is clear - while an onshore presence helps networking, the preferred operating solution involves a partnership, alliance or agreement with international distributors or manufacturers.

In the biotech sector, for instance, the research recommended that a collaborative cluster of NZ companies be formed before a US presence was established.

If establishing a physical presence of your own is not an option, there are other ways that you can access the expertise that you need in an overseas market, including:

• Choosing a distributor
  
  
• Setting up a joint venture
  
  
• Securing venture capital support
  
  
• Selling or licensing your intellectual property

The simplest option is to secure an overseas distributor. While this may reduce your potential return, you will save time and money by buying the overseas skills, contacts and systems that your product will need.

Consider carefully the rights that you grant your new partner, such as exclusivity or territory. You should make sure that continued rights are linked to satisfactory performance and that you can continue to use any structures, trademarks or contacts if you decide to change distributors.

To set up a successful relationship, you need to pick the right partner. You need to know who you're dealing with, what their capabilities are, what you can reasonably expect from them and how you can run that relationship remotely.

Success is also much more likely if your partnership is a win-win situation. If your partner has the right incentives, the deal becomes self-regulating: they want to do well because it's in their interests too.

The right partner can also relieve you of some of the background work. For instance, if you team up with a large pharmaceutical company, then they will have the resources and the experience to handle any local regulatory requirements and IP in most countries.

Maybe you can team up with a smaller local company whose products will be complemented or enhanced by your offering. You immediately gain access to their distribution networks and contacts, as well as their local knowledge.

An obvious word of caution: when dealing with any company, make sure it's in their interest to sell your product, not to kill it.

So how do you find the right partner? If you're dealing in a specialised field like biotechnology, it narrows the field of candidates - which actually makes it easier.

There are a number of ways. Local researchers, institutes and associations may be a good place to start.

Biotech leads may also come from patent attorneys, professional specialists, and the technology/biotechnology divisions of large law and professional services firms.

If you have a killer product or application, you may want to enter into a joint venture with your partner, rather than a simple distributor agreement.

This gives your partner a stake in future success, making them keener to work for your best interests. A joint venture contract should allow you continuing rights and to develop or terminate the partnership as your market develops.

If you have been successful in securing venture capital (VC) in an overseas market, it's likely that your VC partner will require a local partner or employee to run the offshore business. Again, this agreement buys you the skills and experience that you need.

The final business model is perhaps the most brutal - sell or license your rights or intellectual property to an overseas producer. This may suit those who simply want to get onto the next product or idea.

The sale can generate a lump sum or a continuing royalty stream, depending on how you structure the deal. You could also be contracted to provide continuing R&D or product updating.

Even if you do set up a successful partnership, you will need local professional advice to ensure success.

When it comes to the tricky stuff, ask your professional advisers for help. Talk to your lawyer, your banker and your accountant, and drain them of their ideas and experience.

Some of the areas you need to consider for professional advice are:

• Trade regulations and quotas
  
  
• Scientific regulations, if applicable
  
  
• Import and customs controls
  
  
• Protecting intellectual property
  
  
• Company registration and regulation
  
  
• Advertising and consumer regulations
  
  
• Employment issues
  
  
• Privacy constraints
  
  
• Financing and currency exchange
  
  
• Immigration rules
  
  
• Tax implications
  
  
• Export guarantees and payment protection

Your advisers can also recommend overseas advisers if you need professional services offshore.

It's obvious that international work requires time and money. There's an added element of risk because you can't do it all yourself, even if you want to, but you can reduce that risk substantially by doing your homework.

Check your global aspirations

Before you even look for international partners, you need to be sure of your business strategy.

First, you need to be clear and honest about your reasons for going global. Before you get on the plane, you need to know what you want, for both yourself and your product.

You also need to examine your product at its purest level. The reasons for its success in New Zealand may be its downfall overseas, and you need to know how to promote it to potential partners.

You can gain valuable advice and export assessments from Trade New Zealand and its international network of trade advisers, which offer a useful service to fledgling exporters, providing contacts and market intelligence.

Trade New Zealand's Beachhead Programme also offers a cost-effective solution to the problem of an offshore presence.

Beachheads provide premises for visiting NZ companies and employ local staff to provide market intelligence, local knowledge and contacts.

Two beachheads are already operational: The New Zealand Technology Centre opened in Singapore last year for IT, communications and biotech exporters into Asia, while a marine industry beachhead was established in Fort Lauderdale late last year.

Next, a quick warning against megalomania, as even Bond villains trip up when they try to rule the world. Put bluntly, many companies fail by trying to take on too many markets at once.

Maybe your product is only truly suited to one or two select markets. Perhaps it may be wiser to trial in one market closer to home geographically and culturally to test your ideas and plans before you leap into riskier waters.

A common mistake is to leap straight into the American market, a very difficult market to crack. In the biotech industry, US competitors are extremely well-funded with overflowing R&D war chests, adding to the difficulties.

It may be easier to work your way around the world in small steps. By starting in Australia, you enjoy the benefits of proximity and familiarity, as well as access to larger VC funds than are available in New Zealand.

After that, your next step may take you to Singapore and then on to the UK. Despite the changing nature of the UK-NZ relationship over the past few years, the UK is much more familiar with NZ ways and skills.

The UK is also a great place to buy the expertise and connections needed to crack Europe, a market comparable to the US/North American market. Success on this trail will put you in a much better position to think about tackling Uncle Sam.

Five tips for international expansion

• Don't go it alone. Buy the expertise and contacts you need through partnerships.
  
  
• Know what you want to achieve before you get on the plane. Get your ideas clear before you go looking for partners.
  
  
• Know your product. Think outside the box so that you can match your product to each market.
  
  
• Don't try to conquer the world in one go. Despite the hype of the global marketplace you need to target the right type and size of markets for your product.
  
  
• Don't underestimate the culture shock. Even in the same language, subtle cultural differences can trip you up.

How do you find a lawyer overseas?

1. Check with your NZ lawyers. They may have contacts or be able to recommend a suitable firm.
   
   
2. Speak to Trade NZ offices, both here in New Zeland and in your markets. They can pass on recommendations from others.
   
   
3. Use your other professional networks for referrals. Ask your accountants and colleagues in local associations and societies
   
   
4. Call the local bar association or law society. They can give general information about legal services and provide lists of registered practitioners.
   
   
5. Consult international legal directories. Use directories that research their results rather than simply reprinting marketing blurbs.