Entering international markets can significantly increase sales potential and market share—a US company entering into Europe (or vice versa) could approximately double its addressable market size, for example. For high technology companies in particular, Internet-based products and services can significantly lower the incremental costs, and hence risks, associated with international sales. Yet the rewards and additional profits from entering international markets must be balanced against the associated financial and legal risks, and the impact on the organization. This can be a barrier especially for small and medium enterprises (SME’s). Utilizing indirect sales channels, however, offers a proven solution by allowing companies to incrementally enter foreign markets, starting with a ‘toe in the water’ approach that can build on subsequent successes and enables rewards to greatly outweigh risks. It is critical that the company develops a realistic strategy, is committed, and has sufficient resources to support the initiative. Working through a company that acts as a bridge [i] that has the experience, contact networks, and track record in international markets is a very effective way to ensure success.
International sales can benefit companies in a number of ways by increasing revenue and profit, as well as increasing market share and exposure. For example, a US-based company that develops sales in Europe, Middle East, and Africa (EMEA) will approximately double its addressable market size (the same is true for a European company entering the US market). If the company’s COGS (cost of goods sold) is similar to that in the US, then its overall gross profit could increase significantly.
The impact on COGS depends somewhat on the type of products or services being sold. The Internet has positively impacted supply chain dynamics and enabled easier delivery into and support of overseas markets—this is particularly true for high technology companies selling software or hosted services, since there is little or no physical distribution needed, which overcomes many issues associated with import, export, and shipping. Good availability of high broadband speeds and relatively low latencies over transatlantic Internet connections means that Software as a Service (SaaS) products are particularly easy to sell and deliver internationally.
So, if the rewards for “doing Europe” for a US-based company sound attractive, what’s the catch? The most obvious is the effective physical barrier that is the Atlantic Ocean and perhaps over-extending the organization’s resources, but other difficulties include understanding and overcoming diverse cultural differences, language issues, as well as the potentially significant financial expense and legal exposure. An inexperienced company could be faced with many unknowns around these topics and have a ‘fear of the dark’.
A proven way to ensure that rewards are maximized and risks minimized is to launch initial international sales efforts using indirect sales channels with local partners and, depending on the overall strategy, move more towards direct sales over time. Utilizing a company experienced in acting as a ’bridge’ [i] that has the experience, contact networks, and track record in international markets can also be key to ensuring success and shedding light on the dark or unknown areas. Indirect sales can significantly reduce the risks by reducing the upfront costs, with longer term commitments being made only if and when sales successes are realized.
Indirect Sales Reduces Risks and Costs--the key factors in considering risk and cost are illustrated in the diagram above—in summary, it shows that starting with indirect sales significantly reduces costs for five key factors, reduces risks for legal, finance and cost of sales, and decreases time to market:
Santiva is fully qualified to offer this full range of bridging services and has a proven track record in achieving results for many companies
John Barton is a managing partner at Santiva www.santiva.net
International sales can benefit companies in a number of ways by increasing revenue and profit, as well as increasing market share and exposure. For example, a US-based company that develops sales in Europe, Middle East, and Africa (EMEA) will approximately double its addressable market size (the same is true for a European company entering the US market). If the company’s COGS (cost of goods sold) is similar to that in the US, then its overall gross profit could increase significantly.
The impact on COGS depends somewhat on the type of products or services being sold. The Internet has positively impacted supply chain dynamics and enabled easier delivery into and support of overseas markets—this is particularly true for high technology companies selling software or hosted services, since there is little or no physical distribution needed, which overcomes many issues associated with import, export, and shipping. Good availability of high broadband speeds and relatively low latencies over transatlantic Internet connections means that Software as a Service (SaaS) products are particularly easy to sell and deliver internationally.
So, if the rewards for “doing Europe” for a US-based company sound attractive, what’s the catch? The most obvious is the effective physical barrier that is the Atlantic Ocean and perhaps over-extending the organization’s resources, but other difficulties include understanding and overcoming diverse cultural differences, language issues, as well as the potentially significant financial expense and legal exposure. An inexperienced company could be faced with many unknowns around these topics and have a ‘fear of the dark’.
A proven way to ensure that rewards are maximized and risks minimized is to launch initial international sales efforts using indirect sales channels with local partners and, depending on the overall strategy, move more towards direct sales over time. Utilizing a company experienced in acting as a ’bridge’ [i] that has the experience, contact networks, and track record in international markets can also be key to ensuring success and shedding light on the dark or unknown areas. Indirect sales can significantly reduce the risks by reducing the upfront costs, with longer term commitments being made only if and when sales successes are realized.
Indirect Sales Reduces Risks and Costs--the key factors in considering risk and cost are illustrated in the diagram above—in summary, it shows that starting with indirect sales significantly reduces costs for five key factors, reduces risks for legal, finance and cost of sales, and decreases time to market:
- Cost of Sales—indirect sales channels will require a lower initial investment and operational cost—most partners will work on a results-based compensation scheme
- Legal and Financial—no direct presence in a foreign country and no local employees reduces both cost and legal risks. In addition, local partners usually can help with import and customs regulations if necessary
- Time to Market—many products and services have a definite time window of opportunity—indirect sales channels are usually faster to set up and the local networks of contacts that local partners possess results in quicker lead generation
- Customer Support—foreign customers will need assurance that their issues can be handled locally and in their own time zones. The least cost approach to this in the early stages is often to utilize local partners to provide first and sometimes second line support
- Commitment and Control—using indirect sales channels allows a company to dip its ‘toe in the water’ and see if international sales yield sufficient results before committing further. There is a downside to this approach, however, since the company will be dependent on third parties that may not be fully motivated
While indirect sales channels will significantly help the rewards to outweigh the risks for international sales, some investments will still be required, as would be the case for any new market that a company chose to enter. A defined and realistic market entry strategy will be required as well as development of suitable marketing materials and sales kits for partners. In addition, sales and technology training will need to be given to partners as well as a suitable customer support plan. And perhaps most importantly, the company needs to ensure that it has a well defined strategy that supports and justifies entering foreign markets—if this is not done and there is insufficient buy-in from the organization, the result could be failure to make international sales, overstretching of company resources, and a lack of focus in the company as a whole.
Typical Approach
- Develop the strategy for international sales: target markets, target countries, goals, budget and resource requirements ‘Toe in the water’—set up exploratory meetings with potential partners and present the company’s strategy and products
- Sign indirect sales agreement(s)—incorporating pricing model, compensation scheme, sales and customer support procedures
- Perform sales and technology training for partners
- Gain first customers—assist partner with key customer meetings and references as necessary (show to the first customers that the company has ‘skin in the game’)
- Expand sales activities (assuming initial success) with existing and perhaps additional partners and evaluate pros and cons of establishing a direct sales presence in certain markets
[i] A ‘bridge’ partner is one that can act as an intermediary between the company and the international markets. The bridge partner will need to have the experience, contact networks, and track record in international markets. The bridge partner can typically perform different roles in the overall approach described above, such as developing the market entry strategy, identifying and facilitating contact with potential partners and customers, and even performing sales activities.
Santiva is fully qualified to offer this full range of bridging services and has a proven track record in achieving results for many companies
John Barton is a managing partner at Santiva www.santiva.net
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