How global firms and local partners can work together

When large multinationals come to town they know they must work with local business partners. So they select one or more organisations to work with, entering into agreements on how each side will contribute and benefit.

It makes sense to combine the might of the global brand, with its established products and its formidable expertise, alongside the local knowledge, savvy and networks of the Kenyan partner.

But there are significant challenges to making such collaborations work smoothly and sustainably. Each side worries about the goodwill and good intent of the other, and building trust is no easy thing. Following a period of wooing and marrying and honeymooning, conflicts easily arise over two key issues.

First, over whether such relationships should be monogamous or polygamous. Second, publicly quoted multinationals are under enormous pressure to deliver quarterly numbers.

“The tyranny of Wall Street” is such that equity investors and analysts — not merely in the US — expect that come rain or shine there must be relentless growth. And this attitude is quite different from the more flexible, forgiving and longer term expectations of the local counterpart companies and their shareholders.

On the marital front, local companies look for mutually exclusive relationships. But many principals are reluctant to put all their eggs in one basket; their inclination is to indulge in “channel proliferation”, in order to “expand their footprint” and encourage competition, or at least complementarity, among their partners.

While one can understand that this is closely linked to their determination to deliver the ambitious numbers to which they have committed, in markets like ours the wisdom of such profligacy is often doubtful.

In larger markets, partners can specialise: by geographical area, by type of product or by customer segment. Here, however, such divide-and-conquer strategies can prove counter-productive.

Internal competition

Thanks to limited overall market volumes, local partners will find it hard to survive unless they are allowed to cover the whole spectrum of opportunities.

All partners feel forced to go for all the possible business and end up competing even more ferociously with each other than with representatives of other brands.

And since they are all offering the same products one of the few remaining ways of seeking competitive advantage is by cutting prices, as a result of which margins suffer. The principals have reduced them to offering what have become mere commodity items, however classy or sophisticated they may be.

With margins squeezed to the bone their ability to invest in the longer term development of their businesses is adversely affected and they may be forced to go for what sells more easily and quickly, instead of the larger, more challenging sales that offer higher margins but require greater investment in skilled technical and marketing personnel, involve longer selling cycles… and deliver nothing if such sales are lost.

When principals appoint multiple partners, existing ones feel betrayed. Their typical reaction is to repay the disloyalty by seeking other principals, equalising and reinforcing the promiscuity. Needless to say, this infuriates the big boys, who think nothing of imposing dual standards.

The multinationals are so focused on monthly, quarterly and annual numbers — margins as much as revenues — that it makes them impatient for short term results. So in their desperate drive to grow sales volumes they favour the next few weeks over the next few years. And when this happens it’s quite likely to damage the further prospects.

Another ploy that principals adopt in order to boost sales is to enter the market directly, establishing local offices that perhaps at first only support their partners but later may start competing with them, picking off the largest and juiciest sales opportunities, sometimes in collaboration with their appointees.

The idea is to boost the total market presence and share, without harming their partner business. But try persuading the sceptical distributor of this Utopian scenario.

Very understandably, the principal becomes unhappy when partners are sluggish or inadequately resourced. But almost as common is for the big boy to be unhappy if he feels a partner is becoming too powerful and independent.

Principals like to control those with whom they work and if they feel their local partner is flexing over-prominent muscles they’re quite likely to want to cut them down to size, particularly if they start marketing other brands (most likely lower-cost Chinese ones, that will sell more easily and in bigger volumes).

In the ongoing tussle over targets and turf, both sides can all too easily become frustrated and tetchy; for it takes great emotional intelligence to bridge the different perspectives about what each should expect to put into and get out of the business venture, now and into the future.

On the multinational side, territory managers come and go. Sometimes it’s an opportunity to improve relations, while for others it heralds a more turbulent era. Each time a new face appears on the scene the change is likely to be accompanied by a desire on the part of the newcomer to shake up what has gone before.

So to principals and to their local partners I say this: don’t enter into a relationship expecting to get the better of the other party. If you are aiming at win-lose, it can only succeed in the short term, and can only eventually end in lose-lose.

Discuss openly, respect one another, negotiate hard by all means, but agree a fair way of working together — into the long term. As with all relationships, unless each side is trustworthy they cannot expect to be trusted.

Unless all involved are generous and forgiving with one another there can be no successful future.

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