Is a Local Partner Necessary?
Southeast Asia (SEA) has been in the eyes of many businesses for a long time. With the countries opening their markets and prioritising economic goals, everyone is gunning for a slice of this huge pie. Despite this, many businesses fail to successfully capture their target markets. Even Uber, the ride-hailing world leader, decided not to compete with local competition such as Go-Jek and Grab in SEA.
A local partner can help a business effectively penetrate these attractive markets for the following reasons:
The SEA market is highly driven by close relationships. People in SEA are relational and can make decisions based on these relationships. Familiarity is important to them as trust is the key factor. Economic benefits are unlikely to be enough in winning locals over during negotiations.
When introducing a new product into the market, the familiar factor will be the party selling it. This does not just apply to sales, but all other stakeholders such as finding investors and suppliers. The locals are often apprehensive of new products and doubt the true values unless they are proposed by someone trustworthy.
A local partner can bring along a wealth of past relationships with the stakeholders, which is critical for any business looking at entering SEA. Without these relationships, it will be nearly impossible to close big deals and building them will be time-consuming. The underdeveloped databases will be a huge hindrance to even finding the right people.
SEA countries are also known to have strong local cultures, with some varying even among villages. These cultures set the expectations locals have for businesses and thus, respecting these cultures can be more important to the locals than plain economic benefits. The complexities that come with such a diversity of cultures cannot be simply solved by interpreters or online studies. Local partners help to bridge the gap and deal with the vast range of locals, allowing businesses to gain the trust of locals in the most efficient manner.
Furthermore, while English literacy is growing in ASEAN, majority of daily conversations still happen in native languages. Local partners can ensure that the translations can bring across the intended messages to the target audience effectively.
One of the largest obstacles to economic growth is weak regulatory frameworks rampant in many ASEAN countries. With corruption still present in some regulatory systems, someone who is unfamiliar with the system will be likely to face costly challenges. For example, application processing is slow in many ASEAN countries due to the underdeveloped systems. This can lead to huge inventory costs and even opportunity costs as competitors can capture the available markets.
Local partners will understand how to deal with these matters by having experiences in the country. They will know how to speed up external processes through relationships, which are unavailable to the foreigners. They will also be familiar with the complicated legal matters to prevent accidental legal infringements that can be costly in terms of financial and reputation.
How to Find a Local Partner?
The idea of finding a partner in a foreign country can sound arduous and risky. Here are some practical steps to finding a partner:
There are various business development agencies in SEA that help to form ecosystems for partnerships. These can be useful as agencies tend to recommend trustworthy partners, which is crucial for any business that intends to move forward with the related matters quickly.
Apart from individual partners, businesses can turn to the growing Venture Capital (VC) firms to seek strategic investors who have valuable experiences in building businesses in this region. They also hold other companies that can provide complimenting products with an existing customer base, making it easier to penetrate the market.
When forming a new partnership, the onus is on the business to understand the culture of the partner to build the relationship. It is important to give respect to the local partners and not be too aggressive. Certain cultures require expectations for gifts and yet even with these gifts, there are conditions laid out that must be researched. Businesses can use this link to understand the behavioural adjustments to be made when meeting a partner to increase the chances of securing a partnership.
For VCs, since they are investors, businesses must be able to pitch their value propositions effectively. They need to convince VCs that there will be attractive returns that will follow their investment and that the business model fits the existing portfolio of the VCs.
Negotiation for an initial partnership agreement can be tedious. However, it is common in SEA and is a necessary skill for any business looking to enter SEA, even for deals with customers.
What is Necessary When Forming a Partnership?
A robust framework for a partnership is significant to ensure smooth business operations and efficient decision-making models.
1. Making clear agreements
Due to the weak regulatory frameworks, written contracts are sometimes viewed as a guideline to the partnership. This calls for a strong relationship between partners to prevent any disputes from arising. Making clear agreements and separations regarding matters such as ownership and IP rights will help in clarifying disputes and expectations.
However, businesses must maintain a low level of assertiveness to prevent offending partners which may blow disputes out of proportion. Structuring the partnership such that the partner has a stake, rather than upfront fees, serves as a motivation to fulfil their responsibilities properly.
For effective business operations, it is also important to define roles clearly so that disputes do not break out over accountability and responsibility issues. This can be detrimental to the relationship as it may cause the business to fall apart regardless how attractive the business is. It is also critical in partnership with VCs to understand which party has the final say.
2. Technical Requirements
Always understand the technical requirements for the business model to work and ensure that the business partner can satisfy these requirements.
Majority of the startups today are tech-related with specific infrastructure requirements. Ensuring the partners to provide that infrastructure locally is vital as incompatibility of infrastructure can cost heavily on funding, resources and time.
Businesses should also find partners with legal expertise or experience if intellectual property (IP) is critical. Enforcement of regulations in SEA countries can be quite complicated and inefficient. A knowledgeable partner will be an invaluable asset with the capability of expediting enforcement actions to prevent opportunity losses.
Expanding into a new country is never easy, not to mention a culturally fragmented region like SEA. Businesses must be clear on their goals and what they need to achieve those goals while mitigating risks. This will set the values to look for in partners who will then help drive the businesses to greater heights.
About BlackStorm Consulting
BlackStorm Consulting (http://blackstormco.asia/) is a boutique growth consultancy firm that specialises in corporate strategy, profit management and investment management. We mainly serve clients in four sectors: FinTech, Gaming, Technology, Media and Telecommunications (TMT), and Manufacturing.
Our clients and connections are internationally present and range from small and medium sized businesses, MNCs, to government agencies.