As the world’s most populous continent, the countries within Asia can vary much with regard to environments, growth rates, cultures, level of maturity, etc. The government systems also look often different in the countries. Therefore, a clear understanding of each market’s characteristics is essential. The same business model with a uniformed approach may not be effective in all markets.
The pattern for expansion into Asian markets by European companies is often done in a more opportunistic and less structured way. Apart from the long distance from Germany or Netherlands, for example, to Asia, cultural differences, languages barriers and local bureaucracy can make it more difficult to reach the Asian market. Due to these obstacles, the most common go to-market option for SMEs entering Asia is via indirect sales channels, i.e. a distributor-driven model through local agents or distributors.
Although it is the most popular “first” choice of starting the internationalization process into Asia, this distributor-driven model is actually showing a number of limitations, negatively effecting the results. In the remainder of this article we will discuss these limitations of the distributor-driven model. In our next article we will present the key success factors for SMEs in Asia to overcome these limitations.
The limitations of the distributor-driven model
- Choosing the right distributor/agent
It often happens that European SMEs are not happy with their current distributor/agent due to poor sales generation. One of the most important reasons behind this, is a common mistakethat European SMEs make during the selection process of the distributor/agent partner in Asia: not doing the proper homework. For example, quite often SMEs found partners spontaneously during a trade fair or other events, which is in itself not a problem, but what is often missing is a thorough analysis of the chosen partner.
- No direct customer contact
Passive approach to local sales by not having your own feet on the ground entails a risk that your distributor is less focused on your product. Especially if they are working with other companies or brands as well. In many markets, there can be common client expectations, such as quick after-sales service or technical support. A distributor should have the capabilities to meet these common client demands.
- Limited business development
Distributors typically sell within their existing distribution network and industries. They can be strong in their current segment, but have difficulties in evaluating new business potentials and expanding horizontally to other business segments.
- No knowledge building in-house
Utilizing a distributor’s local knowledge, contacts and networks, market insight will remain second-hand sources and the potential for developing in-house capabilities and market knowledge is limited for the European SME.
- Communication Issues
Unsuccessful cases often have lacking communication between the SME and its Asian distributor. This can be due to language barriers, but also differences in corporate cultures, etc.
- Other considerations
Proactive SMEs that are ready to set up direct sales, or are in a position where they have successfully established a distributor-driven model, ready for the next step, are facing other challenges for successful market entry. One of the key challenges is the scarcity of own resources, both financially and/or in terms of manpower. SMEs entering Asia often need to find the most effective way to deploy limited resources in order to grow and compete in the market. For many SMEs, there is a built-in conflict in the model for expansion: in order to get local traction and start up successful sales growth, a local presence or “feet on the ground” is needed. Local presence signals commitment, access and local technical support, which can be a decisive factor for a potential Asian client.
However, in order to justify direct sales resources locally and put feet on the ground, the company needs proof in terms of sales or a first project. Full time employing own resources is a big risk if sales do not take off. This leaves many companies with opportunistic sales only. How can European SMEs overcome the above-mentioned challenges? What are the typical key success factors for SMEs in Asia? Stay tuned for our next article, where we will address these questions!
If you have further questions about the above subject, please contact us
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- What challenges do European SMEs face while establishing sales in Asian markets? The limitations of the distributor-driven market expansion into Asia.
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