Exporting Your Services

Working with Strategic Partners

Partnering is often the best way for service firms to do business in foreign markets. Companies that set up partnerships and alliances find that while there are risks, the rewards of partnering usually outweigh the risks and make for a worthwhile market entry strategy. Partnering may be a preferred approach for professional service providers who can then work under the license of the professional partner. The following 13 questions and answers provide tips on how to make partnering successful:

When should I work with a local partner?
What are the risks of working with a local partner?
What are the rewards of working with a local partner?
What types of partnerships and alliances should I consider?
What about public-private sector partnerships?
How can I find a potential partner abroad?
What criteria should I use in choosing a local partner?
What steps should I take in selecting a partner?
What issues should I cover in a Memorandum of Understanding between partners?
What are the common problems in working with local partners?
What if we are instructed to partner with a particular local firm for political reasons?
How can we keep a local partner from stealing our intellectual property?
How can I make sure a partnership is effective?

When should I work with a local partner?

Working with a local partner is beneficial when you want to:

1. Enter a target market rapidly
   Aligning yourself with an established and respected market leader can give you immediate credibility, making it easier to develop business. Also, you may be able to subcontract to your local partner and earn revenues almost immediately.


2. Reduce operating costs
   Sharing office space, using local staff, and reducing travel and communications costs all help reduce your costs.


3. Meet regulatory requirements
   Some markets require that you have a local presence or joint venture agreement with a local firm, or a locally-issued license, in order to sell into their market.


4. Provide a local contact for your customers
   Working with a well-known local partner can make your services seem more convenient and increase customers’ comfort in buying from a foreign firm.


5. Increase your market knowledge quickly
   Working with a local partner is an easy way to make sure you learn and understand local culture and business practices.


6. Expand your network
   You should be able to access your partner’s contact network and become known more quickly.


7. Provide a unique “bundled” service
   By combining complementary service expertise, you have the opportunity to develop a unique service to meet customer needs in a “one stop” fashion.

You may also want to explore options for online collaboration to offer customers a one-stop service.

What are the risks of working with a local partner?

• The credibility and reputation of the local partner is yours by association.
• There may not be a match in terms of compatibility and commitment.
• There may be challenges regarding intellectual property.
• The local partner may not be willing to make the time commitment required to nurture the partnership.
• If there are disputes, it may be challenging to get a fair settlement.

What are the rewards of working with a local partner?

• If the local partner has an excellent reputation in the market, you gain credibility by association.
• Potential for a low-cost local presence.
• Provides a bridge for cultural and language differences.
• The local partner may meet professional accreditation requirement.
• Complementary skills can provide a breadth of technical expertise.
• The local partner may operate under tax advantages not available to foreign firms.
• The local partner may provide the necessary legal status in the target market, including eligibility to bid on local government contracts.
• The local partner may have the connections to deal with the local authorities on taxes, customs, visas/entry permits and collections.

What types of partnerships and alliances should I consider?

The term “partnering” is used to loosely describe strategic alliances, partnerships, joint ventures, teaming arrangements, business networks, and coalitions. Some of these arrangements will be “one-off” contract driven agreements, while others will be collaborations for longer periods of time. They include:

1. Horizontal alliances
   Horizontal alliances are comprised of firms in the same industry working together to achieve scale economies, to cover multiple time zones and locations, or to supply niche areas of expertise.


2. Vertical alliances
   Vertical alliances are relationships among organizations in different industries developed to provide one-stop customer solutions. This approach allows smaller service firms to combine their skills and compete with much larger, more diversified organizations.


3. Business networks
   A business network is a group of already successful small and medium-sized enterprises (SMEs) that cooperate and collaborate to seek new business opportunities. In this case, SMEs partner to achieve competitive advantages of scale, scope, and speed in order to compete with larger, more diversified organizations.


4. Teaming agreements
   A teaming agreement is usually a project-oriented effort where firms work together at different points in a project but have no further business commitment to each other.


5. License agreements
   A license agreement is a contract granting certain use or production rights relating to a technology or idea to specified parties for particular uses under agreed-upon time frames.


6. Joint ventures
   A joint venture is an initiative between two or more companies in which a separate corporate entity is established. The new company then requires the expertise of all partners to reach its goals.


7. Strategic alliances
   A strategic alliance is a long-term relationship between firms with complementary resources that decide to cooperate in an equity or non-equity relationship in order to reach an objective that neither could accomplish alone.

What about public-private sector partnerships?

Canadian services firms in sectors such as engineering, architecture, construction, legal, and management consulting can provide cost-effective, innovative solutions for public infrastructure projects and services through public/private partnerships. When done properly, public-private sector partnerships (P3s) offer promising new business opportunities for Canadian services firms.

Within an international context, the range of partnership options is extensive, including those made up of primarily Canadian companies, a combination of Canadian and foreign target market companies, or groups that include third country participants. Partners may find themselves in a more competitive position as they:

• Bring together strengths in the technical aspects of the services to be provided.
• Gain benefits from operating together in the target market.
• Find it easier to finance the project.
• Find ways to better handle the issues of long-term management.

How can I find a potential partner abroad?

Service firms often find potential partners in their immediate circle of contacts, through referrals by their industry association, or through government representatives in local markets. Regional Canadian Trade Offices often have databases of local firms interested in partnering. Other less direct ways of finding partners include browsing through industry publications, news items and stories in the media, or lists of recent contract awards. Another good method is to search online company databases. Once a potential partner has been identified, it is important to carry out any work necessary to determine whether the proposed partnership is a good fit.

You may find it helpful to participate in networking activities in target markets that are organized by sector specific industry associations, local Chambers of Commerce, service clubs, or other business organizations. The social introduction is particularly important when working in Asia, Latin America or Europe, just as membership in a service organization or the right golf club may be important in North America.

What criteria should I use in choosing a local partner?

Not all firms interested in partnering with you are necessarily good choices. You need to make sure your local partner is well-respected so you will gain respect and status from the association. Look for a partner who:

• Has values and philosophy of doing business matching your own.
• Has staff who work well with your staff.
• Has core skills complementary to your firm’s skills.
• Respects your expertise and believes there is a benefit in partnering.
• Is willing to invest time and resources in making the partnership work.

Keep in mind that your local partner will also want to work with you in Canada, so pick a firm that will make you more competitive domestically as well.

What steps should I take in selecting a partner?

1. Identify the skills needed for the tasks or project.
2. Identify the strengths and weaknesses of each party involved and what each can bring to the partnership; effective partners should complement each other’s strengths and weaknesses. Each should be appreciative and open in recognizing partner contributions and be understanding of each partner's objectives.
3. Find some way to test the working relationship before finalizing the partnership agreement.
4. Negotiate the partnership agreement terms in plain language before involving lawyers in order to test and build the working relationship.

It is better to move cautiously than to jeopardize your firm’s credibility and reputation by entering into an inappropriate partnership or failing to nurture a good partnership.

What issues should I cover in a Memorandum of Understanding between partners?

1. Scope of work and deliverables
2. Time frame and milestones
3. Contract amount and payment terms
4. Conditions of working together:
   • No assignment of work to other parties without agreement
   • Treatment of proprietary methodologies
   • Ownership of jointly-developed intellectual property
   • Confidentiality constraints
   • Timeliness and quality of work
   • Management of the relationship with the customer
   • Termination provisions
5. Each party guarantees it :
   • Possesses the necessary skills and resources
   • Complies with labour and tax laws
   • Has insurance coverage
   • It is not in a conflict of interest
6. Applicable laws governing disagreements and methods of resolving disagreements

What are the common problems in working with local partners?

There are a number of problems that can arise if you have not selected your partner carefully, and have neglected to establish basic ground rules for working together:

1. Different market positioning
   Market image and operational priorities are linked to market positioning. If your partner is positioned differently than you, you may not be able to create and sustain the type of market image for the service you are offering.


2. Different work styles and standards
   You will have difficulty in meeting customers’ needs satisfactorily if you and your partner disagree on matters like timeliness, service quality, etc.


3. Creating local competitors
   If you choose a partner with the same core skill sets instead of complementary core skills, you may find you are creating a local competitor through your partnership.


4. Lack of investment in the partnership
   Any successful partnership requires an investment of time and resources, otherwise it will fail.


5. No “exit” agreement
   Market conditions and company priorities change over time. If you have not made provisions ahead of time for how you can end your arrangement, you may find yourself caught in an unprofitable situation.

What if we are instructed to partner with a particular local firm for political reasons?

This is a not uncommon situation. Often such a partner has excellent local connections so a focus on that partner's strengths can help. The main thing is to be realistic about what you can and cannot achieve in the alliance.

How can we keep a local partner from stealing our intellectual property?

Generally speaking, it is very difficult to actually patent or protect a service concept. There are two things to consider. First, if you select a partner that recognizes the value you bring to the relationship, they may not find it worthwhile to try to replace you. Second, if you continually innovate, the “stealing” won’t matter.

How can I make sure a partnership is effective?

The most critical thing you can do is to “test out” the working relationship before you become publicly identified with your local partner. It is worth the effort to contract with various candidates to provide services to you so you can see how they really do business. Other strategies that help include:

• Creating a formal “obligations statement,” defining roles and responsibilities.
• Creating specific milestones and deliverables, and tracking progress against them.
• Building in partnership evaluation at regular intervals.
• Making good communication a priority.

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