Internationalization by creating a strategic alliance with distribution partners

Abstract

Abstract

This bachelor’s thesis studies how a company that is a manufacturer and supplier of its own products can bring these products to foreign markets by creating supplier partnerships with independent distributors in the form of a strategic alliance. There are many forms of co-operative internationalization, but in strategic alliances both parties work together towards a common goal and companies can tap into some of the advantages of vertically integrated systems while retaining their independence. Supplier partnerships can be very profitable for both the manufacturer and its distributors if they are together able to reach markets, customers, and efficiencies otherwise unattainable on their own.

A manufacturer that supplies its products to local distribution partners can gain several advantages through being able to utilize its partners capabilities and resources. It has been proven that having a local partner company can help foreign companies immensely in successfully entering an unfamiliar market, and it can sometimes even be a near requirement. The local distributors have irreplaceable knowledge, contacts, and experience in the market, ---(cut?) and by co-operating, a manufacturer can right away obtain vital information that takes years of experience in the country to gain. Manufacturers can also lessen the risks and costs involved in investing to foreign markets by using local distributors’ established logistics operations, instead of creating their own subsidiaries from scratch.

The capabilities and compatibility of the partners is a crucial factor for the alliance to thrive. It is better for companies to be able to focus on the things that they do best and not to try and cover for all the areas by themselves. This is why partners need to possess the capabilities a manufacturer is lacking in but needs for entering the foreign market. Another side to the compatibility is to have aligned long-term goals because this will lead to mutually beneficial decisions and neither has incentives for selfish decisions that harm the other.

There exists a trade-off between having a partner with maximum capabilities or having a partner that is motivated to help the manufacturer in conquering the markets. The more powerful a distributor is, the more it wants to control all the different suppliers and to keep them in a stable competition between themselves. A smaller but ambitious distributor is more likely willing to exclusively serve one manufacturer to the best of its capabilities.

Choosing the right markets also is a decisive success factor. A manufacturer should consider the size of the potential market for its products, the competition in the industry, and the specific difficulties in entering a certain market, such as legislation and both cultural and geographical distance.

For partnerships to succeed in the modern global economy, manufacturers need to work closely together with their distributors while sharing information and properly committing to invest and help each other. Both need to fully understand themselves, their partners, the customers, and the products.