International Trade/Offshore Manufacturing/Sourcing/Export/Import/Consulting Don't Give Away Too Much By Mark Towery If you are doing business in Asia-Pacific, it is likely that your competitive advantage lies in your technology. The rapid economic growth the region has experienced is creating an increased demand for technologically sophisticated products. Joint ventures, technology transfers and licensing arrangements all create business opportunities. The key is protecting your core competencies while you expand your market share. Sharing of technology is often the admission price for entry into a foreign market. But if you give away too much technology and get too little market share, you create a competitor and lose on both accounts. Intellectual property rights will not protect you fully, because even in the more sophisticated markets, you have little recourse unless you have a strong local presence. A strategy that creates win-win business partnerships, and balances the trade-off between management control and market expansion is essential. But developing such a strategy is easier said than done. Recognizing that international partners want production as much as technology, U.S. aerospace and defense firms have for years utilized a model referred to as "economic offset." Since the hard currency required to purchase sophisticated aircraft systems creates a drain on the economy of most countries, U.S. firms often offer the purchasing governments the opportunity to economically offset the purchase price by allowing local firms to build components and subsystems. If this production is "bought back" by the selling firm, this is referred to as a direct offset. This production effort often requires that substantial technology and manufacturing know-how be transferred to local industry, for which the selling companies receive additional "offset credit" from the purchasing government. Typically, selling firms attempt to limit the level of advanced technology they share, but are always under pressure by the local governments to offer more. The advantages to licensing production is that it helps build strong alliances with local firms that will push for the sale of your equipment into the country. In the long run, these partnerships can even help to rationalize production costs, but there is always the threat of giving away too much and creating competitors, an issue that was hotly debated when General Dynamics entered into an agreement to jointly develop the FSX fighter with Japanese industry. However, if you are not engaged in selling multi-million dollar aircraft to a foreign government, you have to develop your own markets or partner with a good local firm. Buying your way in with your technology is a short-sighted approach. In developing a sound strategy, step one is to evaluate just how advanced your technology is, and the relative sophistication of your target market. Obviously, your firm's available resources will be the ultimate deciding factor in developing a strategy. But limited resources should not drive you into taking a risky market entry approach. If your technology is sophisticated, you have a tremendous market advantage. But if your competitors are also sophisticated enough to replicate it, you need to maintain control of your technology. If you can't afford a local presence, you shouldn't license a potential competitor. You may be better off sticking to a distributor without the manufacturing expertise to copy your design. However, in less advanced markets, you can afford to license production to expand market share without risk of giving away your core technology. This can be one of the strongest entry strategies. You empower your business partners with the ability to help you saturate the market, but you don't risk creating competitors. If your technology is not overly sophisticated, but your product is unique, you may be best advised to stay out of sophisticated markets, unless you are willing to sell out to a large competitor. In less sophisticated markets, you may want to buy into a local manufacturer to maintain control, or simply hook up with a large distributor. The exception would be where you command global brand equity, and it is the name and management system rather than the technology you are licensing. In all cases, selecting a local partner that matches well with your business interests is key. They must have good market presence, and the ability to assist you in adapting your technology to local standards, as well as navigate local regulations and certification requirements. Additionally, they must have complementary, not competing business interests. If they are a manufacturer, one way to strike a win-win deal is to license back some of their technology for distribution in the United States, or to enter into a co-development program, preferably involving equity sharing. Often technological advantage lies in low rather than high tech capabilities. Manufacturing and management know-how are the selling point. Service industries, such as environmental or construction engineering firms, are a good example. Since it is service you are selling, you need to maintain management control. In this case, a local partner may be essential in providing labor intensive assistance and marketing presence, but expatriate management is necessary to complete the task. Often the best market entry strategy is no direct market entry at all. If your technology is typically embedded in larger equipment items, let the OEMs be the pioneers. The key is to develop a partnership with a strong U.S. OEM and work to adapt your products to foreign markets. Once you have established some credibility in the local market, you can begin to attempt to sell directly to foreign OEMs. For example, if your software is used primarily in flight simulators, work with a major aircraft manufacturer to adapt it to a foreign market. Americans are predisposed to a pioneering approach. Giving away today's technology is considered a minimal risk since new innovations are expected to drive future markets. The Asia mentality is that pioneers catch the arrows, the value added is seen to be in production, and market domination the preferred strategy. If you give up your core technology without gaining significant market presence, you are better off staying at home. Mark Towery is managing director of GeoStrategy Partners, an Atlanta-based firm with affiliate offices in the Pacific Rim, Europe and elsewhere that assist companies in developing overseas sales and marketing strategies. E-mail Advertise on this site Put your company on this site!