While strong relationships play a central role in all international trade, in the emerging markets context they are even more critical.
This is due in great part to the weaker rule of law in emerging markets. Where commerce does not have as strong of a legal system to lean upon in managing disputes, companies must depend on other mechanisms to enable a productive environment for commerce and trade.
So they do business with those they know and trust, not simply as a matter of preference, but as a matter of survival.
This post looks specifically at how to manage commercial relationships in emerging markets, even through difficult waters.
1. An ounce of prevention beats a pound of cure.
Investing in healthy, strong commercial relationships is the best way to avoid having to manage difficult situations later. Be conscientious to always communicate respect for local culture and the company. Make sure to visit people with whom you have key business relationships in person at least once a year, and preferably more frequently.
When your international trading partners have not seen you, they may start making business decisions without taking you into account. They may simply forget about you, or more insidiously, figure that you will never find out about some of their decisions.
Sometimes even the most proactive, positive relationship management does not result in harmonious relationships. However, that does not mean that you cannot work towards a turnaround.
I will illustrate these tips with a recent experience at SH International LLC.
A few months ago, a Middle Eastern health and wellness distributor asked us to provide relationship management services with a North American supplier—specifically, relationship intervention in a troubled situation. Essentially, a North American company which owed them a large shipment of goods had been acquired by another North American company.
The acquiring company denied any claim that the Middle Eastern distributor had relating to the paid for and not received goods, stating that they had not acquired the liabilities of the acquired company. The situation was set to escalate in a very negative fashion.
2. Do not ‘evergreen’.
Evergreening in this context means spending money in an attempt to hide or ineffectually fix the problems of a troubled investment that has already been made. This is also known colloquially as ‘throwing good money after bad’.
Don’t invest more resources to fix a problem unless you’re sure the benefits will exceed the costs.
For instance, before bringing in lawyers, consider whether the time and legal expenses will be worth the likely recovery.
Cross-border ligation procedures can be very lengthy, cumbersome, and ineffective, especially in the emerging markets context.
The Middle Eastern distributor was extremely upset, wanting either the original paid-for shipment, or the money they had sent. They understood from our earlier counseling that, in their specific circumstances, the recovery from entering cross-border legal proceedings would likely exceed the costs involved. They needed to take an alternative recovery strategy.
3. Always point to the common benefit in moving forward.
Anyone who has been in international trade long enough has been in situations that are not going smoothly or even in accordance to contracts. In such a situation, it is better to focus on future positive outcomes of turning around the situation rather than taking a threatening or adversarial tone. This could be as simple as pointing out that a smooth working relationship will lead to an expanded trading relationship in the future from which both companies will greatly benefit.
I contacted the North American supplier. I relayed my understanding of the situation to the representative managing the issue, making it clear that I was not making a judgment on which company was in the right and that my involvement would be limited to seeing if I could provide them with a solution to move forward on a positive note.
I told him this was an incredible opportunity to work with one of the premier distributors in this international region, and that I knew several North American companies dreaming about such a chance. Instead of viewing this as an adversarial situation, I suggested he take advantage of the opportunity to establish incredible sales volumes in the region without having to invest the vast resources that other companies have had to in order to snag such opportunities.
4. Take a long-term view and keep things positive.
Avoid taking a narrow transaction perspective in any relationship.
Understand that the potential value creation is not limited to the transaction at hand, but is also in the ten or one hundred transactions that can follow if a great relationship is put in place.
One specific suggestion I gave the North American supplier was that he could put a distributor agreement in place with the Middle Eastern company and not charge for the first shipment of goods as a gesture of goodwill. By doing so, he could establish a very profitable distribution channel.
I opened his eyes to the fact that turning around this relationship could mean dollar signs for his company, and he needed to think beyond the contentious small shipment of goods to see the bigger picture.
5. Bring in an external perspective.
Sometimes, outsiders can broaden your perspective about the issue at hand, and find outside-of-the-box solutions that can solve your problems. They can also intervene in situations where the two parties are no longer able to have a conversation together without further disintegration of the situation.
When we initiated the conversation, the supplier was ready for a battle, and when we ended it, he was eager to engage and profit from a positive, mutually-beneficial relationship with the Middle Eastern distributor. He even wanted to learn more about how he could work with SH International, moving this beyond a win-win situation to a triple win!
Do you have other examples of how positive relationship management decisions can result in profits and growth opportunities in international trade? Share them with us!