Reasons Why Channel Management Varies Around the World

Over the past decade, organizations relying on channel infrastructure to reach their end buyers have invested significantly in unified partner management activities. However, they need to consider that these channel management activities can vary quite a bit across countries — not only from a deployment perspective but also their effectiveness. Why is that? How can the organization recognize these differences and adapt accordingly?

Before we answer those questions, let’s quickly review the areas in which channel management activities tend to do the same, regardless of country or region. Several basic principles apply across all geographies around the world:

• When a company sells through a channel network, it will generally sell through a one-, two- or three-tier system. Yes, multi-level distribution (more than three tiers) exists, but that tends to be more for business-to-consumer products than business-to-business products and services.
• Vendors provide core solutions. Partners, on the other hand, are selling products or solutions as-is or perhaps extending them with their capabilities
• Partners typically make most of their money after they sell the product rather than from a specific transaction. A prominent exception is franchises, where vendors make money no matter what happens because they have a fixed amount of franchise fees coming in. So, while a franchisee may not be making large amounts of money, the brand that is franchising through a network can nonetheless generate a decent return if they have a good solution to offer.
• Generally, the lower the product price, the more transactional it is. With higher prices, there tends to be more complexity, which is where solution selling comes in. We see this consistently across all insurance, finance, manufacturing, or technology segments.
• Regarding lead generation, partners are generally not very effective at generating demand. Around the world, a consistent challenge is the need for a vendor to focus on brand awareness, product and solution awareness, and even leads. There is no doubt that in certain parts of the market, partners may be capable of generating leads independently, but that’s not a core competency that most partners have in all markets. Therefore, this is a common element a vendor needs to understand and address, especially in demand generation.
• The relationships in channel management generally are between companies rather than between people. This means that policies align the financial objectives of one or more entities, forming the links between those entities. This is reasonably consistent worldwide, independent of the market segment.

So, how does channel management vary?

The first type of variation is the structure of the channel. This is something that varies greatly across global geographies. The differences are primarily a function of market maturity. Developed countries like the US, the UK, Germany, Japan, and Australia tend to have a one-, two- or three-tier distribution system. There is high financial transparency and tight financial controls to address corruption and other money-related issues, with sufficient laws, regulations, and enforcement mechanisms in place. In these countries, the channel generally behaves in a very mature way.

On the other hand, when you look at emerging markets-places like Southeast Asia, certain parts of China, Eastern Europe, and parts of Africa, regulations and enforcement are inadequate to control corruption, especially concerning intellectual property and financial regulations and controls, and channel management activities tend to vary quite a bit from place to place. As a result, there are important differences in how companies market and what they need to think about when doing so. In-country laws and regulations drive education, real estate, insurance, and finance segments. (This is less common in other horizontal markets like retail or food.) Because of those different laws and regulations, the channel structure in those segments varies greatly from country to country, and thus, channel management varies quite a bit, too.

Retail provides us with a great example here. In most advanced countries, retail is organized consistently across those geographies. However, when you compare the US to developed countries in Europe, you notice that the European countries — while they have some large outlets, chains, and malls also tend to have more small companies, retail outlets, and even mom-and-pop shops that provide products and services to both businesses and consumers than the larger markets in the US and Canada. Some Asian markets like Japan, Korea, Taiwan, Australia, and certain parts of Europe are somewhere in between, with a mix of large retail operations and smaller stores. So, the market's maturity impacts the channel structure — who the buyers are, who is distributing the products and solutions, and, therefore, the approach to channel management.

A second factor that varies greatly from market to market has to do with specific solutions. Certain common solutions in large markets are not relevant in emerging markets. A classic example of that in the consumer space is a product like the iPhone. The iPhone has been successful in most developed countries, but it hasn’t made much of a dent in the market in certain parts of Africa, India, and other parts of Southeast Asia simply because of its price. In those places, alternative solutions have opened up a whole different market. So, the retail distribution of the iPhone is very different in those markets compared to the more mature markets. A similar dynamic is at work with business applications like, for example, medical devices. In large markets like the US, Germany, France, Italy, the UK, and Canada — countries with lots of regulations and national healthcare services involved — medical devices are sold through the channel fundamentally differently than in emerging markets. So, depending on the solution type and the market's maturity, channel management can vary a great deal.

A third factor that is responsible for variations in channel management is culture. I’ve already addressed that to some extent in my channel structure and market maturity discussions. A company's legal structure defines the culture of doing business and vice versa. In countries like the US, Germany, the UK, and Canada, where the business culture is well-defined and policy-based, most transactions follow basic guiding principles and have high transparency. On the other hand, in relationship-centric countries like France, Italy in Europe, Japan, China, Korea, and India in Asia, or certain parts of Africa, transactions tend to be based more on relationships — who you trust, who you know, what the network is-rather than the merits of the value proposition or the business itself. Therefore, marrying channels in certain parts of the world can be tricky because some transparencies that enable velocity and predictability in established markets are sometimes hard to achieve in a relationship-based market.

Finally, visibility is a core factor that varies among different countries and regions. “Visibility” in this context refers to the ability of the channel management team to forecast what the organization will do in specific product categories over the next three months, six months, or even a year. The transaction infrastructure is highly sophisticated in mature markets like the US, Germany, the UK, Japan, Korea, and Australia. Data is available at multiple levels so that when a business-to-consumer or business-to-business transaction takes place, companies are tracking what’s being sold, at what price point, to what type of customer, and so on. So there’s a high level of visibility into these transactions, and there’s also an integration of systems so that companies have good visibility into their inventory, the demand forecast, and the business's overall health.

It’s a different story in emerging and immature markets, especially when a product or service is sold through a one- or two- or multi-tier segment; channel inventory, as does overall visibility, becomes a considerable challenge. This is particularly the case when the headquarters of an organization is in an advanced country like the US, the UK, or Germany, where financial laws and regulations require that companies report and track channel inventory data uniformly across all regions to show the company’s financial health and maturity and to confirm there is no buildup of old, obsolete products in the channel which will hit the channel management team overnight. However, due to the lack of visibility in many emerging markets, companies often fail to understand their exposure or run rate. As a result of these differences in visibility, there’s a great deal of variation by geography in how the channel needs to be managed.

I hope I’ve been able to share at a high level how channel management can vary greatly for the same company across different countries and regions across the world, primarily driven by local needs, regional structure, legal parameters, cultural norms, and market maturity. While many elements of channel management remain the same, an organization’s channel management strategy - as well as its approach to executing that strategy — needs to consider these differences and adapt if the organizations want to successfully build its channel and go to market at a global level.

Originally published at https://www.zinfi.com.