Outsourced Sales Team or Joint Venture for U.S. Market Entry?

Yesterday, I had lunch with a business associate. He is a very successful Korean businessman who owns a couple of high tech manufacturing firms. He was in the U.S. to unwind a failed joint venture (JV) with an American company and wanted to ask my advice. The story was a simple tale that I had heard too many times before.

A business can enter the U.S. in a number of ways

Licensing, joint ventures, acquisitions, working through existing distribution networks, establishing a U.S. subsidiary or even direct to consumer via the internet. Sometimes companies combine these approaches to enter the U.S. market. But no matter what path a company takes, the decision the CEO and his team make about how to enter the U.S. can be the difference between a success and failure.

Back to my business associate

For many years his only efforts in the U.S. were to provide private label merchandise to a few very large U.S. retailers. The U.S. private label efforts focused on a small portion of his company’s product lines – inexpensive accessories. These private label initiatives were not as profitable as most of the other parts of his business.

This CEO recognized that the U.S. market was the largest and most profitable market in the world for his company’s products. He knew that it was time to fully enter the U.S. market. After considering many options, the CEO decided to establish a joint venture with a U.S. based company who was in a similar, but non-competitive business.

Even before the ink on the JV agreement was dry, issues started to arise. His U.S. partner had access to the right distribution channels but did not have the financial or technical capabilities to really support the market entry. Over time, the issues did not go away and the Korean company’s U.S. entry had stalled. My associate was in the U.S. to terminate this JV agreement but did not want to give up on the U.S. market. He wanted my advice on the best next step.

In listening to this story, I realized that the CEO had not considered entering the U.S. market with an outsourced sales team. His company had the financial resources and technical support team needed to support a U.S. entry. All he really needed was cost-effective access to U.S. distribution channels and a U.S. sales force. The cost to enter the U.S. market would still be low, and the company would control pricing and the arrangement should net a higher profit then other business arrangements. Plus, if properly structured, his company could avoid U.S. income taxes. The biggest trade off is the company would also have to assume more financial risk.

Entering the U.S. market with an Outsourced Sales Team is not always the best course, but it certainly should be on every CEO’s list of options.

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Photo credit: murphydean