Sales and Marketing Outsourcing (SMO): A Viable Market Entry Startegy

Outsourcing sales and marketing processes to experienced companies with local business operations may, under the right circumstances, present a “best of all worlds” scenario for companies seeking to enter new international markets. International sales outsourcing companies already have the local infrastructure, office space, legal status, and human resources and capabilities needed to launch local sales quickly and efficiently, significantly reducing many of the risks associated with do-it-yourself approaches. By offering a plug-in to existing operations, the outsourcing model also permits companies to base their market entry on specialized resources focused on targeted results and away from company building requirements, organizational structures, and other complexities and distractions. Thus, an enterprise company can quickly deploy an account executive to manage key accounts or a large bid opportunity, while a consumer products company can effectively place a dozen sales promoters to cover key retail chains.

Also, as compared to the more traditional distribution model, sales and marketing outsourcing has the advantage of permitting the market entrant to maintain control of its branding and pricing strategy. By reducing the need to sell through third parties, the manufacturer maintains a significant role in how its products will be positioned in the market, whether they will be combined or associated with other brands, and how they will be priced.

Considerations for Sales and Marketing Outsourcing

As with other forms of market entry strategies, the potential advantages of SMO are highly dependent on a range of factors. In our experience, the most important are the following:

• Balancing Sales Projections with Market Entry Costs: Entry into new and international markets present great opportunities, but also significant business risks. The potential of growing sales into a new market must be carefully balanced by the costs and potential distractions from starting up operations in a brand new and sometimes far away market or engaging in M&A or international joint ventures that typically require a long term investment/return horizon. In some cases, as we have mentioned in other posts (inluding this one on Facebook's meteoric worldwide growth, a business has already proven its ability to expand in new markets and/or has access to significant expansion capital that makes it easy to afford the costs of greenfield strategies. In many other cases, however, sales projections are much more uncertain, causing businesses to look for ways to defray the risks and costs of expansion. In Nextant's experience assisting new market entrants, we have found that SMO often strikes a positive chord with a prospective entrant that is seeking to tap into growth without committing to large scale investments. In many of these cases, we and our clients have found that, once set in place and successful, the outsourcing relationship becomes entrenched and can last for many years.

• Product and Sales Specialization: While SMO can function well for a range of products, certain products are better suited for “beachhead” sales strategies that, initially at least, require limited or no additional in-country operations. Products that are less subject to complicated processes associated with customs clearance, duties, and product homologation -- such as software, web-based services, and technical services – typically require a minimal degree of in-country operations before initiating sales and marketing activities.

• Scope of Programs: In addition to choosing the right product, companies considering SMO should focus on identifying the precise sales and marketing functions that are required. Experienced vendors are able to put in place a range of services tailored to the needs of a client. The scope of sales and marketing services should clearly identify distinct activities that will be outsourced, whether they be, for example, lead generation campaigns, hi-touch account management, event planning and implementation, advertising placement support, or selection and management of channels, agencies, and other vendors. Finally, customers and SMO vendors should also specify clear metrics to measure achievement during the outsourcing relationship.

• Vendor selection: Last but not least, choosing the right SMO vendor is critical for the success of an international sales outsourcing engagement. Initially, the vendor must have experience selling the type of products being outsourced because the vendor’s experience will be highly valuable in understanding the market, product, and scope of programs that should be implemented. Second, the vendor should have well established infrastructure and processes to allow it to house sales and marketing resources. Ideally, the outsourcing vendor should have local offices from where local resources can work, be supervised, and hold meetings. As importantly, to avoid labor-related claims, the vendor should have a company structure that permits it to hire and contract staff and comply with all local payroll and benefits requirements. Finally, the vendor should be strong in human resources, both in terms of identifying and recruiting talent and in motivating and retaining staff.

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Andres Snaider is a founding partner of Nextant, a consulting firm specializing in assisting companies expand their businesses in international markets, with a strong focus on Latin America. With a degree in law and experience working as an international attorney and businessman, Mr. Snaider has advised clients on a range of commercial matters and investments across the Americas. He is a graduate of the Harvard Law School and currently lives and works in Boulder, Colorado.

Email Andres at : asnaider@nextant.com

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Nextant has extensive experience in assisting leading clients through its Market Expansion and Business Optimization services. For more information on how Nextant can assist your company in socializing a market entry and initiating sales, please visit our website at http://www.nextant.com