We often read about business intelligence efforts of medium sized or large corporations working in their home country with in-house staff. But how can small non-American companies use these techniques when seeking joint ventures in export markets to help increase their chances of business success?
The following is a recent, real world example of how aggressive yet ethical intelligence gathering provided real value to the business strategy of a small non-American company which is building a network of joint venture partners around the world. Some of the facts have been altered to protect the identify of the company.
A Case Study
Our client, a non-US based software house, has a product which is sold into a very narrow market segment - a real niche product. Their software system requires their overseas marketing partners to provide service and support - it's not a "plug and play" product.
Several months ago, we were asked to conduct research on their behalf in a major European country to evaluate market potential. Interviews conducted with potential end users, industry experts and competitors indicated a need in the market for their product.
As a small company based outside of Europe, they were not ready nor able to "set up shop" in the target market. Thus, we were asked to seek potential marketing partners who have the technical and marketing expertise to sell and support the system. We decided to contact software companies in their field whose systems appeared to be outdated. We reasoned that the proposed product would offer such firms a way to offer a state of the art system, saving the time and expense of product development.
Among the twenty companies we contacted, twelve expressed initial interest in hearing from our client. After an initial round of telephone discussions, this number dropped to seven. Meetings and product demonstrations were then held in the target country. The number of candidates then dropped to two as the exporter dropped three after seeing their operations first hand and two companies backed out on their own after the meetings.
Left with 2 candidates, both were interested in a joint venture with our client.
Company "A" is a strong, publicly held company, considered to be a market leader. They have a large number of software products sold in several markets which are unrelated to our client's field of interest in addition to many installations in the target market.
Company "B" is a small, privately held company. They only have one product which is in the exact niche our client needs. They claimed to be have a large number of installations and were keenly interested in cooperation.
Our client could only work with one of the two companies in the target country so management held numerous meetings to discuss the best strategy.
Company A is a market leader, with a large range of products sold to top tier customers. As a publicly held company, information on their financial condition and history were easily available to our client without our involvement. But the client was concerned about working with Company A as the potential collaborator has a wide range of products and priorities. It was possible that our client's product would not receive the attention it deserves simply "getting lost" in the bureaucracy of this corporation.
Company B, on the other hand, was small and completely focused on the desired market. While their small size was a concern, the client reasoned that their software system would be in the center of the partner's attention, unlike with Company A. However, our client had very little information on Company B and wanted to obtain a better understanding of their operation. We were then called in and asked to look for information on Company B.
After discussing the exact needs of the software company, we pinned down the assignment to the following objectives:
To the extent possible, obtain financial information about Company B (the "target")
Secure information about their reputation in the market and history from
customers, suppliers and others in the industry.
Look for background on the company's managing director and other directors.
Provide feedback on how the firm is managed.
All of the above was needed to assist management in making a strategic decision: Should they negotiate an agreement with Company A or with Company B? At this stage, they were clearly leaning in the direction of the smaller potential partner - Company "B".
Despite the small size of the target, we found a considerable amount of information, all via ethical and legal means.
Looking for feedback on their reputation in the market, we first searched for published articles via on-line data bases as well as by reviewing issues of the industry publication (not available via data bases nor the Internet). This provided very little useable information.
We then decided to interview customers and potential customers who may know something about the company. Unfortunately, our client had not asked for customer names and was uncomfortable in doing so. In order to find customers, we interviewed a number of industry experts and called 47 potential end users in the target niche, hoping that some were customers or would know others in their field that use the target's software. This strategy worked as we succeeded in identifying:
7 actual customers
The information shown above (and a bit more not revealed presented here) was found within 2 week period for a relatively low budget. While far more information could have been found if additional time and financial resources were available, the direction was clear: There are numerous red flags associated with this company.
8 additional companies who could provide information about the target but
were using software from another supplier.
Of the customers, five were extremely negative, complaining of extremely poor customer service, outdated products and an overall lack of satisfaction in their relationship. Several complained about outdated software and most were unhappy with their level of service and responsiveness. One respondent was so happy to complain about the target, he kept our interviewer on the telephone for over thirty minutes as he detailed each problematic area. One company mentioned that they had considered purchasing the target's software. They advised that the target did not respond well during discussions, so they were dropped fearing even worse service once the sale was made.
We also looked for financial data. In the target country, even small companies are required to file certain financial data with a government office which then becomes public information. Our client was shocked as this is not the case in their own country and they were skeptical that we would find any financial data whatsoever. Reviewing the last 3 years of reports indicated a deteriorating financial condition although since the reports were limited, more information was needed. But there were clearly numerous red flags. In addition, as regulations in the country require companies over a certain size to file full financial statements (which were not filed), we knew that the target's annual sales did not exceed this level.
We also discovered information about an investment company that had received options in the target company. These options had not been exercised, a possible indication that the investor decided that the investment was not worthwhile. We did not receive confirmation on this point so this fact, like parts of the other information received, could have a logical explanation. But it was an indicator worth knowing about.
Our research also uncovered information where the target was sued by one of their main suppliers several years prior. An interview with the suing party provided interesting insight about the target and the state of the industry overall.
Accessing government records, we found that the managing director was listed as a director at 7 different companies, three of whom had gone out of business. There was a complicated maze of inter-related companies involving various company directors which, at the very least, showed that the managing director has a range of business interests beyond the company we were evaluating. This could explain why he was often not in the office when we called (see below).
Finally, we contacted the target directly. It quickly became clear that no one was authorized to speak to any outsider except the managing director himself who was rarely in the office. We left him numerous messages which he never returned. Several discussions were held with other employees (a programmer and a customer support person) who promised to either call back or send information, none of which they did. Overall, calling the company was a difficult experience and we began to understand the customer's complaints regarding responsiveness. After many attempts, we finally did reach the managing director. We advised him that we were doing industry research and that several customers and others in the industry had supplied negative information about their operation. Prior to writing our report, we wanted to give them an opportunity to give us names of satisfied customers who could recommend their company so as to present a balanced viewpoint. Although promises were made, he never provided the customer names saying that the information is confidential.
Impact on Marketing Strategy
While any one of them could have a reasonable explanation, when looking at all of them combined, the message to our client was "be extremely cautious". Simply providing this company with a license to sell their software - without our client's involvement - did not make sense. Did our client really want to be represented by a small company with a poor reputation, with questionable financial condition, where no one except the managing director (who was often not present) could help someone who calls?
We recommended reconsidering their strategy and aggressively pursuing Company "A" - the large publicly held company instead. While the market focus of the smaller company was attractive, there were too many danger signals to ignore. We also provided suggestions on how to structure their relationship with the larger company to ensure that the product does not get lost. This included the stipulation that staff would be hired by the overseas partner who will be dedicated exclusively to the marketing and support of their software product.
Competitive Intelligence Magazine Helped
An interesting side point to this story was the help received from SCIP and specifically this magazine. We were assisted in this project by a CI professional based in the target country, a SCIP member, who originally sent us an email letter after we published an article in an earlier edition of this publication. Apparently Cyber SCIP networking was beneficial to all concerned.
The Moral of the Story
Business Intelligence needs are not limited to multi-national corporations with large staffs and budgets. Even small companies have intelligence needs and should consider seeking out relevant information before entering into joint venture agreements.
Obtaining intelligence is critical in all business situations, but especially when
dealing with a firm located in a country outside your base of operations.
Information is clearly available about small, privately held companies if you know
where and how to look.
The combination of data received from a variety of sources provides a far better
picture than any one source alone.
(This article originally appeared in Competitive Intelligence Magazine, published by the Society of Competitive Intelligence Professionals).