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  • There are three types of people in the world, those who don't know what's happening, those who wonder what's happening and those on the streets that make things happen.

Your partner is a Capitalist too!

Posted by Raunak Mahajan on February 3, 2013

outsourcing

“If you know your enemies and know yourself, you will not be imperiled in a hundred battles… if you do not know your enemies nor yourself, you will be imperiled in every single battle.”

Sun Tzu, The Art of War

In present day world of business globalization, it is equally important to know your “friends” or “partners”.

The past decade has seen an explosion of cross-cultural joint ventures and partnerships as corporations headed to developing countries in search of cheaper labor and a potential market. One of the many vehicles of entry being used is Contract Manufacturing (CM), a quick and low cost way of entering a new market. Unfortunately, CM doesn’t come without its inherent risk, that of being taken for a ride by the local manufacturing partner.

What many companies fail to recognize is that partners in new markets are Capitalists too and they too are in it to maximize profits. Their incentive to stray off the ethical path is strong, and many local companies fail to resist the temptation. In corruption ridden developing nations, statutory compliance is merely a piece of paper signed by a bribed authority. It is impossible to detect by carrying out a day long audit. Entrepreneurs have mastered the art of passing every audit under the sky. Another art that local businessmen have become proficient in is “cover up”. Manufacturing units that in routine business look like hell, get turned into 5 star facilities when there is a client visit. Having a third party conduct due diligence is just not enough. You have to know your partner yourself, not from second hand information.

So if you are a company that is looking to expand operations into a developing country, know your local partner. And the best way to know your partner is to be close to him. While I am in favor of reducing capital costs by sharing machinery and facility with a local partner, I firmly believe that leadership and management should not be outsourced. Have your own hands and feet on the ground. Recruit your own local team that works closely with the local partner. Run your partnership like a marriage and not a long distance relationship.

You can occupy new territory with leased weapons, but you cannot hold it with leased soldiers.

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7 Responses to “Your partner is a Capitalist too!”

  1. A portfolio manager friend of mine told me how once, years ago, he had been visiting a company in Chile which he was thinking investing in. Subsequently, it turned out that the office building, staff and computer equipment had all been rented for a few days solely to make an impression on the foreign investor. It was just another Potemkin village.

    • Raunak said

      wow! now that is extreme…I’m glad I haven’t come across something like that yet.
      Thanks for sharing that Malcolm. Will add “Verify Ownership Status” to my checklist 🙂

  2. Great post! It’s hard to accomplish much of anything if you aren’t in good relationship with those who are needed to help you reach your goals! Thanks for writing this! I had never thought of it from a business perspective, but it makes plenty of sense!

  3. nyctanthesarbortristis said

    Is this one also YOURS ?
    few of the writings sound like that..
    Oh Gosh!

    • Raunak said

      every time I have seen such things occur, I have been on the team on the Indian partner…and it bugged me to see my bosses take our partners for a ride…in a few cases the American partners refused to talk to my bosses and would only discuss matters with me..they had realized that I was the only one presenting the truth….it was a tough task to balance being honest with the customers and yet be true to my boss’ position.

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