When many startups are ready for international distribution, they often want to concentrate on large markets like the US or Europe. This is a mistake, according to VentureFace CEO Peter Xie. In a new interview with Startup Launchpad, Xie explained why his company focuses on Asia Pacific and why startups should, too.
The biggest challenge for young startups is revenue. If they don’t have enough resources, Western markets can be unforgiving with their consignment terms. In APAC, distributors and retailers are often willing to buy goods up front if they believe in the product, but startups may still be unprepared for distribution in these smaller markets.
Xie notes a few challenges for startups as they prepare to distribute in APAC:
- They are unfamiliar with Asia markets
- They don’t know which market to start with
- They don’t have the logistics readiness to meet the demands of distributors
One of the main concerns Xie hears from startups is that they’re not familiar enough with the cultures and languages in Asian markets. They are therefore more hesitant to choose that as their first area of distribution. This is a needless worry, according to Xie.
“The beauty of Asia markets is they’re so evolved,” he said.
In addition to favorable deals in which distributors and retailers buy stock outright, any problems that arise can be quickly addressed. Someone from a startup can fly into one of these markets to talk with customers and fix problems within a few days, according to Xie. The risk of getting into these markets is very low.
People may also not realize how easy it is to jump from one APAC market to another. Certain blocks of countries have close relationships among distributors thanks to similarities in their markets.
South Korea and Japan are very close in this regard. Startups that launch in Japan will find that Korean distributors are interested to know about those sales. That can make moving into the South Korean market much easier. Something similar exists among the Greater China markets (Mainland China, Hong Kong and Taiwan) and Southeast Asia (notably Singapore, Thailand, Philippines, Indonesia and Vietnam).
One of the advantages of these market clusters is that someone might not even need different packaging. With some exceptions, Xie said the Southeast Asian markets will often accept the same English packaging for a product. This isn’t true of South Korea and Japan, though, where more localization is expected.
These facts can help minimize the fear of not knowing where to start. The most important part is doing research to know where in Asia a product best fits based on the price of the product and market preferences. From there, a startup can easily expand to similar markets.
As an example, Xie said VentureFace has helped wireless charging accessories company Bezalel expand to six countries so far in 2017.
None of this is going to happen unless a startup is ready logistically, though. This means having a logistics hub, preferably one located in either Hong Kong or Shenzhen. This is critical to making sure orders can be delivered on time.
Distributors often expect orders to arrive a few weeks after placing them. That means the goods should be ready to go within two weeks after a company receives the purchase order.
This takes considerable planning. Startups need to make sure their products are priced correctly, which usually means a markup of four to six times the bill of materials. The quantity produced also affects the price, which in turn will affect the minimum order quantity. Getting this figured out is critical to ensuring the startup, distributor and retailer all benefit from buying and selling the product.
Some companies have an easier time with this than others. Nanoleaf, another VentureFace client, had already been dealing with North American distributors before it decided to move into APAC. This meant it already had a logistics hub and the infrastructure in place to meet its demand.
Even so, VentureFace primarily deals with companies that have hitherto only been selling online. These startups will find that APAC distribution can result in much faster growth than what they had before in their home market. Xie estimates that some startups could see year-to-year growth rates five times higher from APAC distribution than online selling in the US.
Finding success through international distribution is certainly achievable for smaller startups, and Xie has plenty of success stories he can tell. As with so many things, though, the key to success is planning ahead.
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