Success on the US Market - Unlocking the Potential

DI how to...

Read more about DI’s international consulting unit,
DI International Business Development, on di.dk/dibd.

confederation of danish industry
1787 Copenhagen V · Denmark
Tel. + 45 3377 3377 · di@di.dk · di.dk

Succe ss on the US market

Confederation of Danish Industry (DI) is the strong voice
of corporate Denmark. On behalf of our 10,000 member
companies, DI works to provide the best conditions for
Danish businesses in order to improve the opportunities
for growth and overall competitiveness.

>¶

Success on
the US market
Unlocking the potential

HOW TO...

Success on
the US market
Unlocking the potential

Published by Dansk Industri
(Confederation of Danish Industry)
Edited by: Jacob Kjeldsen
Press: Kailow Graphic A/S
ISBN 978-87-7353-981-1
500.10.12

1

S u cc e ss o n t he US m a r k e t

S ucc e ss on t he U S market

2

Foreword
This handbook has been prepared by Confederation of Danish Industry (DI).
Through DI’s international consulting unit DI International Business Development (DIBD) and other international units, DI is devoted to assist members of DI in international business development on the growth markets of
the world. The mission is to make them winners in an ever globalised world,
where growth is often found in difficult and very different markets than the
traditional Danish markets within the EU.
One market that we have dedicated significant attention to is the United
States. While Danish companies have proven immensely successful on the
majority of western markets, the US has stood out as an exception. Exports
to the US market have increased, but taking the size of the market into consideration and comparing with our traditional European competitors, there
is still room for improvement.
To accommodate members of DI, we opened a DI office in New York in 2007,
assisting our members in penetrating the US market. The decision was made
after an extensive research on the challenges faced by Danish companies
based on a range of interviews with Danish companies already operating in
the US. In this handbook, we have updated the original findings with our
comprehensive experiences from New York. Hence, the handbook takes on
the ambitious task of providing inspiration, concrete tools, and input on consistent strategies for Danish companies wishing to penetrate the US market.
However, we also feel certain that Danish companies who are already serving
customers in the US will find the advice offered useful.
I wish to thank all the people who have contributed to the preparation of this
handbook. Their kind participation and willingness to contribute with their
individual experiences have made this project possible.
With the handbook, I hope we can play a part in unlocking your potential
in the US.
October 2012
Jacob Kjeldsen
Director – DI International Business Development

3



4

Contents
Introduction 7
Background 7
Structure 9
Delimitation 11
US-Denmark Relationship
13
US-Denmark Trading 13
A Snapshot Comparison 14
Experiences from the US Market – Case Studies
17
Introduction 17
Morsø Jernstøberi: The Challenge of Finding a Right Set-Up 18
Tom’s Group: Modesty will not get you far in the US 22
Danstoker: Using the Existing Business Model Was Not an Option 24

With 300 mill. consumers and a
purchasing power that ranks among
top 5 in the world, the US alone
constitutes a market that is larger than
Germany, UK, France, Italy, Sweden,
and Norway combined

The Do’s & Don’ts
27
Introduction 27
Preparation and Entry Modes 28
Sales, Distribution and Marketing in the US 30
US Management and Employees 32
Location 34
Legal Issues 36
Bureaucracy and Practicalities 37
Conclusion 38
Entering the US Market through Successful Partnerships
41
Introduction 41
US Market Entry Planning 42
Partner Development and Management 59
Successful Partnerships in the US 67
Concluding Remarks

71

Appendix 72

5



6

Introduction

It is the goal of the authors to provide
the reader with a structured introduction
to the challenges associated with doing
business in the US

Background
That success on the US market includes significant challenges for
Danish companies has been well documented for several years. Many
Danish companies have pursued different models to unlock the business
potential of the largest market in the world, but often with limited results.
However, the US market is very difficult to ignore. With 300 mill. consumers and a purchasing power that ranks among the top 5 in the world,
the US alone constitutes a market larger than Germany, UK, France, Italy,
Sweden, and Norway combined. These countries are traditionally top importers of Danish goods and services.
Why is it that Danish companies find it so difficult to create a commercially viable business in the US? The reasons are many and of course very
much depending on the individual Danish company. However, a general
challenge is the fact that the US market is among the most competitive in
the world, with a business environment that is substantially different from
Denmark in many areas.
A different business infrastructure, culture, and legal system, combined
with fierce competition, have been significant factors in the US market
having a dual perception among Danish companies. On one hand, the obvious business potential is of course appealing to many Danish business
leaders. However, the big reward is accompanied by perceived extensive
business risks that make the same business leaders uncertain of how,
when, and if a penetration of the US market should be included in the
corporate strategy.
A large number of Danish companies have been active on the US market
for several years. However, only few can claim to be truly successful and
many have struggled and subsequently pulled out. This is in spite of the
fact that the same Danish companies have achieved great success on other foreign markets in Europe and Asia.

7


With the objective of providing Danish companies with a better understanding of what it takes to be successful in the US market, DI has
throughout the years studied the US market. From 2001 to 2004, DI carried out a large project focusing on collecting information and developing
business models for Danish companies via surveys and pilot projects. The
outcome was a handbook that included a set of clear recommendations
for Danish companies.
In 2007, DI opened its own office in New York. The office offers integrated
and stragic solutions for establishment in the US.
In Autumn 2012, it was decided to update the handbook in order to incorporate new experiences, developments, and trends for Danish companies
operating in the US market. Consequently, DI has conducted a number
of interviews with Danish companies present in the country. In addition,
three new case studies have been included in order to provide insights
into which strategies that work on the US market and which that do not.
Furthermore, the accumulated knowledge and experience acquired at
DI’s offices has been translated into valuable information included in the
handbook.
The objective of this handbook is to offer all Danish companies with an
interest in the US market a practical and strategic approach including a
clear set of recommendations based on actual hands-on experience. It is
therefore a valuable source of inspiration for all Danish companies with
aspirations and ambitions to successfully enter the US market.


8

Structure
First, an overview of the US-Denmark relations is provided to give an understanding of the recent development in trade and business relations in
general. Included in this overview is a comparison of the business environment in the US and Denmark respectively based on a number of key
figures.
Next follows a thorough description of three company cases. The cases
offer valuable insight into the most effective US strategies. Most Danish
companies establish themselves in the US through strategic partnerships
with US counterparts.
The chapter, ”The Do’s and Don’ts when Entering the US Market”,
includes a comprehensive summary of the experiences made by Danish
companies when entering the US market. Point of departure is taken in
a survey from 2003 where 11 Danish companies were interviewed. The
information has been updated and verified by in-depth interviews carried
out in autumn 2012 with eight Danish companies operating in the US.
Before the conclusion, an approach and framework is presented,
designed to accommodate many of the challenges faced by small and
medium-sized Danish companies in the initial phases of a US market
entry. It attempts to support the traditional Danish approach to the US
market that involves the use of agents and distributors. Consequently, the
approach comprises a number of strategies that combined, and if applied
as recommended, will significantly increase the chances of success for
Danish companies and their US partners in the US. Among other issues,
the approach outlines strategies for partner selection, partner development, and management.

9



10

Delimitation
This handbook is intended to have a broad application, but it is important
to emphasize that certain areas of relevance to Danish companies interested in the US market have been omitted, for example:
>>
Establishing subsidiaries, partnerships, making acquisitions etc. What
are the exact legislation in relation to product liability and personnel
policies?
>>
Sectors with a high potential for Danish companies. What areas and
industries contain the most promising potential for Danish companies?
>> description of the US market based on geography. How does the
A
East Coast compare to the West Coast in terms of industry clusters?
How does the Southern part of the US compare with the North in
terms of business potential and culture?
These issues were omitted based on an assessment of the value for the
Danish companies versus the efforts it would take to prepare meaningful
analyses of the issues. The omission is therefore quite deliberate, although
the authors do recognize the importance in relation to the individual Danish company. It is therefore recommended that Danish companies devote
the issues the required attention as part of a US market entry. DIBD is
often assisting Danish companies in such analyses.
In addition, the strategic framework presented is biased towards Danish
companies entering the US market through a US partner, typically a distributor. The bias is made very consciously due to the fact that the vast
majority of Danish companies are small and medium-sized enterprises
(SMEs). With limited resources available, nearly all Danish SMEs enter
the US market through some sort of partnership with a US-based partner.

11



12

US-Denmark
Relationship

The crisis led to a decrease in Danish export to the US from around DKK
36.2 billion in 2006 to DKK 31.7 billion in 2009. The crisis sat its footprint
worldwide, but already from the end of 2009 the export of Danish products to the US started picking up, and in 2010 it was higher than prior to
the crisis.

To put the efforts of Danish companies on the US market into perspective,
it is useful to take a short, general view of the US-Denmark relationship.

US-Denmark Trading
For the past 50 years, the US has been a significant trading partner for
Denmark, although the trade has of course been affected by currency
fluctuations, geo-political events, and development of the global economy and associated trading relations. The development in the US-Denmark trade for the past six years is illustrated below.
In summary, Danish export has increased significantly over the past six
years – with the exception, of course, of the financial crisis in the end of
2008.

Bill. DKK
40
35

25
20
Import

5
2006

2007

To enable a simple comparison between the business environments in
Denmark and the US, key figures for the two countries are listed to the
right.

The size of the US market makes it important and attractive to Danish companies, and increasingly more companies are seriously considering entering the market. In the following chapter, you can read about three Danish
companies who have already done so, and learn about the experiences
they have made.

10

0

A Snapshot Comparison

However, in terms of US salaries, it is important to note that wages vary
significantly from state to state. In general, the labor costs and other business costs are lower outside the greater cities.

Export

15

In terms of products, the majority of Danish exports to the US comprise
pharmaceuticals, wind turbines, oil, chemicals, electronics, and different
kinds of machinery. The Danish import from the US is primarily made up
of machinery and transportation equipment.

Besides the difference in sheer size, the figures indicate that the US
economy compared to the Danish is less dependent on external relations
because of the huge domestic market. Another point is the fact that the
basic labor market conditions in terms of salary levels, unemployment
rates, and weekly working hours in the two countries are comparable.

US-Denmark trade for the past ten years
(in nominal values)

30

In 2011, US ranked as Denmark’s fifth largest export market. Moreover,
the US constitutes the foreign export market on which Denmark has the
second-largest trade surplus, and the US is with DKK 125.4 bill. the second
largest recipient of Danish foreign direct investment (FDI), Sweden being
the largest. By the end of 2011 the US had an accumulated FDI of
DKK 68.9 bill., when looking at Danish FDI.

2008

2009

2010

2011
Source: Statistics Denmark

13



14

Comparison of the US and Denmark
2013

USA Denmark

Market – 2013
Population (mill.)

316.8

5.6

GDP (bill. USD)

16,245

318

GDP per capita (USD)

51,300

56,900

GDP per capita – PPP adjusted (USD)

51,248

38,521

Foreign direct investment and trade (% of GDP) – 2013
25

47.3

Investments

FDI

18.6

17.3

Exports

14.0

53.8

Imports

17.8

48.4

Most important trading partners – 2012
Imports (pct. of total imports) 1. China (18 %)

1. Germany (20 %)

2. Canada (14 %)

2. Sweden (13 %)

3. Mexico (12 %)

An increasing number of smaller
companies are seriously looking into
entry possibilities – many through an
agent or a distributor

3. Netherlands (7 %) (9 %)

Exports (pct. of total exports) 1. Canada (19 %)

1. Germany (15 %)

2. Mexico (13 %)

2. Sweden (12 %)

3. China (7 %)

3. UK (9 %)

Business conditions – 2012
Production Manager – Total cost (USD)*

119,300

94,500

Engineer – Total cost (USD)*

107,400

89,200

Skilled Worker – Total cost (USD)*

79,100

68,900

Unskilled Worker – Total cost (USD)*

41,300

64,800

40

37

39.2

25

Weekly working hours
Corporate tax (maximum rate)
Unemployment (% of total work force)

8.3

7.9

39.5

Pct. of work force with university degree

34.7

* Salaries are from New York and Copenhagen respectively

15



16

Experiences from
the US Market
– Case Studies

The three companies are:
>>
Morsø Jernstøberi: Has been present on the US market since the beginning of 2000. The company has tried different set-ups and is currently
servicing the US market through distributors.
>>
Toms Group: Established its own subsidiary in 2007 in order to expand
its presence on the world’s largest confectionary market, but servicing
the B2C market in the US turned out to be a very challenging task.
>>
Danstoker: Is currently considering its market entry on the US market. It
turned out that the company needs to adapt its business model and enter
the market in another way than expected.

Morsø Jernstøberi:
The Challenge of Finding a Right Set-Up
Background

Introduction
As the world’s largest market by most measures, the US remains an ultimate goal for many Danish companies. It is no longer only the large well
known Danish brands that are aiming for success in the US. An increasing
number of smaller companies are also seriously looking into entry possibilities – many through an agent or a distributor.
However, a number of issues make most companies - large and small think twice before going for a US market penetration. Uncertainty is common regarding return on investment, how to reach potential customers,
finding the right location, distributor liability, etc. This handbook aims at
outlining experiences made by Danish companies as a source of both inspiration and practical advice on market entry and how to operate a successful business in the US.
In order to provide insight into why it is difficult to be successful on the
US market, three company cases will be presented. The cases contain
information about strategies for US establishment, experiences, recommendations, and lessons learned.
The three cases represent various industries, different company sizes,
and different entry modes. Together they will provide a detailed picture
of what is required to enter the US market as well as related challenges
experienced by the Danish companies.

17


Morsø Jernstøberi has manufactured cast iron stoves since 1853 and
is considered one of the oldest manufacturers of cast iron stoves in the
world and a leader in quality, design, and innovation. The company was
active in the US in the 1970s, but decided to scale down operations due
to an enterprise turnaround.
With about 70 people employed in product development, assembly, quality assurance, shipping, and customer service, Morsø’s strategy is focused
on designing and selling high quality cast iron hearth products. At present
Morsø has activities in more than 20 countries around the world.

Morsø in the US
Activities in the US were restarted in 2000 together with a local distri
butor in the New England region. The distributor was responsible for all
sales and customer relations on the US market. Products were supplied
from three warehouses located around the country.
The distributor agreement allowed Morsø to reduce the financial risk of
re-entering the market, but although sales were increasing, the feeling
was that the market had much more potential and that Morsø’s management was out of touch with local trends and market development.
As a consequence, Morsø’s management decided to establish a subsidi-


18

With everything that we have been through,
we now have a set-up that works perfect for us.
We have learned a lot, and I can say with
confidence that I am glad we took the plunge!

ary in Nashville, Tennessee. Prior to the establishment, Morsø carried out
their own analysis. The objective was to understand the market in greater
detail and decide upon an optimal market entry strategy.
Besides establishing a subsidiary, Morsø hired a President for its US operations – Morsø’s General Manager of its English subsidiary, who wanted
to relocate to the US. Own sales staff was also employed and a centrally
located warehouse with offices and showrooms was acquired in Tennessee.
However, in the spring of 2012, Morsø decided to shut down the subsidiary as the set-up was no longer ideal, primarily because the location of
the subsidiary was wrong. Morsø was not close enough to the customers
to provide products and services.
Instead of pulling out of the market, Morsø changed its strategy and
decided to find a highly qualified distributor on the West and East Coast
respectively. Today, business is going very well. Sales are increasing and
the company is closer to its customers.
Morsø visits the distributors on a regular basis, and both distributors have
visited Denmark in order to be further acquainted with the Morsø spirit
and brand. Also, Morsø sends newsletters with the latest news to both
distributors, enabling them to know what is going on and feel they are an
important part of the company. And finally, Morsø has worked strategically on building up a relation between the two distributors that enables
them to help and learn from each other.

19


Recommendations from Morsø
>>
Size: You have to understand the size of the US and develop your stra
tegy accordingly.
>>
Choose the right location: Choosing the right location is crucial. You
must take into consideration both infrastructure, flight connections, time
zones, and location of the clients when you look into various locations.
We made the mistake of placing ourselves in Tennessee as we believed
we could easily reach our main customers at the East and West Coast. It
turned out to be much more complicated and expensive than expected,
and our response time was too long. Distribution and logistics are not as
effective as in Europe.
>>
Beware of different business practices: Business practices are different in the US and some aspects are “old-fashioned”. An example is the
fact that money transfers are not normal – checks via the regular post
system are much more common. The consequence is that everything
takes much longer time than in Europe.
>>
Adapt to the US culture: Do not make the mistake of thinking your product and your way of doing business can reform the US market. You have
to adapt to the US culture.

Lessons Learned
• The US market is a hard code to crack and it often takes several attempts
to figure out which set-up works for your company. Morsø went from one
distributor to a subsidiary and back to two distributors. However, Morsø
now co-operates with its distributors in a very different way. Today, Morsø
spends a lot of time and resources on assisting the distributors on market
development, supporting them in any way possible. This is the main reason
behind the successful set-up with the current distributors.
• You need to prepare well, but do not follow your plans too rigidly. There
may be a need for adjustments and possibly revising the strategy due to
customer responses and general market development.
• You need to apply a dynamic entry mode and business model. Take action
and change set-up if it does not work.
• Stay in touch with the market and the customers. Find ways to do this when
working with distributors.


20

Tom’s Group: Modesty will not get you far in the US
Background
Tom’s Group has a long history on the US market with its brand Anthon
Berg. For a long time, their biggest client was Costco (wholesale), but
Tom’s Group wanted to expand their presence, as the US market for confectionery is the world’s largest.
An extensive market research was carried out to identify a suitable entry
mode for the US market and get an insight into how customers and partners should be approached. As Tom’s Group’s chocolates contain alcohol,
the product is prohibited by law in some states, and therefore the different states needed to be analyzed on a very specific level.
In 2007, Tom’s Group decided to establish a subsidiary and stationed an
employee in the US for a period of a time in order to cultivate the market,
get new partners, and develop relations. The biggest concern was whether it would be possible to get a larger market share by setting up own
presence rather than just selling to Costco. The whole process from the
initial idea to final establishment took around one and a half years.

Tom’s Group in the US
The Danish Export Manager of Tom’s subsidiary was located at DI’s New
York office where he was responsible for sales and market development.
He soon realized that the sales processes on the US market were very
different from what he was used to in Denmark and Europe. It became
clear to Tom’s Group that whoever shouted the loudest would be the
potential winner. This meant that the Export Manager and Anthon Berg
had to change their mind-set on how to approach possible distributors,
retailers, etc. and how to market their product.
After four years, the subsidiary was shut down as a result of change in the
overall global strategy of Tom’s Group’s. The financial crisis demanded increased focus on costs, and the strategic focus was redirected to existing
markets where Anthon Berg had already earned a strong position and a
well-established presence.

Today, Tom’s Group still sells directly to Costco and another distributor,
but due to changes in the corporate strategy, there is no longer need for
a subsidiary in the US.

21



22

Recommendations from Tom’s Group
>>
Use a niche strategy: The competition is fierce and you need to focus.
You should concentrate your resources on one specific product. You have
to be very clear about why your product is the best on the market.

Danstoker: Using the Existing Business Model
Was Not an Option
Background

>>
Patience and long-term perspective: Patience is everything! Do not
lose faith – things take time in the US. A large number of companies try
to penetrate the market, and commercial results will therefore not materialize immediately. You need to maintain a long-term perspective.

Danstoker designs, produces, and sells boilers to the energy market.
Today, the main product group is biomass boilers utilizing straw, wood
chips, pellets, and a wide range of other biomasses, and Danstoker is currently selling boilers to more than 65 countries around the world.

>>
Step by step: Break the market down into states or towns, and focus on
one place at a time. This also goes for marketing activities!

Danstoker in the US

>>
Marketing: You cannot penetrate the market without some sort of marketing activity – but it is expensive, thus do so wisely.
>>
Define your customers segments clearly: Everything you do must start
and end with the end-user of your product. You have to have a strong consumer focus – get to know your customers, and know them well!
>>
Prepare carefully: Use the amount of resources required to get it right
the first time. It is costly and takes time, but it will pay off in the end.

Lessons Learned
• Despite closing down its subsidiary, Tom’s Group still believe they learned
important lessons in the US. They gained valuable knowledge of the US
market, especially on how narrow the product focus should be and how
important it is to have a clear value proposition.
• The B2C market in the US is very challenging and requires a different
sales approach, because it is so concentrated. The American approach is
pushy and the mentality is that there is no greater product than your own.
Therefore modesty is not going to get you far.
• Define your customer segment and get to know it well – very well if you want
to succeed. The customer always needs to be the center of your attention.

Through the years, Danstoker has had sporadic sales on the US market
through one of its main clients in Denmark and Europe. However, the
management of Danstoker believes the US market holds greater potential
than the rather limited sales at this point, and is therefore interested in
setting up own presence in the country. The key challenge is to find the
right entry modes as well as to understand the market in detail.
Danstoker has therefore spent considerable time and resources carrying
out a market study, which demonstrated that the US market is significantly different from other markets in which Danstoker operates. Normally,
when entering a new market, Danstoker looks for ideal partners based
on partner profiles developed at the headquarter in Denmark. However,
research revealed that the ideal profile does not exist in the US – simply
because of the very different structure of the market.
Furthermore, Danstoker has spent a lot of time acquiring the necessary
approvals and certifications. In order to operate on the US market, they
need an ASME (American Society of Mechanical Engineers) certification
for the boilers.
Danstoker is currently considering whether to enter the market through
partners or whether to enter into a joint venture with a US partner or alternatively acquire a company. Next step is to prepare more detailed studies
to clarify this aspect further.

“It’s a market with real potential – For us, it is
simply a necessity to be present on the US market.”
Jan Enemark, Danstoker
23



24

Recommendations
Although Danstoker is still early in the development of the market entry
strategy, the company has the following recommendations:
>>
Prepare properly: Do not rush a market entry. You need to have the

internal resources and focus from management in Denmark.

>>
Allocate time to get the necessary approvals and certifications: It has

been very expensive to obtain the ASME certification for the boilers.

>> aware of product standards and regulations: The market and genBe

eral way of doing business is quite different from what Danstoker is
used to, even though it operates in more than 60 countries worldwide.

>>
Politics matters: Shifts in renewable energy politics have a great im-

pact on Danstoker’s business and are outside the company’s control.
This is a risk you need to take into consideration.

Lessons Learned
• It is important to analyze the market and get insight into market structures.
• The same business model used on other markets may not apply in the US.
You need to be prepared to change your business model to accommodate
unique features in the US market.
• Although most Danish companies use a distributor to enter the US market,
it may not be applicable in your specific case.

The recommendations provided by the Danish companies and the lessons learned will be elaborated in the following chapter explaining the
do’s and don’ts when doing business in the US.

25



26

The Do’s & Don’ts

Preparation and Entry Modes
Thorough preparation before making the first move into the US market
is crucial for subsequent success. Collecting and processing the relevant
information for your business not only forms the foundation for deciding
whether to enter the US market, it also provides the basis for selecting an
entry mode.
The advice provided by Danish companies concerning preparation and
entry modes can be summarized as follows:

Preparation
Prepare a detailed market study or business plan. It can be an advantage
to get assistance from experts or consultants present in the US market.

Introduction
In 2004, DI conducted a comprehensive survey of the experiences of
11 Danish companies with significant business activities in the US. The
survey had a broad application, as it focused on the areas that business
leaders in both Denmark and the US encountered when first entering the
US market as well as on the everyday challenges of operating a business
in the US.
In autumn 2012, DI carried out another survey with the purpose of adding
new experiences, developments, and trends to the existing knowledge. A
number of companies were interviewed including Morsø, Tom’s, Arla, BK
Vibro, Danstoker, Dolle, and LEGO. Furthermore, DI has gained extensive
experience through its location in New York, where DI virtually represents
a number of Danish companies on the US market. This knowledge has
been incorporated when relevant.
The survey covers the following areas:
>>
Preparation and Entry Modes
>>
Sales, Distribution and Marketing in the US
>> Management and Employees
US

Do not rush into the US market. It is extremely important to prepare
thoroughly. The Danish companies participating in the survey all stated
that it took about two years from the initial idea of establishment until
they were up and running in the US.
A key point to consider when developing your strategy for the US market:
>> be successful on the US market, you need to have a detailed underTo
standing of the market such as customers, competitors, products, technologies, and culture. It takes time to build up this knowledge. You need
to be patient for the commercial results to materialize.

Product
>> you have a product that can compete in the US? You should be able to
Do
answer questions such as: What are you offering? Why should the consumers choose your product over other products?
>>
Due to the size of the US market, reaching everybody is utopian - you
need to find your main focus. It will probably be better to concentrate
your resources on one specific product than a whole range. A niche strategy seems to work best for Danish companies operating in the US.

>>
Location

>> need to be very clear about why your product is the best on the marYou
ket and communicate it clearly. Modesty will not get you far in the US.

>>
Legal Issues

>>
Build service, know-how, application, and brand into your product.

>>
Bureaucracy and Practicalities

>>
Avoid products where price is the only sales parameter.

27



28

The size of the US market alone
necessitates a focused sales effort.
A very important aspect of sales
is the distribution

Market
>> is almost impossible to think about the US as one market – you do not
It
think as Europe as one market either.
>>
Due to its size, the US is much more diversified than Denmark– the US
has everything.
>>
Expect the market to be difficult and very different, giving you a steep
learning curve. The US market is traditionally characterized by low prices
and fierce competition.
>> focused. Consider limiting your initial focus to one geographical area.
Be
Break the market down into states or towns, and focus on one place at
a time.

Customers
>>
Make a sharp customer segmentation. Consider limiting your initial focus
to one customer segment and get to know it well.

Business Environment
>>
Understand the industry. You need to understand what kind of rules, regulations, certificates, and laws your product has to meet.

Business Model
>>
Revisit and critically analyze your existing business model and consider
if it is suitable for the US market. Even though you are successful with
your business model in Europe, re-thinking it in a US market context is
important.
>> prepared to think “out-of-the-box” and reflect upon the following:
Be
What are the key factors related to customer demand and supplier conditions?
>>
Define your risk profile and clarify the downside. Make a thorough
evaluation and know how much you are willing to risk – the US is a high
risk, high reward market.

29


Entry Modes
Most small and medium-sized companies choose to enter the US market
through agents, distributors, or other types of sales partnerships. If the
companies are then successful on the US market, they may decide to set
up own sales company.
>> you decide to use a distributor, carefully consider if the distributor
If
should have exclusivity on the US market. Only few distributors have the
resources to cover the entire US market.
>>
Build up a mutually beneficial partnership with your distributor(s) by offering support in the form of training, sharing of market knowledge, company visits to Denmark, provision of demonstration units, etc.
>> sure to have in-house resources to support the distributor and assist
Be
in the market development phase. If not, hire expertise.
>>
Consider a product development function in the US – the standards and
specifications are different from Europe.
>>
Very often, business in the US requires an inventory, even though you
may work with just-in-time delivery in Europe. It requires logistics considerations.

Sales, Distribution and Marketing in the US
The size of the US market alone necessitates a focused sales effort. The
US market is substantially more complex than the Danish, and a market
entry hence requires careful preparation and extensive resources.


30

In the following, a list of recommendations from Danish companies with
regards to sales, distribution, and marketing is provided.
Sales & Distribution
>>
First of all, you need to spend time and resources on identifying the
right sales and distribution channels at an early stage in the preparation
phase. Equally important is attracting the right people. The wrong choice
can have a significant negative impact on your results in the US market.
>>
B2B customers are often very professional and alliances can be made to
the advantage of both parties.
>>
The B2C market is highly concentrated. Sales is often taking place
through very large retail chains, which requires comprehensive work and
resources.
>>
Accept that it is costly to find the best sales people or distributors.
In general, the wage level higher than in Denmark and furthermore,
attractive bonuses are common. Danish companies argue that it
is worth paying for the best, as skilled human resources are pivotal to a
successful market establishment.
>>
Take a glimpse at the sales and distribution of your US competitors, and
benchmark.
>>
Large customers can mean large revenue, but also big risk. You may end
up being too dependent on one customer.
>> to the size of the US market and to less advanced infrastructure, it is
Due
costly and complex to distribute on the US market.
>>
Close contact to distributors is provital. You will probably need several
distributors on the US market. It is important to select the right distributor(s) and to manage and develop partnerships wisely.

Marketing
>>
Marketing tools in the US are often different from the tools applied in
Europe. You cannot penetrate the market without some sort of marketing activity.
>>
Marketing laws in the US are less stringent than in Europe and Denmark
– you are allowed to tell why your product is better than your competitors’
in your sales and marketing material.
>>
Develop American sales and marketing materials – European materials
will most likely not work in the US. A modest approach should be avoided
– you need to tell them why you are the best!

US Management and Employees
In some cases, Danish companies decide to set up own sales company or
subsidiary in the US. Hence, they will be much more directly involved in
running a business unit in the US and need to tackle challenges related
to recruiting and employing manager(s) and staff. At the same time, the
company can meet challenges related to general management.
For Danish companies, attracting the best US managers can be a
challenge for two reasons: Firstly, it is often not regarded prestigious
among well-qualified US managers to work for relatively unknown
Danish companies; secondly – and more importantly – the salaries offered by Danish companies are often not high enough to attract leading
US management talents. This especially concerns stock options and other performance related salary incentives, where Danish companies find
the package demanded by US managers excessive. These factors are not
only relevant in the recruitment strategy, but also in the retention of US
top management.
The experiences from Danish companies participating in the survey can
be summarized as follows:

Recruitment and Hiring of Manager and Employees
>> is crucial for a successful entry to use resources and spend time on
It
finding the right people. When recruiting, analyze and understand your
HR needs and employ the people you think will accommodate them.
>>
Spend time on understanding the wage level in the US. It is higher than
expected by most Danish companies.
>>
Consider using a recruitment agency, but use one with knowledge of your
particular business area.
>>
When employing a US CEO, make sure that he or she has previous experience with working in an European organization.
>>
Recruitment in the US often requires sponsorships of universities and a
good company image in the broader public.
>> addition to salaries, the employer must also pay social security, health
In
care etc., which often adds up to 40 percent of the basic salary.
>> connection with the dismissal of an employee, provide the em loyee
In
p
with an appropriate compensation package to begin with, improving your
chances of avoiding lawsuits later.
>> aware of the fact that some states have laws dictating employment of
Be
minorities.

31



32

Review documentation and manuals
thoroughly. Make sure warnings
are explicit, as common sense is no
guarantee
Management
>>
The US should be top management priority. You need to allocate
resources to invest in the market.
>>
Provide the US subsidiary and its management with extensive
responsibility and maneuvering space, but also with clear guidelines to
operate within.
>> the US management is not sufficiently integrated in the Danish/global
If
organization, there is a risk that it will set its own agenda.
>> top management of the Danish company must be committed and
The
prepared to work hard in the beginning - especially to get to know the
people in the US organization.
>>
Show the US CEO trust and ensure that he/she feels an ownership of the
business development.
>> department managers in the US communicate directly to their counLet
terparts in Denmark.

Location
Careful consideration on where to physically place the activities is an
essential part of a US establishment by Danish companies. The Danish
company Morsø ran into trouble as they had underestimated the size of
the country and how different the West Coast is from the East Coast.
An analysis of location should encompass traditional considerations
such as infrastructure, logistics, market access, legislation, access to raw
materials and qualified staff, salary levels, production cost etc. How
ever, also time difference, difference in culture, location of competence
clusters, and local government incentives must be taken into account.
While time difference may appear to be an inferior issue compared to the
more traditional business considerations, most of the companies participating in the survey agreed that East Coast locations will reduce travel
time and transportation costs to and from Europe. In addition, the business culture on the East Cost is closer to the European.
The size of the US market is attractive to many Danish companies, but
sales, distribution, and marketing in 50 states divided into three time
zones makes it extremely resource demanding. For most Danish companies it will not make sense to set up presence in all states. It may be
more valuable to focus on four economic power centers, as illustrated on
the opposite page, where the majority of companies and consumers are
present.

>>
Danes involved in the US operations should have US experience.
>>
Take differences in culture into account, but do not use them as an
excuse for not acting when problems arise.
>> especially aware that most American CEOs are very good at mass
Be
market sales, whereas many Danish companies are focused on niches –
American CEOs often lack experience with niche strategies.
>>
Make sure that US managers get to know the Danish organization well
– plane tickets and video conferences are efficient tools in this process.
You can also send selected American employees to Denmark for shorter
periods of time – for instance for three months.
>> difference between Denmark and the US is the working environment.
A
The US working environment is dominated by control and bureaucracy.

33



34

Legal Issues
The significant differences in the US legal systems and institutional framework do not only have implications in relation to employees, but also in
relation to product liability and consequently to the cost structure of US
registered companies.
However, it is important to underline that most Danish companies
regarded the product liability cases referred to in Danish media as
exaggerated. And in the vast majority of the cases where a US company
faces a serious law suit, it can often be justified by the actions of the company.
The companies participating in the survey give the following advice on
legal challenges to Danish companies interested in the US market:

Labor Market
>> US labor market is more flexible than the Danish. Dismissing emThe
ployees is generally more accepted, especially by the remaining employees. However, loyalty among the American employees is lower than in
Denmark.

A location analysis and comparative study of different locations should
be an integral part of the preparation when a Danish company intends to
enter the US market.
The participating companies provide other Danish companies with the
following advice:
>>
Consider the key factors for your business and compare between
different locations – consider using external assistance with US experience in this matter.

>> the US, there is no collective bargaining and the trade unions generally
In
have less impact than in Denmark. This is also one of the main reasons
for the many lawsuits related to employees. The lack of a system for settling employee disputes, as it is known in Denmark, frequently causes
settlements through the US court.
>>
From the employers’ point of view, the problem with court settlements
is that the winners are not able to claim reimbursement for the legal
costs. Many cases are therefore settled out of court. Lawsuits and legal
disputes concerning employees are time and resource consuming and
remove focus from the business.

>>
Establish location close to principal customers.
>> East Coast is closer – both in terms of culture and time.
The
>>
Different states often offer incentives such as significant tax exemptions
and other valuable assistance (Delaware is famous for its favorable business laws that attract many foreign companies to incorporate their US
subsidiary in the state).
>>
Look at the location of competitors and key customer segments.
>>
The cost levels between the various regions and cities can fluctuate
significantly. The cost level is generally lower outside the larger cities.

35



36

Other Legal Issues

Conclusion

>>
Take out insurance. It is relatively expensive, but part of doing business
in the US.

As outlined in this chapter as well as through the cases, there is no onesize-fits-all for Danish companies entering the US market. Each company
has to adapt its US strategy to ambitions and available resources.

>>
Employee insurances must be explained to the employees in detail.
>> thorough when preparing product manuals. Often it should be
Be
prepared in more than one language, and EVERYTHING must be taken
into account.
>>
Review documentation and manuals thoroughly. Make sure warnings are
explicit, as common sense is no guarantee.
>>
Spend time on studying the business laws – for instance, prices cannot
fluctuate too much between states.
>>
Work with good lawyers and other counselors.
>>
Accounting standards and financial systems are different in the US compared to Europe.
>>
There are national laws, and then there are state laws – this means that
what might be possible in one state, might not be possible in others.

Bureaucracy and Practicalities
>> aware of US bureaucracy. It can take up to 1½ year to get a green
Be
card.
>> patient – things (visas and other practicalities) take time and require
Be
a lot of resources.
>> not underestimate time consumption in relation with practicalities. It
Do
takes time to obtain certifications and approvals, payment methods are
“old-fashioned”, distribution and logistics take longer than in Europe etc.
>> manufacturer-to-consumer infrastructure is not as developed as in
The
Europe and it is therefore more complex.
>>
Today in Denmark both companies and customers use the internet to
take care of almost everything on an every-day basis. This is NOT the
case in the US. A lot of companies handle everything through the postal
system or over the phone. As a Danish subsidiary, this is something that
you need to keep in mind, since you might lose potential clients/customers because they simply do not know how to contact you. Additionally,
this means that sale processes take longer.
>> not forget your dollar exposure when planning and implementing your
Do
US activities – it may pay off to have a dollar cost base.

37


Even though the experiences made by Danish companies are different, it
is possible to subtract a number of general recommendations.

>>
Establish presence. It does not necessarily mean that you have to
set up your own organization. You can go through distributors or other
relevant partners. However, you need to visit the US, customers,
and suppliers regularly in order to be successful. Without a thorough understanding of and feeling with the market, you will not be successful.
>>
Aim for specific market segments and find your niche. It is important
both on the B2C and B2B markets as highlighted in the cases of Morsø
and Tom’s Group. All Danish companies recommend focusing on one or
a few geographical areas.
>>
Resources must be available and management in Denmark committed. For internal reasons, Danstoker decided to postpone market entry
in the US 3-4 years, as the company believes an entry on the US market
requires dedicated and committed management resources. Other Danish companies, including LEGO, too argued that this is a key premise for
successful market entry. There should be a willingness to invest in the
market.
>> long term perspective on the US market is often necessary. Morsø
A
spent 12 years and a sizeable investment before developing its present
business model. However, the experiences gathered were invaluable
when designing the present set-up.
>> not enter without a unique business idea. You need to establish a
Do
clear position on the US market.
>>
Understand the market. It is important to analyze the market and
get insight into market structures. The market structures may be
different from Europe, and you may need to change your business model
to suit the US market. This was the case for Danstoker. The company
could not identify the kind of partners it usually works with in the US.
>>
Focus on one customer segment. You need to know your customer
segment very well in order to be successful on the US market. If not,
you will lose to competitors having a stronger position and a better
value proposition.


38

>>
Form strong partnerships with distributors. Morsø provides extensive
support to their distributors and engages actively in the market development phase.
>>
Use extensive resources on preparation. All Danish companies
participating in this survey highlighted the importance of thorough preparation. You need to understand the market, customers, and possible
entry modes before entering the market. Collect needed data and
consult experts if needed.
>>
Apply a dynamic entry mode. Successful Danish companies evaluate
different set-ups, and on this basis determine the optimal entry mode for
the US. If the entry mode turns out not to be successful, be prepared to
change strategy.
>>
Patience is important. Things take time. It is the case in relation with
distribution, transportation, transfer of money, getting green cards, etc.

The above comprise a comprehensive set of practical recommendations
to Danish companies wishing to enter the US market. Keeping these
recommendations strong in mind as well as applying the framework
presented in the following chapter will increase your chances of a successful US market entry.

39


A Danish company must realize
that success on the US market requires
comprehensive commitment


40

Entering the US Market
through Successful
Partnerships

The next section outlines an approach to preparing entry on the US market. It presents a general model for preparing a strategy for market entry,
a framework for selecting your partners and creating value for them as
well as a framework for developing and managing partnerships in the US.

US Market Entry Planning
The General Model

Introduction
Danish SMEs are primarily opportunity driven in their business development. This is not to say that Danish companies do not plan at all or that
all business development is purely coincidental. However, Danish companies have a tendency to apply the same decision making framework
(or lack of it) to the US as is used for smaller, less sophisticated markets.
From the Danish companies interviewed as part of the ”Do’s and Don’ts”,
it is evident that even large Danish companies often struggle for success
in the US. What all the participating companies have emphasized as a key
factor for success is taking the necessary time for thorough preparation.
Furthermore, the three cases underline that the management of the Danish company must be prepared to apply a long-term perspective on the
entry process.
Finally, the cases also illustrate that a Danish company must realize that
success on the US market requires comprehensive commitment – both in
terms of financial and human resources. This means preparing budgets,
dedicating people at different levels in the company, frequent travels, preparedness to adapt, while still staying focused on the strategy developed.
The US strategy must be a dynamic process, which means that it must
be constantly developed according to the information and experiences
gathered throughout the process. Both Tom’s Group and Morsø have
changed their strategies on the US market. It is recommended that the
Danish company forms a small project group comprising of both top
management and key staff that drives the US market penetration throughout the entire process.

41


The decision-making process regarding market entry planning is essentially generic for all markets. It involves taking into account the opportunity in the market and devising a viable strategy, entry mode and implementation plan that will enable the Danish company to pursue the formulated
strategy.
What sets the US apart from other markets is that companies should take
extra care in being methodical in all aspects of the planning process. The
reasons behind this are; 1) the potential importance of the US market due
to its sheer size; 2) the sophistication of the market (in terms of customers and competition); 3) the fact that regulations can vary a great deal
from state to state.

A FRAMEWORK FOR MARKET ENTRY PLANNING
Products
Resources
Market

Opportunity
& Strategy

Entry Mode

Implementation

Competition
Business Env.


42

The illustration of the framework indicates the iterative nature of the entry
process. Ideally, a Danish company should initially evaluate the opportunity in the US by examining at five factors:
1. Products – Do we have the right products for the market?

The logical choice for most Danish
companies is undoubtedly to team up
with one or several US partners

2. Resources – Do we have the necessary financial and
human resources?
3. Market – Size, structure, growth, geographical segments,
buyer groups etc.
4. Competition – Who are the relevant players? What are their
strategies (products, segments, and ambition) and resources?
How do they serve the market? Etc.
5. Business Environment – Product liability, special legislation
governing our industry etc.
On the basis of these five parameters, the Danish company is in a position to assess whether it should proceed with the US market entry based
on the perceived opportunity. The overall strategy revolves around where
and how to compete. It can be boiled down to the two considerations:
1. Ambition – What do we want to accomplish in the US?
2. Positioning – Geographical markets, products,
buyer groups, and competitive parameters
The entry mode should match the requirements posed by the chosen
strategy. For instance, if a Danish company wishes to serve the entire US
market with a simple product, the company should opt for a strong US
distribution partner. Entry mode through partnerships is the subject in
the sections below.
On the other hand, if a Danish company intends to target a market with
few buyers with a knowledge intensive and service intensive product, the
Danish company may consider establishing a US subsidiary with internal
resources to develop the market.
Subsequent to choice of entry mode, the final stage in the entry process
is implementation. The implementation should be dictated by the available resources and the ambition for the US. In this respect it is important
to outline clear stages in the implementation in order to unequivocally
prioritize the efforts.

43


Entry Mode – Partnerships in the US Make Sense
For a large part of Danish SMEs there is no need for intensive analysis
in order to determine the optimal entry mode, i.e. the choice between a
US-based partner as opposed to establishing a US subsidiary and organization. The rationale for this can be summarized as follows:
>> product range of Danish companies is often specialized and thereThe
fore fits well with a distributor or agent
>>
Danish SMEs seldom have the resources required to establish their own
organization in the US in the short run
>> market is geographically extremely large and therefore impractical
The
to serve from a single location unless you have the resources to invest in
a rather large organization.
>>
Competition is often fierce – teaming up with a strong US partner therefore makes sense
>>
Business environment in the US is very different from existing markets
in terms of legislation and business institutions
>>
Due to the fierce competition and sophistication of the US market, the
business opportunities will often be found in several niches
>> derived from the business opportunity, the strategy will often be a
As
focused positioning even if there is a potentially wide geographical focus
which necessitates the use of partners

While the above characteristics do not apply to all Danish SMEs, they do
prevail in the majority of cases. The logical choice for most Danish companies is undoubtedly to team up with one or several US partners. This
is also the strategy applied by Morsø, and the reason why the following
sections are dedicated to issues related to partnerships in the US.


44

Partner Based Market Entry
Each company should obviously go through the stages of the entry planning framework outlined above in order to formulate a viable strategy for
the US market, including a decision on the optimal entry mode. Never
theless, it is clear that the logical choice for many Danish companies will
be to utilize US partners in their efforts to unlock the US potential.
There are two equally important aspects to devising a successful partner
based entry:
>> Partner value proposition
US
>> Partner selection
US

An important aspect of a partner approach is to visualize the value of the
partnership to the US partner. The earnings potential and possible upside have to be clear to the US partner from the beginning. The rationale
is simple: In order to attract the best US partners, the Danish company
must stand out as an attractive partner. This entails setting goals, investing in branding, allowing for decent profits etc.
The other aspect relates to selecting the right partner. DI’s experience
from working with Danish companies indicates that the wrong choice of
US partner may cost a Danish company three years on the US market:
It will take one year before it realizes that it has the wrong partner. One
additional year will pass before the Danish company decides to do something about the situation, and one more year before the new US partner
has been selected and inducted. Hence, the costs associated with a thorough US partner selection process are in most cases low compared to the
potential loss of revenue and direct costs associated with making subsequent changes. In the initial market entry on the US market, Morsø ended
up selecting the wrong distributor as it turned out that it was not capable
of servicing the market as expected. After three to four years Morsø decided to change its set-up.
An important aspect of a partner approach is to visualize the value of the
partnership to the US partner.

45



46

Partner Value Proposition
When the Danish company starts establishing the US distribution channel, it should focus not only on how it wants to create value for the final
consumer in the US, but also with respect to the partner and other intermediaries on how to ensure the appropriate motivation. In other words,
the larger a reward it is possible to secure for the US partner, the more
committed the US partner will be to furthering the sales of the Danish
company’s products.
Clarifying the US partner’s value proposition before selecting a partner
may seem counterintuitive. However, by doing so, the Danish company
ensures that it can quickly establish the US partnership. All too often the
US partner selected will lose interest because of delays, lack of action
and support etc. In most cases the partners will lose valuable time penetrating the US market and it may eventually lead to the dissolution of the
partnership.
Many Danish companies do not prepare adequately before entering a US
partnership, not only with respect to the selection of the partner, but also
with respect to what the Danish company can offer. A common mistake
is that the Danish company offers the US partner a pile of brochures, a
price list, and a telephone number for further advice – and believes that
this is sufficient. Even though this approach makes sense from a risk
minimization perspective, a solution that is both cheap and entails limited
risk will very often mean that neither of the two partners will gain from the
partnership. This is especially true in a market as competitive as the US.
Another common mistake is that too many Danish companies see their
US partners and distributors as customers. Needless to say, this perception will make it extremely difficult to develop a sensible partner value
proposition.

An important aspect of a partner
approach is to visualise the value
of the partnership to the US partner

47



48

Danish companies that already have US partners will also be able to
benefit from developing a partner value proposition. Experience shows
that implementing a partner strategy including a clear partner value
proposition in existing US partnerships will create a new drive – not least
because it will increase the level of communication between the partners.

The parameters that the company can adjust with respect to these two
avenues are illustrated below.
US PARTNER VALUE CREATION

The partner value proposition should address the following issues:
>>
What should we do to become/remain an attractive partner?

Task
Earnings

>>
What goals do we have for the market?
>>
Which tasks should the US partner take care of and how?

Knowledge

Risk

>>
How do we expect to support the US partner in his work?
>>
What do we demand and wish from the US partner?
Value

>>
What do we demand from the contract – what is not up for discussion?
>>
How do we ensure effective communication?
Brand

All Danish companies will testify that they would like the US partner and
distribution channel to focus on selling their products. The most effective
way of ensuring this is to reward the US partner by allowing an attractive
return on selling the Danish company’s products/services. This might
sound like common sense, but Danish companies are often unwilling to
allow high margins for their US partners. In many cases, allowing the US
partner to make a substantial profit will actually optimize the Danish company’s revenue as well, as it will create the financial incentive for the US
partner to invest maximum resources in the development of the market.
Small and medium-sized Danish companies tend to look for American
partner companies that are similar to them in terms of size, thereby ensuring that they quickly become important to the partner because of the
revenue that stems from their products. However, selecting a small partner also increases the need for the Danish company to actively support
the US partner through strong commitment and a focused partner value
proposition.
Basically, a Danish company can take two avenues to create value for the
US partner:
>>
Increase the value of the perceived benefits
>>
Decrease the relative costs

Synergy

Process

Earnings
The yardstick applied to evaluate the attractiveness of a Danish company
in the eyes of a US partner is its earning potential for that partner. The
higher the potential, the more attractive the Danish company will look to
the US distributor.
Risk
The willingness to take on risk is often an indication of commitment. It
is important to be aware of the different types of risks and subsequently
to allocate a given type of risk to the partner best able to handle it. By
assuming risks associated with for instance product guarantees, buy back
guarantees, bank guarantees, or performance guarantees, the Danish
company can effectively minimize the risk for the US partner and thereby
create more value for him.
FIVE PHASES

49


50

Collection of

Partner

Knowledge
Knowledge intensive processes and products command higher prices
than simple products. In general, the more knowledge the US distributor
is able to put into the product, the higher the possibility for the distributor
to get a higher share of the earnings.
A key part of knowledge is training. Attractiveness can be increased considerably by for instance developing a training or competency development program for the US partner. The Danish company BK Vibro has
carried out several training sessions for their US partner both in terms
of product training and marketing. It has been a great success for both
parties, because it has strengthened the relation. Experience shows that
there is a direct connection between the quality of the training that the
Danish company offers its US partner and the earning potential of its
product in the US. Hence, training has a positive effect on sales, and increases the loyalty of the US partner.
Process
An overlooked possibility of creating value for the US partner is by binding
him closer through processes, for instance by giving access to systems,
methods, tools, and guidelines that help achieve the goals. This line of
thinking is especially evident with respect to successful franchise systems,
where it constitutes an important and essential part of the partnership.
Brand
Brand, image, and references are often attributed a certain value. It is
less risky to introduce a product/service when it is already an established
brand well-known to the consumers. At the same time, the US distributor
knows that the Danish company will continue its investments into the
brand and most likely contribute to the marketing of the products in the
US. However, as mentioned in the Do’s and Don’ts chapter, European
brands and references are often not recognized in the US, which limits the
brand value. Therefore, focusing on brand building in the US, in addition
to acquiring US references, are key factors in the efforts towards a successful establishment on the US market.

51


All Danish companies will base their
partner selection on some sort of
assessment. However, often the partner
selection process is random
Synergy
As most of the US partners in the distribution channel often represent
other companies, the Danish company should carefully consider whether
it is possible to create value through synergies between other products
in the US distributor’s portfolio. Complementary products, for instance,
may create synergies within all of the areas already mentioned, i.e. brands,
systems, and training.
It will often be difficult to ascertain the value of the synergies, but it is
nevertheless important to highlight them and consider how they may create value.
When the Danish company has figured out where and how to contribute
to the US partner’s value creation, the next step is to visualize the different components to that partner. The different components can either be
presented as a set of options or as a take-it-or-leave-it offer.

Partner Selection
All Danish companies will base their partner selection on some sort of
assessment. However, often the partner selection process is random. A
quite common US partner selection criterion is that the Danish company has met or responded to an enquiry from a US company/person that
the Danish export manager may have met on a trade fair or exhibition
in the US. This more or less accidental meeting thereby leads to the US
company/person being appointed the company’s official US partner or
distributor.


52

A structured and systematic approach to selecting the US partner will not
surprisingly increase the probability of the Danish company becoming
successful on the US market. The following examples might appear constructed; they are, however based on actual cases.
They serve the purpose of illustrating what a thorough US partner selection process will prevent from happening:

example of US Partner Requirements
General strengths
• Ability to finance sales
and growth
• Ability to raise financing

>>
After a couple of years with limited sales, the Danish company realizes
that the US distributor also sells competing products

• Ability and will to
finance commercials
and marketing

>> US distributor has been given exclusive rights to the entire US
A
market, but does not have the necessary resources to cover more than
three states

• Expertise on product
and market

• Experience with customer target
group
• Geographical coverage
• Customer service
• On-time deliveries
• Sales force
• Market share

• Quality in management

• Participation in congresses and
exhibitions

• Reputation among
customers

>>
After granting exclusivity, the Danish company realizes that the US
distributor does not possess the needed technical knowledge or intend
to invest in training of its employees

• Ability to implement 2-3
years marketing plan
• General size

>>
Discussions with potential customers leave the Danish company with an
impression that the US distributor has a bad reputation and does not
possess the needed political understanding to sell the products

Product factors
54
ENTERING THE US MARKET

>> Danish company’s newly appointed US distributor purchases a sizeThe
able stock at the beginning of the collaboration and reissues an order
after a short period of time. After this, no further order is placed by the
US distributor, who has obviously not been able to take the product out
to the final consumer

• Market knowledge

• Ability to carry stock

>>
After a short period and limited sales, the Danish company becomes
aware of the fact that the US distributor does not have the needed financial resources to develop the market

>> Danish company’s US partner boasts of having good connections to
The
the various stakeholders within the industry, but after a period of time,
the Danish company realizes that the partner does not have the said access to this network

Marketing skills

• Member of trade associations
Commitment
• Volatility in product mix
• Percentage of business on largest
supplier

• Knowledge on products

• Willing to carry sufficient stock

• Complementary
products

• Willing to allocate money for
advertising

• Quality and complexity
of product lines

• Willing to guarantee minimum
sales

• Standard of physical
facilities

• Undivided attention to product

• Quality of after sales
service

• Willing to skip competing products

• Patent security

• Willing to invest in sales training

Facilitating factors

• Ability to install

• Connections to influential persons

• Ability to advice

• Experience from working with
other exporters

• Ability to assemble

• ”Track record” from previous
suppliers
• Familiar with Danish company
culture

53



54

To ensure that the process of identifying the optimal US partner follows
a systematic and structured process, Danish companies should apply the
following 5-step model:
US PARTNER SELECTION PROCESS
1. Preparation of a US partner proﬁle

2. Initial search (Desk and Field research)

3. Screening (Field Research)

4. Final Assessment (Dialogue)

Selection of US Partner

In the US, there is a normally a strong argument for the US partner being
responsible for most tasks. Not only due to the relatively large physical
distance between Denmark and the US, but also because US customers
in general demand a local set-up to cater for every possible need.
Following the preparation of the analysis, the tasks must be reformulated
to a number of concrete criteria that will eventually help the Danish company select the US partner.
It is important that the Danish company does not list ”nice-to-have” criteria for the US partner, but only ”need-to-have”. If too many demands
are formulated, the search process will be too long and not least become
more expensive. On the other hand, a list containing criteria that are too
general will not produce the desired result.
On the basis of the US partner requirements, the Danish company is able
to finalize a US partner profile to be used during the subsequent steps.

Step 2: Initial Search
When the company has finalized the partner profile, the actual search for
potential partners can begin.

The philosophy of the model is that the Danish company’s level of information about the US market and potential US partners is gradually
increased throughout the process. At the same time the number of potential US partners will gradually decrease. The process therefore ensures
that resources are used effectively.

Step 1: Partner Profile
When preparing the US partner profile, the Danish company must decide
which functions should be delegated to the US partner and which should
remain in the Danish company.

In most cases, the Danish company should consider hiring a consultant
with substantial experience from the US, i.e. either a US consultant or a
consultant with a strong presence in the country. If the strategy of the
Danish company is to serve several US customer segments, it should
define a geographical area and make this its US market initially. Consequently, the US partner search should be within this area.
BK Vibro had tried to identify its own partner through contacts and network, but found it hard as they were not actively present at the market at
this stage. Therefore, the company decided to team up with a company
specializing in partner search. Through this co-operation, an optimal partner was identified. Today the co-operation is progressing positively.

The first step is therefore to determine the division of labor within the
distribution channel through a task analysis. When the Danish company
has considered where value can be created and the tasks that the partner
should take care of, it is in a much better position to develop a profile of
the partner. What does the right partner look like? Which competencies
and characteristics must the partner possess and which would be nice
to have? What should be emphasized when making the final selection?

55



56

Step 3: Screening
In this phase of the selection process, the Danish company must go into
more details and initiate a dialogue – not necessarily through meetings –
with the potential US partners in order to make a qualified judgment and
selection of its future partner.
At this stage it will not suffice to solely evaluate whether the potential US
partner is able to perform the task – the quality of the performance must
also be evaluated. The existence of an after-sale service organization
would, for instance, be a criterion in the initial search phase, while during
the screening phase, the quality of the service would need to be assessed.
This is what the dialogue with the US potential partners aims at clarifying.

Step 4: Final Assessment
The final assessment will typically take place as part of a visit to the potential US partner to collect information directly from his employees
through face-to-face meetings. In case the Danish company wants to be
remarkably thorough, it can also consider contacting and meeting with
the potential US partner’s customers, suppliers, and perhaps also other
stakeholders.
Hopefully, only one candidate should stand out after the Danish company
has evaluated all the potential US partners and compared their qualifications on the basis of the requirements. In most cases, however, the number of potential candidates is still around 2-3 and the Danish company
must make its decision based on other factors.

Step 5: Final Selection of the US Partner
The foundation of any collaboration/partnership is a good chemistry and
communication between the partners. When the Danish company ends
up with more than one US candidate to choose from, the final evaluation
should be made by evaluating the potential candidates using one or more
of the following criteria:
>>
Chemistry
>>
Ability to communicate effectively

There is no set approach for applying the criteria. By asking and answering questions from the group of potential US partners, the Danish company will within a short time be able to identify the best and most committed
one. Some issues that the company could take up with its partners are:
>> the partner to develop a general plan for the marketing of the comAsk
pany’s products/services
>>
Discuss the partner’s technological understanding of the product
>> for information on particular customers
Ask
>> the partner to estimate potential sales
Ask

In case the Danish company is still unable to decide on one US partner,
it is an option to establish more US partnerships. In this case, it will of
course not be possible to grant exclusivity. It will under special circumstances be better to have more than one partner. This may for instance
be the case when it is not possible to identify one potential partner, who
will be able to cover all the different segments on the US market. Instead
of thinking along the lines of exclusivity, the Danish company should consider the individual US partner’s ability to achieve a reasonable earning
when selling the company’s services/products.

Negotiation
As a final step, the Danish company will start preliminary negotiations
with the selected US partner(s). It is strongly recommended to take the
required time to complete the negotiations and involve lawyers and other
external expertise in the contract preparation phase.
It is difficult to say how long this phase will last, but because of the travels
to and from the US and involvement of legal assistance, it will typically
take up to two months.
Nevertheless, it is imperative that negotiation and conclusion of the contract with the selected US partner takes place before the collaboration
starts. Many Danish companies wish to test the relationship with their US
partner before they enter into a contract, which may often become an expensive way of avoiding or postponing the contract development process.

>>
Understanding of the market
>>
Commitment
>>
Alignment of expectations

57



58

Partner Development and Management
One thing is providing partner value and spending significant time on
identifying and selecting the optimal partner, but equally important is to
have a structured approach to developing and managing the partnership.
As some of the cases have illustrated, it is challenging to build up successful partnerships. Despite good intentions many things can go wrong
such as huge cultural differences and different perspectives on how to
approach the market and the customers.

A Partner Management Guide can take many forms and should take its
point of departure in your company and its objectives for the US market.
However, it can be an advantage to include the following elements:

PART I
Business fundamentals

>> successful partnership requires an “open book” approach
A

PART II
Practicalities

>> successful partnership requires that you develop a “partner culture”
A
within your own organization

PART III
The co-operation

>> successful partnership requires that you have a frequent contact with
A
your partner (and especially in the start up phase, were the partner still
has to get use to the product and gain more knowledge on how to sell it)
>> successful partnership requires a lot of empathy towards your partA
ners – you must understand their market

Feedback system

Business plan

COM M U N ICATION

One way to increase the chances of successful partnerships is to develop
a Partner Management Guide.
PARTNER MANAGEMENT GUIDE
The purpose of the Partner Management Guide is:
GOALS

Information

Demonstrate professionalism

Division of tasks/
responsibilities

Foundation for partner
negotiations
Faster and more focused
partner implementation

Goals & requirements
Support
Structures

Ensure common
understanding

The elements are briefly described in the following:
Part I: Business Fundamentals
This section is called Business Fundamentals as it contains basic information about your company, products, services customers, markets, and
competitors. It could also contain information about what tasks the partner is responsible for. The purpose of this section is:
>> provide the partner with a thorough understanding of the company
To
and its surroundings
>> create a common understanding of the market
To

Uniform partner
management

>> provide input for the marketing mix to be applied by the individual
To
partners

Increased partner
channel control

59

Support

MEANS AT YOUR DISPOSAL

Attract the optimal
partners

Measuring



60

Ideas to business fundamentals are provided below:
Company

Products

Services

History

Product catalogue

Pre-sales services

Vision, mission

Technology

After-sales services

Values

Unique Selling Points

Installation

Facilities

Concepts

Testing

Organization

Packing

Return policies

Financial info.

Transportation

Cases

Service requirements

Gallery
References

Part II: Practicalities
This section is called Practicalities and could contain the following information:
>> partner agreement
The
>>
Prices and conditions
>>
Contact details
>>
References
>>
Business planning routines (process)
>>
Reporting

61



62

Business Plan
The Business Plan is a central tool in the planning and implementation of
future activities. The Business Plan should include:
Customers & Markets

Competitors
>>
Budget

General markets

Competitor profiles

>>
Sales quantities

Customer segments

Competitor SWOT

>>
Prices

Target groups

Competing products

>>
Activities

Market position

Competitor benchmarking

>>
Customer segment focus

Customer profiles

Competitor position

>>
Development initiatives

Competitor profiles

Competitor marketing activities
The business plan should be prepared annually. The US partner may take
the initiative of developing the plan, but it is important that it is adjusted
and finalized jointly by both parties in order to reach mutual agreement.
Enclosed in Appendix 1 are examples of some of the frameworks normally included in a business plan.

Part III: The Co-operation
This section is called the Co-operation. It is a dynamic part and focuses
on how to develop and manage the partnership in a structured manner. It
contains the following elements:

Feedback system

Business plan

COM M U N ICATION

Measuring

Support

63



64

Measuring
The objectives should be measurable and could for example focus on:
>>
Market coverage
>>
Volume, turnover
>>
Number of customers
>>
Number of customer segments approached
>>
Marketing activities implemented
>>
Size of inventories
>>
Sales force

Support
Normally you will have a lot of requirements to your US partner. However,
in order to have a fruitful and equal partnership, you also need to support
your partner in developing the market. Too often it is left entirely to the
partner. Below, some support initiatives are illustrated:

TEMPLATES AND
GUIDELINES

IT SYSTEMS

TRAINING

RESSOURCE
BACK-UP

Tender preparations

CMR systems

Sales training

Sales back-up

Visit reports

Calculation systems

Product training

Fair participation

Check-lists

Extranet

Negotiation

Demo equipment

Calculation models

Electronic catalogues

Marketing

Personnel/staﬀ

Customer knowledge

Inventory man.
systems

ICT training

Competitor knowledge

Service management

Two other Danish companies participating in this survey, Dolle and
BK Vibro, also emphasized the importance of supporting their partners
as it will result in a higher degree of commitment which is fundamental to
achieve success in the US.

Feedback System
One of the frequent complaints from Danish companies working in the US
through a partner, for instance a distributor, is that they do not get market
information and hence have no knowledge of the market situation. This
situation can be prevented by incorporating a feedback system as part
of the overall co-operation and reporting procedures. By requesting the
partner to fill out simple templates you can get information and knowledge about:
>>
Customers
>>
Competitors

The purpose of the initiatives is to demonstrate to your partner that you
want to actively participate in the market development, but also to make
sure that you have a structured approach to the co-operation as it will
save time and money. Morsø has been successful in building up a strong
partnership with its US distributor. Morsø provides sales back-up, training, marketing material, company visits, relevant templates, etc.

>>
Market trends
>>
Changes in partner organization

We suggest three simple reports:
1) Sales report (monthly or quarterly)
2) Market development (semi-annually)
3) Partner information (annually)

65



66

Companies with successful partnerships in the US…
… believe that the right US partner and relations are decisive
This is unique to successful companies in the US. What distinguishes successful
companies from the less successful ones is that they take their time to evaluate
and cultivate the right partnerships and the important relationships. Changing
partners in midstream can be a costly experience both financially and in time
to market. Therefore, if the Danish company is not careful in selecting the right
partner, it runs the risk of wasting three years and extensive resources penetrating
the US market.

Communication
Successful partnerships are based on efficient communication and knowledge sharing! So think about:
>>
What information is relevant?
>>
How is it exchanged?
>>
Between whom?
>>
Frequency?

Successful Partnerships in the US
By applying the proposed framework as well as taking the recommendations of Danish companies into consideration when preparing a US market entry, we believe that the chances of success will increase significantly. Based on the findings in the cases and the recommendations in the
chapter “Do’s and Don’ts”, the characteristics of successful partnerships
seem to be the following:

… choose the US partner and do not let the partner choose itself
The choice of entry mode and US partner is a strategic decision that is decisive
for the success of a Danish company in the US market. All too often, the choice
of US partner is based upon casual meetings at fairs or on unsolicited enquiries.
The successful companies have, prior to the partner search, evaluated the type
of functions the US partner should be responsible for in the distribution channel.
They have developed a profile of the ideal US partner and selected the partner
on that basis.
… ensure that the US partner provides knowledge about the market
The easiest way for a company to obtain market information on the US market
is through its US partner. Successful companies help their US partners by
systematising this task for instance by providing them with forms. It is important
that the information collected on the US market is checked regularly by
independent sources.
… allow the US distributor to earn a profit
A US distributor should not necessarily earn the same as the exporter – in the US
a partner should sometimes be allowed to earn more! It is however important to
ensure that there is a correlation between the yield and the risk. In addition to the
relation between yield and risk, it is vital that the US partner in the distribution
chain can look forward to a generous profit.
… establish long-term relations with the US partner
The partnership will become more profitable over time. Aside from the already
mentioned costs of changing partner, the Danish company should also consider
the value of the knowledge built up in the partnership in the US. Consequently,
the company should not only set demands, but also show patience in the
development of the partnership.
… establish clear targets for the US partner
Successful companies lay down budgets, goals, and marketing activities in
collaboration with their US partner. This is done at frequent meetings on partner
development or in annual business plans.

67



68

… know the US customers/segments
The companies not only know what different US customer segments value, but
also how to create this value better/cheaper than their competitors. The successful
companies train their US partners on how to service the customer segments, both
through technical and product training, as well as through targeted sales training.
… do not look for US distributors with a few good customers, but for those
who have the ability to develop the market
Successful companies do to a certain extent not look at the US partner’s existing
network. It is not decisive that the partner already services a number of interesting
customers, but rather that he has the needed resources and competencies to identify
new customers and build up the market jointly defined.
… are aware of cultural differences
In global industries it may be less important, but it is often rather important that local
culture is taken into account. This is underlined by the fact that several successful
companies have as their policies that only locals are employed to cultivate a given
market.
… support the US partner with capital, leadership, and well-tested concepts
It is important to understand that successful companies use a lot of resources to
develop the long-term partnership in the US. It is essential to support and help
the US partner develop the market. Many companies primarily focus on their
expectations to the US partner. It is, however, equally important to make clear what
kind of support the partner may expect from the Danish company in the different
phases of the sales.
… take control of the US marketing strategy from the outset
All too often the US partner is responsible for preparing the marketing strategy for
the US market. Successful companies work together with the US partner on defining
a suitable marketing strategy based upon the company’s experience from other
markets, the experiences of the US partner, and the collected market information.
…systematically collect information on the US market
This is essential in order to react quickly on new opportunities and threats in the US
market. Updated market information can moreover be used as a means of control
and motivation of the Danish companies’ subsidiaries or agents/ distributors by
putting their results in the right perspective.
…are patient because it takes several years to penetrate a new market
It takes time to penetrate and develop the US market. The successful Danish
companies understand that it is necessary to react if the US market changes. On
average, the US market takes 2-3 years to mature.

69



70

Concluding Remarks

Appendix
Segment focus
Volume per segment
Product YY

YY

YY

YY

YY

YY

Segment

The strategies related to selecting and working with US partners conclude
the US market approach model and therefore also this handbook.

XX:

Through practical experiences, this handbook offers Danish companies
clear recommendations and a structured approach that will increase their
chances of success on the US market.

XX:

It is important for the authors to disseminate the message that even
though the US market does pose a significant challenge, Danish companies are in general in a position to do better than is the case today.
However, it requires that the Danish companies considering entering the
US market prepare carefully and thoroughly, as outlined throughout the
handbook.
Many Danish companies are already preparing a lot of the suggested analyses and strategies, but often in an unstructured manner. The
authors believe that a greater focus on the solutions presented here will
allow the Danish companies to create improved business models. In turn,
this will not only achieve the objectives set for the US, but also serve as
an inspiration for penetration of other markets. Although the approach is
developed specifically based on the experiences of Danish companies in
the US, it is to a large extent also applicable when entering other foreign
markets.
Moreover, the recommendations also offer value to Danish companies
already present on the US market. Since the strategies are iterative and
dynamic, implementing them in close collaboration with existing US partners provides a foundation for improving existing activities.
Finally, we trust that applying the recommendations and framework of
this handbook will optimize the efforts on the US market.

XX:

Activity plan:
Activity
Date/Period Target
Estimated

Group Cost

Payer

Responsible

1. Conference
2. Costumer calls
3. Demo-show
4. Fairs
5.
Sales Budget
Customer Q1-Q2 201x Q3-Q4 201x Q1-Q2 201x Q3-Q4 201x Total
segments Unit
USD Unit USD Unit USD Unit
USD Unit USD

Total
Visits to the partner:

1. visit

2. visit

x. visit

Date/who/why

Good luck with unlocking the potential!

71



72

Success on the US Market - Unlocking the Potential

Recommended

Recommended

More Related Content

Viewers also liked

Viewers also liked (14)

Similar to Success on the US Market - Unlocking the Potential

Similar to Success on the US Market - Unlocking the Potential (20)

More from DI - Dansk Industri

More from DI - Dansk Industri (20)

Recently uploaded

Recently uploaded (20)

Success on the US Market - Unlocking the Potential