What should a company do when it wants to sell its product effectively outside North America? Foreign markets represent lucrative growth opportunities for many young and small firms, but they can also be difficult and costly to access. There are often language, cultural and regulatory barriers, and it can be hard to know beforehand how worthwhile a particular foreign market will be.
One firm that has faced this challenge is Guelph, Ont.-based Eagle's Flight, which develops and sells team-based and leadership training activities.
Eagle's Flight is a company of 100 employees founded in 1988 by chief executive officer Phil Geldart.
At the time, Mr.Geldart was senior vice-president of human resources at a large multinational company. He understood the training market well, and started Eagle's Flight in his spare time with three friends.
After an unsuccessful first product, their second product – a learning activity called Gold of the Desert Kings – took off. After their first sale in Canada, word of mouth carried them into the United States. "Once that happened, we built a direct sales force to grow U.S. sales, because we knew it could be a huge market for us," recalls chief financial officer Dave Root, who is also president of global business at Eagle's Flight.
It would be prohibitively expensive, however, to build a direct sales force to sell in the rest of the world. How could they enter more distant markets?`
Eagle's Flight used a licensee model to enter markets outside North America, starting with English-speaking countries such as Britain and Australia. "A licensee model made a lot of sense," Mr. Root says. "Our training modules were fresh and novel and people really wanted them. Having licensees in foreign markets meant that we didn't need to move people there. And it's a model that our competitors had adopted, so the market understood it well."
Licensees are people or organizations that use the Eagle's Flight training activities with their own clients, and pay a royalty fee for each program participant. To set them up properly, someone from Eagle's Flight spends a week at the licensee's office offering training and helping to launch their first offering to clients.
Eagle's Flight licensees are diverse and include large consulting companies, small-scale entrepreneurs who deliver training services, and even universities. The company actively seeks out foreign licensees through trade shows and conferences in the human resources area, and by talking with regional experts at Canadian consulates.
At the beginning, a licensee was given exclusivity over a particular geographic area, but that policy has changed. "There is a problem with exclusivity if a licensee doesn't perform as expected," Mr. Root says. "In that case. you're essentially locked out of getting sales from that area for the period of the agreement. To remedy this problem, we've removed exclusivity, but we won't put a new licensee in the same geographic area as a current licensee, if that current licensee is doing a good job delivering our product."
The licensee model has enabled Eagle's Flight to sell its training products in 47 countries. It has also given it important knowledge about which foreign markets have the most potential and which licensees are its most valuable partners.
Given that licensees operate at a distance, it's important to retain those that need a minimal amount of monitoring. "We have the contractual right to audit their activities, but it's costly for us to send people to do the audits. We want to be able to trust not only the financial aspects of our relationship – the royalties they send to us – but also how they run our activities. They are carrying our brand in their market and we want them to do so with a high level of integrity."
Given the insights gleaned from the licensee model, Eagle's Flight is poised to begin a new approach to global markets, by leveraging its existing relationships.
"We've worked with 52 per cent of the Fortune 500 companies in North America, but in relatively few countries for each company. There is a huge opportunity to expand our relationship with those organizations. And we can use this same model with the licensees.
"For example, if our licensee in Australia makes a sale to a client that also has offices in Malaysia, we can leverage that introduction."
Through this refinement of its sales model, Eagle's Flight is illustrating two of the most important characteristics that enable small businesses to go global effectively: the ability to partner with other firms and the ability to learn from experience.
Special to The Globe and Mail
Becky Reuber is a professor of strategic management in the Rotman School of Management of the University of Toronto.
This is the latest in a regular series of case studies by a rotating group of business professors from across the country. They appear every Friday on the Your Business website.
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