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Cut ties with a foreign partner with great care

Forging partnerships with foreign-market players is a strategy commonly employed by companies seeking to do business beyond domestic borders. But sometimes it makes sense to say goodbye to these overseas partners.

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Symbility Solutions Inc. built its business in Europe through resellers – a strategy that allowed the Toronto-based software company to build its business overseas without incurring the upfront costs typically associated with establishing a presence in a foreign market.

"It happened organically – we started by seeking out value-added resellers and partners, in large part because at the time we were a small startup with minimum capital," says James Swayze, chief executive officer of 14-year-old Symbility, which provides cloud-based software to insurance companies. "We knew it would be challenging to set up an office, hire staff and build our brand so we sought to leverage partners local to the market who understood the nuances of our target customers."

These partnerships gave Toronto-based Symbility a faster route to the European market, says Mr. Swazye, but it also shaved off a portion of the company's revenue. So last year Symbility decided to buy out its reseller contracts in Britain and Germany and set up a corporate entity in these markets.

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"It was a moment when we had reached some critical mass and established enough brand equity on our own," recalls Mr. Swayze. "It was time to go it alone in these markets."

Forging partnerships with foreign-market players is a strategy commonly employed by companies seeking to do business beyond domestic borders. But, as was the case with Symbility, sometimes it makes sense to say goodbye to these overseas partners.

Such a move comes with risks and benefits, says Hamid Akbari, professor of strategic management at the University of Ontario Institute of Technology in Oshawa, Ont. Among the risks, perhaps the weightiest one is the loss of local-player advantage.

"The local player is better at navigating conflicting demands between stakeholders, and dealing with governments," says Dr. Akbari, who is also CEO and founder of Toronto-based BlancLink Inc., which makes taxi and ridesharing apps. "When you divest local partners, certain things become more difficult or more expensive to manage, especially those things related to navigating local environmental, social and political situations."

Christian Saraïlis, a Quebec City lawyer specializing in business law and international business law, says a dropped partnership can also open the door to competitors. It would not be unusual, he says, for a reseller or distributor to try and find a replacement product or service.

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But once companies have built their overseas business and have more money to invest abroad, divesting foreign partners can be a smart move, says Dr. Akbari. In addition to gaining a bigger share of the profit, they will also have greater control over their overseas processes, quality and brand.

Any business looking to cut ties with a foreign partner should proceed with great care, says Dr. Akbari.

"Before you make that decision, look at the major sources of revenue generation that have resulted from the alliance or partnership and analyze how this divestiture will impact this revenue," he says. "There are no general rules and relationships fall apart all the time, whether they're made in Canada or in a foreign market, so my advice would be to exercise the same due diligence to breaking partnerships that you would normally apply to forming a new partnership."

Mr. Saraïlis says it's important to plan for the end – right from the start – with a partnership agreement that sets out performance targets and allows signing parties to exit if targets aren't met within a specified period.

It's also a good idea to include a non-compete clause, which can help stop former partners from becoming business rivals, adds Mr. Saraïlis.

"If you don't plan for the end, you could end up in court in a foreign jurisdiction," he says. "A very good contract at the beginning of the relationship may incur some legal costs, but you can be sure that it will be less expensive than a trial in another country."

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Mr. Swayze at Symbility says businesses looking to enter foreign markets through on-the-ground partners should also consider how their brand will be handled abroad, and what this could mean if and when the partnership is dissolved. From a branding perspective, it is easier to uncouple when a product or service is sold in a foreign market under the Canadian company's brand – presumably, by the time the breakup happens, the brand will already be established abroad.

But when a foreign-market partner creates its own brand around a Canadian product or service, the original brand owners will need to either buy the rights to use the foreign brand or invest in building their own brand.

"The lesson here? Insist on using your own brand," says Mr. Swayze.

He has another critical piece of advice to share: Keep your customers reassured before, during and after the partnership breakup.

"We did a tour of all our significant customers under the partnership deal to make sure they were comfortable with the process," says Mr. Swayze. "Another important thing we did was to take over the team that had been working with our customers so that from our customers' perspective, there would be little change – our partner had no problem agreeing to that."

Today Symbility continues to operate through partners in markets outside Germany and Britain. The partnership approach to entering and growing markets has worked well for the company, says Mr. Swayze, and he expects to form more partnerships in the future.

"We have a track record of successful partnerships," he says. "The trick is to establish partnerships, right from the get-go, with the right checks and balances in place and to set targets that have to be met. And when it's time to go on your own, it's important to try and leave on positive terms."

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