Many businesses think they need finance, but don’t. There are non-finance options that may help you deal with the opportunities and challenges your business faces.
Alternative ways of securing access to markets you could consider first include:
- Manufacturing subcontracting agreements – If you lack funds to manufacture your product yourself, one option is to subcontract. It may make little sense to buy expensive equipment when an established manufacturer could undertake the work.
Specialist operations with larger or faster machines can often make goods more cheaply than you could hope to. Subcontracting also saves you the expense of machinery and allows you to concentrate on your business’s strengths, for example marketing and design.
- Licensing and royalty agreements – Businesses with patented or protected products, brands and other intellectual property can consider licensing production of their products and services and receiving a royalty.
This sidesteps the need for capital for plant and equipment and means you don’t have to market your products and services.
For example, suppose you had invented and copyrighted a board game. Rather than raise funds from investors to manufacture and distribute the game, you attempt to license it to a specialist games manufacturer. If successful you gain access to their international distribution channels and marketing experience in an industry dominated by a few top games manufacturers.
- Distribution agreements – Establishing your own distribution channels can be difficult and costly, particularly in offshore markets. Hiring a good distributor, with an already established network and possibly sales representatives in the field, is a shortcut to a presence in a market.
- Joint ventures (JVs) and strategic alliances – Trading deals and supply contracts through formal and informal JVs and alliances can help stretch and leverage your finances and resources.
Advantages include:
- sharing costs and risks of research and development costs
- pooling resources and skills
- exploiting synergies of brains and talent
- sharing marketing and distribution costs
- building credibility by partnering with well established businesses
- competitive advantage.
There are also possible disadvantages disadvantages for local and international strategic alliances.
For local alliances, a New Zealand business may be too small to absorb and fund all the intellectual property (IP) required. And sometimes international opportunities may be restricted by limited working capital.
Disadvantages for international alliances are that a major portion of the value of the IP may be lost to New Zealand, along with the added-value income.
Subcontracting can also be a form of alliance, especially if you develop close working relationships with your supplier and start to grow in tandem.
- Working with suppliers – An alliance with a company with a stronger supply chain, or an advantageous relationship with key suppliers, can cut costs and build your competitive advantage. In addition securing favourable credit terms from a supplier can be a valuable way of stretching your working capital and improving your cashflow position.
- Working with a customer – Some businesses have favourable working arrangements with their customers, including business referrals, prompt payments, favourable finance terms and advancing funds to accelerate completion of a product or service.
Protect yourself before entering any partnership
Before you enter into any partnerships, you should protect yourself by:
- getting professional advice
- protecting your IP
- having an exit strategy.
- E-commerce – If you have a suitable product or service, an online presence can be a quick and effective way to grow your business. The internet provides a direct link to international marketplaces.
