This is part 1 of a blog series on channel transition management. Keep an eye out for part 2, which will be published next week.
Channel transitions are critical for MNCs, but are often evaluated on an ad-hoc basis
Multinational companies are generally quite dependent on distributors, who on average account for more than 60% of MNCs’ sales in emerging markets and capture almost 20% of revenues as margins. As emerging market customers become increasingly demanding and knowledgeable about their options, and competition intensifies, companies will find that some of their route-to-market structures and partnerships fail to sustain the growth and profitability levels they are expected to deliver. Under a global economy that’s increasingly volatile in the next couple of years, companies must also prepare their channels build resilience to withstand economic headwinds and consistently hit growth and profitability targets.
Too many multinationals are passive in adapting to changes in an evolving market landscape and tend to make ad-hoc decisions on their route-to-market strategies. FrontierView’s research shows that while most companies across regions and industries expect to experience channel transitions in the next 12-18 months to improve commercial outcomes, most of the changes are due to underperformance, instead of proactive, strategic planning. Multinational companies shouldn’t wait for a crisis in performance to complete channel transitions, but should instead take control of the process and use it to drive performance improvements, especially in a more subdued global growth environment.
Companies should develop a strategic process to effectively evaluate channel transitions
Misconceived, mistimed, or poorly prepared channel transitions can be very damaging for the business and cause many months of disruption and underperformance. Companies often find themselves in such bad situations due to the lack of knowledge of shifting market environments including: customer patterns, operating environment, competitor moves, and partner availability, as well as focusing primarily on current needs and failing to look ahead and prepare sales channels for future trends strategically.
In order to strategically anticipate market needs and make smart decisions on their route-to-market plans, MNCs must build internal alignment and assess the need for channel transitions periodically. Companies that follow a strategic process integrate them into their regular review of channel strategy and market environment will significantly outperform others.