P ARTNER N ETWORK MODEL

Partnering and networking are important factors for business nowadays. In many cases, e.g.

finding the most suitable business partner or holding the right position in a network can be very crucial for the development of the business of a firm. From the perspective of entering the turbulent Russian markets, building a Network of similar service providers instead of establishing own operations, can be seen as a low-risk option that requires only minimal commitment. Though, depending on the particular model of the Partner Network also the revenue and costs generated from the model can be hard to forecast.

From the basis of acquired data during the research and overall project, a certain model for the Partner Network has been formed. This model is presented in figure 9. From the starting point of the Network, only one certain Partner should be identified in the target market. Only one Partner per each market at the first phase of Network development enables more comprehensive

co-operation between the parties. The flows between the parties consist of information, specific market knowledge, certain customer data forwarded on particular customers’ promise and actual customer leads. From the basis of established new customer relationships, also money transfers will be generated in a form of sales commissions. After the first phase of building the Network, when some specific market knowledge has been acquired as well, the Network can be expanded through recruiting new Partner from the same market and from different industries.

These additional growth phases of the Network will create more added value for the customers through the broadened offering.

Figure 9. The phases of the Network and flows in the Network.

5.1.1 Choosing and evaluating the potential Partners

When establishing a Partner Network, and recruiting potential Partners, certain requirements should be formed. The obvious requirements emerge from the basic values of the organizing firm. Operating efficiently in the network requires usually mutual interests from all the parties and for this, as a supporting factor can be seen mutual interests and values. Besides, factors

such as business skills, overall quality of operations and international orientation should be evaluated. The general requirements for the potential Partners are listed in the table 4.

Table 4. General requirements for Partners. General business skills Ability to develop business

within the network,

After evaluating the potential Partners with the help of identified general requirements, a deeper analysis should be done with these particular Partner candidates. For analyzing these Partners thoroughly, a Partner analysis tool was modified by exploiting the existing example in the literature (Hollensen 2011; Lasserre 2012; Root 1994). The tool takes into account factors from the areas of finance, organization, market, production, relationships and negotiations. All the different parts are given certain weight and they are graded from one to five. After evaluating all the sections, a particular grade is given for the Partner candidate. The results of the comprehensive analysis can be then used for the final decision about the most suitable Partners.

The Partner analysis tool is presented in figure 10. In the presented figure, the weights given for different sections are directive, and should be modified based on the desired requirements.

Figure 10. Partner analysis tool.

As was mentioned, the Partner analysis tool was modified and further on developed based on the existing examples in literature about evaluating potential business partners. The analysis of the potential Partners should be conducted with serious attention, to ensure most effective cooperation after selection. For this purpose it was seen as crucial to give weight for each section, so that these could be modified then based on the target market and actual requirements of the market. Further on, also the values and other requirements that arise from the organizing firm should be noted in the analysis. Giving the score for Partners also enables simple

comparing of various candidates in the selection process. Additionally, it should be noted that due to the wide scale of information required for the analysis, the actual conducting process requires in-depth conversations with the Partners, which therefore also improve the personal relationships and trust between the parties.

5.1.2 Special features and risks affecting the entry mode decision

Creating a functioning Network of Partner firms is probably one of the less-riskiest methods to enter the Russian market. However, the revenue-generating potential of it is also very difficult to forecast. The revenue-generating method of the Network model is based on the customer flow between the Partner firms. Customer flow from Finland to Russian market generates profits from the commissions of newly established customer relationships. Besides, the customer flow from the Russian Partner to Finland generates long-term revenue in Finland in the same manner. Anyway, the revenues generated are dependent on the activity of the Network and the flow of information and customers between the Partners. This of course requires more commitment and resources dedicated for the market, which in turn creates more transaction costs from monitoring and coordinating the operations in the Network. These are discussed further in chapter 5.3.

Just like all the market entry modes, also the Partner Network model has its own risks. Since the Network does not require large financial investments, the risks most likely do not create any significant financial losses. However, building the Network from scratch requires large amount of work, which of course shows up as high ex ante costs. Risks that arise from the building of the Network and from managing the Network are related to especially controlling the quality and ensuring the correct behavior of the parties in the Network. The only remarkable risks are related to the Partner recruitment, which directly also affects the quality issues. If the Partner is not able to provide high quality services for the customers, these may affect the reliability of the Network and the parties as a whole. In table 5 these different risks are placed based on their probability and potential consequences or effect on the business.

Table 5. Probability and Consequences of the risks of Network-model.

Probability Consequences

Small

(Insignificant) Minor Moderate Major Catastrophic Almost