Gavita International shares tips on how to expand an ancillary company’s footprint abroad
by Joseph Peña
With medical and even recreational markets cropping up across the world, an increasing number of ancillary cannabis businesses – from consulting firms to software providers and greenhouse companies – are looking to become global players.
Gavita International, a Dutch pioneer in horticultural lighting, is at the forefront of this trend.
The company has distributors and resellers for its lighting fixtures in more than 30 countries, giving it deep insight into the opportunities and challenges of international expansion. Last year, it merged international operations under Dutch management and sold a major stake of its business to a large gardening company based out of New York.
Entering international markets can be much more difficult than expanding in the United States, as the regulatory framework, attitudes toward marijuana and business customs are often completely different abroad.
Ancillary companies keen to expand internationally therefore must do their homework, especially in these politically tumultuous times that have ushered in the surprise election of Donald Trump and Britain’s Brexit vote, said Theo Tekstra, marketing manager for Gavita International.
“There is a risk in new markets, and political changes can cause risks,” Tekstra said. “You have to look very closely at the economic and political developments in new markets. They could have implications on your business and you must do a risk assessment.”
Below are some other tips for expanding abroad, based on Gavita’s experience.
Consider Selling Shares in Your Company
When planning an international expansion, look at where you are in the life cycle of your company. For a small ancillary startup, for example, evaluate the benefit of asking a big player to take a minority share. Find a committed party vested in the industry and your success. This can help you grow more quickly.
“A committed shareholder will take your business on board and run with it, expanding your capabilities greatly,” Tekstra said.
Contacts are everything if you’re entering a new international market, Tekstra added. A committed shareholder with established contacts could prove to be priceless.
“In many cases the financial benefit can speed up your marketing efforts and penetration of a market,” Tekstra said.
If you run a growing company, your money is probably locked in purchasing raw materials, development efforts and production expansion. You therefore need additional funds to invest in overseas markets.
Gavita International went this route, selling a 75% share of the company to Hawthorne Gardening Co., a subsidiary of Scotts Miracle-Gro, for $136 million last year.
“Sometimes being successful depends on who you do business with,” Tekstra said.
“If you’re a larger company that experienced extremely strong growth like we did, it can cause problems. Organic growth is nice. But growth for a development and production company requires a lot of financing.”
Tekstra noted that you can borrow money or accept venture capital from investors. Both have downsides, however.
“They are not interested in your business or segment. They are just in it for the money,” Tekstra said.
He added: “As a growing company you need legal, financial and management resources to help you reach the next level. If you want your company to maintain a market-leading position, you need to do what is best for the company.” Sometimes that means partnering with someone who can provide those resources.”
Vet Target Markets
It’s important to consider the legal implications of entering a new international market and fully understand the cannabis climate, Tekstra said. What is normal in one country might be risky business in another. And figuring out the structure of a marijuana program in another country can be difficult, especially if the primary spoken language is not English.
If, for example, your ancillary business promotes its products specifically for use in the cannabis industry, you might not be allowed to distribute in some countries. You can consult with an international attorney to determine whether you can enter a market, Tekstra said.
If you can’t afford to retain reliable legal counsel, seek out colleagues and reputable local sources who know the market, he said. Ask other business owners what they know about the market, why they’re investing there and how they’re performing. Ask about their experiences with local distributors, too.
Simultaneously, ask, “Is my product right for the country?”
In a poor or emerging country, the market for a product with a high price point might be limited. But there might be a new product you can develop that is suitable for that market, specifically something with a similar function at a lower price.
Another factor to consider: Is the new target market large enough for you to have an impact? Australia is a large country but has a smaller population – does it make sense for you to do business there?
Next, evaluate your distribution strategy, Tekstra said. Do you want as many distributors as possible? Or do you want to limit the number you work with?
Partnering with exclusive distributors – even for a limited period of time – can help you create volume and loyalty as well as prevent price erosion. However, not every retailer may be willing to do business with one local distributor.
That’s why it’s critical to understand the local culture and local politics: You may need multiple distributors to serve a single market.
It’s important to get to know the players in the market as well. Learn who has the largest sales and connects to most retail points. Every market is different, and some don’t have a number of large distributors.
Ask what distributors in the market are willing to do for you. Not many take your product and run with it – they keep it in stock while you create the demand. You are responsible for promoting your product.
Collect good information from local parties, including businesses with operations there, distributors, resellers, lobbyists and lawmakers.
“The best information you get comes from the local people,” Tekstra said. “They are involved in the industry in the country and they know what the political movements are.”
Leverage Your Expertise
Provide training resources that appeal to distributors and retailers in new markets.
This year, Gavita is launching an e-learning site to certify resellers. It will include live webinars and an exam. Each year certified resellers will need to complete refresher courses.
“We see the challenge in retail as ‘added value,’” Tekstra said. “Consumers can buy just about anything online – on Amazon or on Wal-Mart – but to survive in the market as a retailer, you have to provide added value.”
You can use e-learning, online training guides, videos and webinars to educate your distributors so they can share information with retailers.
Also, invite distributors to your manufacturing facility to learn more about your product, its application and the production of it. You’ll equip them with new knowledge about your product and they’ll be better equipped to rep your brand.
Your local distributor must also be able to support customers in their native language. They are your first line of support, Tekstra said. Language barriers and time zones can prevent you from directly offering this support.
Train your distributors well. They represent your company and product, and they must be able to ensure your product is used correctly for optimal results. Distributors will also need to train resellers, so provide them with the proper training materials.
In short: Research, plan and execute when taking the international plunge.