Defining your Fundamental Business Model

One of the first steps of taking your product global is to define the offering. Will you be offering physical goods, immaterial goods, services or intellectual property (e.g. patents)?

This seems to be an almost stupid question. But when taking a closer look, the answer is not that clear-cut. Let us use the example of a (hypothetical) biochemical substance used in agriculture. Let us also assume it is a proprietary invention, protected by patents. The product is currently being produced and distributed in Canada only. As the global potential for this product is considerable, the producer intends to go global.

What fundamental business models are there to choose from?

  1. Distribution of the physical product: The producer will need to find a distribution channel and modify the packaging (depending on the target market). The logistical effort is quite high, and depending on the weight/value ratio and the shelf life of the product, shipping it overseas may not be feasible. On the positive side, the producer will stay in control of most of the value chain, which will be reflected in a high margin.
  2. Licensing the production: The producer can probably find a partner, local in the target market, which can produce the product locally. This not only saves shipping and import duties, but also makes obtaining certification easier. Usually, the local partner will also have an existing distribution network. The margin in the scenario will be lower than in scenario 1, as the producer outsources part of the value chain.
  3. Selling the patent: Certainly a drastic move, but if the buyer is a global player, selling the patent can be very profitable and relieve the producer from all headaches of going global on a big scale. Our Canadian producer might also be able to retain a license for the domestic Canadian market.

So, when thinking about going global, be open for different scenarios. What is right for your home market is not necessarily right for the rest of the world. Being flexible with your business model, will maximize your success!