Strategic channel partners prove critical to success in Asia

Western vendors continue to open satellite offices and invest in lower-cost manufacturing facilities in Asia. All of these companies are finding that establishing strategic channel partnerships is critical to their success in a global communications market.

Passive components supplier Alliance Fiber Optic Products (AFOP) is a California-based company that originated its operations in Taiwan in 1995. The company develops and manufactures interconnect systems, couplers and splitters, thin-film DWDM components and modules, fixed and variable optical attenuators, and depolarizers. Today, AFOP has its headquarters in Sunnyvale, CA, with manufacturing and product development in the United States, Taiwan, and China.

In the late 1990s, AFOP did some low-cost commodity-type business in China. "It was an outlet for some of our stuff, but we didn't put a lot of emphasis on developing China for our fiber optics business," says David Hubbard, vice president of sales and marketing. "And then as we moved up the technology ladder with our own product set, got into filters and these types of things, we started to look at China as an opportunity with some of the key systems houses like Huawei."

AFOP understood that in Asia it is very important to work with a partner in the country that has a channel established, explains Hubbard. As such, AFOP has two key partners in Asia: one in China and one in Japan. Like many in the optical-networking industry, the components company is beginning to pursue market opportunities in India as well.

To reach its target customers in China, AFOP signed on with ComStar Communications (Hong Kong), which Hubbard describes as a well-established tier one channel partner that counts JDS Uniphase among its product lines. ComStar focuses on fiber-optic communications components and test equipment and offers services such as system integration, consultation, system installation, and training. In addition to its headquarters in Hong Kong, the distributor operates three full-service offices in Shenzhen, Beijing, and Shanghai.

"The important thing in Asia in terms of choosing your partner...is you have to understand well the type of customer you're going after. You can't say, 'Oh I want to do everything in China,' like somehow it's just a territory and you can serve all markets. You have to say, 'This is the segment of the market that I care about and I want a partner that is well established in that segment,'" advises Hubbard.

Startup components supplier Fibera (Santa Clara, CA), which develops laser wavelength lockers and other wavelength management products based on the company's frequency stabilization technology, realized it needed to focus on China early on. After a selection process, Fibera three years ago also decided to work with ComStar to sell its passive components to systems vendors in Hong Kong and mainland China.

As a startup company with limited resources, it was very important to establish a sales channel in China that offered an experienced sales team in the field, recalls David Wang, vice president of Fibera. ComStar had offices throughout China, and the distributor carried complementary products in the transponder market segment, such as brand-name active lasers. In the ideal scenario, accounts buying ComStar's brand-name lasers would also decide they needed Fibera's Fabry-Perot filters and multichannel wavelength lockers.

The most important thing in working with a channel partner, believes Wang, is teamwork, constant communication, and understanding the customers' needs on a real time basis. For startups like Fibera, having an established channel partner that negotiates with OEMs in a price-sensitive and performance-competitive market like China—the leading producer of passive components—means a lot less headache.

While Fibera may benefit from its synergies with ComStar's product lines, distributors have to carefully manage the principal accounts they represent and not create conflicts. "Trust is big part of operating in foreign countries, particularly in China, and if you feel that there is a strong conflict, then you have difficulty trusting them with your information, and it ties up the channel and makes it very difficult to do business," notes Hubbard. Nevertheless, he says, "even though there are some elements of what they do that overlap, it's very hard to find a distributor that doesn't carry anything." The distributors also have to be on a strong enough financial footing to be able to maintain an inventory of their Western partner's products—and sell them to companies who can pay for them as well.

"The situation in Asia is that you have to set up terms of doing business," says Hubbard. "That's why we focus on the higher-quality accounts. They tend to perform very well on payment because they want to establish themselves and to be perceived as professional. In Europe right now, some of the bigger systems houses are paying really late. They are dragging out their payments because they think they can, and they have no reputation to create."

Finding the right channel partner may take more than one attempt. After a poor showing in Japan with an unnamed channel partner that hurt the company's brand, AFOP last year signed on with Takachiho Koheki (TK—Tokyo), a large well-established distributor with strong relationships with the OEM systems companies and hundreds of salespeople.

"It's been wonderful for us. We've had a great run with TK this past year—and we had not done well in Japan," says Hubbard. "With them as a partner, we are getting tremendous access to all kinds of design opportunities, and in Japan, that is pretty quick, because it takes some time to develop accounts there."

Part of AFOP's newfound success in Japan is the result of its acquisition of Taiwan-based Ritek Corp.'s photonics business. The deal was finalized in January. In addition to manufacturing and packaging technologies, Ritek's product line includes access and fiber-to-the-X products that are established in Japan. "In Japan, I think it's a different culture and you have to adopt a slightly different selling style," observes Hubbard. "With China, we have a strong Asian management structure here, so we can speak the same language. I have difficulty if I try to go after India without any local wise man around here to help coach me—but we do business in India. The best part about globalization and developing a world strategy is that it is individual to a region, so you have to be mindful and listen to what your channel partner tells you is the way to do business in those countries, act, and have some degree of flexibility—you can't decide one solution fits all."

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