International Marketing Channels Vasily Erokhin
School of Economics and Management Harbin Engineering University
Contents: Channel-of-distribution structures Distribution patterns Alternative choices Factors affecting choice of channels Channel management The Internet as a marketing channel Logistics
Distribution process The distribution process includes the physical handling and
distribution of goods, the passage of ownership (title), and the buying and selling negotiations between producers and middlemen and between middlemen and customers.
Behavior of channel members is the result of the interactions between the cultural environment and the marketing process.
Channel structures range from those with little developed marketing infrastructure to the highly complex, multilayered system
Import-oriented distribution structure Import-oriented (traditional) distribution structure – an
importer controls a fixed supply of goods, and the marketing system develops around the philosophy of selling a limited supply of goods at high prices to a small number of affluent customers.
Market penetration and mass distribution are not necessary because demand exceeds supply
Import-oriented distribution structure Distribution systems are local rather than national in scope. Independent agencies that provide advertising, marketing research, etc. are nonexistent or underdeveloped.
Few independent agencies to support a fully integrated distribution system develop
Import-oriented distribution structure Mass consumption – one supplier does not dominate supply, supply can be increased or decreased within a given range, and profit maximization occurs at or near production capacity.
A buyer’s market exists, and the producer strives to penetrate the market and push goods out to the consumer, resulting in a highly developed channel structure that includes a variety of intermediaries.
Japanese distribution structure A structure dominated by many small middlemen dealing with many small retailers Channel control by manufacturers A business philosophy shaped by a unique culture
Laws that protect small retailers
Comparison of distribution channels between the US and Japan
Retail structure in three countries
Channel control Inventory financing Cumulative rebates Merchandise returns
Business philosophy Emphasizes loyalty, harmony, and friendship
Supports long-term dealer-supplier relationships The cost of Japanese consumer goods are among the highest in the world Japanese law gives the small retailer enormous advantage over the development of larger stores
Contemporary trends Traditional channel structures are giving way to new forms, new alliances, and new processes.
Multinational marketers are seeking ways to profitably tap market segments that currently are served by costly, traditional distribution systems. New retailing and middlemen systems will be invented, and established companies will experiment, seeking ways to maintain their competitive edge. Competitors must be understood in the context of the commercial networks of which they are a part.
General distribution patterns Middlemen services Line breadth Costs and margins Channel length Nonexistent channels Blocked channels Stocking Power and competition
Retail distribution patterns Size patterns Direct marketing
Resistance to change
Retail structure in selected countries
Direct marketing Direct marketing – selling directly to the
consumer through mail, by telephone, or door-todoor
Markets with insufficient or underdeveloped distribution systems Direct sales through catalogs
Resistance to change Efforts to improve the efficiency of the distribution system and change traditional ways are typically resisted. Retail innovations offer the consumer convenience and a broad range of quality product brands at advantageous prices.
International channel-ofdistribution alternatives
Middlemen types Agent middlemen work on commission and
arrange for sales in the foreign country but do not take title to the merchandise.
Merchant middlemen take title to
manufacturers’ goods and assume the trading risks, so they tend to be less controllable than agent middlemen.
Middlemen alternatives middlemen physically located in the manufacturer’s home country
middlemen located in foreign countries government-affiliated middlemen
Home-country middlemen Located in the producing firm’s country, provide marketing services from a domestic base.
Advantages: Good option for companies with small international sales volume
Representatives of the companies inexperienced with foreign markets Middlemen of the companies that do not want to become immediately involved with the complexities of international marketing Representatives of the companies that want to sell abroad with minimal financial and management commitment
Trade-offs: Limited control over the entire marketing process
Supposed to be employed when market situation is uncertain
Home-country middlemen Manufacturers’ retail stores Global retailers Export management companies Trading companies Complementary marketers
Manufacturer’s export agent Foreign sales corporation
Manufacturers’ retail stores An important channel of distribution for a large number of manufacturers is the owned, or perhaps franchised, retail store
Global retailers Major domestic middlemen for international markets
Export management companies Low-cost, independent marketing department with direct responsibility to the parent firm May take full or partial responsibility for promotion of the goods, credit arrangements, physical handling, market research, and information on financial, patent, and licensing matters Advantages:
minimum investment on the part of the company to get into international markets no commitment of company personnel or major expenditure of managerial effort
EMCs seldom can afford to make the kind of market investment needed to establish deep distribution for products because they must have immediate sales payout to survive
Trading companies accumulate, transport, and distribute goods from many countries sell manufactured goods to developing countries buy raw materials and unprocessed goods from developing countries
Complementary marketers Companies with marketing facilities or contacts in different countries with excess distribution capacity or a desire for a broader product line sometimes take on additional lines for international distribution. The selection process for new products for distribution determines whether the product relates to the product line and contributes to it the product fits the sales and distribution channel presently employed the margin is adequate to make the undertaking worthwhile the product will find market acceptance and profitable volume
Manufacturer’s export agent Individual agent middleman or an agent middleman firm providing a selling service for as the producer’s export department but has a short-term relationship, covers only one or two markets, and operates on a straight commission basis. Does business in its own name rather than in the name of the client
Foreign sales corporation Sales corporation set up in a foreign country that can obtain a corporate tax exemption on a portion of the earnings generated by the sale or lease of export property. Functions as a principal, buying and selling for its own account, or a commissioned agent.
Foreign-country middlemen Manufacturer’s representatives
Foreign distributors Foreign-country brokers Managing agents and compradors Dealers Import jobbers, wholesalers, and retailers
Government-affiliated middlemen Marketers must deal with governments in every country of the world Government purchasing offices Procure products, services, and commodities for the government’s own use Work at federal, regional, and local levels
Efficiency of public sector versus the private sector
Factors affecting choice of channels
Prior to the selection process Identify specific target markets within and across countries Specify marketing goals in terms of volume, market share, and profit margin requirements
Specify financial and personnel commitments to the development of international distribution Identify control, length of channels, terms of sale, and channel ownership
Factors affecting choice of channels Cost Capital requirements Control Coverage Character Continuity
Kinds of channel cost:
capital or investment cost of developing the channel continuing cost of maintaining it
Marketing costs must be considered as the entire difference between the factory price of the goods and the price the customer ultimately pays for the merchandise.
The costs of middlemen include transporting and storing the goods, breaking bulk, providing credit, local advertising, sales representation, and negotiations.
Capital requirements Critical elements are capital requirement and cash-flow patterns associated with using a particular type of middleman. Maximum investment is usually required when a company establishes its own internal channels, that is, its own sales force.
The more involved a company is with the distribution, the more control it exerts As channels grow longer, the ability to control price, volume, promotion, and type of outlets diminishes
Coverage Coverage may be assessed by geographic segments, market segments, or both. Many companies do not attempt fullmarket coverage but seek significant penetration in major population centers.
The channel-of-distribution system selected must fit the character of the company and the markets in which it is doing business. Channel patterns change
The firm that neglects the changes may find it has lost large segments of its market because its channels no longer reflect the character of the market
Continuity Agent middlemen firms, wholesalers, and retailers are not noted for their continuity in business.
Most middlemen have little loyalty to their vendors Manufacturers must attempt to build brand loyalty downstream in a channel
Locating middlemen Productivity or volume
Financial strength Managerial stability and capability The nature and reputation of the business
Finding perspective middlemen Screening an exploratory letter including product information and distributor requirements a follow-up with the best respondents for specific information check of credit and references from other clients and customers
a personal check of the most promising firms.
Agreement must spell out specific responsibilities of the manufacturer and the middleman sales minimum serves as a basis for evaluation of the distributor
Motivating middlemen Financial rewards Psychological rewards Communications
Company support Corporate rapport
Terminating middlemen The best rule is to avoid the need to terminate distributors by screening all prospective middlemen carefully. A poorly chosen distributor may not only fail to live up to expectations but may also adversely affect future business and prospects in the country
Controlling middlemen Standards of performance
sales volume objective inventory turnover ratio number of accounts per area growth objective price stability objective quality of publicity
Control over the system – control over the distribution network
Control over middlemen – activities of middlemen with respect to their volume of sales, market coverage, services offered, prices, advertising
The Internet as a marketing channel
E-commerce E-commerce Business-to-business (BSB) services Consumer services Consumer and industrial products
B2B enables companies to cut costs Reduces procurement costs Allows better supply-chain management Makes possible tighter inventory control
Concerns for e-vendors Culture Adaptation Local contact
Payment Delivery Promotion
Logistic costs Logistics management – a total systems approach to
the management of the distribution process that includes all activities involved in physically moving raw material, in-process inventory, and finished goods inventory from the point of origin to the point of use or consumption
Physical distribution system includes the location of
plants and warehousing (storage), transportation mode, inventory quantities, and packing
Logistic costs Activities in the physical distribution mix and the total cost are interdependent. The concept behind physical distribution is the achievement of the optimum (lowest) system cost
As the international firm broadens the scope of its operations, the additional variables and costs become more crucial in their effect on the efficiency of the distribution system
Summary An international marketer has a broad range of alternatives for developing a distribution system Three primary alternatives for using agent middlemen Agent middlemen Merchant middlemen Government-affiliated middlemen
Channel structure varies
Nation to nation Continent to continent
Information and advice are available relative to the structuring of international distribution systems The Internet is challenging traditional channels, offering a wider range of possibilities for entering foreign markets
Thank you for your attention! Vasily Erokhin School of Economics and Management Harbin Engineering University Email: