International Marketing Channels

Chapter 14

Learning Objectives

• Variety of distribution channels• The Japanese distribution structure• How distribution patterns affect various aspect

of international marketing• The growing importance of e-commerce as a

distribution alternative

14-3

Global Perspective – A Single Stick of Doublemint Today – 18 Billion Tomorrow

• A product must be made accessible to the target market at an affordable price

• Getting the product to the target market – Can be a costly process

• Forging an aggressive and reliable channel of distribution – The most critical and challenging task facing the

international marketer• Competitive advantage – For the marketer best able to build the most efficient

channel from among the alternatives available

14-4

Channel-of-Distribution Structures

• All consumer and industrial products eventually go through a distribution process– Physical handling and distribution of goods– Passage of ownership– Buying and selling negotiations between producers and

middlemen– Buying and selling negotiations between middlemen

and customers• Each country market has a distribution structure– Goods pass from producer to user

14-5

Import-Oriented Distribution Structure

• In an import-oriented or traditional distribution structure:– Importer controls a fixed supply of goods– Marketing system develops around the philosophy

of selling a limited supply of goods at high prices to a small number of affluent customers

14-6

Import-Oriented Distribution Structure

• Demand exceeds supply• The customer seeks the supply from a limited

number of middlemen• Distribution systems are local• Few countries fit the import-oriented model

14-7

Japanese Distribution Structure

Japanese distribution structure features:1. A structure dominated by many small

middlemen dealing with many small retailers2. Channel control by manufacturers3. A business philosophy shaped by a unique

culture4. Laws that protect the foundation of the

system – the small retailer

14-8

Comparison of Distribution Channels between the United States and Japan

Exhibit 14.1

14-9

High Density of Middlemen

• Not unusual for consumer goods to go through three or four intermediaries before reaching the consumer

• Japan has a large number of independent groceries and bakers (94.7% or all retail stores)– Small stores account for 59.1% of retail food sales

• U.S. emphasis is on supermarkets, discount food stores, and department stores– Small stores generate 35.7% of food sales

14-10

Retail Structure in Three Countries

Exhibit 14.2

14-11

Channel Control

• Manufacturers depend on wholesalers for a multitude of services (e.g., physical distribution, warehousing, promotion, payment collection) to other members of the distribution network. Control is maintained through:

• Inventory financing – credits extending• Cumulative rebates – rebates given based on for example;

quantity purchase, early payments, achieving sales target, maintaining specific inventory levels etc.

• Merchandise returns – unsold inventory return to manufacturer.

• Promotional support – intermediaries receive a host of displays, advertising layouts, dealer aids and in-store demonstrations.

14-12

Business Philosophy

• Relationship-oriented 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• Continuation of traditional nature of distribution because

they buy in small quantity, frequent buying trips, favoring personal service over price, and brand loyal.

14-13

Large-Scale Retail Store Law and Its Successor

• Daitenho – the Large-Scale Retail Store Law– Large stores must have approval from the prefecture (territory)

government– All proposals first judged by the Ministry of International Trade and

Industry (MITI)– If all local retailers unanimously agreed, the plan was approved– Could be a lengthy process (may even take 10 years)– Applied to both domestic and foreign companies

• Replaced by the Large-Scale Retail Store Location Act of June 2000– the new law takes MITI out of the process.– Under the new law, opening of large retailers near smaller shops are

relaxed. However, local government may block the new project will cause some problem such as pollution, noise or traffic congestion.

14-14

Changes in the Japanese Distribution System

• Structural Impediments (obstacle) Initiative – Wal-Mart are causing changes in the Japanese distribution structure.

• Deregulation• Wal-Mart• “New” retailers• The Internet

14-15

Trends: From Traditional to Modern Channel Structures

• European retailers merging with former competitors and other countries to form Europe-wide enterprises

• Foreign retailers attracted by high margins and prices• The Internet may be most important distribution trend (e.g., Wal-

Mart, Dell)• Covisint – GM, Ford and DaimlerChrysler created a single online

site for purchasing automotive parts from supplier.• GlobalNetXchange – a retail exchange that allow retailers and

suppliers to conduct transaction online (e.g., Sears and Carrefour). • E-commerce (e.g., Amazon, Dell)• 7-Eleven (brick and mortar have also created websites to extend

their reach globally).

14-16

Retail Distribution Patterns

• Retailing shows greater diversity than wholesaling.

• Size patterns – large sold direct, many small retailers handle a great volume of sales.

• Direct marketing – direct through catalog• Resistance to change – prefer traditional.

However, large-scale retailers continue to grow.

14-17

Retail Structure in Selected Countries

Exhibit 14.3

14-18

International Channel-Distribution Alternatives

Exhibit 14.4

14-19

Alternative Middleman Choices

• Seller must exert influence over two sets of channels– One in the home country– One in the foreign-market country

• Agent middlemen – represent the principal (manufacturer) rather than themselves. Work on commission and arrange for sales in foreign country. Does not take title to the goods.

• Merchant middlemen – take title to the goods and buy and sell on their own account

14-20

Home-Country Middlemen

• Manufacturer’s retail stores• Global retailers (Ikea, Toys ‘R” Us and Wal-

Mart)• Export management companies - • Trading companies• U.S. export trading companies• Complementary marketers• Manufacturer’s export agent

14-21

Home-Country Middlemen

• Home-country brokers – located in the producing firm’s country, provide marketing services from a domestic base. Provide intermediaries of bringing buyers and sellers together.

• Buying offices – agent middlemen, buyers or buyers for export • Selling groups – producers cooperate in a joint attempt to sell

abroad.• Webb-Pomerene export associations (WPEAs) another major form

of group exporting. Cannot participate in other international agreements. Offer four benefits: 1. reduction of export costs, 2. demand expansion through promotion, 3. trade barrier reductions, and 4. improvement of trade terms through two-way bargaining.

• WPEAs set prices, standardize products and arrange for disposal of surplus products.

14-22

Foreign-Country Middlemen

International marketers seeking greater • Manufacturer’s representatives• Foreign Distributors• Foreign-country brokers• Managing agents and compradors• Dealers• Import jobbers, wholesalers, and retailers

14-23

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

14-24

Factors Affecting Choice of Channels

• Cost• Capital requirements• Control• Coverage• Character• Continuity

14-25

Locating, Selecting, and Motivating Channel Members

• Locating middlemen• Selecting middlemen– Screening– The agreement

• Motivating middlemen• Terminating middlemen• Controlling middlemen

14-26

The Internet

• E-commerce– Business-to-business (BSB) services– Consumer services– Consumer and industrial products

• E-commerce is more developed in U.S. than in rest of world

• B2B enables companies to cut costs – Reduces procurement costs– Allows better supply-chain management– Makes possible tighter inventory control

14-27

Summary• The 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