International Marketing Channels

Ziqiu Ye

School of International Trade and Economics,

University of International Business and Economics.
Email: yeziqiu@[Link]
Getting Products to Target Markets

To achieve marketing goals, 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 if
inadequacies within the distribution structure cannot be overcome.

International Marketing Channels 2 / 70

Getting Products to Target Markets (Continued)

Each market contains a distribution network with many channel

choices whose structures are unique and, in the short run, fixed.
In some markets, the distribution structure is multi-layered, complex,
inefficient, even strange, and often difficult for new marketers to
penetrate;
In others, there are few specialized middlemen except in major urban
areas;
And in yet others, there is a dynamic mixture of traditional and new,
evolving distribution systems available on a global scale.
Regardless of the predominating distribution structure, competitive
advantage will reside with the marketer best able to build the most
efficient channels from among the alternatives available.

International Marketing Channels 3 / 70

Channel-of-Distribution Structures

All consumer and industrial products go through a distribution

process.
The distribution process includes
Physical handling and distribution of goods
Passage of ownership
Buying and selling negotiations between producers and middlemen and
between middlemen and customers

International Marketing Channels 4 / 70

Channel-of-Distribution Structures (Continued)

A large number of policy and strategic channel selection issues

confronts the international marketing managers:
These issues are not in themselves very different from those
encountered in domestic distribution, but the resolution of the issues
differs because of different channel alternatives and market patterns.
Each country has a distribution structure through which goods pass
from producer to user.
Within this structure are a variety of middlemen whose customary
functions, activities, and services reflect existing competition, market
characteristics, tradition, and economic development.

International Marketing Channels 5 / 70

Channel-of-Distribution Structures (Continued)

In short, the behaviour of channel members is the result of the

interactions between cultural environment and the marketing process.
Channel structures range from those with little developed marketing
infrastructure such as those found in many emerging markets to the
highly complex and multi-layered system found in more advanced
economies.

International Marketing Channels 6 / 70

Import-Oriented Distribution Structures

In an import-oriented or traditional distribution structure, an importer

controls a fixed supply of goods.
The marketing system develops around the philosophy of selling a
limited supply of goods at high prices to a small number of affluent
customers.

International Marketing Channels 7 / 70

Import-Oriented Distribution Structures (Continued)

In most cases, the customer seeks the supply from a limited number of
middlemen (e.g., demand exceeding supply), and this affects the
development of intermediaries and their functions:
Distribution systems are local rather than national in scope.
The importer-wholesaler traditionally performs most marketing
functions.
Middlemen that provide advertising, marketing research, warehousing
and storage, transportation, financing and other facilitating functions
found in a developed and mature marketing infrastructure are
non-existent or underdeveloped.

International Marketing Channels 8 / 70

Japanese Distribution Structure

Distribution in Japan has long been considered the most effective

nontariff barrier to the Japanese market.
It has four distinguishing features:
A structure dominated by many small middlemen dealing with many
small retailers - high density of middlemen
Channel control by manufacturers
A business philosophy shaped by a unique culture
Laws that protect the foundation of the system — the small retailers

International Marketing Channels 9 / 70

Japanese Distribution Structure (Continued)

Japanese law gives the small retailer enormous advantage over the
development of larger stores and competition.
Competition from large retail stores had been almost totally
controlled by Daitenho — the Large-Scale Retail Store Law.
All proposals for new “large” stores were first judged by the Ministry
of International Trade and Industry.

International Marketing Channels 10 / 70

Trends: from Traditional to Modern Channel Structures

Traditional channel structures still appear in many places, but such

channel structures also are giving way to new forms, new alliances,
and new processes
Direct marketing, door-to-door selling, hypermarkets, discount houses,
shopping malls, the Internet, and other distribution methods are being
introduced in an attempt to provide efficient distribution channels
Importers and retailers also are becoming more involved in new
product development

International Marketing Channels 11 / 70

Trends: from Traditional to Modern Channel Structures
(Continued)

International Marketing Channels 12 / 70

Trends: from Traditional to Modern Channel Structures
(Continued)

The impact of e-commerce retailers such as [Link] and eBay,

on traditional retailing has been rising on a global scale.
Most brick-and-mortar retailers are experimenting with or have fully
developed websites, some of which are merely extensions of their
regular stores.
One of the most challenging aspects of e-commerce is delivery of
goods, and a few multinational delivery and logistics companies (e.g.,
SF Express, FedEx, UPS) are the backbone of e-commerce delivery in
many countries.

International Marketing Channels 13 / 70

Trends: from Traditional to Modern Channel Structures
(Continued)

International Marketing Channels 14 / 70

Distribution Patterns

Even though patterns of distribution are in a state of change and new

patterns are developing, international marketers need a general
awareness of the traditional distribution base.
The “traditional” system will not change overnight.
Nearly all international firms are forced by the structure of the market
to use at least some middlemen in the distribution arrangement.
The structural arrangements of foreign and domestic distribution
seem alike, but this does not mean that foreign channels are similar to
domestic channels.
The differences in retail patterns are examples of the variety of
distribution patterns that exist at all levels.

International Marketing Channels 15 / 70

Retail Patterns

Retailing shows greater diversity in its structure than does

wholesaling.
In some countries, retailing is comprised largely of speciality houses
that carry narrow lines, whereas in other countries, most retailers
carry a more general line of merchandise.
Some manufacturers sell directly to consumers through
company-owned stores such as Disney, and some sell through a
half-dozen layers of middlemen.

International Marketing Channels 16 / 70

Retail Patterns (Continued)

Size Patterns: the number of persons per retailer.

It is more challenging to reach retailers who in aggregate handle a
great volume of sales.
Direct Marketing: selling directly to the consumer through mail,
catalogs, by telephone, or door-to-door.
It is often the approach of choice in markets with insufficient or
underdeveloped distribution systems.
However, the approach sometimes could also work well in the affluent
markets.
Resistance to Change: efforts to improve the efficiency of the
distribution system, new types of middlemen, and other attempts to
change traditional ways are typically viewed as threatening and are
thus resisted.
International Marketing Channels 17 / 70
Retail Patterns (Continued)

International Marketing Channels 18 / 70

Alternative Middlemen Choices

A marketer’s options range from assuming the entire distribution

activity (by establishing its own subsidiaries and marketing directly to
the end user) to depending on intermediaries for distribution of the
product.
Channel selection must be given considerable thought, because once
initiated, is difficult to change, and if it proves inappropriate, future
growth of market share may be impacted
The channel process includes all activities, beginning with the
manufacturer and ending with the final consumer.
This above inclusion means that the seller needs to exert influence
over two sets of channels: one in the home country and one in the
foreign market.
International Marketing Channels 19 / 70
Alternative Middlemen Choices (Continued)

International Marketing Channels 20 / 70

Alternative Middlemen Choices (Continued)

Selection of channel members and effective controls are high priorities

in establishing the distribution process.
Once the marketer has clarified company objectives and policies, the
next step is the selection of specific intermediaries that are needed to
develop a channel.

International Marketing Channels 21 / 70

Alternative Middlemen Choices (Continued)

External middlemen are differentiated according to whether or not

they take title to the goods
Agent middlemen work on commission and arrange for sales in the
foreign country but do not take title to the merchandise. By using the
agents, the manufacturer assumes trading risk but maintains the right
to establish the policy guidelines and prices and to requires its agents
to provide sales records and customer information.
Merchandise middlemen take title to the manufacturers’ goods and
assume the trading risks, and therefore tend to be less controllable.

International Marketing Channels 22 / 70

Alternative Middlemen Choices (Continued)

Middlemen are not clear-cut, precise, easily defined entities.

Thus, intimate knowledge of middlemen functions is especially
important in international activity because misleading titles can fool a
marketer unable to look beyond mere names.
By analysing middlemen functions in skeletal simplicity, we present
three alternatives:
Home-country middlemen
Foreign-country middlemen
Government-affiliated middlemen

International Marketing Channels 23 / 70

Home-Country Middlemen

Home-Country Middlemen, or domestic middlemen located in the

manufacturer’s country, provide marketing services from a domestic
base.
Domestic middlemen are most likely to be used when the marketer is
uncertain or desired to minimize financial and management
investment.

International Marketing Channels 24 / 70

Checking Your Knowledge

Q1: take title to manufacturers’ goods and assume the trading risks.
(a) Merchant middlemen
(b) Brokers
(c) Buying offices
(d) Export agent
(e) Agent middlemen

International Marketing Channels 25 / 70

Checking Your Knowledge

Q2: The channel process includes all activities, beginning with the
manufacturer and ending with the
(a) wholesaler
(b) agent middlemen
(c) merchant middlemen
(d) retailer
(e) final consumer

International Marketing Channels 26 / 70

Checking Your Knowledge

Q3: Which of the following statements is true regarding merchant

middlemen?
(a) They represent the best interests of a manufacturer.
(b) They can be controlled better than agent middlemen.
(c) They assume trading risks.
(d) They work on commission and arrange for sales in the foreign country.
(e) They do not take title to manufacturers’ goods.

International Marketing Channels 27 / 70

Checking Your Knowledge

Q4: Home-country middlemen are also known as middlemen.

(a) area
(b) local
(c) merchant
(d) domestic
(e) regional

International Marketing Channels 28 / 70

Types of Home-Country Middlemen

Manufacturers’ retail stores (i.e., manufacturers’ self-owned, or

perhaps franchised, retail stores; examples include Disney, and many
of the classic Italian luxury goods makers)
Global retailers (e.g., Toys “R’ Us, and Walmart, with a large
number of stores across many different countries, are becoming major
domestic middlemen for international markets)

International Marketing Channels 29 / 70

Types of Home-Country Middlemen (Continued)

Export management companies (i.e., working under the names of

the manufacturer, functioning as a low-cost, independent marketing
department with direct responsibility to the parent company)
They are an important middleman for firms with relatively small
international volume or those unwilling to involve their personnel in the
international function
Advantages: minimum investment on the part of the company to get
into international markets and no commitment of company personnel
or major expenditure of managerial effort
Disadvantages: they 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

International Marketing Channels 30 / 70

How Does an EMC Operate?

International Marketing Channels 31 / 70

Types of Home-Country Middlemen (Continued)

Trading companies (i.e. buy a specialized range of products,

maintain a stock or a shop, and deliver products to customers in
many countries)
Some trading companies control many of the distributors and maintain
broad distribution channels, and therefore provide the best means for
intensive coverage of the market
Export trading companies (i.e., manufacturers of similar products
form export trading companies, encouraging more efficient export
trade services to produces and suppliers )

International Marketing Channels 32 / 70

Types of Home-Country Middlemen (Continued)

Complementary marketers (i.e., companies with marketing

facilities, excess distribution capacity or desire for a broader product
line take on additional lines for international distribution)
The formal name for such activities is complementary marketing; also
commonly called piggybacking
Most piggybacking arrangements are undertaken when a firm wants to
fill out its product line or keep its seasonal distribution channels
functioning throughout the year
A product selected for piggyback distribution requires that
1 the product relates to the product line and contributes to it
2 the product fits the sales and present distribution channel
3 the margin is adequate to make the undertaking worthwhile
4 the product will find market acceptance and profitable volume

International Marketing Channels 33 / 70

Types of Home-Country Middlemen (Continued)

Manufacturer’s export agent (i.e., an individual agent middleman

or an agent middleman firm providing a selling service for
manufacturers)
Unlike export management companies, the manufacturer’s export agent
does not serve 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.
Another difference is that the manufacturer’s export agent do business
in their own names rather than in the name of the client.

International Marketing Channels 34 / 70

Types of Home-Country Middlemen (Continued)

Foreign sales corporation (i.e., a sales corporation that can obtain a

corporate tax exemption on a portion of the earning generated by the
sale or lease of export property)
It can function as a principal, buying and selling for its own account, or
a commissioned agent.
The WTO in 2003 ruled foreign sales corporations to be in violation of
international trade rules, thus starting a major trade dispute with the
European Union that still simmers and occasionally sizzles.

International Marketing Channels 35 / 70

Foreign-Country Middlemen

The variety of agent and merchant middlemen in most countries is

similar as above.
International marketers seeking greater control over the distribution
process may elect to deal directly with middlemen in the foreign
market, which involves the international marketers more closely with
problems of language, physical distribution, communications, and
financing.
They gain the advantage of shorter channels and deal with middlemen
in constant contact with the market

International Marketing Channels 36 / 70

Government-Affiliated Middlemen

Marketers must deal with governments in every country of the world.

Products, services, and commodities for the government‘s own use
are always procured through government purchasing offices at
national, regional, and local levels.

International Marketing Channels 37 / 70

Checking Your Knowledge

Q1: Which of the following statements is true regarding an export

management company?
(a) It acts as a middleman for firms with relatively large international
sales volume.
(b) It operates under its own name while providing services to another
firm.
(c) It does not have direct responsibility to the parent firm
(d) It acts as a middleman for firms willing to involve their own personnel
in international functions
(e) It calls for minimum investment from the parent firm to get into
international markets

International Marketing Channels 38 / 70

Checking Your Knowledge

Q2: A major disadvantage of is that they can seldom afford to make

the kind of market investment needed to establish deep distribution for
products.
(a) export management companies
(b) trading companies
(c) import associations
(d) global retailers
(e) complementary marketers

International Marketing Channels 39 / 70

Checking Your Knowledge

Q3: Which of the following arrangements is undertaken when a firm wants

to keep its seasonal distribution channels functioning throughout the year?
(a) Price skimming
(b) Using the services of a trading company
(c) Establishing a retail store
(d) Using the services of an export management company
(e) Complementary marketing

International Marketing Channels 40 / 70

Checking Your Knowledge

Q4: Complementary marketing is commonly known as .

(a) backhauling
(b) demand shifting
(c) piggybacking
(d) shape shifting
(e) skimming

International Marketing Channels 41 / 70

Checking Your Knowledge

Q5: A provides a selling service for a manufacturer, has a short-term

relationship, and operates on a straight commission basis.
(a) manufacturer’s retail store
(b) trading company
(c) global retailer
(d) manufacturer’s export agent
(e) complementary marketer

International Marketing Channels 42 / 70

Checking Your Knowledge

Q6: Which of the following is true of foreign sales corporations?

(a) They are commonly called piggybackers.
(b) They can only be related to a manufacturing parent and not an
independent broker.
(c) They virtually control distribution through all levels of channels in
Japan.
(d) They accumulate, transport, and distribute goods from many
countries.
(e) They can function as principal or commissioned agents.

International Marketing Channels 43 / 70

Factors Affect Channel Choices

The international marketer needs a clear understanding of market

characteristics and must have established operating policies before
beginning the selection of channel middlemen. Prior to the selection
process, the following points should be addressed
Identifying specific target markets within and across countries
Specifying marketing goals in terms of volume, market share, and
profit margin requirements
Specifying financial and personnel commitments to the development
of international distribution
Identifying control, length of channels, terms of sale, and channel
ownership

International Marketing Channels 44 / 70

Six Cs of Channel Strategy

Once the above points are established, selecting among alternative

middlemen choices to forge the best channel can begin. Channel strategy
itself is considered to have six specific strategic goals:
Cost
Capital
Control
Coverage
Character
Continuity

International Marketing Channels 45 / 70

Six Cs of Channel Strategy (Continued)

Cost
The two kinds of channel cost are:
The capital or investment cost of developing the channel
The cost of maintaining the channel
The latter can be in the form of direct expenditure for the
maintenance of the company’s selling force or in the form of margins,
markup, or commissions of various middlemen handling the goods.
Some marketers found that they can reduce cost by eliminating
inefficient middlemen and thus shortening the channel.
Conversely, many firms accustomed to using their own sales forces in
large-volume domestic markets found they must lengthen channels of
distribution to keep costs in line with foreign markets.

International Marketing Channels 46 / 70

Six Cs of Channel Strategy (Continued)

Captial requirement
Critical elements are capital requirement and cash-flow patterns
associated with using a particular type of middleman.
Use of distributors or dealers may lessen the capital investment, but
manufacturers often have to provide initial inventories, loans, floor
plans, or other arrangements.

International Marketing Channels 47 / 70

Six Cs of Channel Strategy (Continued)

Control
The more involved a company is with the distribution, the more
control it exerts.
Each type of channel arrangement provides a different level of control;
as channels grow longer, the ability to control price, volume,
promotion, and type of outlets diminishes.
If a company cannot sell directly to the end user or final retailer, an
important selection criterion for middlemen should be the amount of
control the marketer can maintain.

International Marketing Channels 48 / 70

Six Cs of Channel Strategy (Continued)
Coverage
Another major goal is full-market coverage to gain the optimum
volume of sales obtainable in each market, secure a reasonable market
share, and attain satisfactory market penetration.
Coverage is difficult to extend both in highly developed areas and in
sparse markets - the former because of heavy competition and the
latter because of inadequate channels.
Adequate market coverage may require changes in distribution
systems from country to country or time to time.
To achieve coverage, a company may have to use many different
channels -for examples, its own sales force in one country,
manufacturers’ agents in another, and merchant wholesalers in still
another.
International Marketing Channels 49 / 70
Six Cs of Channel Strategy (Continued)

Character
The channel-of-distribution system selected must fit the character of
the company and the markets in which it is doing business.
Channel captains must be aware that channel patterns change; they
cannot assume that once a channel has been developed to fit the
character of both company and market, no more need to be done.

International Marketing Channels 50 / 70

Six Cs of Channel Strategy (Continued)

International Marketing Channels 51 / 70

Six Cs of Channel Strategy (Continued)

Continuity
Channels of distribution often pose longevity problems. - when one
individual retires or moves out of a line of business, the company may
find it that it has lost its distribution in that area.
Manufacturers must attempt to build brand loyalty downstream in a
channel lest middlemen shift allegiance to other companies.

International Marketing Channels 52 / 70

Channel Management

Many companies have been stopped in their efforts to develop

international markets by their inability to construct a satisfactory
system of channels.
Construction of the middleman network includes seeking out potential
middlemen, selecting those who fit the company’s requirements, and
establishing working relationships with them.
The closer the company wants to get to the consumer in its channel
contact, the larger the sales force required.
In international marketing, the channel-building process is hardly
routine.

International Marketing Channels 53 / 70

Channel Management (Continued)

Locating middlemen
Selecting middlemen
Motivating middlemen
Controlling middlemen
Terminating middlemen

International Marketing Channels 54 / 70

Channel Management (Continued)

Locating middlemen
The search for prospective middlemen should begin with study of the
market and determination of criteria for evaluating middlemen that
are currently servicing that market.
The checklist of criteria differs according to the type of middlemen
and the nature of their relationship with the company.
Such lists are built around four subject areas:
productivity or volume
financial strength
managerial stability and capability
nature and reputation of the business

International Marketing Channels 55 / 70

Channel Management (Continued)

Selecting middlemen
Determining which of the prospective middlemen can perform
satisfactorily is crucial.
Screening and selection process should include the following actions:
an exploratory letter or e-mail including product information and
distributor requirements in the native language sent to each prospective
middleman
a follow-up with the best respondents for specific information
concerning lines handled, territory covered, size of firm, number of
salespeople, and other background information
check of credit and references from other clients and customers of the
prospective middleman
a personal check of the most promising firms

International Marketing Channels 56 / 70

Channel Management (Continued)

Selecting middlemen (continued)

Once a potential middlemen has been found and evaluated, the task
of detailing the arrangements with that middleman begins.
Agreements must spell out specific responsibilities of the
manufacturer and the middleman, including an annual sales minimum.

International Marketing Channels 57 / 70

Channel Management (Continued)

Motivating middlemen
The importance of the individual middlemen to the company
determine the activities undertaken to keep the middleman motivated.
Motivational techniques may be grouped into five categories:
financial rewards (e.g., margins or commissions vary according to the
sales volume and service levels offered)
psychological rewards (e.g., a trip to the parent company’s home or
regional offices, publicity in the company media)
communications (e.g., regular updates or meetups with all middlemen)
company support (e.g., providing solutions to middlemen’s problems)
corporate rapport (e.g., knowing more information about contacts in
middlemen, deepening connections by activities outside of the usual
workplace)

International Marketing Channels 58 / 70

Channel Management (Continued)

Controlling middlemen
The extreme length of channels typically used in international
distribution makes control of middlemen especially important.
Marketing objectives must be spelled out both internally and to
middlemen as explicitly as possible.
Standards of performance may include:
the sales volume objective
inventory turnover ratio
number of accounts per area
growth objective
price stability objective
quality of publicity

International Marketing Channels 59 / 70

Channel Management (Continued)

Controlling middlemen (continued)

Control over the system and control over middlemen are necessary in
international business.
Control over the system relates to control over the distribution network
(e.g., to make sure that the product is flowing through desired
middlemen; some manufacturers lost control through “secondary
wholesaling” or parallel imports)
The second type of control is at the middleman level. If possible, the
parent company should know and to a certain degree control the
activities of middlemen with respect to their market coverage, services
offered, prices, advertising and even profit.

International Marketing Channels 60 / 70

Channel Management (Continued)

Terminating middlemen
When middlemen do not perform up to standards or when market
situations change, requiring a company to restructure its distribution,
it may be necessary to terminate relationships.
Competent legal advice is vital when entering distribution contracts
with middlemen. But 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.

International Marketing Channels 61 / 70

Checking Your Knowledge

Q1: Which of the following is one of the six Cs of distribution channel

strategy?
(a) Communication
(b) Character
(c) Capacity
(d) Commission
(e) Contribution

International Marketing Channels 62 / 70

Checking Your Knowledge

Q2: One of the reasons that channels of distribution often pose longevity
problems is that most middlemen .
(a) do not maintain sufficient inventory to serve customers
(b) lack product knowledge resulting in low sales volume
(c) have little loyalty to their vendors
(d) tend to slow down distribution to extract higher commissions
(e) do not have sufficient knowledge of the target market

International Marketing Channels 63 / 70

Checking Your Knowledge

Q3: is a subject area that should be on the checklist of criteria for

evaluating middlemen servicing a market.
(a) Flexibility
(b) Hypersensitivity
(c) Cultural empathy
(d) Productivity
(e) Breath of knowledge

International Marketing Channels 64 / 70

E-Commerce

E-commerce is used to market products and services via the Internet.

When using the Internet for distribution purposes, the following
factors should be considered:
Culture (e.g. different cultural reactions to the same color)
Adaptation (e.g., a website translated into the language of the target
markets )
Local contact (e.g., creating virtual offices to respond to the consumer
enquiries in the target markets)
Payment (e.g., credit card, Alipay, WeChat Pay, or PayPal)
Delivery (e.g., FedEx, UPS)
Promotion (e.g., sponsored advertising, social media presence)
What is standard practice today may be obsolete tomorrow, as
Internet and new technologies are evolving.

International Marketing Channels 65 / 70

Logistics

When a company is primarily an exporter from a single country to a

single market, the typical approach to the physical movement of goods
is the selection of a mode of transportation that ensures safe arrival
of the products within a reasonable time to a reasonable carrier cost.
As a company expands globally, such a solution to the movement of
products could prove costly and highly inefficient, which suggests the
need to consider the concept of logistics management.

International Marketing Channels 66 / 70

Logistics (Continued)

Logistics management is 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.
A physical distribution system involves more than the physical
movement of goods. It includes the location of plants and
warehousing (storage), transportation mode, inventory quantities, and
packing.

International Marketing Channels 67 / 70

Logistics (Continued)

The concept of physical distribution takes into account the

interdependence of the costs of each activity; a decision involving one
activity affects the cost and efficiency of one or all others.
The concept behind physical distribution is the achievement of the
optimum system cost, consistent with customer service objectives of
the firm.

International Marketing Channels 68 / 70

Logistics (Continued)

International Marketing Channels 69 / 70

Summary

The international marketer has a broad range of alternatives for

developing an economical, efficient, high-volume international
distribution system.
The three primary alternatives include home-country middlemen,
foreign-country middlemen, or government-affiliated middlemen.
Traditional channels are being challenged by the Internet, which is
rapidly becoming an important alternative channel to many market
segments.

International Marketing Channels 70 / 70