 Distribution channel:

A set of independent organization that help make a product of service available for use or
consumption by the consumer or business is called destitution channel or marketing channel.

 Channel of Distribution Structure:

Each country market has a distribution structure through which goods pass from producer to
user. Channel structures are-
1. Import oriented distribution structure
2. Japanese distribution structure
3. Traditional to modern distribution structure

 Import oriented distribution structure:

In an import oriented traditional system 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 price to a small number of affluent customers. In the resulting seller’s market, market
penetration and mass distribution are not necessary because demand exceeds supply, and in
most cases the customer seeks the supply from the limited number of middlemen. In this
structure distribution system are local rather than national in scope and the relationship between
importer and any middleman in the marketplace is considerably different from that found in
mass marketing system.

Characteristics of Import-Oriented Distribution Structure

1. Importer-Centric
o Importers act as gatekeepers; they decide what products enter the country.
o Manufacturers abroad often rely heavily on a few powerful importers.
2. Limited Middlemen
o Importers usually sell directly to wholesalers or retailers, rather than creating
long chains.
3. Narrow Distribution Channels
o Distribution is often concentrated in urban centers or large cities, not
nationwide.
4. High Importer Power
o Importers can demand exclusivity, set high markups, and control marketing
activities.
5. Passive Marketing Role of Producer
o Foreign producers have little control once the goods are sold to the importer.
6. Market Dependence
o Local consumers depend on what importers choose to supply, rather than
producers directly responding to consumer demand.
7. Channel Control:
o Channel is controlled by the importer. Producer has little to no control over
pricing, promotion, or distribution.

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  Japanese distribution structure:
Distribution in Japan has long been considered a most effective nontariff barrier to the Japanese
market. The market is becoming more open as many traditional modes of operation are eroding
in the face of competition from foreign marketers and as Japanese consumers continue to focus
on lower prices. The Japanese distribution structure is different enough from its U.S. or
European counterparts that it should be carefully studied by anyone contemplating entry.
The Japanese system has four distinguishing features:
(1) A structure dominated by many small middlemen dealing with many small retailers
(2) Channel control by manufacturers
(3) A business philosophy shaped by a unique culture
(4) Laws that protect the foundation of the system—the small retailer.

Characteristics of the Japanese Distribution Structure

1. Multi-Layered Channels (Long Channel System)

 Products pass through many intermediaries before reaching consumers.
 Example: Manufacturer → Primary Wholesaler → Secondary Wholesaler → Retailer
→ Consumer.
 Creates a long supply chain compared to the U.S. or Europe.
2. Small-Scale Retailers
 Japan traditionally had many small mom-and-pop stores (konbini, neighborhood
shops).
 These small retailers buy from wholesalers instead of directly from manufacturers.
3. Close Relationships & Loyalty
 Business is built on long-term personal relationships (keiretsu system).
 Wholesalers and retailers prefer stability and trust over switching to cheaper
suppliers.
4. High Service Orientation
 Emphasis on customer service, frequent deliveries, and small-lot orders.
 Wholesalers play a key role in providing credit, after-sales service, and even
inventory management for small shops.
5. Limited Price Competition
 Due to loyalty and exclusive dealing arrangements, price-based competition is less
aggressive than in Western markets.
 This kept prices higher for many consumer goods historically.

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6. Distribution Control by Manufacturers
 Large Japanese firms (like Toyota, Panasonic) often maintain tight control over their
distribution networks.
 Example: Toyota has exclusive dealership networks across Japan.
7. Resistance to Foreign Penetration
 Foreign firms often found it difficult to enter Japan due to:
o High number of middlemen.
o Exclusive dealer networks.
o Loyalty to local suppliers.
o Cultural preference for established domestic brands.
Advantages
 Stable, long-term relationships.
 High-quality service & frequent deliveries.
 Strong trust and cooperation in the supply chain.

Disadvantages
 Inefficient (too many intermediaries).
 Higher costs & less price transparency.
 Hard for foreign companies to penetrate.
 Declining relevance due to modern retail formats.

 Trends: From Traditional to Modern Channel Structures

Over time, distribution channels (how goods move from producers to consumers) have shifted
from traditional systems to modern ones, due to globalization, technology, and consumer
behavior changes.

1. Traditional Channel Structures

 Long and complex chains with many intermediaries.
 Wholesaler-dominated: Manufacturers → Wholesalers → Retailers → Consumers.
 Local/Regional focus: Goods distributed mostly within domestic markets.
 Relationship-driven: Strong reliance on personal trust, credit, and loyalty.
 Small retailers: Mom-and-pop stores, bazaars, local markets.
 Cash-based transactions.
Example: Traditional Japanese distribution with multiple layers of wholesalers, or rural
markets in South Asia and Africa.

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2. Transition Phase (Semi-Modern Structures)
 Retail consolidation: Growth of department stores, supermarkets, and chain retailers.
 Direct-to-Retail: Manufacturers began bypassing some wholesalers and dealing
directly with large retail chains.
 Global trade expansion: Importers/exporters simplified channels by linking
manufacturers directly to major retailers.
 Franchising & Licensing: Spread of McDonald’s, KFC, and other franchise models
globally.

3. Modern Channel Structures

 Shorter, streamlined channels: Many intermediaries eliminated.
 Direct-to-Consumer (D2C): Producers sell via their own websites, apps, or brand
stores.
 E-commerce & digital platforms: Amazon, Alibaba, Rakuten connecting producers
and consumers directly.
 Omni-channel retailing: Integration of offline and online channels (e.g., order online
→ pick up in store).
 Global supply chains: Efficient logistics and third-party fulfillment (DHL, FedEx,
fulfillment centers).
 Consumer-driven: Data analytics, AI personalization, subscription services (e.g.,
Dollar Shave Club).

Example: Nike → sells via own stores, website (D2C), apps, and also partners with Amazon
& Foot Locker.

Key Differences at a Glance

Aspect Traditional Channels Modern Channels
Length Long, many intermediaries Short, fewer intermediaries
Control Intermediaries dominate Manufacturer/brand has more control
Retail Small, fragmented shops Large chains, e-commerce, omni-channel
Technology Low use of tech High digitalization (AI, Big Data, logistics)
Consumer Role Passive, limited choice Active, demand-driven, personalized
Geography Local/regional Global & borderless

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In short:
 Traditional structures = long, wholesaler-dominated, relationship-based.
 Modern structures = short, tech-driven, consumer-centric, global.

 Alternative Middleman choice:

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, it is difficult to change, and if it proves inappropriate, future growth of market
share may be affected.

Fig: International channel of distribution alternatives

Three alternatives are presented:

1. home country middlemen
2. foreign countries middlemen
3. Government-affiliated middlemen.

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Home country middlemen:
Home-country middlemen, or domestic middlemen, located in the producing firm’s country,
provide marketing services from a domestic base. By selecting domestic middlemen as
intermediaries in the distribution processes, companies relegate foreign-market distribution to
others. A brief discussion of the more frequently used types of domestic middlemen follows.
Manufacturer’s retail store: Manufacturer’s retail stores are owned by the manufacturer or
perhaps franchised
Global retailers: Such as Wall Mart, Amazon etc.
Export Management Companies (EMC): The export management company (EMC) is an
important middleman for firms with relatively small international volume or those unwilling
to involve their own personnel in the international function. Typically, the EMC becomes an
integral part of the marketing operations of its client companies. Working under the names of
the manufacturers, the EMC functions as a low-cost, independent marketing department with
direct responsibility to the parent firm.
Trading Companies: Trading companies have a long and honorable history as important
intermediaries in the development of trade between nations. Trading companies accumulate,
transport, and distribute goods from many countries. Large, established trading companies
generally are located in developed countries; they sell manufactured goods to developing
countries and buy raw materials and unprocessed goods.
Export Trading Companies: The Export Trading Company (ETC) Act allows producers of
similar products to form export trading companies. A major goal of the ETC Act was to
increase U.S. exports by encouraging more efficient export trade services to producers and
suppliers to improve the availability of trade finance and to remove antitrust disincentives to
export activities.
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; though the formal name for such activities
is complementary marketing, it is commonly called piggybacking.
Manufacturer’s Export Agent: The manufacturer’s export agent (MEA) is an individual
agent middleman or an agent middleman firm providing a selling service for manufacturers.
Unlike the EMC, the MEA 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.
Webb-Pomerene Export Associations: Webb-Pomerene export associations (WPEAs) are
another major form of group exporting. WPEAs cannot participate in cartels or other
international agreements that would reduce competition in the United States, but they can offer
four major benefits: (1) reduction of export costs, (2) demand expansion through promotion,
(3) trade barrier reductions, and (4) improvement of trade terms through bilateral bargaining.

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Foreign Sales Corporation: A foreign sales corporation (FSC) is a sales corporation set up
in a foreign country or U.S. possession that can obtain a corporate tax exemption on a portion
of the earnings generated by the sale or lease of export property. Manufacturers and export
groups can form FSCs. An FSC can function as a principal, buying and selling for its own
account, or a commissioned agent.
Home Country Brokers: The term is typically applied to import-export brokers who provide
the intermediary function of bringing buyers and sellers together and who do not have a
continuing relationship their clients.
Buying Offices: Their common denominator is a primary function of seeking and purchasing
merchandise on request from principles as such, they do not provide a selling service.
Selling Groups: Several types of arrangements have been developed in which various
manufacturers or producers cooperate in a joint attempt to sell their merchandise abroad.
Export Marchant: are essentially domestic merchants operating in foreign markets. As such,
they operate much like the domestic wholesaler. They purchase goods from a large number of
manufacturers ship them to foreign countries and take full responsibility for their marketing.
Export Jobbers: deal mostly in commodities; they do not take physical possession of goods
but assume responsibility for arranging transportation because they work on a job-lot basis.

Foreign Country Middleman:

Manufacturer’s Representatives
Distributors
Foreign Country Brokers
Managing Agents and Compradors
Dealers
Import Jobbers

Government -affiliated Middleman:

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 federal, regional, and local levels. Such as Trading Corporation of
Bangladesh (TCB), Export Promotion Bureau (EPB) etc.

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  Factors Affecting Choice of Channels
The international marketer needs a clear understanding of market characteristics and must have
established operating policies before beginning the selection of channel middlemen. The
following points should be addressed 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.

Although the overall marketing strategy of the fi rm must embody the company’s profit goals
in the short and long run, channel strategy itself is considered to have six specific strategic
goals. These goals can be characterized as the six Cs of channel strategy.
These are:
1. Cost
2. Capital
3. Control
4. Coverage
5. Character
6. Continuity.

Cost: The two kinds of channel cost are (1) the capital or investment cost of developing the
channel and (2) the continuing cost of maintaining it. Marketing costs (a substantial part of
which is channel cost) 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: The financial ramifications of a distribution policy are often

overlooked. 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.

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Control: The more involved a company is with the distribution, the more control it exerts. A
company’s own sales force affords the most control but often at a cost that is not practical.
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.

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 may be assessed by geographic segments, market segments, or both.
Adequate market coverage may require changes in distribution systems from country to
country or time to time.

Character: The channel-of-distribution system selected must fi t the character of the company
and the markets in which it is doing business. Some obvious product requirements, often the
first considered, relate to the perishability or bulk of the product, complexity of sale, sales
service required, and value of the product.

Continuity: Channels of distribution often pose longevity problems. Most agent middlemen
firms tend to be small institutions. When one individual retires or moves out of a line of
business, the company may find it has lost its distribution in that area. Wholesalers and
especially retailers are not noted for their continuity in business either. Most middlemen have
little loyalty to their vendors.

 The Internet: The growing importance of e-commerce as a distribution alternative

The Internet is an important distribution method for multinational companies and a source of
products for businesses and consumers. 25 Indeed, a good argument can be made that the
Internet has finally put the consumer in control of marketing and distribution globally.
Computer hardware and software companies and book and music retailers were the earliest e-
marketers to use this method of distribution and marketing. 27 More recently there has been an
expansion of other types of retailing and business-to-business (B2B) services into e-commerce.
28 Technically, e-commerce is a form of direct selling; however, because of its newness and the
unique issues associated with this form of distribution, it is important to differentiate it from
other types of direct marketing.
E-commerce is used to market B2B services, consumer services, and consumer and industrial
products via the World Wide Web. It involves the direct marketing from a manufacturer,

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retailer, service provider, or some other intermediary to a final user. Some examples of e-
marketers that have an international presence are Dell Computer Corporation ([Link]),
which generates nearly 50 percent of its total sales, an average of about $69 million a day,
online. An Internet customer from the Netherlands can purchase a pair of brake levers for his
mountain bike from California-based Price Point. He pays $130 instead of the $190 that the
same items would cost in a local bike store.
E-commerce is more developed in the United States than the rest of the world, partly because
of the vast number of people who own personal computers and partly because of the much
lower cost of access to the Internet than found elsewhere. In addition to language, legal, and
cultural differences, the cost of local phone calls (which are charged by the minute in most
European countries) initially discouraged extensive use and contributed to slower Internet
adoption in Europe.
Moreover, online B2B enables companies to cut costs in three ways. First, it reduces
procurement. costs by making it easier to find the cheapest supplier, and it cuts the cost of
processing the transactions. Second, it allows better supply-chain management. Third, it makes
possible tighter inventory control.

Issues of E-commerce:
By its very nature, e-commerce has some unique issues that must be addressed if a domestic e-
vendor expects to be a viable player in the international cybermarketplace. When
intermediaries are eliminated, someone, either the seller or the buyer, must assume the
functions they performed. Consequently, an e-vendor must be concerned with the following
issues.
 Culture
 Adaptation
 Local Contact
 Payment
 Delivery
 Promotion

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