INTERNATIONAL

DISTRIBUTION

Navaneethan & team

CHAPTER OBJECTIVES
To
 describe various "Distribution" Objectives in the
international context including narrow vs. wide reach,
distribution opportunities & finally deciding on a strategy 
To analyse the factors for deciding Channel Structure

Identify the different facilitators of international distribution

and logistics and describe their involvement in the
international distribution process
To do the 'Gap Analysis' by studying Demand Side Gaps,

Wheel of Retailing, supply Side Gaps, finding opportunities
& Closing gaps
 To describe Direct Marketing, Electronic Commerce & the

Legal Issues Of Distribution in International Marketing
 
INTRODUCTION
A channel is an institution through which
goods and services are marketed.
Channels give place and time utilities to
consumers. In order to provide these and other
services, channels charge a margin
The longer the channel, it is more likely that
producer profits will be indirectly reduced.
This is because the end product's price may be
too expensive to sell in volume, sufficient for
the producer to cover costs
International Distribution
The firm sells to its customers:
◦ directly through its own sales force.
◦ indirectly through independent
intermediaries.
◦ indirectly through an outside
distribution system with regional or
global coverage.
Distribution Objectives
 Interrelated objectives-A firm’s distribution
objectives will ultimately be highly related—some
will enhance each other while others will compete.
 Narrow vs. wide reach-The extent to which a firm
should seek narrow (exclusive) vs. wide (intense)
distribution depends on a number of factors.
Example:
 Distribution Opportunities-Distribution provides a
number of opportunities for the marketer that
associated with other elements of the marketing mix
 Deciding on a strategy-In focus groups, it is
possible to assess what consumers are looking for
and which attributes are more important.
Factors for deciding Channel Structure
Market needs and preferences
The cost of channel service provision
Incentives for channel members and methods of
payment
The size of the end market to be served
Product characteristics required, complexity of
product, price perishability, packaging
Middlemen characteristics - whether they will push
products or be passive
Market and channel concentration and organization
Appropriate contractual agreements
Degree of control.
Channel Structure
• Channel structures are designed to manage
multidirectional (horizontal and vertical) connections in:
• physical movement of goods and services
• transactional title flows
• information communications flows
 Channel structure varies considerably according to
whether the product is consumer or business to business
oriented.
 The former tends to have a variety of formats, whereas
the latter is less complicated.
 The choice of which one is used depends on the
requirements listed above.
 Channel Structure
Paths to the customer
Tasks of intermediaries
Potential channel structures
Criteria in selecting channel members
"Piggy-backing." -to pick up products into an
existing channel.
Parallel Distribution -one wholesaler in order
to reach the retailer
Service Outputs
Evaluating Channel Performance
Determinants of Channel Structure and
Relationships
uINTERNAL EXTERNAL

Company objectives Customer

Character characteristics
Capital Culture
Cost Competition
Coverage
Control
Continuity
Communication
Channel Design Considerations
• Customer characteristics
– What customers need, why, when, and how?
• Distribution culture
– The structural linkages and functional characteristics
of existing channels.
• Competition
– channels used by the competitors is only product
distribution system.
• Company objectives
– Determined by company objectives for market share
and profitability.
Channel Design Considerations
• Control
– The use of intermediaries, product type, and the
marketer’s use of power will determine the amount of
market control.
• Continuity
– Responsibility of the marketer and is expressed through
market commitment.
• Communication
– Provides the exchange of information that is essential to
the functioning of the channel.
– Social, cultural, technological, time and geographical
distances cause problem
Japanese car
parts distribution channels
US car
parts distribution channels
A hypothetical
channel sequence in
the Japanese consumer market
Market coverage
Coverage
◦ The number of areas in which a product is
represented and the quality of that representation.
Types of coverage
◦ Intensive-which calls for distributing the product
through the largest number of intermediaries.
◦ Selective-which entails choosing a number of
intermediaries for each area to be penetrated.
◦ Exclusive- which involves only one entity in a
market.
Intensive &Selective distribution
Exclusive distribution
Intermediaries
Types of intermediary relationship
◦ Distributorship
◦ Agency
Type of exporting function
◦ Indirect exporting
◦ Direct exporting
◦ Integrated distribution
 Sources for Finding Intermediaries
– Distributor inquires
– Governmental agencies
• Commerce Department’s Trade Opportunities
Program
• U.S. Exporters Yellow Pages
– Private sources
• Trade directories
• Screening Intermediaries
– Performance
– Professionalism
Selection of Intermediaries
Agents Distributors
 Foreign (Direct)  Foreign (Direct)
◦ Brokers ◦ Distributors/dealers
◦ Manufacturer’s Reps ◦ Import jobbers
◦ Factors ◦ Wholesalers/retailers
◦ Managing agents  Domestic (Indirect)
◦ Purchasing Agents ◦ Domestic wholesalers
 Domestic (Indirect) ◦ EMCs
◦ Brokers ◦ ETCs
◦ Export Agents ◦ Complementary marketers
◦ EMCs
◦ Webb-Pomerene
◦ Commission agents
The Distributor Agreement
 Typical terms include
◦ Contract duration
 Typically short periods initially
◦ Geographic and customer boundaries
 Well-defined territories and channels
◦ Compensation
 Methods for determining payment amounts and how
and in what currency payment is to be made.
◦ Products and conditions of sale
 Products to be sold; terms and conditions of sales
◦ Means of communication between parties
Tasks of intermediaries
Moving the goods efficiently-(e.g., large quantities
are moved from factories or warehouses to retail
stores)
Breaking bulk-(manufacturers sell to a modest
number of wholesalers in large quantities—
quantities are then gradually broken down as they
make their way toward the consumer)
Consolidating goods-retail stores carry a wide
assortment of goods from different manufacturers—
e.g., supermarkets span from toilet paper to catsup)
Adding services-(e.g., demonstrations and repairs).
Gap Analysis
Demand Side Gaps
Wheel of Retailing- discount facilities
Supply Side Gaps- when cost and service
are "in line" with customer expectations.
Finding opportunities
Gaps, costs, and performance
Closing gaps- reconsidering their
offerings
Issues Related to International
Distribution
Using Established Channels
 Could charge high prices
 Could be blocked by competition
 Choice is a long-term decision: company may be bound
indefinitely to the channel choice
Building Channels
 Necessary if there are no channels at all and if the existing
channels do not conform to company needs
 Expensive
LOGISTICS

Most common export Commercial

documents Commercial invoice
Transportation
Government
 Billof lading Export declaration
 Dock receipt Consular invoice
 Insurance certificate
Certificate of origin
Banking
 Letter of credit
Main modes
of transportation
Road

Water

Air

Rail
Factors affecting
transportation mode decision
Cost of different transport alternatives
Distance to the location
Nature of the product
Frequency of the shipment
Value of the shipment
Availability of transport
Factors affecting level of inventory
decisions:
Order cycle Customer
time service levels
Home-Country Middlemen
Export Management Companies
 Highly specialized in certain industries and/or regions
Trading Companies
 The Japanese Model: sogo shoshas
 The U.S. Model and the Export Trading Company Act
Home-Country Brokers and Agents
 Middlemen who bring international buyers and sellers together
in the company's home country
 Do not carry title to the product
 Manufacturer’s export agent: represent a manufacturer
 Buying offices: buyers located in the firm’s home country,
representing different international firms
Cooperative Export Arrangements
 Also known as piggybacking and mother henning
Involve exporters agreeing to handle
export functions for unrelated
companies on a contractual basis
 Complementary export agents export complementary products
on a commission basis
 Complementary export merchants actually take title to the
complementary products that they export
Webb-Pomerene Associations of
Exporters
 Competing companies that join resources and efforts to export
internationally
 Are exempt from antitrust scrutiny
• Foreign Sales Corporation (FSC)
 Sales corporation that is set up overseas
 Allows for a portion of U.S. firm’s foreign-source income to be
exempt from U.S. income tax
 To qualify for tax exemption, firm must:
 have a foreign presence
 meet certain management and economic requirements
 incur abroad a minimum level of direct costs in sales activities, in areas such
as marketing, advertising, and order processing.
• Export merchants
 Intermediaries who take title to and possession of the products they
carry
 Responsible for shipping and marketing the products in the target
market
 Carry competing brands
 Examples:
 export jobber, who carries commodity goods, but does not take physical
possession of the goods
 Norazi agent, who deals in illegal and/or gray market products
Foreign-Country Middlemen

Merchant Middlemen
 Intermediaries who carry the manufacturer’s product line in a
particular country
 Usually carries title to and has physical possession of the
products
Agents and Brokers
 Many types of agents and brokers in foreign markets, such as
manufacturer's representatives and managing agents
 Could act as the manufacturer’s sales
representatives and are paid on commission
 Or they could take on the role of managing agents
(also known as compradors), with an exclusive
arrangement with the company, representing it in
the foreign market; the latter are paid as a
percentage of sales
Alternative
Distribution Structures:
Network Marketing
 Using acquaintance networks for the purpose of both sales
and distribution
 Have high potential in emerging markets
International Distribution and Logistics:
Distribution Centers
Transportation Firms
Freight Forwarders and Customs
Brokers
Government Agencies
 Promote national security
Government Agencies

International Trade Administration

Bureau of Export Administration
U.S. Commercial Service
Export/Import (Ex-Im) Bank
United States Trade and Development
Agency
Other Service Providers:
Non-governmental
 International Chamber of Commerce
Banks
Insurance agencies
Logistics Alliances
1) Establish objectives
2) Identify providers
3) Express needs/wants
4) Evaluate and select bidder
5) Develop integration plan
6) Create win-win relationship
7) Measure and analyze performance
8) Redefine goals and objectives
Channel Management and Conflict
• Coordinating two independent entities with shared
goals.
• The relationship needs to be managed for the long term.
• Factors complicating channel management
– Ownership
– Geographic, cultural, and economic distance
– Different rules of law
Verticalintegration
Business structures
Motivations for outsourcing
Channel Power
Channel conflict
Channel Power
Reward power
Coercive power
Expert power
"Legitimate" power
Referent power
Distribution Intensity Decisions
Distributionopportunities
The product life cycle
Termination of brands
Maintaining channel member
performance:
"Simulating" exclusivity
Making exclusivity attractive

DIRECT MARKETING:
Business channel alternatives
Brokers
Personalised trading networks
Associations, voluntary chains,
cooperatives
Contracting
Integration:
Production/logistical economies
Transaction cost economies
Risk bearing advantages

Electronic Commerce
Any worldwide web strategy must be tied closely to
the company’s overall growth strategy in
international markets.
Companies must come to terms with issues related to
security, privacy, and access to global networks, at
the same time, promoting global commerce over
the Internet.
Actual sales of products
Promotion/advertising
Customer service
Market research
Obstacles to the growth of e-commerce
 Reach
 Concerns about privacy
 Reputation issues
 Costs
 Language
 Government regulations
 Culture
 Payment issues
 Legal issues
Legal issues of Internet
Reach across boarders
Taxation
Privacy issues
Legal Issues Of Distribution:
Collusion
Discriminatory pricing
Territorial restrictions and customer coverage
restrictions
Price maintenance
Tying
Parallel imports (gray markets)
 Distribution systems that are not authorized by the
manufacturer: products purchased in a low-price market are
diverted to other markets
 Hurt company image
 Charge similar prices worldwide
 Create product for low-markets not as attractive
to up-market
 Complicate repair/servicing process for gray
market goods
 Inform consumers
 Litigate
Gray Markets
(Parallel Importation)
Arguments for: Arguments against:
The right to “free Gray marketers take
unfair advantage of
trade.”
trademark owner’s
Consumers benefit
marketing and
from lower prices. promotion.
Discount distributors Parallel imports deceive

have found a consumers by not

meeting product
profitable market
standards or expectations
niche. of after-sale service.
Strategies to reduce
grey marketing
Seeklegal redress
Change the marketing mix
◦ product strategy
◦ pricing strategy
◦ warranty strategy
CONCLUSION
THANK YOU