C H A P T E R 9
CH A N N E L S A N D
AT I O N A L M A R K E T S
INT E R N
AGENDA
• LEARNING OBJECTIVES
• THE CURRENT INTERNATIONAL MARKETPLACE
• KEY MIDDLEMEN IN INTERNATIONAL MARKETS
• EXPORT MANAGEMENT COMPANIES
• EXPORT TRADE COMPANIES
• PIGGYBACKING
• INTERNATIONAL RETAILERS
• INTERNATIONAL FRANCHISING
Information Classification: General
AGENDA
• THE ROLE OF WHOLESALERS
• MARKETING TO THE BASE OF THE PYRAMID
• OMNI-CHANNELS AND GLOBAL MARKETING
• TAKE AWAYS
Information Classification: General
LEARNING OBJECTIVES
• DESCRIBE THE TYPES OF RETAIL STRUCTURES THAT EXIST WORLDWIDE.
• DEVELOP AN UNDERSTANDING OF SPECIALTY MIDDLEMEN THAT EXIST IN INTERNATIONAL MARKETS.
• RECOGNIZE VARIANTS TO THE FRANCHISING MODEL IN OVERSEAS MARKETS, SUCH AS JOINT-
VENTURE FRANCHISING AND MASTER FRANCHISING.
• DEFINE THE CHALLENGES OF DISTRIBUTION IN EMERGING MARKETS.
• SPECIFY THE CHALLENGES OF MARKETING TO GROUPS AT THE BASE OR BOTTOM OF THE CONSUMER
PYRAMID.
• DESCRIBE ALTERNATE CHANNEL STRUCTURES THAT MIGHT BE USED TO DISTRIBUTE TO THE BOTTOM
OF THE PYRAMID.
Information Classification: General
A GLANCE AT THE CURRENT INTERNATIONAL
MARKETPLACE
• Initially the triad of North America, (US and Canada), Western Europe and Japan were the only viable markets
• Exceptions were pockets of affluence and some Middle Eastern states
• Other nations were coming out of colonialism
• These nations as a whole pursued socialist policies, focusing on self-sufficiency and were suspicious of outside
business
• Inconvertible currencies
• This made it difficult both to do business internationally, and to convert profits made in said nations to a usable
form
• New market
• Other nations turned to market orientated systems
• East Asian Tigers (South Korea, Taiwan, etc.)
• Fertility rates in the Triad are declining
• Shift in population balance makes other markets more attractive
Information Classification: General
A GLANCE AT THE CURRENT INTERNATIONAL
MARKETPLACE
• GDP
• US is largest nominally with China as a close second
• China’s is largest PPP
• BRICS (Brazil, Russia, India, China and South Africa)
• Largest emerging markets
• More adoption of modern marketing strategies
• More billionaires
• Growing middle classes
• Base of the pyramid
• International marketplace is unique with specialist middlemen
Information Classification: General
KEY MIDDLEMEN IN INTERNATIONAL MARKETS
• Help those distributing internationally
• Country selection
• Finding international customers
• Managing adherence to regulations
• Logistics and paperwork
Information Classification: General
EXPORT MANAGEMENT
COMPANIES
• EMC’s distribute products
• Often purchasers believe they are purchasing from the EMC
• Does everything necessary to sell internationally
• Marketing research, business development, promotions, logistics, credit and payment
handling, customer service, regulation compliance, raining sales forces, and trade
shows
• Qualifications
• Experience in specific country
• Experience with specific product
• Efforts
• Not likely to invest substantially in one product
• They are small businesses that make commission
• Efforts must be monitored
Information Classification: General
EXPORT TRADE COMPANIES
• Work with various products
• Raw materials (industrial)
• Finished goods (Consumer)
• Rich history in Japan
• Sogo Sosha
• Mitsubishi, Mitsui, Sumitomo, Itochu, Marubeni, Toyota Tsusho, and Sojitz
• Vertical Integration
• Extensive processing, manufacturing, and transportation operations
Information Classification: General
EXAMPLE: SOJITZ (JAPAN/GLOBAL)
WITH A RICH, NEARLY TWO-CENTURY HISTORY, SOJITZ AND ITS 400 SUBSIDIARIES COVER MOST OF THE REQUIREMENTS
ASSOCIATED WITH BUYING AND SELLING GOODS AND SERVICES. IT ENGAGES IN PROJECT FINANCING; IT CONDUCTS
MANUFACTURING OPERATIONS IN SECTORS AS DIVERSE AS MINERALS, AUTOMOBILES, CHEMICALS, FOOD, ENERGY,
AND INDUSTRIAL PARKS. FOR EXAMPLE, SOJITZ HAS BEEN BOEING’S SALES AGENT IN JAPAN FOR MORE THAN 60
YEARS, SUCH THAT IT ESSENTIALLY FULFILLS ALL THE AIRPLANE-RELATED DEMANDS THAT JAPANESE AIRLINES MIGHT
MAKE. IT ALSO IS ONE OF THE LARGEST PROVIDERS OF RAILWAY CARS IN INDIA, ONE OF THE LARGEST OWNERS OF
SHIPS IN THE WORLD, A LEADING EXPORTER OF CARS, AND A LEADING TRADER OF THE COAL AND IRON ORE USED IN
STEEL-MAKING OPERATIONS. BEYOND THESE CONVENTIONAL INDUSTRIES, SOJITZ IS DEVELOPING A CITY OF 250,000
RESIDENTS (DELTAMAS) IN INDONESIA, IS HEAVILY INVOLVED IN FOOD DISTRIBUTION IN MYANMAR AND THAILAND,
OPERATES HOSPITALS IN TURKEY, AND HAS STARTED AN IN-HOME WATER DELIVERY BUSINESS IN JAPAN. FROM THE
SALT FIELDS IT OPERATES IN INDIA, IT SHIPS SUPPLIES ALL OVER THE WORLD. AS A KEY ACTOR IN THE FOOD
PROCESSING INDUSTRY, IT OWNS FARMS AND FERTILIZER PLANTS AND EXPORTS AND IMPORTS VARIOUS FOOD
PRODUCTS, INCLUDING WHEAT PRODUCTS IMPORTED INTO INDONESIA AND TUNA IMPORTED AND EXPORTED FROM ITS
TUNA FARMS. EVEN IN THE ENERGY BUSINESS, SOJITZ OPERATES SOLAR FARMS IN GERMANY, PERU AND MEXICO.
Information Classification: General
PIGGYBACKING
• When a company uses another's distribution channel
• Saves money and time
• Other company receives commission or service fees and provides their customers extended,
improved product lines
• Ideally there should be no conflicts of interest (similar products)
• Ideally products being sold should still have similar customer base
Information Classification: General
INTERNATIONAL RETAILERS
• Retailers must go international
• Slow growth in home markets
• Attractive foreign markets
• From 2000 to 2015, retail sales growth in developing markets tripled, twice that of developed markets
• Virtuous cycle
• Greater economies of scale comes with growth
• Advertising, marketing research, financing, and IT management
• Products can be exported across markets
• Expansion enhances brand equity
Information Classification: General
INTERNATIONAL RETAILERS
(CONT.)
• International retail growth lags behind that of other industries
• Need for high quality locations
• Need for comparable physical logistics despite differences in infrastructure
• Need for parallel suppliers or suppliers from home
• Having to adapt to differences in operations because of regulations
• Developing products that are attractive abroad
• Barriers to entry
Information Classification: General
INTERNATIONAL RETAILERS
•
(CONT.)
Retailers struggle to go international
• Marks & Spencer
• Tiffany’s
• Costco
• Home Depot
• Chinese operations closed
• Walmart
• Did not localize in Argentina
• Products did not match standardized volts
• US cuts of beef
• Narrow aisles with faded carpets
• Walmart/Carrefour
• Could not stay competitive in Brazil’s market
• Pao de Azucar provided credit and focused on convenience
Information Classification: General
INTERNATIONAL RETAILERS
(CONT.)
• Factors for success in international retail
• Delivering unique benefits while accommodating local markets
• Ability to compete with local retailers
• Local, traditional, full service Mom-and-Pop stores often coexist and remain
competitive with international retailers
• International retail competition is the norm
Information Classification: General
EXAMPLE: CARREFOUR (FRANCE/GLOBAL)
ESTABLISHED IN FRANCE IN 1959, CARREFOUR GROUP OPERATES 12,300 STORES IN 30 COUNTRIES, IN ADDITION TO ITS
SOPHISTICATED E-COMMERCE AND M-COMMERCE PRESENCE. ITS ANNUAL REVENUES OF MORE THAN 88 BILLION EUROS MAKE
IT AMONG THE WORLD’S LARGEST RETAILERS. ITS SIGNATURE HYPERMARKETS COMBINE GROCERY AND DISCOUNT STORES,
OFFERING A WIDE RANGE OF ITEMS, BUT CARREFOUR ALSO OPERATES OTHER RETAIL FORMATS (E.G. TRADITIONAL
SUPERMARKETS, CONVENIENCE STORES, CASH-AND-CARRY STORES THAT TARGET SMALL BUSINESSES). TO ACHIEVE ITS
SIGNIFICANT PRESENCE IN LATIN AMERICA, ASIA, AND EUROPE, CARREFOUR HAS HAD TO CUSTOMIZE ITS OFFERINGS AND
ACCOMMODATE LOCAL CULTURES. FOR EXAMPLE, IN CHINA, CARREFOUR SELLS LIVE FISH; THE FISH IS DEAD AND ON ICE, BUT
IT IS PRESENTED WHOLE INSTEAD OF FILLETED, SO CONSUMERS CAN INSPECT ITS QUALITY. THUS CARREFOUR MIGHT HAVE
MADE ITS NAME INITIALLY WITH BIG BOX RETAIL, BUT IT CONTINUES TO REVISE ITS STRATEGY TO COMPETE IN THE OMNI-
CHANNEL AGE, INCLUDING INVESTING HEAVILY IN ENHANCED GOOD QUALITY AND DELIVERY OPERATIONS, WHILE ALSO
REDUCING THE AVERAGE SIZE OF ITS HYPERMARKETS.
Information Classification: General
INTERNATIONAL FRANCHISING
• International franchising is growing
• Russia has 9,000 operated franchises
• Brazil’s franchises produced $38 billion in revenues in 2015
• International franchising has challenges
• The lack of legal precedent regarding franchises in some countries leads to difficulty enforcing contracts
Information Classification: General
Figure 9.1 Questions to Consider Prior to Franchising Internationally
Questions to Consider Prior to Franchising Internationally
1. Are there differences in labor laws, legal restrictions on days and hours of operation, and other
operating rules?
2. Is the legal system dependable and are intellectual property rights protected?
3. Can profits be repatriated to another country easily or are there restrictions on the same?
4. Are there restrictions on charging franchisees various franchise fees and interest?
5. Can non-compete clauses be enforced?
6. How is the sale, termination, or nonrenewal of franchises regulated in that country?
7. What contract clauses and financial disclosures are permissible and not permitted?
8. Is there a robust and active national franchise association that can be of help to foreign franchisors?
9. Are there any linguistic, gender role, and trademark challenges that one needs to be aware of?
Source: Zwisler, Carl E. [Link]
Answered_0.pdf
INTERNATIONAL FRANCHISING
(CONT.)
• International franchise strategies
• Direct franchising
• Recruiting individual franchisees themselves
• Area-development franchise
• Multi-unit franchising over geographic area
• Time frame
• Master franchising
• Franchisee of geographic area recruits sub-franchisees
• Joint venture direct franchising
Information Classification: General
EXAMPLE: DOMINO’S MASTER FRANCHISE
(USA/GLOBAL)
DOMINO’S IS THE WORLD’S LEADING DELIVERY PIZZA COMPANY. THE UNITED STATES IS ITS LARGEST MARKET: THE
5,000 STORES MOSTLY ARE OPERATED BY THE 799 FRANCHISEES, THOUGH IT ALSO MAINTAINS 392 COMPANY-OWNED
STORES. MOREOVER, IT OPERATES IN 85 COUNTRIES AROUND THE WORLD, FOLLOWING ITS FIRST INTERNATIONAL
FORAY INTO CANADA IN 1983. OF THE MORE THAN 8,000 RESTAURANTS OUTSIDE THE UNITED STATES, INDIA (1,106
STORES) ACCOUNTS FOR THE LARGEST SHARE, FOLLOWED BY THE UNITED KINGDOM (947 STORES) AND MEXICO (655
STORES). IN MOST OF THESE MARKETS, WHICH THE CORPORATION IDENTIFIES ACCORDING TO THEIR GROWTH
POTENTIAL AND SIZE, DOMINO’S RELIES ON A MASTER FRANCHISE MODEL. THE MASTER FRANCHISEE MUST INVEST
SUBSTANTIALLY AND ALSO NEEDS TO DEMONSTRATE OPERATIONAL EXPERTISE AND LOCAL MARKET KNOWLEDGE. IT
IS RESPONSIBLE TO ESTABLISH OPERATIONS IN THAT COUNTRY, WITH THE RIGHT TO BUILD STORES, SUB-FRANCHISE,
AND DESIGN THE DISTRIBUTION SYSTEM TO BEST SUPPORT LOCAL STORE OPERATIONS. IN RETURN, THE MASTER
FRANCHISEE MUST MEET GROWTH TARGETS, CONFORM TO DOMINO’S STANDARDS, AND MAKE ROYALTY PAYMENTS.
THESE ROYALTIES AVERAGE AROUND 3 PERCENT OF SALES, WHICH ARE IN ADDITION TO THE ONE-TIME MASTER
FRANCHISE FEE AND THE FRANCHISE FEE FOR EACH NEW STORE OPENING. SOME OF THESE MASTER FRANCHISES EVEN
TRADE ON THEIR COUNTRY'S STOCK EXCHANGE (E.G., ALSEA IN MEXICO, DOM IN THE UNITED KINGDOM), ABILITY TO
INVEST BEFORE SELECTING MASTER FRANCHISEES.
Information Classification: General
THE ROLE OF WHOLESALERS
• Onions in Niger
• Harsh climate prevents much agriculture
• Violet de Galmi onions grow, a superior variety, do grow
• Onion growing increased since 1960’s
• Supply and demand are present, but wholesalers are not trusted
• 50-75% of profits go to wholesalers
Information Classification: General
THE ROLE OF WHOLESALERS
•
(CONT.)
Costs incurred by wholesaler
• Locating, assembling and especially sorting onions
• Bulk breaking helps consumers purchase single, or even smaller, onions
• Credit risks and losses due to dishonesty, illicit activities and improper tactics
• Refusal to pay and payment through other means
• Dishonest complaints
• Illicit government interference
• Building and maintaining storage facilities
• Vandalism
• Transportation costs
• Crop loss
• Onions, as well as crops accepted as payment
• Legal costs
• Official regulations
Information Classification: General
THE ROLE OF WHOLESALERS
(CONT.)
• Ways to mitigate costs
• Relying on informal ties rather than unenforced contracts
• Often family
• Perceived as nepotism
• More investment
• Educating about wholesalers’ role
• Preventing illicit rent practices
Information Classification: General
MARKETING TO THE BASE OF THE PYRAMID
(DEFINING BOP)
• Defining the market
• Consumer base of possibly over 4 billion people in need of goods and services provides attractive
market
• One definition states BOP consumers live off less than $1-2 dollars per day
• Another states BOP make less than $1500 per year
• Often live in remote rural areas or urban slums
• Commonalities across countries
• BOP often lack savings or credit
• Often lack literacy or geographic mobility
• Often resist change and spend income on necessities
• Trust and education necessary to market to BOP
Information Classification: General
MARKETING TO THE BASE OF THE PYRAMID
(ETHICS)
• Ethical considerations at the BOP
• Fly-by-night businesses exploit BOP
• Pay day lenders commit usury after banks fail in BOP markets
• Rent-to-own businesses take advantage of poor or financially illiterate people
• Ethically distributing to the BOP takes many requirements
• Frugal, innovative models to produce affordable products and services
• For Ghana’s market, SC Johnson developed refillable containers
• Gaining trust and changing behavior
• Sub-Saharan consumers did not use mosquito nets because they did not know mosquitos carried malaria
• In rural Kenya, SC Johnson training cleaners to purchase products and use them to clean other s houses failed;
letting others clean their house did not seem appropriate and the products did not seem necessary
• In Ghana, SC Johnson was more successful with direct salesmen and education
• Education on life-insurance necessary for men purchasing from microfinance lender
Information Classification: General
Figure 9.2 Distribution Requirements by Product Types
Product Classification Consumer Consumer Durables Services Agricultural Inputs Agricultural Inputs
Packaged Goods (Small-ticket) (Durables)
Examples Soap, toiletries Television sets Banking, telecom Seeds, fertilizers Tractors, generators
Distribution Capability
Demands
Physical possession & High High Low High High
Ownership
Promotion High High High Low Low-Medium
Financing Low High Low-Medium Low-Medium High
After-sales service Low High Low-Medium Low High
Market research High High High Low Low
Finding buyers High High High High High
Ordering & Payment Low Medium-High Medium-High Low High
Negotiation Low Medium-High Low Low High
Risk taking Low Medium-High Low Low Low
Source:Shukla, S. and Bairiganjan, S. (2011), [Link]
Information Classification: General
MARKETING TO THE BASE OF THE PYRAMID
(DISTRIBUTION)
• Poor infrastructure
• Less impact from mass media
• Transportation
• Warehousing
• Additional risk of unsold goods that are spoiled or otherwise no good
• Remote consumers
• Village-level entrepreneurs
• Solve last-mile problem
• Unilever and Indian women
• Not effective when too large of investments are necessary
• Education
• Installation and consumer training
• Unpredictable incomes for all parties and preference for smaller purchases
• Bulk Breaking
Information Classification: General
MARKETING TO THE BASE OF THE PYRAMID
(CHANNEL CONFIGURATIONS)
• Channel configurations
• Direct
• Additional aids such as banks
• NGO’s
• Often social purpose
• Cooperatives
• Rural retailers or distributors
• Often small and require incentive
Information Classification: General
EXAMPLE: DISTRIBUTING SANITARY PADS IN
INDIA
INDIA’S VAST AND YOUNG POPULATION, WITH AN AVERAGE AGE OF 28 YEARS, OBVIOUSLY INCLUDES MANY WOMEN WHO MENSTRUATE. HOWEVER, A
SURVEY REVEALED THAT ONLY 12 PERCENT OF INDIAN WOMEN USED SANITARY PADS. THE REASONS WERE VARIED: NEARLY TWO-THIRDS OF INDIANS
LIVE IN RURAL AREAS, WHICH CREATED ISSUES OF AVAILABILITY AND AFFORDABILITY. A CULTURAL STIGMA ALSO DISCOURAGED DISCUSSIONS OF
MENSTRUATION, AND MANY WOMEN WERE EMBARRASSED TO BUY SANITARY PRODUCTS FROM MOSTLY MALE RETAILERS IN VILLAGES. A
WIDESPREAD FALSEHOOD THAT THE USE OF SANITARY PADS CAUSED BLINDNESS ALSO CONTRIBUTED TO THE PROBLEM, SUCH THAT WOMEN MOSTLY
USE RAGS, RARELY WASHED, THAT THEY ARE EVEN TOO EMBARRASSED TO ALLOW TO DRY IN THE SUN. THESE FACTORS COMBINED TO CREATE A
MAJOR WOMEN’S HEALTH CHALLENGE. AN INDIVIDUAL INVENTOR NAMED MURUGUNANTHUM SOUGHT TO ADDRESS THIS ISSUE BY DEVELOPING A
LOW COST MACHINE THAT WOMEN COULD USE TO MANUFACTURE THEIR OWN SANITARY PADS, THEN SELL THEM TO OTHER WOMEN IN THEIR
COMMUNITIES. IN RESPONSE, ADOPTION OF SANITARY PADS IN INDIA HAS GROWN EXPONENTIALLY. MURUGUNANTHUM TRAVELED TO A VAST
NUMBER OF VILLAGES, INCLUDING SOME OF THE POOREST SITES IN INDIA, TO GAIN PERMISSION FROM MEN TO TALK TO THEIR WIVES OR DAUGHTERS
ABOUT THE BENEFITS OF USING SANITARY PADS, CONDUCT EDUCATIONAL SESSIONS WITH THESE WOMEN, ENCOURAGE ACCEPTANCE OF THE
BUSINESS MODEL INVOLVED IN PURCHASING THE MACHINES, AND FINALLY DELIVERING THE MACHINES THEMSELVES TO WOMEN THROUGHOUT
INDIA.
Information Classification: General
Figure 9.3 Distribution Options: Company, NGO, Cooperatives, and Rural Retail
Company Company Company Company Company Company Company
Local NGO or Local NGO or Distributor/
Bank Village Level
Microfinance Microfinance Cooperatives Retailer
Entrepreneur
Organization Organization
Distributor/
Retailer
Village Level Village Level
Entrepreneur Entrepreneur
End User End User End User End User End User End User End User
Company-Direct Models NGO Models Co-Op Model Rural Retail Model
Source: Shukla,Classification:
Information S. and Bairiganjan, S. (2011), [Link]
General
OMNI-CHANNELS AND GLOBAL MARKETING
• Emerging markets and Omni-channels
• Retailers thrive with omni-channels
• India’s D’Mart and Flipkart
• Retailers penetrate markets with e-commerce
• China leading mobile commerce
• Five reasons to be optimistic
• Adoption of smartphones and young population are predictors of the adoption of new forms of shopping
• Often leapfrog to newest innovations
• Famous foreign retailers bring Omni-channel innovations and force competitors to do the same
• Large amounts of traffic incentivize e-commerce
• Young population provides potential deliverers
• 350 million Chinese use online food delivery, industry worth US$37 billion
• Challenges
• Knock-offs and counterfeits
• E-commerce does not guarantee buyers
Information Classification: General
TAKE AWAYS
• Less than 5 percent of the world’s population resides in the United States and therefore it is essential to understand the
distribution challenges faced when marketing products internationally. The need to understand channels in international markets
has greatly increased due to the tremendous economic growth rates in emerging rates in emerging markets and their large and
young population.
• Purchasing Power Parity (PPP) is an alternate measure of exchange between two currencies and one that captures the purchasing
power equivalence of two currencies.
• The International Marketplace is characterized by specialty middlemen not found in domestic marketing.
• Export Management Companies (EMC) act on behalf of a seller and find customers and manage all export related logistics for
seller such that the buyer may not be even aware that they are dealing with a third-party.
• Export Trading Companies operate on a global scale and may produce or acquire products in one part of the world and distribute
and resell them in other countries.
• Japan has a rich tradition of Export Trading Companies who are called sogo shosha
Information Classification: General
TAKE AWAYS
• Piggybacking is a distribution technique where one company latches on to the distribution network of another company. The host
company is motivated by a desire to have a more complete array of products to distribute and may agree to piggybacking as an
additional revenue source.
• Retailers expanding internationally face many challenges finding suitable locations, establishing physical logistics operations and
developing parallel supplier relationships. Retailers have to be aware about differences across countries in zoning, labor, and
operational practices.
• Master franchising is very popular in overseas markets. Master franchisees are given the right to operate in a whole geographic region
and may in turn sub-franchise to other operators.
• Wholesalers play an important role in emerging markets but their role is not fully appreciated by consumers.
• The base of the pyramid comprises of the world’s poorest consumers who collectively because of their large numbers can comprise a
large market. But marketing to this group involves substantial challenges in distribution and raises ethical considerations. Companies
have to come up with novel strategies to reach this consumer group and expend effort to solve the “last mile” problem and engage in
substantial consumer education.
Information Classification: General