Chapter 14

International Marketing Channels

McGraw-Hill/Irwin

2005 The McGraw-Hill Companies, Inc. All rights reserved.

Introduction Getting the product to the target market can be a costly process Forging an aggressive and reliable channel of distribution may be the most critical and challenging task facing the international firms Each market contains a distribution network with many channel choices whose structures are In some markets the distribution structure is multilayered, complex, inefficient, even strange Competitive advantage will reside with the marketer best able to build the most efficient channel

Channel-of-Distribution Structures
The distribution process includes the physical handling and distribution of goods, the passage of ownership (title), and the buying and selling negotiations between producers and middlemen and between middlemen and customers Each country market has a distribution structure through which goods pass from producer to use Within this structure are a variety of middlemen whose customary functions, activities, and services reflect existing competition, market characteristics, tradition, and economic development Channel structures range from those with little developed marketing infrastructure such as those found in many emerging markets to the highly complex, multi-layered system found in Japan

Japanese Distribution Structure

Distribution in Japan has long been considered the most effective non-tariff barrier to the Japanese market The Japanese distribution structure is different enough from its U.S. or European counterparts

It has four distinguishing features: 1. a structure dominated by many small middlemen dealing with many small retailershigh density of middlemen, channel control by manufacturers, a business philosophy shaped by a unique culture, and laws that protect the foundation of the systemthe small retailer

2. 3. 4.

Channel Control in Japanese Distribution Systems

Control is maintained through the following elements:

1.
2. 3. 4.

Inventory financing with credits extending for several months. Cumulative rebates Merchandise returns that are allowed to the manufacturer. Promotional support to intermediaries in the form of displays, advertising layouts, and management education programs

Distribution Patterns
Distribution patterns are always evolving and new patterns are developing and marketing channels are not the same throughout the world

Some general distribution patterns that are similar globally include:

1. 2. 3. 4. 5. 6. 7. 8. Middlemen Services Product Line Breadth Costs and Margins Channel Length Nonexistent Channels Blocked Channels Stocking Power and Competition

Retail Patterns
International retailing shows even greater diversity in its structure than does wholesaling

Some general retailing patterns include: 1. 2. 3. 4. Retail Size Patterns Direct Marketing Resistance to Change Alternative Middleman Choices

Home-Country Middlemen
Home-country middlemen, or domestic middlemen, provide marketing services from a domestic base and find foreign markets for products for local manufacturers

Frequently used types of domestic intermediaries include:

1. 2. 3. 4. 5. 6. 7. Manufacturers Retail Stores Global Retailers Export Management Companies Trading Companies U.S. Export Trading Companies Complementary Marketers Manufacturers Export Agent 8. 9. 10. 11. 12. 13. 14. Home-Country Brokers Buying Offices Selling Groups Webb-Pomerene Export Associations Foreign Sales Corporation Export Merchants Export Jobbers

Foreign-Country Middlemen
Some of the more important foreign-country middlemen, who find markets for foreign manufacturers include: 1. 2. 3. 4. 5. 6. Manufacturers Representatives Distributors Foreign-Country Brokers Managing Agents and Compradors Dealers Import Jobbers, Wholesalers, and Retailers

Factors Affecting Choice of Channels

The following points should be addressed prior to selecting intermediaries:

1. Identify specific target markets within and across countries. 2. Specify marketing goals in terms of volume, market share, and profit margin requirements. 3. Specify financial and personnel commitments to the development of international distribution. 4. Identify control, length of channels, terms of sale, and channel ownership

Six Cs of Channel Strategy

Channel strategy itself is considered to have the following six specific strategic goals:

1. 2. 3. 4. 5. 6.

Cost Capital Requirements Control Coverage Character Continuity

Locating Middlemen
Firms seeking overseas representation should compile a list of middlemen from such sources as the following:

1. 2. 3. 4.
5. 6. 7. 8.

Commercially published directories Foreign consulates Chamber-of-commerce groups located abroad Other manufacturers producing similar but noncompetitive goods Middlemen associations Business publications Management consultants U.S. Department of Commerce

Selecting Middlemen
In selecting middlemen, the following steps should be used.

1.

Screening based on the following criteria: (a) reputation (b) creditworthiness (c) markets served (d) products carried (e) number of stores (f) store size

2.

The Agreement that details terms of the contract and the functions to be performed on behalf of the foreign manufacturer

Motivating Middlemen
There is a clear correlation between the middlemans motivation and sales volume

Motivational techniques may be grouped into five categories: (1) financial rewards (2) psychological rewards (3) communications (4) company support, and (5) corporate rapport

The Internet
E-commerce is used to market business-to-business services, consumer services, and consumer and industrial products via the World Wide Web

The Internet is an important distribution method for multinational companies

When using the internet for distribution purposes, the following factors should be considered:
1. 2. 3. 4. 5. 6. Culture Adaptation (especially of language) Local contact information Payment form Delivery Promotion