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Market Entry & Channel Design Options

Merits and Demerits

Entry to Foreign Markets

Can be Direct or Indirect Suitability depends on size of market, nature of product line, costs of entry and the involvement of company Indirect exports happen Recognized Merchant Exporters or Export Houses will buy in India sell them abroad Other way is when you sell to Resident Buying Houses Suitable for small company, as risks are low and payments are quick

Disadvantage of Indirect Channels

Company after years of exports will remain ignorant of export market & operations Dependant on export houses/ foreign buyers for its overseas business Margins added by the intermediaries could be high and seller has no control of prices Merchants may focus in few markets and only profitable products

Direct Exporting
Will increase sales and improve control and market information and develop in-house expertise in international marketing Advantages are direct contacts with Buyers, Control over prices, can take care of aftersales-service, chain of distribution is shortened, if product is good will build name, goodwill and reputation, and monitor competition and market trends Success in exports helps domestic sales image and export incentives can be availed

Forms of Direct Exports

Export Department or Separate Export Company Establishment of Branches / Plants in foreign markets improves after sales service, off the shelf supplies, and catering to other regional markets Volume of business and regulations in the market would justify such a move Foreign manufacturing reduces transport costs and contributes to national aspirations of the importing country, and cheaper materials/ labor ,and overcomin tariff and non-tariff barriers

Market Access
Assembly Plants will help avoid Anti-Dumping duties for low priced exports Licensing Arrangements allow manufacture of goods locally with sellers brand name in exchange for royalty No investment on exporting company and risk of nationalization are low Quality control is difficult and importing company could become competitor in third markets Appointment of exclusive agents

Exclusive Agents
Most widely used method as simple and less expensive Is sole representative of manufacturer in the agreed territory May handle non-competing lines but should not take up competitors range Gets commission and operates under guidance and control of the Exporter

Joint Ventures
Via media between having a plant abroad and licensing arrangement Exporting company has some investment and a voice in the management Can utilise the local skills and distribution system of the partner Higher return than royalties and better control on Production & Marketing Greater investment and risks but nationalization is almost unlikely

Sole importer of exporters products Buys holds large stocks and could own wholesale and retail outlets Provides repair and service facilities at cost

Marketing Channels
Make goods available from producer to customer Depends on nature of product and marketing strategy of the company Channel of consumer product is longer than industrial products generally For industrial goods the producer may sell directly

Export Channels
What is the marketing channel available in the market ? Most appropriate channel to link domestic operations to overseas channel ? Who are the consumers? Retail Outlets to reach them ? Market coverage needed based on product / market character ? Internal constraints ? Expectations from channel members ? Support system needed tosatisfy channel members ?

Channel Strategy
Gravity Approach Seller is in touch with intermediary only and hopes merchandise will move to final customers Push Policy Channel is used as promotional instrument , so planning is needed and exporter has to be channel leader Pull Strategy Reach final customers by intensive promo campaigns and pre-sell product to consumers thus create pressure on channels to carry the product

Distribution Policy
Selection of level of distributionat which to sell No. of Distribution organisations to which to sell Type of distribution organizations to sell Level of Distribution Wholesaler, Retailer, Supermarkets, chain stores, or speciality stores Direct Vs Indirect Distribution factors in favor of direct selling are Control ,Customer Satisfaction , Profit , etc Factors against Direct Selling are Standing in the market , Economies of scale


Costs involved Competition behavior Feedback on product acceptance Existing channels in various markets Identify foreign agents from various sources and with relevant experience Payment of Agency Commission should not exceed 12.5% now raised to 15% on the FOB value Role of Export / Trading Houses promoting small scale industries

In USA the retailing channels are diverse Wholesale clubs like Price Costco and Sams Club and shopping malls offer rock-bottom prices Biggs in Cincinnati was one and half the size of a football field with 75 aisles and 40 checkout lanes and 60000 items Carrefour, Euromarche, Kmart and Wal-Mart have all set up hypermarkets but soon these big stores have had problems Americans found these stores too big and also did not want to mix food and nonfood purchases from one location ( cost of running such stores meant 8% gross margin) and minimum buying needed to be US $ 43

Cokes leadership in world markets is based on its ability to put Coke within an arms reach of desire place utility. Dells meteoric rise in world computer industry was based on its innovative direct marketing and BTO (build to order) channel strategy Self-service discount pricing in US has been studied and applied by retailers in Europe and Asia Price could become more important than deliver

Influence channel design and vary from country to country and need for multiple channel intermediaries increases with increase in number of customers For mass-market products bought by millions of customers retail distributor or mail-order distribution is required In case of large number of low-volume retailers it is cheaper to reach market customers via wholesalers Direct selling can be a good way to serve large-volume retailers but individual countries may respond differently to such generalization e.g. Toys R Us faced considerable opposition from Japanese toy manufacturers to sell directly to the American company at its first store in Japan

Channel design is influenced by standardization, perishability, bulk, service, and unit price Products with high price are often sold through company sales force because of complexity and need for explaining features Perishable products need direct channels to ensure satisfactory condition at time of purchase Bulky products need channels that minimize the shipping distances and the number of times the product changes hands before reaching the customer e.g. soft drinks and beer are bulky products that need widespread availability for effective marketing

Middlemen are in business to maximize their own profit and not for that of manufacturer They are notorious for cherry-picking practice of taking orders for products and brands which are in demand, to avoid real selling effort To counter this danger a new export-sourced product could be distributed by company relying on distributors own sales force. This allows direct-selling support and distribution support, and the distributor is happy to have free sales representative with potential for a profitable line addition


To find a good agent or distributor you may approach the Indian Embassy, Consulate of the destination country, Ministry of Commerce & Industry, or Chambers of Commerce Go to country and talk to end users of products you sell and find out which distributors they prefer two or three names will keep coming up. Meet them and others short listed and arrive at acceptable commission rates and volume of business at start year and beyond Termination and Performance clauses become important in ensuring the distributor becomes effective business representative In some countries like Ecuador legal hurdles could affect the termination as courts may take too long to arrive at a decision Advice of a legal counsel is advised before signing theAgent/Distributor agreement Must be able to read and understand the terms of the agreement


Political Risk Lower the level more likely a company will invest in country or market e.g. political risk in Triad countries is low as compared to Latin America, Africa or Asia ( A Serbian cap was added to the Golden Arch McDonalds logo in war-torn Belgrade, Yugoslavia, prices lowered and free hamburgers given to anti-NATO demonstrators !! )

Local content laws BOP problems can cause market access problems May need to produce within market to avoid tariff and non-tariff barriers e.g. Japanese car industry


Land, labor and capital costs Cost of skilled and unskilled workers, technical, management, etc In LDC the per hour rate could be $ 0.5 and in developed countries $ 6-20 for direct labor Material availability and costs Advanced computer controls and new manufacturing technology can neutralise cheap labor costs and improve productivity Tax incentives given by the market countries

Greater distance between product source and target market greater is the delivery time, and higher cost of transportation Inter modal services facilitate global delivery and allow containers to be transferred from rail, boat, air and truck carriers Transportation costs in US are 5% of total cost of imports and exports In Europe a single market means fewer border controls and so faster delivery and much lower costs

Power, transportation, roads, communication, service, component suppliers, labor pool, civil order, and effective governance Reliable access to foreign exchange to ensure buying of materials and products can be shipped to customers Countries like Lebanon, Uganda, El Salvador, Russia, and even China have constraints to handle the increasing volume of shipments

At any time the attractive location for production can become unattractive due to exchange rate fluctuations In 1998 financial crisis in Russia saw rouble drop from 6 to the USD to 25 roubles !! Prudent company will incorporate exchange volatility into its planning assumptions and be prepared for alternate country options for supplying markets Hence if $, Yen or Euro become seriously overvalued production could be moved to other locations to achieve competitive advantage if such options are available


After research a visit is essential to corroborate the market potential findings or contradict First hand sizing up of details before making the export marketing plan with additional details Trade Fair would be a good place to start with as also missions find agents, buyers, distributors, locate end users (direct selling ) Learn about competitors technology, prices, and depth of market penetration


Exporting Licensing Franchising Joint Ventures FDI