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International Marketing Channels

Chapter 14
McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved.
Chapter Learning Objectives
1. The variety of distribution channels and how
they affect cost and efficiency in marketing
2. The Japanese distribution structure and what
it means to Japanese customers and to
competing importers of goods
3. How distribution patterns affect the various
aspects of international marketing
Chapter Learning Objectives
4. The growing importance of e-commerce as a
distribution alternative
5. The functions, advantages, and disadvantages
of various kinds of middlemen
6. The importance of middlemen to a products
success and the importance of selecting and
maintaining middlemen
Global Perspective
Global Perspective: 500 Million Sticks of
Doublemint Today Billions Tomorrow
Most challenging aspect of selling the gum for
Doublemint is how to get the gum through Chinas
distribution channels:
Mastering the distribution system is the single most
important challenge of Chinas economic revolution
Finding reliable distributors is a challenge
Many are state owned and have little incentive to push one
brand over another
Doublemint gum found a way to distribute their products
effectively thru China
Note: Doublemint has a 91% market share in China
International Channels
Important Points involved in making
channel decisions
I. Channel Structure
II. Distribution Patterns
III. Alternative Middlemen Choices
IV. Factors that affect Choice of Channel
V. Locating, Selecting, Motivating and
Terminating Middlemen
I. Channel Structure
Types of Channel Structures:
1. Import-oriented (traditional)
distribution structure
Strong dependence on imported
manufactured goods
Demand exceeds supply
Chewing gum example in China

I. Channel Structure
2. Japanese distribution structure
Features:
High density of middlemen
Channel control
Everyone in channel is tied to manufacturers thru
such things as: inventory financing; cumulative
rebates, merchandising returns and promotional
support
Business Philosophy
Large-scale retail store law and the Large-scale Retail
Store Location Acts
Most in Japan and in the U.S. see the Japanese
distribution as a major non-tariff barrier
Note: the Japanese distribution system is changing because of the
globalization of markets (more competition, more access, lower prices,
etc)
Japanese Distribution Structure
1. a structure dominated by many small
middlemen dealing with many small
retailershigh density of middlemen,
2. channel control by manufacturers,
3. a business philosophy shaped by a
unique culture, and
4. laws that protect the foundation of the
systemthe small retailer
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:
Trends:
Crossing Borders 14.2 pg. 410
Impact of the internet:
7-11 Japan has a joint venture with
www.7dream.com
When order is placed on the web, customer then
uses 7-11 convenient stores for pick-up points
for their orders.
E-commerce retailers (eBay, e-Toys, Amazon.com)
Ford, Daimler-Chrysler and GM created a website
that allows purchase of automotive parts from
suppliers: www.covisint.com
Sears and Carrefour of France created a retail
exchange for retailers and supplier transactions:
www.gnx.com
I. Channel Structure
II. Distribution Patterns
Understanding these general patterns is important:
Middlemen services
Line Breadth
Costs and margins
Channel length
Non-existent channels
Blocked channels
Stocking
Power and Competition
Retail Patterns
Size patterns
Direct Marketing
Resistance to Change
II. Distribution Patterns
Retail Patterns
Size patterns
Exhibit 14.3 pg. 415
Direct Marketing
Amway
Resistance to Change
International Channel-of-Distribution
Alternatives
Home Country
Domestic producer
or marketer sells to
or through
Open distribution via
domestic wholesale
middlemen
Export management
company or company
sales force
Exporter Importer
Foreign agent
or merchant
wholesalers
Foreign
retailers
Foreign
consumer
The foreign marketer or
producer sells to or through
Foreign Country
Irwin/McGraw-Hill
14-10
III. Alternative Middlemen Choices
Classification of Middlemen
Agent Middlemen
Do not take title to the goods distributed
Less risk (manufacturer assumes risk)
Merchant Middlemen
Take title of goods being distributed (manufactures have less control)
Motivated by profit, tend to be less loyal to one brand
3 Alternative Types of Middlemen:
1. Home-Country Middlemen
Types & characteristics
see exhibit 14.6
2. Foreign-Country Middlemen
Types & characteristics
See exhibit 14.7
3. Government Affiliated Middlemen


IV. Factors that affect choice of Channels
The 6 Cs need to be considered:
1. Cost
Investment cost of developing channel; and cost of
maintaining channel
2. Capital requirements
How much capital is required
3. Control
How much control is desired
Example: companys own sales force exerts most control
vs. using middlemen
IV. Factors that affect choice of Channels (Cont.)
The 6 Cs need to be considered (cont):
4. Coverage
Full market coverage, or targeted coverage to
densely populated areas
5. Character
Channel of the distributions system must meet the
character of the company seeking to do business
6. Continuity
Will there be longevity issues
How to build loyalty with middlemen is much more difficult
than a companys own sales force
V. Locating, Selecting, Motivating and
Terminating Middlemen
Factors affecting locating middlemen:
Things to look for:
Financial stability, managerial stability, productivity, reputation, etc.
Sources to use:
U.S. Dept. of Commerce, foreign consulates, commercially
published directories
Selecting Middlemen
Two steps
1. Screening
2. Developing the Agreement
V. Locating, Selecting, Motivating and
Terminating Middlemen (Cont.)
Motivating Middlemen
Common methods used to motivate middlemen:
Financial rewards, psychological rewards, communications,
company support and corporate rapport
Terminating Middlemen
Must consider things such as:
Legal protection
Control over middlemen
Controlling Middlemen
Control over the system (distribution network)
Control over the middlemen
Volume of sales, market coverage, services offered, pricing,
advertisement, payment of bills and profitability.
The Internet
How the internet affects distribution of
products and services
E-commerce, B2B (most prevalent in the U.S.
oldest companies)
Lowers distribution costs (middlemen often
eliminated)
Example:
Crossing Borders 14.4 pg. 429 No More Roses for my
Miami Broker
Cost Cutting Using B2B Internet
1. It reduces procurement costs, making it easier
to find the cheapest supplies.
2. It cuts the cost of processing the transactions.
3. It makes possible tighter inventory control.
E-Vendors Issues of Concern

1. Culture
2. Adaptation (Translation)
3. Local contact (Buying server space and
create mirror sites creating virtual offices in
foreign countries.)
4. Payment (Credit cards)
5. Delivery
6. Promotion (Promoting on the web means
creating a retail store on-line with the
same promotional activities (press releases,
search engine registration, local news
groups and forums))