Chapter 14
14-0
International
Distribution Systems
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Japanese Distribution Structure
14-1

High Density Middlemen

Channel Control

Business Philosophy


Large-Scale Retail Store Law
Changes Effected by SII
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Comparison of Distribution Channels
Between the United States and Japan
14-2
Automobile parts: Japan
Automobile makers
affiliated parts
makers
Automobile makers
Dealers
Independent
parts makers
Repair parts
makers
Wholesalers
Special agents
Cooperative
sales companies
Sub-dealers
2nd-level
wholesalers
Retailers
Gasoline
stations
Large users
Automobiles
repair shops
End users
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Companies,
1999
SOURCE:
McKinsey
industryInc.,
studies
Comparison of Distribution Channels
Between the United States and Japan
14-3
Automobile parts: United States
Manufacturer
51% Warehouse
distributor
Jobber buying groups
Jobber
Installer
Customer
10%
18%
Mass
merchandiser
21%
Repair
specialist
Primary channel
Secondary channel
SOURCE: McKinsey industry studies
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Retailing Comparison
U.S. and Japan
14-4
Food
% Small Stores
% Sales
Japan
95
57
U.S.
70
19
Non-Food
Japan
94
50
U.S.
81
33
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Large-scale Retail Store Law
14-5
Protect Small Retailer
500 Sq Meters (5,382 Sq. Ft.)
Approval from MITI and Prefectural government to:
Build
Expand
Changing Operating Hours
Change Days Closed
Local Retailers must unanimously approve plan
Months to years for approval
Japanese Supermarket - 10 years
Toys "R" US - 3 years
Licenses required to operate
Full Service Store - 39 Licenses need approval
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Undercutting the Competition
14-6
Product
Audio cassette
Average Tokyo
Retail Price
Shop America
Catalog Price
$11 - $14
$6 - $8
Auto-Reverse Walkman
70
50
Braun Juicer
32
20
Canon Autoboy Camera
260
180
Channel No. 5 (1/2 oz)
153
85
15 - 20
8 - 11
86
46
4,857
3,078
Compact disk
Lady Remington shaver
Rolex watch
SOURCE: Shop America LTD. as quoted in "Can This Catalog Company Crack the Japanese
Marketing Mass?" Business Week, March 19, 1990, p. 60.
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Japanese Consumer Philosophy
14-7

Harmony and Friendship

Consumer

Brand Loyalty

Service and Quality Over Price

Small, Frequent Purchases
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Cutting Out the Middleman
14-8
Number of companies involved in each level of the food industry,
% of total, 1993
Total number 141,597
97,882
181,374
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Manufacturers
Wholesalers
Retailers
Japan
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Britain
United
States
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General Distribution Patterns
14-9

Middlemen Services

Line Breadth

Costs and Margins

Channel Length

Nonexistent Channels

Blocked Channels

Stocking

Power and Competition
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Retail Patterns
14-10
Country
Argentina
Australia
Canada
India
Japan
Malaysia
Mexico
Philippines
South Africa
South Korea
U.S.A
Retail Outlets
(000)
Population
per Outlet
199.5
160.2
157.2
3540.0
1591.2
170.6
899.3
120.1
60.4
730.0
1516.3
164
111
183
253
79
109
96
547
675
60
170
Employees
per Outlet
4
5
9
NA
4
8
2
28
7
2
13
SOURCES: International Marketing Data and Statistics, 21st ed. (London: Euromonitor
Publications, 1997), and "Indicators of Market Size for 115 Countries," Crossborder Monitor,
August 27, 1997.
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International Channel-of-Distribution
Alternatives
14-11
Home Country
Foreign Country
The foreign marketer or
producer sells to or through
Foreign
consumer
Domestic producer
or marketer sells to
or through
Open distribution via
domestic wholesale
middlemen
Exporter
Importer
Foreign agent
or merchant
wholesalers
Foreign
retailers
Export management
company or company
sales force
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Home Country Middlemen
14-12














Global Retailers
Export Management Company
Trading Companies (Foreign)
U.S. Export Trading Companies
Complementary Marketers
Manufacturer's Export Agents
Home Country Brokers
Buying Offices
Selling Groups
Webb-Pomerence Export Associations
Foreign Sales Corporations
Norazi Agents
Export Merchants
Export Jobbers
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Major Japanese Trading Companies
(Sogo Shosha)
14-13
Company
C. Itoh
Mitsui
Sumitomo
Marubeni
Mitsubishi
Nissho Iwai
Tomen
Nichimen
Kanematsu-Gosho
Total
Share (percent)
Total
20,533
20,300
21,404
18,248
16,614
15,047
6,324
5,893
5,502
129,866
100.0
Sales of Nine Sogo Shosha (Yen billions)
Exports
Imports
from
into
Offshore
In Japan
Japan
Japan
Trade
9,867
7,000
8,175
6,965
7,267
4,404
3,185
1,850
1,430
50,142
38.6
2,937
3,553
4,591
3,014
2,495
2,003
712
670
863
20,836
16.1
3,386
4,524
5,298
3,463
3,152
4,346
1,162
984
2,420
28,736
22.1
4,343
5,222
3,340
4,806
3,701
4,295
1,265
2,389
789
30,151
23.2
SOURCE: Japan Foreign Trade Council, Inc., 1991.
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Channel Control by Manufacturer
or Trading Company
14-14




Inventory Financing
Cumulative Rebates
 Quantity Purchased
 Early Payments
 Achieving Sales Targets
 Performing Services
 Maintaining Inventory Levels
 Sales Promotions
 Loyalty
 Maintain Prices
 Cooperation
Merchandise Returns of Unsold Merchandise
Retailers Receive
 Displays
 Advertising
 In-store Displays
 Financial Assistance
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General Motors Networks American Style Keiretsu
14-15
General Motors Networks - American Style Keiretsu
We read a lot about the Japanese keiretsus and their interlocking networks of suppliers,
financing, and producers. Do we have anything similar in the United States? Consider the
breakdown of the $10,000 you pay for a General Motors' LeMans.







$3,000 to South Korea for labor and assembly.
$1,850 to Japan for engines, transaxles, and electronics.
$700 to Germany for styling and design engineering.
$400 to Taiwan, Singapore, and Japan for small components.
$250 to Britain for advertising and marketing services.
$50 to Ireland and Barbados for data processing.
$4,000 goes to strategists in Detroit, lawyers, bankers, lobbyists, insurance and health
care workers all over the country and to General Motors shareholders all over the world.
The suppliers listed here are not all independent companies operating at arm's length but
are corporate subsidiaries, joint ventures, or suppliers that have agreed to a longterm
arrangement to provide products or services. Together they make up a global network of
interdependent companies that repeatedly deal with each other across borders.
©SOURCE: Robert Reich, "The Myth of 'Made in the U.S.A.'," The Wall Street Journal, July 5,
1991, p. A6. Reprinted by permission of The Wall Street Journal, © 1991 Dow Jones & Company,
Inc. All Rights Reserved Worldwide.
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Foreign Country Middlemen
14-16

Manufacturer's Representatives

Distributors

Brokers

Managing Agents and Compradors

Dealers

Import Jobbers

Wholesalers

Retailers
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Factors Affecting Channel Choices
14-17
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
Cost

Capital

Control

Coverage

Character

Continuity
©The McGraw-Hill Companies, Inc., 1999
Channel Development
14-18
Irwin/McGraw-Hill

Locating Middlemen

Selecting Middlemen

Screening

Agreements

Motivating Middlemen

Terminating Middlemen
©The McGraw-Hill Companies, Inc., 1999