International Marketing
Channels
Chapter 14
Learning Objectives
• Variety of distribution channels
• The Japanese distribution structure
• How distribution patterns affect various
aspect of international marketing
• The growing importance of e-commerce as a
distribution alternative
Global Perspective –
A Single Stick of Doublemint Today – 18 Billion Tomorrow
• A product must be made accessible to the target
market at an affordable price
• Getting the product to the target market
– Can be a costly process
• Forging an aggressive and reliable channel of
distribution
– The most critical and challenging task facing the
international marketer
• Competitive advantage
– For the marketer best able to build the most efficient
channel from among the alternatives available
14-3
Channel-of-Distribution Structures
• All consumer and industrial products eventually
go through a distribution process
– Physical handling and distribution of goods
– Passage of ownership
– Buying and selling negotiations between producers
and middlemen
– Buying and selling negotiations between middlemen
and customers
• Each country market has a distribution structure
– Goods pass from producer to user
14-4
Import-Oriented
Distribution Structure
• In an import-oriented or traditional
distribution structure:
– Importer controls a fixed supply of goods
– Marketing system develops around the philosophy
of selling a limited supply of goods at high prices
to a small number of affluent customers
14-5
Import-Oriented
Distribution Structure
• Demand exceeds supply
• The customer seeks the supply from a limited
number of middlemen
• Distribution systems are local
• Few countries fit the import-oriented model
14-6
Japanese Distribution Structure
Japanese distribution structure features:
1. A structure dominated by many small
middlemen dealing with many small retailers
2. Channel control by manufacturers
3. A business philosophy shaped by a unique
culture
4. Laws that protect the foundation of the
system – the small retailer
14-7
Comparison of Distribution Channels between
the United States and Japan
Exhibit 14.1
14-8
High Density of Middlemen
• Not unusual for consumer goods to go
through three or four intermediaries before
reaching the consumer
• Japan has a large number of independent
groceries and bakers (94.7% or all retail stores)
– Small stores account for 59.1% of retail food sales
• U.S. emphasis is on supermarkets, discount
food stores, and department stores
– Small stores generate 35.7% of food sales
14-9
Retail Structure in Three Countries
Exhibit 14.2
14-10
Channel Control
•
•
•
•
•
14-11
Manufacturers depend on wholesalers for a multitude of
services (e.g., physical distribution, warehousing,
promotion, payment collection) to other members of the
distribution network. Control is maintained through:
Inventory financing – credits extending
Cumulative rebates – rebates given based on for example;
quantity purchase, early payments, achieving sales target,
maintaining specific inventory levels etc.
Merchandise returns – unsold inventory return to
manufacturer.
Promotional support – intermediaries receive a host of
displays, advertising layouts, dealer aids and in-store
demonstrations.
Business Philosophy
• Relationship-oriented business philosophy;
emphasizes loyalty, harmony, and friendship
• Supports long-term dealer-supplier relationships
• The cost of Japanese consumer goods are among
the highest in the world
• Japanese law gives the small retailer enormous
advantage over the development of larger stores
• Continuation of traditional nature of distribution
because they buy in small quantity, frequent
buying trips, favoring personal service over price,
and brand loyal.
14-12
Large-Scale Retail Store Law
and Its Successor
• Daitenho – the Large-Scale Retail Store Law
– Large stores must have approval from the prefecture (territory)
government
– All proposals first judged by the Ministry of International Trade
and Industry (MITI)
– If all local retailers unanimously agreed, the plan was approved
– Could be a lengthy process (may even take 10 years)
– Applied to both domestic and foreign companies
• Replaced by the Large-Scale Retail Store Location Act of
June 2000
– the new law takes MITI out of the process.
– Under the new law, opening of large retailers near smaller shops
are relaxed. However, local government may block the new
project will cause some problem such as pollution, noise or
traffic congestion.
14-13
Changes in the
Japanese Distribution System
• Structural Impediments (obstacle) Initiative –
Wal-Mart are causing changes in the Japanese
distribution structure.
• Deregulation
• Wal-Mart
• “New” retailers
• The Internet
14-14
Trends: From Traditional
to Modern Channel Structures
• European retailers merging with former competitors and other
countries to form Europe-wide enterprises
• Foreign retailers attracted by high margins and prices
• The Internet may be most important distribution trend (e.g.,
Wal-Mart, Dell)
• Covisint – GM, Ford and DaimlerChrysler created a single online
site for purchasing automotive parts from supplier.
• GlobalNetXchange – a retail exchange that allow retailers and
suppliers to conduct transaction online (e.g., Sears and
Carrefour).
• E-commerce (e.g., Amazon, Dell)
• 7-Eleven (brick and mortar have also created websites to extend
their reach globally).
14-15
Retail Distribution Patterns
• Retailing shows greater diversity than
wholesaling.
• Size patterns – large sold direct, many small
retailers handle a great volume of sales.
• Direct marketing – direct through catalog
• Resistance to change – prefer traditional.
However, large-scale retailers continue to
grow.
14-16
Retail Structure in Selected Countries
Exhibit 14.3
14-17
International
Channel-Distribution Alternatives
Exhibit 14.4
14-18
Alternative Middleman Choices
• Seller must exert influence over two sets of
channels
– One in the home country
– One in the foreign-market country
• Agent middlemen – represent the principal
(manufacturer) rather than themselves. Work on
commission and arrange for sales in foreign
country. Does not take title to the goods.
• Merchant middlemen – take title to the goods
and buy and sell on their own account
14-19
Home-Country Middlemen
• Manufacturer’s retail stores
• Global retailers (Ikea, Toys ‘R” Us and WalMart)
• Export management companies • Trading companies
• U.S. export trading companies
• Complementary marketers
• Manufacturer’s export agent
14-20
Home-Country Middlemen
• Home-country brokers – located in the producing firm’s
country, provide marketing services from a domestic base.
Provide intermediaries of bringing buyers and sellers together.
• Buying offices – agent middlemen, buyers or buyers for export
• Selling groups – producers cooperate in a joint attempt to sell
abroad.
• Webb-Pomerene export associations (WPEAs) another major
form of group exporting. Cannot participate in other
international agreements. Offer four benefits: 1. reduction of
export costs, 2. demand expansion through promotion, 3.
trade barrier reductions, and 4. improvement of trade terms
through two-way bargaining.
• WPEAs set prices, standardize products and arrange for
disposal of surplus products.
14-21
Foreign-Country Middlemen
International marketers seeking greater
• Manufacturer’s representatives
• Foreign Distributors
• Foreign-country brokers
• Managing agents and compradors
• Dealers
• Import jobbers, wholesalers, and retailers
14-22
Government-Affiliated Middlemen
• Marketers must deal with governments in
every country of the world
• Government purchasing offices
– Procure products, services, and commodities for
the government’s own use
– Work at federal, regional, and local levels
14-23
Factors Affecting
Choice of Channels
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•
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•
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Cost
Capital requirements
Control
Coverage
Character
Continuity
14-24
Locating, Selecting,
and Motivating Channel Members
• Locating middlemen
• Selecting middlemen
– Screening
– The agreement
• Motivating middlemen
• Terminating middlemen
• Controlling middlemen
14-25
The Internet
• E-commerce
– Business-to-business (BSB) services
– Consumer services
– Consumer and industrial products
• E-commerce is more developed in U.S.
than in rest of world
• B2B enables companies to cut costs
– Reduces procurement costs
– Allows better supply-chain management
– Makes possible tighter inventory control
14-26
Summary
• The international marketer has a broad range of alternatives
for developing a distribution system
• Three primary alternatives for using agent middlemen
–
–
–
Agent middlemen
Merchant middlemen
Government-affiliated middlemen
• Channel structure varies
–
–
Nation to nation
Continent to continent
• Information and advice are available relative to the
structuring of international distribution systems
• The Internet is challenging traditional channels, offering a
wider range of possibilities for entering foreign markets
14-27