I n t e r n a t i o n a l M a r k e t i n g
International
Marketing
Channels
Chapter 14

• The variety of distribution channels and how they affect cost and efficiency in marketing
• The Japanese distribution structure and what it means to
Japanese customers and to competing importers of goods
• How distribution patterns affect the various aspects of international marketing
• The growing importance of e-commerce as a distribution alternative
• The functions, advantages, and disadvantages of various kinds of middlemen
• The importance of middlemen to a product’s success and the importance of selecting and maintaining middlemen
14-2

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

• 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

• 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

• 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

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
14-7

Comparison of Distribution Channels between the United States and Japan
Exhibit 14.1
14-8

• 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

Exhibit 14.2
14-10

• Inventory financing
• Cumulative rebates
• Merchandise returns
• Promotional support
14-11

• 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
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 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
– Applied to both domestic and foreign companies
• Replaced by the Large-Scale Retail Store
Location Act of June 2000
– MITI out of the process
– Relaxed restrictions
14-13

• Structural Impediments Initiative
• 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
• Covisint
• GlobalNetXchange
• E-commerce
• 7-Eleven competes with FedEx and UPS
14-15

• Middlemen services
• Costs and margins
• Channel length
• Power and competition
14-16

• Size patterns
• Direct marketing
• Resistance to change
14-17

Exhibit 14.3
14-18

International
Channel-Distribution Alternatives
Exhibit 14.4
14-19

• 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 rather than themselves
• Merchant middlemen – take title to the goods and buy and sell on their own account
14-20

• Manufacturer’s retail stores
• Global retailers
• Export management companies
• Trading companies
• U.S. export trading companies
• Complementary marketers
• Manufacturer’s export agent
14-21

Exhibit 14.5
14-22

• Home-country brokers
• Buying offices
• Selling groups
• Webb-Pomerene export associations
• Foreign sales corporation
• Export merchants
• Export jobbers
14-23

• Manufacturer’s representatives
• Foreign Distributors
• Foreign-country brokers
• Managing agents and compradors
• Dealers
• Import jobbers, wholesalers, and retailers
14-24

• 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
• Efficiency of public sector versus the private sector
– Wal-Mart did better than FEMA after Hurricane Katrina
14-25

• Cost
• Capital requirements
• Control
• Coverage
• Character
• Continuity
14-26

Locating, Selecting, and Motivating Channel Members
• Locating middlemen
• Selecting middlemen
– Screening
– The agreement
• Motivating middlemen
• Terminating middlemen
• Controlling middlemen
14-27

• 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
14-28

• Culture
• Adaptation
• Local contact
• Payment
• Delivery
• Promotion
14-29

• 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
14-30