Chapter 14
International Marketing Channels
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 product’s
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 China’s
distribution channels:
• “Mastering the distribution system is the single most
important challenge of China’s 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
•
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:
1.
2.
3.
4.
a structure dominated by many small
middlemen dealing with many small
retailers—high density of middlemen,
channel control by manufacturers,
a business philosophy shaped by a
unique culture, and
laws that protect the foundation of the
system—the small retailer
I. Channel Structure
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
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
Foreign Country
The foreign marketer or
producer sells to or through
14-10
Foreign
consumer
Domestic producer
or marketer sells to
or through
Open distribution via
domestic wholesale
middlemen
Export management
company or company
sales force
Irwin/McGraw-Hill
Exporter
Importer
Foreign agent
or merchant
wholesalers
Foreign
retailers
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 C’s” 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: company’s own sales force exerts most control
vs. using middlemen
IV. Factors that affect choice of Channels (Cont.)
The “6 C’s” 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 company’s 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-Vendor’s 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))