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Exporting Under Private Labels:
Conditions and Influencing Factors
Yaron Timmor*
Yechiel Zif**
This work was supported by a grant from the Dick Siegal Fund, awarded by the Israel
Institute of Business Research, the Faculty of Management, Tel Aviv University
* Yaron Timmor is a Faculty member and a lecturer for marketing and International
Business at the Arison Business School, the Interdisciplinary Center Herzliya.
** Yechiel Zif is an Associate Professor of Marketing and International Business at
The Faculty of Management, Tel Aviv University.
Address for correspondence:
Dr. Timmor Yaron
The Arison School of Business
The Interdisciplinary Center Herzliya
P.O.B 167 Herzliya 46150
Tel: 972-9-9602716,Fax: 972-9-9568605
E mail: timmor@idc.ac.il
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ABSTRACT
Based on data collected through 101 in-depth interviews among export managers, the study
investigates the conditions and factors that influence exporting under private labels.
Distributors adaptation is proposed as a variation to product and promotion adaptation within
the context of export strategy considerations. The findings are interpreted within the proposd
framework based on a set of factors regarding firm’s competencies and goals and the industry
characteristics at the export market. Key findings: 1. Producers tend to export their products
either entirely under a private label or else entirely under their own name or trademark. 2.
Exports under private labels can be highly predicted by the proposed set of factors. 3. Private
label exporting was not found to be inferior to own brand exporting in terms of sales and
profitability, market shares however were reported higher by non-private label exporters.
Keywords: export, private label, distributor adaptation, international marketing
strategy
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Exporting Under Private Labels:
Conditions and Influencing Factors
The increasing prevalence of private labels, stimulated by the growing force of distributors,
mainly retailers, has increased the relevance of private labels as an export strategy (Fitzell
1992; Quelch and Harding 1996; Richardson, Dick, Jain 1994; Verhoef, Nijssen & Sloot
2002). Private label is a product, which is packed and sold under the distributor (wholesaler
or retailer) own name or trademark (Morris 1979, De Chernatony 1989). When exported
under a private label, the product’s labeling, packaging and even design are custom-made for
a specific overseas distributor. This distributor then sells the product under his own name or
trademark, usually through his exclusive channels. Private labels are of special interest to
small and medium-size producers because they create opportunities to penetrate new markets
and increase exports by relying on the marketing force of the local distributor.
Until recently, research on private labels beyond the local market has been limited to
studying the attitudes and behaviors of distributors and consumers (De Chernatony 1989; De
Chernatony, Knox, Chedgey 1992; Richardson, Dick, Jain 1994; Barton et al 1998; Sinha &
Batra 1999). Empirical examinations of the producers’ behavior are rather anecdotal and
limited to local markets (Verhoef, Nijssen & Sloot 2002; Dunne & Narashimhan 1999;
Quelch & Harding 1996). In this article we consider the firm’s perspective on a rationale for
exporting under private labels, proposing and empirically testing a conceptual framework of
the correlates of the specific industry, the target market environment, the firm’s
competencies, and its goals for the export venture.
In the context of international marketing, private labels can be viewed as a product
adaptation strategy. Nevertheless it has several unique aspects that are derived from the vary
fact that the adaptation is done for the specific distributor rather then for the end user.
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Adifferent way to look at it is from the distributor relations’ perspective (Bello and Gilliland
1997, Narayandas 1995). Private labels may strengthen the distributors (Quelch & Harding
1996) but on the other hand, producing for private labels, can contribute to better and long
term relationship between the producer and the distributor (Narayandas 1995; Verhoef,
Nijssen & Sloot 2002).
The main purposes of this study are: (1) to understand the factors leading to a decision
to export private labels, (2) to gain insight about which firms are likely to export under
private labels (3) to examine the difference in the management evaluation of performance
between exports of private labels and brand names. An academic analysis of the conditions,
factors and outcomes of the strategy of exporting under private labels will contribute to an
understanding of the firm’s attitude towards this class of products and help establish a basis
for further strategy development. Manufacturers, particularly small and medium-size ones,
may find this research helpful in assessing their export activities and determining whether
overseas marketing under private labels is their preferred strategy.
We start by discussing the strategic dilemmas for exporting under private labels, reviewing
some of the main relevant literature. In this part we further identify the different
considerations between producing private labels for local and export markets. We then
propose a conceptual hypotheses framework to examine and analyze exports under private
labels, providing an empirical test based on data collected through in-depth personal
interviews. We discuss the research findings, and conclude with a review of the academic and
managerial implications.
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Strategic Dilemmas
Two main dilemmas were addressed for national brands producers: 1. Should they produce
for private labels? 2.How should they react toward private labels in their brand strategy?
(Verhoef, Nijssen & Sloot 2002; Hoch 1996, Glemet & Mira 1993). It has been recommended
that manufacturers of brand–name product should refrain from producing for private labels as
they may damage the worth of their own brands and, consequently, their profits (Quelch and
Harding 1996). Probably the most prevalent advantage for international firms rather than
local firms is the ability to diversify between its domestic marketing strategy - brand wise and
overseas marketing - private label. Cannibalization may be a major concern for a firm that
sells his own brand along with manufacturing of private labels to the same market. Firm’s
brand image can be highly damaged as consumers recognize that they can buy the quite same
product for a lower price. These are of minor concerns when products are sold in different
markets. Producers were advised to consider manufacturing for private labels; if the market
shares of the private labels are considerably high and main competitors are already in the
business (Verhoef, Nijssen & Sloot 2002). Private labels market shares, may be an important
precondition for exporters looking to enter new markets via private labels producing, but it
may also be used as an indicator for export markets segmentation. Exporters, unlike domestic
producers, can choose whether to enter a specific market upon the private labels volumes in
their product category.
Another consideration is that in a competitive environment, launching new products
domestically v.s. internationally, is less expensive particularly for more established firms,
based on their current reputation. In spite of the global process of communication,
international reputation is still a privilege for global and multinational firms and stands as a
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crucial barrier for companies wishing to extend their sales into foreign markets (Angelmar &
Pras 1984; Terpstra & Sarathy 1997).
Exporting under private labels may well be an opportune strategy mainly for small and
medium-size firms aiming to spread out into international markets, relying on the marketing
force of the local distributor. More often than not, the promotion cost falls on the distributor
and it is primarily his interest to push sales volumes. Thus producers can enjoy faster
penetration into new markets and concentrated purchase, with no need for massive
investments in advertising and product promotion. Yet another rationale is to use excess
capacity (Verhoef, Nijssen & Sloot 2002; Fitzell 1992).
On the downside, the main disadvantages for the producer are the lack of contact with the
final consumer, and a higher level of dependency on the distributor. Furthermore, when a firm
exports under a private label, it concedes brand equity development, or else weakens the
brand. The very fact that the exported label or brand is owned by the target market distributor
limits the options for brand extension to other international markets. Thus it is a serious
drawback for global oriented firms.
From strategic objectives perspective (Ghoshal 1987), exporting under private labels can be a
source of competitive advantage in case of national differences and scale economics, for
achieving efficiency in current operations and managing risks. However, since exporting
under private label is usually engaged with a specific product line and overseas distributor,
competitive advantages of scope economics, like sharing of investments and costs across
products, integration and coordination of marketing activities across countries (Zou &
Cavusgil 2002), are very limited.
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Exporting under Private labels – A Case of Distributor Adaptation
The private labels strategy can be seen as an example of adaptation, as the changes are
primarily limited to labels, brand names, and promotion. It is, however, a specific case, since
the adaptation is applied not only to the target export market but also to the chosen
distributor. In order to increase market coverage (at the same target market), the producer has
to contact another private label distributor or launch his own brand in parallel. Most studies
of product adaptation vs. standardization and international marketing referred to changes in
attributes, design, ingredients (Zou & Cavusgil 2002; Shoham 1996; Cavusgil & Zou 1994;
Walters & Toyne 1989) that most often require for higher costs then labels or packaging
adaptation. Moreover in the private label business, the distributor usually covers these costs
and exporters can sell the same products to different countries changing only the labels for the
overseas distributor.
Distributor adaptation may be concerned with power relationships in the channel (Bello and
Gilliland 1997), where under the private label strategy, the distributor usually controls the
marketing. Firms however, can improve performance through output controls by tight and
specific contracts, in which the distributor commits to a minimum purchase for a given time.
Shoham and Galblum (1994) argued that there is an ongoing friction between exporters and
overseas distributors regarding adaptation. In this sense strategic flexibility can be viewed as
an advantage, especially for small and medium size firms that lack financial resources and
marketing skills to cope with the overseas distributors and markets (Fiegenbaum and Karani
1991). Such firms tend to export indirectly through export agencies and other middlemen
[Bello & Williamson 1985; Brasch 1981; Aulakh & Kotabe 1997], can improve their
relations with the distributor, and consequently their profits, by producing for his private
label (Narayandas 1995).
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What firms are likely to be engaged in the private labels export business? What are the factors
that may affect the firm decision and in what direction? . Figure 1 exhibits the framework of
the research hypotheses. The hypotheses are grouped into three main categories: (1)
Hypotheses that are concerned with the Firm’s specific competencies that can be relied on
when executing the export marketing strategy (Zou & Cavusgil 2002; Varadarajan &
Jayachndran 1999; Barney 1991; Lado, Boyd & Wright 1992). (2) Hypotheses relating to The
specific industry and market in which the firm is operating or is intending to perform
(Varadarajan & Jayachndran 1999; Cooner 1991; Porter 1980). and (3) Hypotheses relating to
the firm’s goals for the export venture ( Varadarajan & Jayachndran 1999; Ghoshal 1987).
**********************
Put figure 1 about here
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Research Hypotheses
Hypotheses About the Firm’s competencies
It has been argued that the more experience a firm has accumulated in international business,
the greater will be its appreciation of the differences between markets, and the more capable it
will be of responding to the idiosyncrasies of each market with an effective marketing
strategy (Cateora 1990; Cavusgil, Zou and Naidu 1993; Terpstra and Sarathy 1997). As the
firm gains international experience, its familiarity with foreign markets and the local
distributors increases and it’s positioning in the international field is strengthened. The firm
becomes less dependent upon the local distributor and is less likely to give up its brand name
in the marketing process. It will still be willing, however, to make far-reaching product and
promotion adaptations to gain a competitive advantage in the export market.
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H1.
International experience is negatively correlated to export under a private label.
Firm’s size is most often measured by sales and employees number (Christensen et al,
1987; Naidu and Prasad 1994; Aulakh & Kotabe 1997; Zou & Cavusgil 2002) and may be
viewed as a source of bargaining power (Cavusgil 1984; Christensen et al., 1987; Aulakh &
Kotabe 1997 ). Sales are also a major resource for ongoing marketing communication support
and brand extension, locally and internationally. Therefore, it is more likely that small firms
experiencing difficulties gaining a bargaining position and continuous financial resources will
look for an alternative strategy. In the case of private labels, the everyday promotion costs fall
on the local distributor, who has a natural interest in maintaining and increasing his label’s
sales volume and positioning.
H2.
Firm’s size is negatively correlated to export under a private label.
A lower degree of product and promotion adaptation can be expected when the
product is exported simultaneously to several countries than to a single market. This is due to
higher costs needed for the various adaptations required for the different export markets (Ayal
and Zif 1979; Douglas and Wind 1987; Onkvisit and Shaw 1987; Cavusgil, Zou and Naidu
1993; Zou & Cavusgil 2002). As the firm’s export markets grow in number, it comes to
depend less on a single market or distributor. It is less subject to the dictates of the distributor
regarding the product and its promotion, including the brand name and the package, unless
the alliance is with a single distributor operating in several countries.
H3.
Number of export markets is negatively correlated to export under a private label.
Hypotheses about industry and market Characteristics
The second set of hypotheses relates to the expected correlation between the specific industry
and export market characteristics and exporting under private label.
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Cultural influences on the purchasing process seem to be enduring (Whitelock and
Pimblett 1997). When product consumption is influenced by culture, the cultural base of the
home market may not match that of the export market, which means that to increase
marketing opportunities, the product should be adapted to the export market conditions.
Positioning, packaging/labeling and the promotional approach should fit the culture
(language, symbols) of the target market (Douglas and Wind 1987; Jain 1989). Private labels
are managed and promoted primarily by the target market distributor, who is more familiar
with the local culture and whose interest is served by being closely involved in implementing
the desired adaptations.
H4.
Cultural influences are positively correlated to export under private labels.
We expect product use requirements for training and support to show a negative correlation
with the tendency to export under private labels. When training and support are needed,
customers are more concerned with who will provide the service and eventually it may be a
key factor in choosing the preferred product (Zeithaml & Bitner 2003). When training and
support are needed, maintaining contact with the end user and promotion control can be
critical to marketing success. Since exporting under a private label reduces contact with the
end user (Fitzell 1992; Quelch and Harding 1996), firms will prefer exporting under their
own names or brands and to keep up high levels of promotion control overseas. Training and
support are usually more required for technological and industrial products such as
computers, medical equipment, machinery than for traditional industries like food and
clothing. which are more dependent on tastes, habits, and customs that differ from one market
to another (Cavusgil, Zou and Naidu 1993). Moreover, although the perceived quality of
private labels has improved, they are still considered inferior to manufacturers’ brands (De
Chernatony 1989; Omar 1994; Richardson, Dick and Jain 1994). Consequently, for products
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that require for training and support, quality and liability as well as closer relations with the
manufacturer may be essential.
H5.
Product’s requirement for training and support is negatively correlated to export under
private labels.
Health, safety, and technical attributes of the product are governed by regulations and
standards in the export market, which often differ from those of the home market. The greater
the differences, the more substantial the changes and adaptations the firm will need to make
in the product and its promotion plan (Cavusgil, Zou and Naidu 1993; Doz and Prahalad
1980). When exporting under private labels, typically the local distributor will be able to
facilitate the promotion under the prevailing legal restrictions.
H6.
Differences in standards and regulations are positively correlated to export under
private labels.
The level of competition in the export market is expected to correlate positively with
the extent of exporting under a private label. A higher level of competition means less
profitability (as a percentage of sales) due to lower prices and greater promotion expenses. At
the same time it forces the firm to fight for shelf-space, to monitor and control marketing
activity more closely. Advertising is one of the principal and most expensive means of
promotion for a firm operating in a competitive market (Chryssochoidis 1996). It is a
marketing tool that most often needs to be adjusted locally, in accordance with cultural
differences and media availability (Hite & Fraser 1990). These are serious constraint for
small and medium-size firms that tend to export indirectly (Aulakh & Kotabe 1997) and
struggle to exhibit a strong presentation in the marketplace (Kaynak and Kothari 1984).
H7.
Competition in export market is positively correlated to export under private label
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Hypotheses about the firm’s goals
The third set of hypotheses relates to the expected correlation between the firm’s specific
goals for the export venture and it’s decision to export under private label.
As the sales goals rise and the firm’s needs for deeper penetration of the export market
increase, accommodating specific customer demands requires adaptation of the product and
its promotion (Douglas and Craig 1989; Hill and Still 1984). Launching through private
labels is a fast means of penetrating the export market through adaptation, since the marketing
function is assumed by a distributor with an established reputation and outlets already
operating in the target market (Fitzell 1992; Terpstra and Sarathy 1997). Considering the time
it takes to get acquainted with the target market, its structure, its specific needs, and consumer
behavior, it may be expected that in the short term, higher sales goals will be achieved by
using private labels.
H8.
Growth in the short term is positively correlated to under a private label.
Launching new markets requires investments in research, design, advertising and
promotion. Firms tend to regard these constantly increasing costs as a basic investment and a
risk in the launching phase of the product’s life cycle. According to this perspective, the
initial investments in the brand are expected to be returned in the future, when the sales in the
target market take off. When exporting under private labels, these basic investments are in
lower and falls on the distributor. Moreover, incomes are generated earlier because the
exporter produce for an existing store brand that has already marketing position and sales
volume. Therefore, it can be assumed that the time span until the firm breaks even on a NPV
basis will affect the firm’s decision to export under a private label.
H9.
Time span for R.O.I, is negatively correlated to export under private label.
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Market leaders holds substantive market share and enjoy high recognition by the
customer (Kotler 1999). If a firm whishes to lead even in a limited product category it should
look to gain customer awareness and liking as well as high market share in this category.
When exporting under private label, its difficult to develop customer recognition for the firm
that is hardly appear on the packaging and in the marketing communication process. Rather
more market shares are highly depended on the distributor’s outlets and overall sales volume
in the market.
H10.
As the firm is more anxious to lead the overseas market so it will tend to refrain from
exporting under private label
Research Methodology
Personal interviews
The research is based on personal interviews with international marketing managers of Israeli
firms with at least five years of export experience. These managers were responsible for and
directly involved in the export of a specific product line for the foreign target market.
Interviewees managed the marketing aspects of the firm’s activities as distribution and
promotion.
Unit of Analysis
The unit of analysis in this study is a product-market venture, whereby a manufacturer exports
a specific product line to a chosen country (target market). The requirements for inclusion
were that each venture must have already lasted a minimum period of five years, and only
final products were considered (no raw materials or products in process).
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Population, Sample, and Data Collection
The study population consisted of product-market export ventures of Israeli firms that had
been manufacturing and exporting final products for at least five years. The sample was taken
from the database of the Dun and Bradstreet international business guide. All firms are of
small and medium size in the international arena (see appendix). None of the studied firms
was engaged with private labels in the local market. Each firm was contacted by telephone to
identify the manager who is responsible for and personally involved in export marketing
strategy. A telephone call to the potential interviewee then confirmed that the case conformed
with the research requirements and, after eliciting consent to participate in the study, the
interview date was set.
180 firms were contacted and 126 (70%) positively responded. For each refusal, another firm,
similar in terms of size and industry, was chosen. 106 cases answered the research criteria
(59%) and 5 interviews could not be conducted out of technical reasons. Thus the final
sample consisted of 101 product-market export ventures from various industries (see
appendix) across different export markets
The Study Questionnaire
A semi-structured questionnaire was built for the preliminary set of interviews. This was
followed by a pretest using a revised version of the questionnaire. In the second stage, a final,
structured questionnaire was used. This questionnaire included three main sets of questions
and variables – at the levels of firm, product line, and target market. The interviewees
described both the specific product line and the target market before beginning the structured
interview, and the interview proceeded only if the basic conditions of the study were met (a
final product and at least five years of export venture experience).
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Operational measures
For the actual testing of the framework in the exploratory research, we tried to rely on
indicators and their measuring tools from earlier studies. In other cases, where previous
measurements were not available or did not meet the proposed framework, specific measuring
tools were developed and their answers were given on relevant measurement scales (see
appendix).
Methods of analysis
Discriminant analysis was applied in testing the research hypotheses. In addition, "Jackknifed
classification" (leave one out) was conducted to test the Discriminant function's reliability in
classifying the cases. We applied t test to find if there were differences in performance
between the firms that exported under private label and those that used their own brand/name.
Findings
As explained in the research methodology, all cases were categorized as either (1) having no
or limited export under private labels or (2) all or most of the export is conducted through
private labels. This categorization resulted in 40% of cases exporting under private labels and
60% that do not export under private labels. Table 1 presents the discriminant analysis results
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put table 1 about here
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The discriminant function is highly significant (P  0.001). The low value of Wilks’ U
indicates that the dependent variable of exporting or not exporting under a private label is
explained by the independent variables. The classification results show a high percentage of
hits by the function (77.9%) with 74.7% hits in the “leave one out” - cross validation test.
For eight factors the actual coefficients signs are as expected. Six factors – number of export
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markets, cultural influences, need for training and support, competition, minimize risk and
lead the market have a statistical significance level of P  0.001 for the differences between
the means of the two groups (those who export and those who do not export under private
labels). Their U statistics are substantially lower than for the other variables, which may
indicate a higher contribution and explanatory power for the discrimination. Two factors –
firm size and quick growth have the expected coefficient sign though they are not significant
in terms of group differences. The coefficients of two factors – International experience and
standards & regulations, have the opposite sign to that expected, but none of them were found
to be with significant difference between the two groups.
Table 2 exhibits the mean performance results for the two groups according to four indicators
that are: sales growth for the short and the long term, market share and profitability.
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put table 2 about here
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The performance tests show that growth of sales and profitability were not observed
significantly different between the two groups. Market shares on the other hand, were
reported higher among the brand names exporters than of the private labels.
Discussion
The main purpose of this empirical study was to examine the case of private labeling from the
point of view and behavior of the manufacturer-exporter. By and large, exporting under a
private label was found to be an either/or choice: the firm’s decision for a venture (exporting
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a specific product line to a target market) was either to use its own brand or else export under
private labels.
The topic of private labels has not been extensively investigated empirically, and the
little that has been written on it emphasizes the advantages of lower marketing costs, larger
and concentrated purchasing by a distributor, and the usage of production surplus or overcapacity. Each of these may explain the yes/no findings. Another explanation may be the
firm’s desire to separate its private-label activity from its brand-name activity.
The international marketing managers, which were observed, did not feel comfortable
when most of their exporting business was for private labels. Some of them stated that it was
expansive to support a corporate brand in the international arena. Others said that it was
tempting to close a substantial private label deal. The interviewees were frequently aware of
the fact that future sales to the same distributor are not guaranteed and some pointed out that
this way "you do not build your international market".
Private labels have been shown to be common among groceries and other widely used
consumer goods that compete with comparable brands (Verhoef, Nijssen & Sloot 2002; De
Chernatony 1989; Fitzell 1992; Quelch and Harding 1996). Our study shows that exporting
under a private label is observed more in fields such as food and beverage, textiles, clothing
and plastics than in electronics, telecommunications and software (see appendix).
As hypothesized, cultural effects of product consumption were found to have a
positive influence on exporting under private label. This is in line with the findings of
Cavusgil, Zou and Naidu (1993) regarding the adaptation of the packaging and promotional
approach in the export market: names, packages and labels are part of the cultural
characteristics of language, colors, forms, signals, and meanings. The results also empirically
support other studies claiming that cultural aspects and differences relevant to the product,
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demand marketing adaptation in the local market (Douglas and Wind 1987; Walters and
Toyne 1989).
As expected, the number of export markets for the product line had a negative effect
on exporting under private labels. This contradicts previous findings on entry scope (single
vs. multiple markets) and promotion adaptation (positioning and promotional approach)
(Cavusgil, Zou and Naidu 1993). The different results can be explained by the proposed
conceptual difference between product/promotion adaptation and distributor adaptation.
As the number of export markets increases, so does the variation among cultures, consumer
behavior, and environmental conditions. The need for further adaptation of promotion
vehicles such as sales promotion, media, personal selling, and promotional budgets is greater.
Firms, however, are reluctant to give up the brand name and the advertising concept that have
become the basis of their reputation (Terpstra and Sarathy 1997). In distributor adaptation, the
changes are primarily of brand names. Therefore, while the number of export markets may
cause a firm to make product and promotion adaptation, it reduces their willingness to export
under private label. Moreover, number of markets in which a firm operates worldwide, is
related to global strategy (Zou & Cavusgil 2002) thus it is less appropriate for exporting
under private label that is more a market specific strategy.
Following our expectations, the need for training and support has a negative
effect on exporting under private label. It may be risky to export such products under private
label due to a considerable loss of marketing control. The lack of direct contact with the final
consumer and the lack of influence on product promotion and support can be more crucial for
product acceptance and sales growth in the foreign market. Another explanation can be that
the distributors tend to refrain from selling more complicated products under their own labels.
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Contrary to expectation, the firm’s international experience was found to be more correlated
with cases of export under private label. Though this finding did not reach significance, we
believe it deserves further discussion, because this variable is repeatedly measured in
academic studies of export strategy. Our hypothesis was based on the assumption that as
firms gain more experience, they improve their understanding of the various markets and
consumers and strengthen their international positioning. Consequently, they would be less
willing to give up their brand names. It seems, however, that their greater experience
enhances their willingness to make adjustments in the product and its promotion, as they are
better able to understand and evaluate the market differences and the outcomes of optional
strategies (Douglas and Craig 1989). One of the options is exporting under private labels.
Following its internationalization process, a firm may be better acquainted with the relative
magnitude of private labels and the main players in the various markets. This may explain
why experienced firms like Heinz, Nestle, and P&G choose to extend their international
activity in the private labels business (Fitzell 1992; Verhoef, Nijssen & Sloot 2002).
Nevertheless, the effect of the experience factor remains questionable.
The research hypotheses regarding growth goals for the short term and dissimilarity of
standards between export and home market were not supported by the results. Furthermore,
the very small differences that were found between the cases (those who export under private
label and those who do not) and the lack of previous studies on these parameters do not
supply fertile ground for a broader discussion. Perhaps private label exporters are more
motivated by ad hoc sales opportunities or conversely by long-term considerations. growth
may be affected by the firm size, industry type and the size of the specific target country. In
our study we did not find relations between firm size and short-term sales goal for the
venture. However, specific industries and target markets were hard to test in this study.
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Nevertheless, since faster penetration and concentrated purchasing in the hands of the
distributor are considered important advantages of exporting under private labels, the absence
of a relationship between exporting under private labels and short-term sales goals is
surprising.
The study did not find any correlation between export modes, whether or not a firm
exported under private labels, and performance in terms of profitability and sales growth.
This is in contrast to previous articles warning firms of lower profits when producing for
private labels (Quelch and Harding 1996; Verhoef, Nijssen & Sloot 2002). None of the
relevant papers have empirically examined the effect of producing for private labels on a
firm’s sales and profits. Our findings may reinforce the theoretical arguments for the
advantage of producing for export market under private labels.
Firm’s goal to lead the export market was found, as expected, with a negative effect
on the decision to export under private label. At the same time, market share were found
greater for the non-private labels exporters after a period of 5 years. It may be concluded that
though the private labels have grown substantially, in most cases market leaders are still the
manufacturer’s brands. In order to lead the market it seems important that the consumers will
be familiar with the producer and the later will monitor the brand development and
promotion.
Conclusions and Managerial Implications
Exporting under a private label involves adaptation of labeling and packaging. It also
involves adaptation for a specific distributor that sells the product under his exclusive
brand/trademark. In this paper, distributor adaptation is distinguished from product and
promotion adaptation along strategic properties like expansion, investment positioning, and
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control. Managers are advised to consider those variables and their implications before
deciding on their preferred strategy. The shortcomings of the strategy seem to be greater for
globally oriented firms. Accordingly, this study shows that firms that export their product to a
large number of foreign markets are less inclined to export under private labels.
The study found that export under private labels is propitious when certain conditions
relating to the specific product and target market are met. Exporting under private labels
seems to confer some cost advantages and is considerably more prevalent among consumer
goods, whose use and purchase are culture-dependent. None of the firms in our study were
engaged with the private labels business domestically. This finding supports the theoretical
distinction between local and international marketing of private labels. This distinction, as
reviewed in the conceptual framework, enables firms to better separate their marketing
strategy (brands and private labels), thus minimizing concern about cannibalization and
damaging their image.
Manufacturers should note that in our study, exporting under private labels by itself
did not lead to any inferior outputs in terms of sales growth or profitability. Market share, on
the other hand, tended to be higher for brand-name exporters. There was a significant
variability in performance among the private label exporters. Perhaps this result stems from
output controls such as predefined sales volume and minimum purchases for a defined period
that contribute to one firm’s performance over another.
Producers considering exporting under private labels unique and complicated products
with high training and service needs are advised, before embarking on such a venture, to
examine the distributor’s capability of supporting the product. If the distributor does not have
this capability, the firm is advised to explore the possibility of providing the support itself.
22
Limitations and Future Research
This study is a pioneer in empirically testing the subject of private labels from the point of
view of manufacturer-exporters. As such, it cannot be compared to, or discussed in
relationship with, other studies on the subject. Nonetheless, it has several limitations. The fact
that it was conducted in Israel among small and medium size firms, may make it appear that
the results and conclusions are more applicable to small countries or firms that are similar in
terms of size and sales volume to those tested. Replicating the study in other countries and
regions would enrich the discussion as well as the theoretical and practical implications.
Moreover, the sampling cannot be considered random, since the interviews were conducted
with managers who a priori agreed to participate in the research. Another shortcoming stems
from the fact that performance data were reported by the interviewees and were not taken
from written documents.
This study tested a particular set of variables derived from the conceptual framework.
Other factors, such as the firm’s global orientation, and management’s attitude towards
private labels, may moderate the export decision and outcomes. Future research that tests the
relationships between exporting under private labels and these factors and the implications for
overall export activities may supplement this study in providing input for the decisions
concerning international marketing strategy.
23
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28
Appendix
Distribution of Industries According To Export Under Private Label
Industry
No export under
Export under
Row
Private label
Private label
total
Food and beverages
5
8
13
Jewelry
2
1
3
Medical equipment/measuring
5
0
5
Rubber and plastic products
6
6
12
Chemical and petroleum products
7
5
12
Metals and metal products
7
5
12
Machinery
5
0
5
Electronic and electrical equipment
7
3
10
Textiles and clothing
6
8
14
Optical instruments
3
0
3
Computers and software
4
2
6
Communication and telecommunications
5
1
6
Column total
62
39
101
instruments
Number Of Full-Time Employees
Range
% of ventures
Cumulative %
1-10
4.0
4.0
11-70
10.0
14.0
71-200
35.0
49.0
201-1000
30.0
79.0
1001+
21.0
100.0
Total
100.0
29
Annual Sales In Millions Of Dollars Of Selected Product
Range
% of ventures -
Cumulative %
1-5
29.0
29.0
6-15
32.0
61.0
16-40
23.0
84.0
41-100
8.0
92.0
101+
8.0
100.0
Total
100.0
Years Of Export
Range (in years)
% of ventures
Cumulative %
5-7
12.0
12.0
8-12
18.0
30.0
13-20
29.0
59.0
21-30
24.0
83.0
31+
17.0
100.0
Total
100.0
30
Measurement of factors and Performance variables
Factor
Measurement
International experience* 1 - Years of export by firm prior the private label venture
Firm size
Two items scale: average total sales of last three years and
number of employees working on a permanent base. α =.66
No. of export markets
Number of markets to which product is exported simultaneously
Cultural influences
Influence of cultural characteristics on product consumption.
Measured on 5-point scale (1 = low extent, 5 = great extent)
Need for training &
Two items scale: need for support and training in product use
support
and degree of maintenance required. α =.78
Measured on 5-points scale (1 = not at all, 5 = substantial)
Standards & regulations
Difference between regulations & standards in export vs. home
market. 5-points scale (1=no differences, 5=totally different)
Competition
Gross Profitability (% of sales) of product type in the export
market (reverse scale: the more profitable the less competitive)
Quick growth
Sales goal for the first year of the export venture (in thousands of
dollars)
Minimize risk
Number of years that the firm is willing to wait until it breaks
even on a NPV basis (reverse scale: the more profitable the less
competitive)
Lead the market
Two items scale: Degree of importance addressed by the
interviewees to increase awareness for the firm and to gain
market share at the export market.α =. 691. 5-points scale (1=not
at all, 5=very important).
Performance factors
Measurement
Sales growth in short term Sales growth rate between first and second year of the venture
Sales growth in long term
Sales growth rate between second and fifth year of the venture
Market share
Product - market share after five years of the venture
Profitability
Profitability (gross) growth rate between the second and fifth
year of the venture.
31
Table 1: Discriminant Analysis Results
Hypothesis
Factor
expected
Wilks’
Discriminant
Standardized
Sign
Lambda
Coefficient
Coefficient
-
.968
.185
.225
Number
H1
International
Experience
H2
Firm size
-
.993
-.050
-.050
H3
No. of export markets*
-
.863
-.436
-.408
H4
Cultural influences*
+
.811
.480
.565
H5
Need for training &
-
.916
-.051
- .066
support*
H6
Standards & regulations
+
.999
-.012
-.011
H7
Competition*
+
.953
.067
.070
H8
Quick Growth
+
.999
.080
.092
H9
Minimize risk*
+
.955
.152
.162
H 10
Lead the Market*
-
.746
-.516
-.587
* Significant at p < .05 for test of equality of means
Wilks’ U
0.549
Chi-Square (13 d. f.)
45.225 (P . 001)
Constant
1.269
Centroid of Export under private label
1.068
Centroid of No export under private label
-0.712
Correct classification 77.9%, Leave one out (cross validation) test: 74.7%
Table2 : Performance Analysis – t test
Group1- firm brands export
Group2 – private label export
Means and (St.dev)
Means and (St.dev)
Sales growth short term
N=54, M=4.41(1.473)
N=35, M=4.49 (1.358)
Sales growth long term
N=61, M=3.82 (1.565)
N=39, M=3.64 (1.405)
Market share after 5 years*
N=62, M=2.42 (1.455)
N=39, M=1.82 (1.295)
Gross profitability growth
N=62, M=2.50 (1.352)
N=39, M=2.18(1.254)
Performance variable
* t = 2.099 (df=99) p <.05
32
Figure 1:
Framework of the Research Hypotheses
Industry
Competitiveness
+
Competencies
International
Experience
Cultural aspects
-
+
Goals
EXPORT
-
Lead the Market
+
Minimize Risk
UNDER
Size
Number of
Export markets
-
PRIVATE
LABELS
+
+
Standard & regulation
Quick growth
Need for training & support
Industry