International Distribution System

Welcome to class of
International Distribution
Dr. Satyendra Singh
University of Winnipeg
International Distribution
• Distribution Structure
– Traditional, Modern, Retail Giants
• Distribution Patterns
– General, Retail
• Factors Affecting Choice of Channel
– Character,
Control, Cost
• Locating and Managing Channel Members
– Locating,
Controlling, and Terminating
Distribution Structure…
Difference Between Domestic and Foreign Structure
Super-efficient system in the USA vs. highly complex in Japan
Traditional Distribution Structure
Import-oriented structure
High price, small no of affluent customers
Sellers market  demand exceed supply
Absence of cars and telephones
Local monopoly of small stores
Buy daily in developing country vs bi-weekly in Canada
Intermediaries do not perform specific activities
Import-wholesalers perform marketing function
• Advertising, marketing research, warehousing, financing,
International Intermediaries
Distribution Structure…
Modern Channel Structure
– Discount, self-service, mass merchandizing, return
– Change in direct marketing
• Door-to-door selling, hypermarkets, shopping malls,
catalogue, Internet
– Wal-Mart, Carrefour (France), Praktikar (Germany),
Ikea (Sweden)
– Higher margin in EU than US
– Internet-based system for ordering and delivering (low
cost, efficient)
– Brick-mortar eg. Dell, Brick-click eg Amazon, DHL,
– Convenience store as a pickup points for web-orders
Distribution Structure
Retail Giants Structure
– Wal-Mart, McDonald’s, Home Depot take risk in foreign
– Europeans: quick to enter foreign market, emphasis on
being first, retail strategy, local needs and taste
– Americans: exploit domestic market first, emphasis on
efficiency, standardization and value to customers
– International retailers have advantages over local
• World-class business processes
• Technology
• Financing
• Organizational capabilities
• Greater buying power
• Superior service…
Retail Structure in Selected Countries
Distribution Pattern…
General Pattern
Foreign channels are not the same as domestic channels
Intermediary services are different
• Storage and wait for customers to come and see them,
India, Egypt
Line breadth
• Dealing-only narrow lines
• Requires government license
Cost and margin
Shorter channel for industrial or expensive goods
Inverse relationship b/w length of channel and size of
Non-existent channels – selling on the roads!
Blocked channels – competitors or relationships
Power and competition – large whole sellers finance
Distribution Pattern
Retail Pattern
Product lines: narrow (Italy, Morocco) vs. broad (Japan)
Size pattern
• No of person served per retailer– higher in developed
• May be difficult to reach so many small retailers across a
• Depends of economic development – single cigarette
Direct marketing – mail, tel, door-to-door
• Usually best for developed economy, but Eastern European
gaining popularity; e.g., Amway
• Local retailers need to compete
– Product selection
– Greater convenience
– Customer service
– Liberal store hours
– Retailers cannot close/open stores at their wish
Factors Affecting Choice of Channel…
– Volume, market share, profit, control, length of channel, terms of sales
– The 5 C’s of distribution
Character of your Company and the market
– Perishable items, complexity of sales requires, SAS, value of the product
– Own sales force vs. distributor’s, aggressive managers (NY, fast cities)
– Distribution intensity, 100%! Has impact on market share/penetration/$
– Several channels may be needed (full service vs. no service)
– 2-3 cities may be enough (Paris 30% of France population vs. NY only
– More distributors needed in US than France to achieve the same market
– Serious issue if family-owned channel. Coca-cola lured Pepsi’s distributor
in Brazil
– May not carry the line with less margin
Factors Affecting Choice of Channel
• Control
– Own/short channel  more control on price, volume,
– Enthusiastic  invest time to promote your product
• Cost
– Developmental and maintenance costs
– Transporting and sorting, breaking bulk, provide credit,
local advertising, sales representation, negotiations
– If possible, set up your own channel  own sales force
– However other costs remain same– consignments,
loan, floor plans, etc.
Locating and Managing Channel Members
• Locating
– Tradeshow, governments (DFAIT), third party recommendations,
• Selecting
– Trustworthy, references, finances, size of firm, experience,
– Go to foreign market and see the channel members
• Motivating
– Financial, psychological rewards (trip to head office, recognition),
communications (newsletter, new product info.), corporate rapport
• Controlling
– Measurable performance indicators sales volume, market share,
inventory turnover, accounts per area…
• Terminating
– Easy in US, not in international markets may claim up to 10% of
sales as compensation x no of years served
• Culture
– Polite words, color,
– 70% user Sweden vs. 1% in China vs. 40% France
– Need broad-band, China allows only access to approved websites
• Adaptation
– Global or local
– 50,000 pages! Translation in +50 languages!
• Local Contact
– Customer enquiries, product return, payment where credit card is
not possible, delivery of the purchased product
• Promotion
– Website is a store; we need to bring customers there
– Search engine registration, banners display, press release, local
news group, …
– Different e-mail marketing strategy in EU– more privacy by law
– Vacation packages are more popular in the UK than US
– Germany may be interested in different destinations than