International Distribution Systems 465 Fall2000 /Sec 001 Nov27/Class 12A

Japanese Distribution Structure  High Density Middlemen  Channel Control  Business Philosophy  Large-Scale Retail Store Law  Changes Effected by SII

Retailing Comparison U.S. and Japan Food % Small Stores % Sales Japan 95 57 U.S. 70 19 Japan 94 50 U.S. 81 33 Non-Food

Cutting Out the Middleman Number of companies involved in each level of the food industry, % of total, 1993 Total number 141,597 97,882 181,374 100% Manufacturers 90% 80% Wholesalers 70% 60% 50% 40% Retailers 30% 20% 10% 0% Japan Britain United States

Comparison of Distribution Channels Between the United States and Japan Manufac-turer Warehouse distributor Jobber buy-ing groups Jobber Mass merchandiser Repair specialist Automobile parts: United States 51% 10% 18% Primary channel Secondary channel Installer Customer 21% SOURCE: McKinsey industry studies

Comparison of Distribution Channels Between the United States and Japan Automobile parts: Japan Automobile makers affiliated parts makers Independent parts makers Repair parts makers Automobile makers Wholesalers Special agents Dealers Cooperative sales companies 2nd-level wholesalers Sub-dealers Retailers Gasoline stations Large users Automobiles repair shops End users SOURCE: McKinsey industry studies

Undercutting the Competition New York London Paris Tokyo Mexico City Aspirin $ 0.99 $ 1.23 $ 7.08 $ 6.53 $ 1.78 Cup of coffee 1.25 1.50 2.10 2.80 0.91 Movie 7.50 10.50 7.89 17.29 4.55 Compact disk 12.99 14.99 23.16 22.09 13.91 Levi 501 jeans 39.99 74.92 75.40 79.73 54.54 Ray-Ban sunglasses 45.00 88.50 81.23 134.49 89.39 Sony Walkman 59.95 74.98 86.00 211.34 110.00 Nike Air Jordans 125.00 134.99 157.71 172.91 154.24 Gucci men's loafers 275.00 292.50 271.99 605.19 157.27 Nikon camera 629.95 840.00 691.00 768.49 1,054.42 SOURCE: "Tourists and Bargains Galore," Fortune, June 13, 1994, p. 12.

Japanese Consumer Philosophy  Harmony and Friendship  Consumer  Brand Loyalty  Service and Quality Over Price  Small, Frequent Purchases

Channel Control & Business Philosophy Channel control mechanisms: How is the status quo maintained? Business Philosophy: Harmony /friendship/loyalty

Large-scale Retail Store Law Protect Small Retailers *500 Sq Meters (5,382 Sq. Ft.) *Approval from MITI and Prefectural government to: Build Expand Changing Operating Hours Change Days Closed *Local Retailers must unanimously approve plan *In addition, a full service store - 39 Licenses to be secured! *Months to years for approval Japanese Supermarket - 10 years Toys "R" US - 3 years Structural Impediments Initiative(SII) & changing patterns

International Channel-of-Distribution Alternatives Home Country Foreign Country The foreign marketer or producer sells to or through Foreign consumer Domestic producer or marketer sells to or through Open distribution via domestic wholesale middlemen Foreign agent or merchant wholesalers Foreign retailers Exporter Importer Export management company or company sales force

Home Country Middlemen  Global Retailers  Export Management Company  Trading Companies (Foreign)  U.S. Export Trading Companies  Complementary Marketers  Manufacturer's Export Agents  Home Country Brokers  Buying Offices  Webb-Pomerence Export Associations  Foreign Sales Corporations  Export Merchants  Export Jobbers

Foreign Country Middlemen  Manufacturer's Representatives  Distributors  Brokers  Managing Agents and Compradors  Dealers  Import Jobbers  Wholesalers  Retailers

Factors Affecting Channel Choices  Cost  Capital  Control  Coverage  Character  Continuity

Channel Development  Screening  Agreements  Locating Middlemen  Selecting Middlemen  Screening  Agreements  Motivating Middlemen  Terminating Middlemen

Locating Middlemen… Useful Data Sources Distributor Inquiries U.S. Dept. of Commerce Trade Opportunities Program Commercial Service International Contacts Agent/Distributor Service International Company Profile Trade Sources Magazines, journals Directories Associations Banks, advertising agencies, carriers

Field sales organizations Customers Direct-mail solicitation/contact of previous applicants Trade fairs Independent consultants

Selecting Middlemen… Which of the prospective middlemen can perform well?…. Study the market &determine the criteria for evaluating middlemen servicing that market….The screening How to structure an effective distributor agreement? Recommend initial contracts be signed for one year..The Agreement

Criteria for Choosing Distributors (For each distributor… Criteria for Choosing Distributors (For each distributor…...sum of weight x rating) 5-6 Previous experience (products handled, area covered, size) Services offered (inventory, repairs, after-sales service) Marketing support (advertising and promotional support) Financial strength *Managerial capability&stability Relations with government Cooperativeness *Reputation of the business Whether or not handling competing products Exhibit 5.4 Source: Adapted from Root, 1987, p63-65 6 6 6

Motivating Middlemen Financial rewards Psychological rewards Communications Company support Corporate rapport

Controlling Middlemen Control over the channel system loss of control thru “secondary wholesaling loss of control thru “gray markets” Control at the middleman-level Perfomance standards,monitoring,reviews,action w.r.t sales vol targets, mkt coverage, prices, services offered,payments,profits thru reports,visits …termination if nec.

Master Foreign Distributorship Agreement Checklist 5-7 Exhibit 5.5 Source: Adapted from Hall, 1993, pp.65-66. Courtesy of Unz & Co. 7 7 7

Master Foreign Distributorship Agreement Checklist 5-8 Exhibit 5.5 cont. Source: Adapted from Hall, 1993, pp.65-66. Courtesy of Unz & Co. 8 8 8