Welcome to class of International Distribution by Dr Welcome to class of International Distribution by Dr. Satyendra Singh Regent University Accra, Ghana s.singh@uwinnipeg.ca

Outline Distribution Structure Factors Affecting Choice of Channel Locating and Managing Channel Members Labeling Requirements Intl distribution for luxury products 2

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 Import-wholesalers perform marketing function Advertising, marketing research, warehousing, financing, storage 5

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International Intermediaries 8

Causes and Effects of Price Escalation Source: CIF Cost, Insurance, Freight, The exhibit assumes that all domestic transportation costs are absorbed by the exporter. Just for illustration purposes.

Pricing also depends on Operating cost, custom duty, foreign exchange Operating cost (retailing + staff) = 30% Distributors need 60% margin (co-efficient 2.4-2.6) HK, SP, Guam and Panama  no custom duty Duty-free shops  20% cheaper 10

Modern Distribution Structure Wal-Mart, McDonald’s, Home Depot Discount, self-service, mass merchandizing, return policy… 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 retailers World-class business processes Technology, Financing, Superior service… 11

Online Distribution Structure Internet-based system for ordering and delivering (low cost, efficient) Brick-mortar eg. Dell, Brick-click eg Amazon, DHL, UPS Convenience store as a pickup points for web-orders Level of service is high  quick  right now Website is a store; we need to bring customers there Search engine registration, banners display, press release, local news group, … 12

Informal Distribution (Street, undocumented…)

Retail Structure in Selected Countries

In Developing countries distribution costs are high 15 Source: Simanis (2012), HBR, June

Factors Affecting Choice of Channel… Objectives 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) Coverage 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 5%) More distributors needed in US than France to achieve the same market share Continuity Serious issue if family-owned channel. Coca-cola lured Pepsi’s distributor in Brazil May not carry the line with less margin 16

Factors Affecting Choice of Channel Control Own/short channel  more control on price, volume, promotion 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. 17

Locating and Managing Channel Members Tradeshow, governments (DFAIT), third party recommendations, websites Selecting Trustworthy, references, finances, size of firm, experience, resources 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 18

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GM Food Labeling No need to label  same wrt to nutrition Europe and Japan  Mandatory 1% contamination of unmodified products with GM foods Consumers have the right the know the information Let consumers decide  but no choice Reduced sales, so processors do not sell GM foods EU has disguised policy of protectionism Canada and US  Voluntary Mandatory for Non-GM foods Let consumers decide  more choices 21

Traditional International Entry Mode Strategy 22

Multi-Mode international Entry Strategy for GM Crops 23

Perfume Distribution Perfume store countries Selling through small perfume shops France, Italy, Germany Department store countries US, UK, Australia, Canada, Japan 24

Luxury Outlets… Free standing, flagship COS Shopping centre retail store Rent + % of sales for common promotional activities Outlet in retail park with own entrance with parking, yet in mall Must be destination brand  extra effort justification 25

Luxury Outlets … Shop-in-shop department store  can be COS No cash register, but brand’s staff and merchandise Give % of sales to the store (but no rent) Brand has its own identity and culture LV  Matsuya in Tokyo Chanel  Daimaru in Osaka (2 floors & own elevator) Counter in a department store Store does everything for you  Merchandising, pricing, promotion, space allocation, organises activities...  Takes % of sales  Brand has no self identity and no control 26

Luxury Outlets … Corner in a department store  between shop-in-shop and counter in store Brand pays its staff; but store takes title to the merchandise So the Brand gets limited identity, but stores put many brands together to create a full spectrum of store image  Gents suit, perfumes… Franchisee store  can be COS 3%-5% of sales, No investment Franchisee must follow instructions and buy goods Minimum sales are needed as guarantee Chanel, LV, Hermes  against franchising/licensing 27

Luxury Outlets Factory outlets Shop attached to your factory  like shop-in-shop Duty-free shops  airports Customers have $ in pocket and time in hand # of flights passing through the airport Destination, nationalities, type of travellers Japanese smoke a lot – mild cigarettes Americans like Whisky, Cognac (Hanessy and Martin) 28