Global Distribution Systems

Channel Configurations Manufacturer Consumer/ Industrial User Consumer/ Industrial User Industrial User Industrial User Consumer Retailer Wholesaler Agent Industrial Distributor Wholesaler Agent Retailer Industrial Distributor Consumer ProductsIndustrial Products Services

Modes of Entry F Exporting – Direct; Indirect F Licensing F Franchising F Outsourcing F Strategic Alliance F Joint Venture F Foreign Direct Investment

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

Modes of Entry F Exporting – Direct; Indirect F Licensing F Franchising F Outsourcing F Strategic Alliance F Joint Venture F Foreign Direct Investment

Channel Configurations Manufacturer Consumer/ Industrial User Consumer/ Industrial User Industrial User Industrial User Consumer Retailer Wholesaler Agent Industrial Distributor Wholesaler Agent Retailer Industrial Distributor Consumer ProductsIndustrial Products Services

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

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

Cutting Out the Middleman 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 141,59797,882181,374 JapanBritainUnited States Manufacturers Wholesalers Retailers Number of companies involved in each level of the food industry, % of total, 1993 Total number

International Channel Intermediaries F Agents –Foreign (Direct) –Domestic (Indirect) F Distributors

Selection Criteria for Choosing an International Agent or Distributor F Agent vs. Distributor –Agent u Exercise a high level of control over marketing and sales activities of representative u Sell directly to customer to build goodwill in market u Commission-based compensation –Distributor u Decrease risk of nonpayment by customer u Need to carry inventory and parts and provide service and warranty

Channel Configurations Manufacturer Consumer/ Industrial User Consumer/ Industrial User Industrial User Industrial User Consumer Retailer Wholesaler Agent Industrial Distributor Wholesaler Agent Retailer Industrial Distributor Consumer ProductsIndustrial Products Services

Retail Patterns Argentina Australia Canada India NA Japan Malaysia Mexico Philippines South Africa South Korea U.S.A Retail OutletsPopulationEmployees Country(000)per Outletper Outlet SOURCES: International Marketing Data and Statistics, 21st ed. (London: Euromonitor Publications, 1997), and "Indicators of Market Size for 115 Countries," Crossborder Monitor, August 27, 1997.

Retailing Comparison U.S. and Japan % Small Stores% Sales Japan9557 U.S.7019 Japan9450 U.S.8133 Food Non-Food

The Exporting Process Licenses General Validated Documentation Export declaration Commercial invoice Bill of lading Consular invoice Special certificates And other documents Leaving the Exporting Country Physical Distribution International shipping and logistics Packing Insurance Entering the Importing Country Tariffs, taxes Non-tariff Barriers Standards Inspection Documentation Quotas Fees Licenses Special certificates Exchange permits And other barriers

Examples of Commerce Control List Export Regulations 4997B Viruses or viroids for human, veterinary, plant, or laboratory use, except hog cholera and attenuated or inactivated systems. Controls for ECCN 4997B: Unit: Report in "$ value." Validated License Required: Country Groups QSTVWYZ. GLV $ Value Limit: $0 for all destinations. Processing Code: CM. Reason for Control: National security. Special Licenses Available: See Part D94F "Software" specially designed for the "development" "production," or "use" of items controlled by 3A80C, electronic test equipment controlled by 3A93F, or manufacturing and test equipment controlled by 3B91F. Controls for 3D94F: Unit: $ value Validated License Required: Country Groups S, Z, Iran, Syria, South African military and police. Reason for Control: FP (foreign policy) GTDU (general license): Yes, except destinations listed under Validated License Required. SOURCE: Export Administration Regulations, Commerce Control List, Part 799, 1, March 1994.

Export Documents Export Declaration Consular Invoice or Certification of Origin Bill of Lading Commercial Invoice Insurance Policy or certificate Licenses Others  Health Certificates  Packing Lists  Etc.

Import Restrictions Tariffs Exchange Permits Quotas Import Licenses Boycotts Standards Voluntary Agreements Other Restrictions

Real Physical Distribution Costs Between Air and Ocean Freight - Singapore to the United States In this example, 44,000 peripheral boards worth $7.7 million are shipped from a Singapore plant to the U.S. West Coast. Cost of capital to finance inventories is 10 percent annually; $2,109 per day to finance $7.7 million. Transport costs$31,790 $ 127,160 (in transit 21 days)(in transit 3 days) In-transit inventory financing costs$ 44,289$ 6,328 Total transportation costs$ 76,079$ 133,487 Warehousing inventory costs(60 $2,109 per day) Singapore and U.S.$ 126,540 Warehouse rent $ 6,500 Real physical distribution costs $ 209,119$ 133,487 OceanAir SOURCE: Adapted from: "Air and Adaptec'c Competitive Strategy," International Business, September 1993, p.44.

CIF- (Cost, Insurance, Freight) to a named overseas port of import. A CIF quote is more meaningful to the overseas buyer because it includes the costs of goods, insurance, and all transportation and miscellaneous charges to the named place of debarkation. C&F- (Cost and Freight) to a named overseas port. The price includes the costs of goods and transportation costs to the named place of debarkation. The cost of insurance is born to the buyer. FAS- (Free Alongside) at a named U.S. port of export. The price includes cost of goods and charges for delivery of the goods alongside the shipping vessel. The buyer is responsible for the cost of loading onto the vessel, transportation, and insurance. Terms of Sale

Who’s Responsible for Costs Under Various Terms? *Who absorbs export packing? This charge should be clearly agreed on. Charges are sometimes controversial. **The seller has responsibility to arrange for consular invoices (and other documents requested by buyer's government). According to official definitions, buyer pays fees, but sometimes as a matter of practice, seller included in quotations. Export packing*Buyer Seller SellerSeller Inland freight Buyer SellerSeller Seller Port charges Buyer Buyer Seller Seller Forwarder's fee BuyerBuyerBuyer Seller Consular fee Buyer Buyer Buyer Buyer ** Loading on vessel or plane Buyer Buyer Buyer Seller Ocean freight Buyer BuyerBuyer Seller Cargo insuranceBuyerBuyer Buyer Seller Customs duties Buyer Buyer Buyer Buyer Ownership of When goods on When goods When goodsWhen goods goods passesboard an inlandunloaded byalongside on board air carrier (truck, rail,inland carriercarrier, in or ocean etc.) or in hands hands of aircarrier at port of inland carrieror ocean carrierof shipment FOB (Free on FOB (Free on FAS (Free CIF (Cost Board) InlandBoard) InlandAlong Side)Insurance, Carrier atCarrier atVessel orFreight) at FactoryPoints ofPlane at PortPort of Shipmentof Shipment Destination

Customs-Privileged Facilities Foreign Trade Zones Offshore Assembly (Maquiladoras)

Potential for Gray Markets Audio cassette$11 - $14$6 - $8 Auto-Reverse Walkman7050 Braun Juicer3220 Canon Autoboy Camera Channel No. 5 ( 1 / 2 oz)15385 Compact disk Lady Remington shaver8646 Rolex watch4,8573,078 Average TokyoShop America ProductRetail PriceCatalog Price SOURCE: Shop America LTD. as quoted in "Can This Catalog Company Crack the Japanese Marketing Mass?" Business Week, March 19, 1990, p. 60.