International Distribution Systems

In International Distribution The firm sells to its customers: directly through its own sales force indirectly through independent intermediaries indirectly through an outside distribution system with regional or global coverage

International Distribution Systems I. Problems in International Distribution 1) More stringent legal restrictions 2) Goods must be transferred further 3) May be difficult to get product to the consumer (infrastructure issues)

Intermediaries Sources for Finding Intermediaries Distributor inquires Governmental agencies Commerce Department’s Trade Opportunities Program U.S. Exporters Yellow Pages Private sources Trade directories Screening Intermediaries Performance Professionalism

Selection of Intermediaries Agents Foreign (Direct) Brokers Manufacturer’s Reps Factors Managing agents Purchasing Agents Domestic (Indirect) Export Agents EMCs Webb-Pomerene Commission agents Distributors Foreign (Direct) Distributors/dealers Import jobbers Wholesalers/retailers Domestic (Indirect) Domestic wholesalers EMCs ETCs Complementary marketers

International Distribution Systems II. Moving the Product Overseas 1) Ocean shipping 2) Air freight III. Types of Middlemen 1) Freight forwarders 2) Trading Companies 3) Export Management Cos.

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 days @$2,109/day) Singapore and U.S. $ 126,540 Warehouse rent $ 6,500 Real physical distribution costs $ 209,119 $ 133,487 15-15 Ocean Air SOURCE: Adapted from: "Air and Adaptec'c Competitive Strategy,” International Business, September 1993, p.44. Irwin/McGraw-Hill

International Distribution Systems III. Types of Middlemen (Cont.) 4) Piggybacking 5) Domestic export middlemen IV. Choosing a Middleman

International Logistics V. International Logistics - the designing and managing of a system that controls the flow of materials into, through, and out of the international corporation. Major decision areas: locating plants and warehouses; choice of transportation mode; managing inventory; packaging.

The Impact of International Logistics Logistical costs are 10% to 30% of the total landed cost of an international order. Factors necessary for the use of logistics as a competitive tool: Close collaboration with suppliers and customers Technologically advanced information processing and communication exchange capabilities An integrated business infrastructure

International Transportation Issues Transportation infrastructure Roads, rail lines, airports, seaports, pipelines Availability of transportation modes Overland shipping, ocean shipping, air shipping Choice of modes Transit time, predictability, cost, noneconomic factors Noneconomic Factors Government involvement, the UNCTAD and the 40/40/20 concept

International Logistics VI. Inventory Management Considerations - Carrying costs - Order cycle time - Order cycle consistency - Difficulty in applying service rules

International Inventory Issues Inventory carrying costs can be up to 25% of the value of an inventory Just-in-Time policies minimize inventory volume by making it available when needed. Inventories assist in the movement of products. Factors in deciding on the level of inventory to maintain: Order cycle time Desired level of customer service Use of Inventory as a strategic tool

Order Cycle Time The total time that passes between the placement of an order and the receipt of the merchandise. Length of the total order cycle Longer cycle in international marketing than domestic Consistency of the order cycle More complicated delivery mode reduces consistency Altering cycle times Change transportation methods Change inventory locations Change ordering process