International Marketing Channels

Learning Objectives The variety of distribution channels and how they affect cost and efficiency in marketing The Japanese distribution structure and what it means to Japanese customers and to competing importers of goods How distribution patterns affect the various aspects of international marketing The growing importance of e-commerce as a distribution alternative The functions, advantages, and disadvantages of various kinds of middlemen The importance of middlemen to a product’s success and the importance of selecting and maintaining middlemen

Global Perspective A Single Stick of Doublemint Today – 18 Billion Tomorrow A product must be made accessible to the target market at an affordable price Getting the product to the target market can be a costly process Forging an aggressive and reliable channel of distribution may be the most critical and challenging task facing the international marketer Competitive advantage will reside with the marketer best able to build the most efficient channel from among the alternatives available

Channel-of-Distribution Structures All consumer and industrial products eventually go through a distribution process. -Physical handling and distribution of goods -Passage of ownership -Buying and selling negotiations between producers and middlemen -Buying and selling negotiations between middlemen and customers Each country market has a distribution structure through which goods pass from producer to user.

Peking Ducks – No Free Enterprise Guangzhou’s Farmers Market

Import-Oriented Distribution Structure Demand exceeds supply The customer seeks the supply from a limited number of middlemen Distribution systems are local Few countries fit the import-oriented model today In an import-oriented or traditional distribution structure, an importer controls a fixed supply of goods and the marketing system develops around the philosophy of selling a limited supply of goods at high prices to a small number of affluent customers.

Japanese Distribution Structure 1.A structure dominated by many small middlemen dealing with many small retailers 2.Channel control by manufacturers 3.A business philosophy shaped by a unique culture 4.Laws that protect the foundation of the system

Comparison of Distribution Channels between the United States and Japan Insert Exhibit 14.1

High Density of Middlemen Not unusual for consumer goods to go through three or four intermediaries before reaching the consumer In Japan, small stores account for 57.7 percent of retail food sales In the U.S., small stores generate 19.2 percent of food sales Japan has a large number of independent groceries and bakers, unlike America with an emphasis on supermarkets, discount food stores, and department stores

Retail Structures Source: Euromonitor, 2003

Channel Control 1.Inventory financing 2.Cumulative rebates 3.Merchandise returns 4.Promotional support

Business Philosophy Emphasizes loyalty, harmony, and friendship Supports long-term dealer-supplier relationships The cost of Japanese consumer goods are among the highest in the world Japanese law gives the small retailer enormous advantage over the development of larger stores

Large-Scale Retail Store Law and Its Successor Daitenho – the Large-Scale Retail Store Law -Large stores must have approval from the prefecture government -All proposals first judged by the Ministry of International Trade and Industry (MITI) -Then, if all local retailers unanimously agreed, the plan was approved -Could be a lengthy process -Applied to both domestic and foreign companies Replaced by the Large-Scale Retail Store Location Act of June MITI out of the process -Relaxed restrictions

Changes in the Japanese Distribution System Structural Impediments Initiative Deregulation Wal-Mart “New” retailers The Internet

Trends: From Traditional to Modern Channel Structures Russian Home Depot (Super Home) in St. Petersburg

Trends: From Traditional to Modern Channel Structures European retailers merging with former competitors and other countries to form Europe-wide enterprises Foreign retailers attracted by the high margins and prices The Internet may be the most important trend affecting distribution Covisint GlobalNetXchange E-commerce 7-Eleven competes with FedEx and UPS

Distribution Patterns General patterns -Middlemen services -Line breadth -Costs and margins -Channel length -Nonexistent channels -Blocked channels -Stocking -Power and competition

Distribution Patterns Mexico vs. Malaysia

Distribution Patterns (continued) Retail patterns -Size patterns -Direct marketing -Resistance to change

Retail Patterns Source: Euromonitor, 2003

Alternative Middleman Choices Seller must exert influence over two sets of channels: -One in the home country -One in the foreign-market country Agent middlemen – represent the principal rather than themselves Merchant middlemen – take title to the goods and buy and sell on their own account

Alternative Middleman Choices

Home-Country Middlemen Manufacturer’s retail stores Global retailers Export management companies Trading companies U.S. export trading companies Complementary marketers Manufacturer’s export agent Home-country brokers Buying offices

Home-Country Middlemen Nike European Distribution Center, Laakdal, Belgium Nike Sport Store, St. Petersburg, Russia

Home-Country Middlemen (continued) Selling groups Webb-Pomerene export associations Foreign sales corporation Export merchants Export jobbers

Home-Country Middlemen

Foreign-Country Middlemen Tokyo Tsukigi Fish Market

Foreign-Country Middlemen

Foreign-Country Middlemen Manufacturer’s representatives Distributors Foreign-country brokers Managing agents and compradors Dealers Import jobbers, wholesalers, and retailers

Government-Affiliated Middlemen Marketers must deal with governments in every country of the world Products, services, and commodities for the government’s own use are always procured through government purchasing offices at federal, regional, and local levels Efficiency of public sector versus the private sector

Factors Affecting Choice of Channels Stockmann’s Department Store, Helsinki, Finland Grand Bazaar (Kapali Carsi), Istanbul, Turkey

Factors Affecting Choice of Channels Cost Capital requirements Control Coverage Character Continuity

Locating, Selecting, and Motivating Channel Members Locating middlemen Selecting middlemen -Screening -The agreement Motivating middlemen Terminating middlemen Controlling middlemen

The Internet E-commerce is used to market: -Business-to-business (BSB) services -Consumer services -Consumer and industrial products E-commerce is more developed in the U.S. than in the rest of the world B2B enables companies to cut costs in three ways: -Reduces procurement costs -Allows better supply-chain management -Makes possible tighter inventory control

Concerns for e-Vendors Fedex at Roissy Airport, Paris, France

Concerns for e-Vendors Culture Adaptation Local contact Payment Delivery Promotion

Summary The international marketer has a broad range of alternatives for developing a distribution system. Three primary alternatives for using agent middlemen: -Agent middlemen -Merchant middlemen -Government-affiliated middlemen Channel structure may vary from nation to nation or from continent to continent. Information and advice are available relative to the structuring of international distribution systems. Traditional channels are being challenged by the Internet, which is offering an ever-wider range of possibilities for entering foreign markets.