International Distribution Strategy Depends on mode of entry: Exporting Contract (franchise, licensing, joint ventures) Direct foreign investment

International Distribution Direct foreign investment/joint ventures Perform all distribution functions on your own through ownership/partnership of manufacturing, distributors, retailers The United States Foreign Soil X owns/operates its own manufacturing plant Foreign customer U.S. Company X owns/operates its own sales offices Foreign Retailer Foreign distributor X owns/operates its own retail stores

International Distribution Exporting Sell directly through your own U.S. sales force. Sell indirectly through independent (U.S. or foreign) intermediaries. Sell indirectly through an outside distribution system with regional or global coverage (e.g., Export Management Company).

The Exporting Process Exporting Considerations Physical Distribution Considerations Importing Country Considerations Check for U.S. export requirements Arrange for payment Packing & marking Documentation Logistics Tariffs, taxes Non-tariff Barriers

Check Export Requirements Department of Commerce, Bureau of Industry & Security (formerly Bureau of Export Controls) What types of products have restrictions: primarily weapons, technology, defense related U.S. boycotts: Iran, Iraq, Cuba, Libya Bureau of Industry & Security

Export Documents

Logistics Specialists Intermodal Marketing Companies (IMCs) IMC arranges transportation, using a combination of transportation modes, from factory to customer’s port of entry. e.g., truck → rail → truck a broker: takes a percentage of the cost Foreign-Freight Forwarder arranges documentation advises on scheduling, routing & rates checks consular, licensing, & labeling requirements checks export restrictions offers insurance provides warehouse storage will pack/containerize

International Exporting Alternatives Domestic Intermediaries Foreign Intermediaries Internet Direct marketing Foreign consumer U.S. Company Domestic Wholesaler U.S. Retail Chain U.S. Retailer, foreign unit Foreign Retailer Export Management Company (EMC) Distributor Export Merchant Wholesaler (LT, Buy/Sell) Agent/ Broker Importer Manufacturer’s Rep Export Agents/Brokers (ST, Fee/Commission) Foreign Sales Corporation (FSC)

Intermediaries: two general types Types of intermediary relationships Distributors; buy & resell; longer term Agency; works on sales commissions agents – short term; e.g., one time (manufacturer’s) representatives – longer term; independent sales people that represent your company’s products.

Exporting: Company-based alternatives Domestic Intermediaries Foreign Intermediaries Internet Direct marketing Foreign consumer U.S. Company Foreign Retailer Export Management Company (EMC) Distributor Foreign Sales Corporation (FSC)

Exporting: U.S. Based Intermediaries Domestic Intermediaries Foreign Intermediaries Foreign consumer U.S. Company Domestic Wholesaler U.S. Retail Chain U.S. Retailer, foreign unit Foreign Retailer Foreign Retailer Distributor Export Merchant Wholesaler (LT, Buy/Sell) Export Agents/Brokers (ST, Fee/Commission)

Exporting: Foreign-based Alternatives Domestic Intermediaries Foreign Intermediaries Foreign consumer U.S. Company Foreign Retailer Broker Distributor ManagingAgent Manufacturer’s Rep

Assign 4: You will not need to consider: Webb-Pomerene associations Foreign Trading Companies* Foreign Sales Corporation* * Unless you can provide evidence that your company currently has one and is using it

What do intermediaries do? (the short list) purchase inventory from the manufacturer or export intermediary; assumes risk for selling the product to smaller distributors, retailers and/or end users in the foreign market. Provide a sales force that is large enough to cover the country or region in which it is located. local advertising & promotion warehousing for the product. JPG consulting, Going Global, Evaluating Foreign Distributors; http://www.going-global.com/

Locating & selecting intermediaries Locating Intermediaries - lists provided by gov’ts, chambers of commerce, business publications, etc. Selecting Intermediaries - screen carefully, be precise about what functions you want performed Intermediary Evaluation Checklist: company characteristics: health of the business experience & reputation performance: sales force, territory, promotions, product movement compatibility

Channel Design Considerations Coverage The number of areas & retail outlets in which a product is represented and the quality of that representation. Types of coverage Intensive Selective Exclusive

The Distributor Agreement Typical terms include Contract duration Typically short periods initially Geographic and customer boundaries Well-defined territories and channels Compensation Amounts, how and in what currency Products and conditions of sale Products to be sold; terms and conditions of sales Means of communication between parties

Motivating intermediaries; provide incentives Inventory Financing Cumulative Rebates for larger quantities, early payments, achieving sales targets, maintaining inventory levels, performing sales promotions, etc. Returns of Unsold Merchandise Promotion & Merchandising Assistance Displays Advertising In-store Displays Financial Assistance

Terminating intermediaries Terminating Intermediaries - be aware that some countries have provisions to protect intermediaries from termination Example: Honduras distributors/agents protected by wrongful termination law (Law of Agents, Distributors and Representatives of Foreign Enterprises) Requires “just cause” for termination (fraud, negligence, failed sales targets) terminating a distributor may require compensation

What to consider when selecting foreign intermediaries INTERNAL Company objectives – cost vs. control Character; nature of product Capital resources available to company Continuity of relationships with intermediaries Coverage EXTERNAL Customer characteristics - what needs should be satisfied? When, where, how? Culture – to what extent do we need to adapt? Competition – what intermediaries do competitors use?

Logistics: transportation of goods Shipping Guinness beer to Bertoua, Cameroon (Africa)

4 days from Douala to Bertoua From port to patrons 4 days from Douala to Bertoua