Small Business Management, 11th edition Longenecker, Moore, and Petty © 2000 South-Western College Publishing Chapter 15 Distribution Channels and Global Markets In the Spotlight: Ready Products Corporation In the Spotlight: Ready Products Corporation

Small Business Management, 11th edition Longenecker, Moore, and Petty © 2000 South-Western College Publishing Learning Objectives: Chapter Explain the role of distribution in marketing. 2. Describe the major considerations in structuring a distribution system. 3. Discuss global marketing challenges. 4. Describe the initial stages of a global marketing effort. 5. Identify sources of financing assistance. 15-2

Small Business Management, 11th edition Longenecker, Moore, and Petty © 2000 South-Western College Publishing 15-3 Intermediaries Shifting risks Providing information Breaking bulk Assorting Functions of Intermediaries

Small Business Management, 11th edition Longenecker, Moore, and Petty © 2000 South-Western College Publishing Alternative Channels of Distribution 15-4 DIRECT CHANNEL Producer Consumers or Industrial User Retailer Channel Producer Consumers or Industrial User INDIRECT CHANNELS Wholesaler Channel Agent/Broker Channel Producer Consumers or Industrial User Producer Consumers or Industrial User Wholesalers Retailers or Industrial Distributor Wholesalers Agents or Brokers Retailers or Industrial Distributor

Small Business Management, 11th edition Longenecker, Moore, and Petty © 2000 South-Western College Publishing Considerations in Building a Channel of Distribution Costs Coverage Control 15-5

Small Business Management, 11th edition Longenecker, Moore, and Petty © 2000 South-Western College Publishing Components of a Physical Distribution System 15-6 TRANSPORTATION Component A Airplanes Trucks Railroads Pipelines Waterways STORAGE Component B Warehouses MATERIALS HANDLING Component C Forklifts Special Packaging DELIVERY TERMS Component D F.O.B. Origin, Freight Collect INVENTORY MANAGEMENT Component E Continuous Maximum Protection Minimum Inventory Operations Sales of Assets Investment

Small Business Management, 11th edition Longenecker, Moore, and Petty © 2000 South-Western College Publishing Perceived Obstacles to Exporting 15-7 EXPORTING Obtaining adequate initial knowledge about exporting (72%) Identifying viable sales prospects abroad (61%) Understanding business protocols in other countries (57%) Selecting suitable target markets on the basis of available information (57%) Source: Roger E. Axtell, “International Trade: A Small Business Primer,” Small Business Forum, Vol. 10, No. 1 (Spring 1992), p. 47.

Small Business Management, 11th edition Longenecker, Moore, and Petty © 2000 South-Western College Publishing Export Services of the ITA 15-8A Export Counseling. Trade specialists are available at ITA district and branch offices for individualized export counseling. Market Research. Analysts in foreign posts provide the United States & Foreign Commercial Service with timely, accurate, and in-depth marketing data on industrial sectors with high export potential in the most promising countries. Agent/Distributor Service. A customized search for interested and qualified foreign representatives will identify up to six foreign prospects who have examined the U.S. firm’s literature and expressed interest in representing it. Commercial News USA. A monthly magazine promotes the products or services of U.S. firms to more than 110,000 overseas agents, distributors, government officials, and purchasers. Exporters may submit a black-and-white photo and a brief description of their product or service. Comparison Shopping. A custom-tailored service provides firms with key marketing and foreign representation information about their specific products. Commerce Department staff conduct on-the-spot interviews to determine nine key marketing facts about the product, such as sales potential in the market, comparable products, distribution channels, going price, competitive factors, and qualified purchasers. Foreign Buyer Program. Exporters can meet qualified foreign purchasers for their product or service at trade shows in the United States. The Commerce Department promotes the shows worldwide to attract foreign-buyer delegations, manages an international business center, counsels participating firms, and brings together buyer and seller. Gold Key Service. A custom-tailored service is offered for U.S. firms planning to visit a foreign country. Offered by many overseas posts, it combines several services, such as market orientation briefings, market research, introductions to potential partners, an interpreter for meetings, and assistance in developing a sound market strategy and an effective follow-up plan. Trade Opportunities Program. Companies are provided with current sales leads from overseas firms seeking to buy or represent their product or service. These leads are available electronically from the Commerce Department and are redistributed by the private sector in printed or electronic form.

Small Business Management, 11th edition Longenecker, Moore, and Petty © 2000 South-Western College Publishing Export Services of the ITA 15-8B World Traders Data Report. Custom reports evaluate potential trading partners. Such a report will include background information, standing in the local business community, creditworthiness, and overall reliability and suitability. Overseas Catalog and Video-Catalog Shows. Companies can gain market exposure for their product or service without the cost of traveling overseas by participating in a catalog or video-catalog show sponsored by the Commerce Department. Provided with the firm’s product literature or promotional video, an industry will display the material to select foreign audiences in several countries. Overseas Trade Missions. Officials of U.S. firms can participate in a trade mission, which will give them an opportunity to confer with influential foreign business and government representatives. Commerce Department staff will identify and arrange a full schedule of appointments in each country. Overseas Trade Fairs. U.S. exporters may participate in overseas trade fairs, which will enable them to meet customers face-to-face and also to assess the competition. The Commerce Department creates a U.S. presence at international trade fairs, making it easier for U.S. firms to exhibit and gain international recognition. The Department selects international trade fairs for special endorsement, called certification. This cooperation with the private show organizers enables U.S. exhibitors to receive special services designed to enhance their market promotion efforts. There is a service charge. Matchmaker Events. Matchmaker Trade Delegations offer introductions to new markets through short, inexpensive overseas visits with a limited objective: to match the U.S. firm with a representative or prospective joint-venture/licensee partner who shares a common product or service interest. Firms learn key aspects of doing business in the new country and meet in one-on-one interviews the people who can help them be successful there. Trade Information Center. A one-stop source for information on all federal government export assistance programs. Call USA-TRADE. Source: U.S. Department of Commerce, Business America, Vol. 113, No. 9 (Washington, DC: U.S. Government Printing Office, 1992).

Small Business Management, 11th edition Longenecker, Moore, and Petty © 2000 South-Western College Publishing Direct Distribution Options for Marketing Abroad Direct selling to end users Foreign sales representatives or agents Foreign distributors Foreign retailers You retain total control. Possibilities exist for the highest profit margin. They know their market. They can use product samples and promotional materials to full advantage. Products can be serviced in foreign markets, parts can be sold through foreign distributors. Establishing credit patterns is easier. They know the market. A variety of promotional sales methods can be used, including catalogs, mailings, and sales representatives. Buyers may not be aware of trade restrictions, and avoiding these difficulties can be expensive. Risk is high. Usually only practical for large exporters. They assume no risk or responsibility. Quality of promotional effort may vary. They may be undercapitalized. You are at some risk. You have less control. Distributors buy from you at the greatest possible discount. Limited to consumer products. Direct mail and catalogs may not receive adequate attention Direct MethodsAdvantagesLimitations

Small Business Management, 11th edition Longenecker, Moore, and Petty © 2000 South-Western College Publishing Indirect Distribution Options for Marketing Abroad Commission agents Export agents Export merchants Export management companies (EMCs) No extra work; same as selling in United States. Relatively inexpensive. Low risk; much the same as selling in United States. You gain their expertise and experience. They can help position you in foreign markets inexpensively. No real exporting; no exposure to foreign market. Lack of control. Lack of control; no involvement. Some loss of control; lower profit margins can be expensive. Indirect Methods Advantages Limitations

Small Business Management, 11th edition Longenecker, Moore, and Petty © 2000 South-Western College Publishing Payment Procedure Irrevocable Letter of Credit 1. After exporter and buyer agree on the terms of sale, the buyer arranges for its bank to open a letter of credit. 2. The buyer’s bank prepares an irrevocable letter of credit. 3. The buyer’s bank sends an irrevocable letter of credit to a U.S. bank, requesting confirmation. 4. The U.S. bank prepares a letter of confirmation to forward to the exporter along with the irrevocable letter of credit. 5. The exporter carefully reviews all conditions in the letter of credit. 6. The exporter arranges with the freight forwarder to deliver the goods to the appropriate port or airport. 7. When the goods are loaded, the freight forwarder completes the necessary documents. 8. The exporter (or the freight forwarder) presents to the U.S. bank documents indicating full compliance. 9. The bank reviews the documents. If they are in order, the documents are forwarded to the buyer’s bank for review and then transmitted to the buyer. 10. The buyer (or agent) obtains the documents that may be needed to claim the goods. 11. A draft, which may accompany the letter of credit, is paid by the exporter’s bank