7-1 Chapter 7 Copyright © 2003 by Nelson, a division of Thomson Canada Limited. PowerPoint Presentation by Thomas M c Kaig, Ryerson University Distribution Channels and Global Markets 7

7-2 Chapter 7 Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Looking Ahead After studying this chapter, you should be able to: 1.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 steps of a global marketing effort. 5.Identify sources of trade and financing assistance.

7-3 Chapter 7 Copyright © 2003 by Nelson, a division of Thomson Canada Limited. The Role of Distribution Activities in Marketing Distribution  Physically moving products and establishing intermediary relationships to support such movement. Physical Distribution (Logistics)  The activities of distribution involved in the physical relocation of products. Channel of Distribution  The system of relationships established to guide the movement of a product. …continued

7-4 Chapter 7 Copyright © 2003 by Nelson, a division of Thomson Canada Limited. The Role of Distribution Activities in Marketing Functions of Intermediaries  Perform the marketing function better.  Provide efficient distribution of the product.  Merchant middlemen Intermediaries that take title to the goods they distribute.  Agents/brokers Do not take title to the goods they distribute. …continued

7-5 Chapter 7 Copyright © 2003 by Nelson, a division of Thomson Canada Limited. The Role of Distribution Activities in Marketing Types of Distribution Channels  Direct channel A distribution system without intermediaries  Indirect channel A distribution system with one or more intermediaries.  Dual distribution A distribution system with more than one channel.

7-6 Chapter 7 Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Figure 7-1 Retailer Channel Wholesaler Channel Agent/Broker Channel Direct Channel Indirect Channels Producer Consumers or Industrial User Consumers or Industrial User Consumers or Industrial User Consumers or Industrial User Retailers or Industrial Distributor Retailers or Industrial Distributor Retailers or Industrial Distributor Wholesalers Agents or Brokers Alternative Channels of Distribution

7-7 Chapter 7 Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Structuring a Distribution Channel Important Factors in Building a Distribution Channel  Costs associated with establishing a direct channel distribution  Coverage is increased through the use of indirect channels of distribution.  Control is enhanced using a direct distribution channel.

7-8 Chapter 7 Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Determining the Scope of Physical Distribution Transportation—which mode to use?  Common carriers Transportation intermediaries available for hire to the general public.  Contract carriers Transportation intermediaries that contract with individual shippers.  Private carriers Lines of transport owned by shippers.

7-9 Chapter 7 Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Determining the Scope of Physical Distribution Storage  Lack of storage space is a common problem. Materials Handling  Protecting the firm’s output during warehousing. Specifying Responsibility for Delivery Terms  Paying freight costs.  Selecting the carriers.  Bearing the risk of damage.  Selecting the modes of transport.

7-10 Chapter 7 Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Small Businesses as Global Enterprises Globalization  The expansion of international business, promoted by converging market preferences, falling trade barriers, and the integration of national economies. Size does not limit a firm’s international activity, and small companies often become global competitors to take advantage of their unique resources.

7-11 Chapter 7 Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Before Going Global Decide if firm is up to the task of globalization. Study the different cultural, political and business practices in foreign markets. Be prepared to modify products to meet design specifications that may vary from county to country.

7-12 Chapter 7 Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Questions to Consider Before Going Global What are management’s objectives?  reasons, commitment, expected payoff How prepared is management to go global?  in-house expertise, responsibility for and time allocated to international operations, organizational structure Is there sufficient production capacity?  present capacity, effect of international operations on local production Is there enough financial capacity

7-13 Chapter 7 Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Trade Agreements Least RiskyModerately RiskyMost Risky NAFTA MERCOSUR EUROPEAN UNION ANDEAN PACT COUNTRIES FTA GATT

7-14 Chapter 7 Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Preparations for Global Marketing Researching a Foreign Market  Secondary sources of information  Department of Foreign Affairs (DFAIT)  Canadian Commerical Corporation (CCC)  Canadian International Development Agency (CIDA)  Statistics Canada

7-15 Chapter 7 Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Export Services of the Department of Foreign Affairs and International Trade InfoExport Export Counselling World Information Network for Exporters (WINS) International Trade Data Bank Overseas Trade Fairs Trade Missions Internet Resources

7-16 Chapter 7 Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Assistance for Global Enterprises Connections With International Customers  Trade Leads  Trade Missions  Trade Intermediaries Export management companies Export trading companies Export agents, merchants, or remarketers Piggyback marketers

7-17 Chapter 7 Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Strategy Options for Global Firms Foreign Licensing  Allowing a company in another country to purchase the right to manufacture and sell a company’s products in international markets  Licensee The company buying the licensing rights  Licensor The company selling the licensing rights  Royalties Fees paid by the licensee to the licensor for each unit produced under a licensing contract

7-18 Chapter 7 Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Challenges to Global Business Political Risk  The potential for political forces in a country to negatively affect the performance of businesses operating within Economic Risk  The probability that a government will mismanage its economy and thereby change the business environment in ways that hinder the performance of firms operating there. Exchange rates—the value of one country’s currency relative to that of another country.

7-19 Chapter 7 Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Sources of Trade and Financing Assistance Financing  Private banks Letters of credit—an agreement issued by a bank to honour a draft or other demand for payment when specified conditions are met. Bill of landing—a document indicating that a product has been shipped and the title to that product has been transferred

7-20 Chapter 7 Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Sources of Trading Information Factoring Houses Forum for International Trade Training (FITT) Export Development Corporation (EDC) Canadian Commercial Corporation