International Marketing Channels Chapter 14 McGraw-Hill/Irwin© 2005 The McGraw-Hill Companies, Inc. All rights reserved. PowerPoint presentation prepared by: Professor Rajiv Mehta Associate Professor of Marketing New Jersey Institute of Technology Newark, N.J.

Chapter Learning Objectives 1. The variety of distribution channels and how they affect cost and efficiency in marketing 2. The Japanese distribution structure and what it means to Japanese customers and to competing importers of goods 3. How distribution patterns affect the various aspects of international marketing

Chapter Learning Objectives 4. The growing importance of e-commerce as a distribution alternative 5. The functions, advantages, and disadvantages of various kinds of middlemen 6. The importance of middlemen to a product’s success and the importance of selecting and maintaining middlemen

Introduction 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 firms Each market contains a distribution network with many channel choices whose structures are In some markets the distribution structure is multi- layered, complex, inefficient, even strange Competitive advantage will reside with the marketer best able to build the most efficient channel

Channel-of-Distribution Structures The distribution process includes the physical handling and distribution of goods, the passage of ownership (title), and the buying and selling negotiations between producers and middlemen and between middlemen and customers Each country market has a distribution structure through which goods pass from producer to use Within this structure are a variety of middlemen whose customary functions, activities, and services reflect existing competition, market characteristics, tradition, and economic development Channel structures range from those with little developed marketing infrastructure such as those found in many emerging markets to the highly complex, multi-layered system found in Japan

Japanese Distribution Structure 1.a structure dominated by many small middlemen dealing with many small retailers—high density of middlemen, 2.channel control by manufacturers, 3.a business philosophy shaped by a unique culture, and 4.laws that protect the foundation of the system—the small retailer Distribution in Japan has long been considered the most effective non-tariff barrier to the Japanese market The Japanese distribution structure is different enough from its U.S. or European counterparts It has four distinguishing features:

Channel Control in Japanese Distribution Systems 1.Inventory financing with credits extending for several months. 2.Cumulative rebates 3.Merchandise returns that are allowed to the manufacturer. 4.Promotional support to intermediaries in the form of displays, advertising layouts, and management education programs Control is maintained through the following elements:

Distribution Patterns 1.Middlemen Services 2.Product Line Breadth 3.Costs and Margins 4.Channel Length 5.Nonexistent Channels 6.Blocked Channels 7.Stocking 8.Power and Competition Distribution patterns are always evolving and new patterns are developing and marketing channels are not the same throughout the world Some general distribution patterns that are similar globally include:

Retail Patterns 1.Retail Size Patterns 2.Direct Marketing 3.Resistance to Change 4.Alternative Middleman Choices International retailing shows even greater diversity in its structure than does wholesaling Some general retailing patterns include:

Home-Country Middlemen 1.Manufacturers’ Retail Stores 2.Global Retailers 3.Export Management Companies 4.Trading Companies 5.U.S. Export Trading Companies 6.Complementary Marketers 7.Manufacturer’s Export Agent Home-country middlemen, or domestic middlemen, provide marketing services from a domestic base and find foreign markets for products for local manufacturers Frequently used types of domestic intermediaries include: 8.Home-Country Brokers 9.Buying Offices 10.Selling Groups 11.Webb-Pomerene Export Associations 12.Foreign Sales Corporation 13.Export Merchants 14.Export Jobbers

Foreign-Country Middlemen 1.Manufacturer’s Representatives 2.Distributors 3.Foreign-Country Brokers 4.Managing Agents and Compradors 5.Dealers 6.Import Jobbers, Wholesalers, and Retailers Some of the more important foreign-country middlemen, who find markets for foreign manufacturers include:

Factors Affecting Choice of Channels 1.Identify specific target markets within and across countries. 2.Specify marketing goals in terms of volume, market share, and profit margin requirements. 3.Specify financial and personnel commitments to the development of international distribution. 4.Identify control, length of channels, terms of sale, and channel ownership The following points should be addressed prior to selecting intermediaries:

Six Cs of Channel Strategy 1.Cost 2.Capital Requirements 3.Control 4.Coverage 5.Character 6.Continuity Channel strategy itself is considered to have the following six specific strategic goals: Channel strategy itself is considered to have the following six specific strategic goals:

Locating Middlemen 1.Commercially published directories 2.Foreign consulates 3.Chamber-of-commerce groups located abroad 4.Other manufacturers producing similar but noncompetitive goods 5.Middlemen associations 6.Business publications 7.Management consultants 8.U.S. Department of Commerce Firms seeking overseas representation should compile a list of middlemen from such sources as the following: Firms seeking overseas representation should compile a list of middlemen from such sources as the following:

Selecting Middlemen 1.Screening based on the following criteria: (a) reputation (b) creditworthiness (c) markets served (d) products carried (e) number of stores (f) store size In selecting middlemen, the following steps should be used. 2.The Agreement that details terms of the contract and the functions to be performed on behalf of the foreign manufacturer

Motivating Middlemen Motivational techniques may be grouped into five categories: (1) financial rewards (2) psychological rewards (3) communications (4) company support, and (5) corporate rapport There is a clear correlation between the middleman’s motivation and sales volume There is a clear correlation between the middleman’s motivation and sales volume

The Internet When using the internet for distribution purposes, the following factors should be considered: 1.Culture 2.Adaptation (especially of language) 3.Local contact information 4.Payment form 5.Delivery 6.Promotion E-commerce is used to market business-to-business services, consumer services, and consumer and industrial products via the World Wide Web The Internet is an important distribution method for multinational companies