Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter 14 Global Distribution

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Rationalizing Local Channels Changing Distributors Distribution channel configuration for entry into a foreign market Is rarely optimal once the product is established on the market The traditional reason for termination of a distributor is The exporting firm senses that the distributor is not doing a good enough job in the market Dual Distribution Channel changes do not necessarily involve termination of contracts In some cases multiple channels emerge or are created

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. WholesalingWholesaling Wholesaling Functions Primary functions of wholesaling Making contact Negotiating Buying Selling Warehousing Wholesaling is a major component of a country’s infrastructure And its structure reveals important clues as to the country’s stage of development

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. WholesalingWholesaling Types of Wholesalers Full-service wholesalers can usually be counted on in most countries However, because of their size and tie-ins with existing brands and chains They might not be willing to distribute the firm’s products The full-service concept should be carefully assessed for each country entered

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. WholesalingWholesaling Vertical Integration Power and Competition The size distribution of wholesalers in many countries seems to approximate the well-known “80-20” rule 80 percent of the transactions are handled by 20 percent of the firms Efficiency The trend toward integration is based on The technological developments that have make large-scale economies and technical coordination feasible

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. RetailingRetailing Retailing and Lifestyles The retailing structure has to adapt to the varying living conditions (the lifestyles) of individual households Creating New Channels As economic growth takes place and global trade expands, new alternatives emerge Global Retailing The logistical and operational know-how of leading retailers is helping to increase the trend of retailing being globalized at a fast rate The rapid deployment of point-of-purchase information technology has shifted the power in the channel toward large retailers

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Global Logistics Can be defined as the transportation and storage activities necessary to transfer the physical product From manufacturing plants and warehouses in different countries to the various local market countries Global logistics is a subset of global distribution which involves the management of the channels within a country Supply chain management is coordinating and rationalizing the global logistics function of the firm involved in many markets

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Global Logistics Competition and Technology Many firms are reluctant to try to reengineer their global logistics A decentralized solution seems preferable The local managers understand their customer requirements better than headquarter personnel This counters two external forces pushing the company: competition and technology

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Global Logistics Air Express Technical innovations in computerized inventory systems and numerically controlled machines for good handling made possible the growth of air express systems Ocean Carriers For shipments of bulky and low-value-per-unit products Ocean vessels are still the most economical carrier alternative overseas There have been a number of global carrier alliances in the shipping industry due to the savings involved in sharing resources and the advantage in providing integrated one-stop services to the shipper

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Global Logistics Overland Transportation The increasing volume of international trade has put the inland distribution system under pressure One North American solution has been the roll-on-roll-off system in which a loaded container is simply rolled onto a railcar and shipped by rail for part of the way, avoiding congested freeways Warehousing The competitive need on the part of global companies to be “close to the customer” and provide fast and efficient service This places increased demand on warehousing and inventory management

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Parallel Distribution Gray Trade Gray trade is parallel distribution on genuine goods by intermediaries other than authorized channel members Three main factors motivate entrepreneurs to engage in gray trade Wide price discrepancies Between national markets Limited availability Of certain models or versions in one market Inexpensive logistics Transportation and importation can be accomplished with relative ease

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Parallel Distribution Effects of Gray Trade Erosion of brand equity The can happen if the gray goods do not perform to the level expected Strained relationships with authorized channel members This arises when channel members face intrabrand competition Legal liabilities This usually involves warranties that can’t be honored Complication of global marketing strategies Forecasted sales in a market may not be realized when there is a sudden influx of gray goods

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Parallel Distribution Channel Actions against Gray Trade Supply Interference Engaging in relationship building with distributors and requesting the careful screening of orders and careful disposal of surplus inventory Dealer Interference Searching for gray imports at the gray traders’ outlets in the importing country, then asking the dealer to help dispose of the inventory Demand Interference Using advertising to educate customers about the drawbacks of gray goods Strategic Attack Creating stronger reasons for customers to patronize authorized dealers

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Parallel Distribution Multiple Distribution Channels Reason for the popularity of multiple distribution channels The increased speed and service in global logistics The breakdown of single-channel distribution regimes The prevalence of gray trade The initiators of defending against gray trade are often middlemen who decide that attack is the best defense There is an increase in direct buying with consumers in different countries ordering directly from overseas stores and catalog houses

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Parallel Distribution Global Channel Design The FSAs Revisited To identify the channel requirements, the first step is to decide if the firm-specific advantages are uniquely lodged in the distribution channels to be used Availability of Channels Once the critical features of the channel network have been identified, the channel capabilities of the of the country market analyzed needs to be determined Channel Tie-Up Channel members may be unwilling to sign on with the new product unless special trade allowances larger than those offered by the competition are made Coordination and Control With a good distribution network established, coordination and control from a centralized headquarters location may be feasible