1. International Marketing Channels
Chapter 14
International Marketing Channels
McGraw-Hill/Irwin
© 2005 The McGraw-Hill Companies, Inc. All rights reserved.

2. 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

3. 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

4. Global Perspective
Global Perspective: “500 Million Sticks of Doublemint Today – Billions Tomorrow”
Most challenging aspect of selling the gum for Doublemint is how to get the gum through China’s distribution channels:
“Mastering the distribution system is the single most important challenge of China’s economic revolution”
Finding reliable distributors is a challenge
Many are state owned and have little incentive to push one brand over another
Doublemint gum found a way to distribute their products effectively thru China
Note: Doublemint has a 91% market share in China

5. International Channels
Important Points involved in making channel decisions
I. Channel Structure
II. Distribution Patterns
III. Alternative Middlemen Choices
IV. Factors that affect Choice of Channel
V. Locating, Selecting, Motivating and Terminating Middlemen

6. I. Channel Structure Types of Channel Structures:
1. Import-oriented (traditional) distribution structure
Strong dependence on imported manufactured goods
Demand exceeds supply
Chewing gum example in China

7. I. Channel Structure High density of middlemen Business Philosophy
2. Japanese distribution structure
Features:
High density of middlemen
Channel control
Everyone in channel is tied to manufacturers thru such things as: inventory financing; cumulative rebates, merchandising returns and promotional support
Business Philosophy
“Large-scale retail store law” and the “Large-scale Retail Store Location Acts”
Most in Japan and in the U.S. see the Japanese distribution as a “major non-tariff barrier”
Note: the Japanese distribution system is changing because of the globalization of markets (more competition, more access, lower prices, etc)

8. Japanese Distribution Structure
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:
a structure dominated by many small middlemen dealing with many small retailers—high density of middlemen,
channel control by manufacturers,
a business philosophy shaped by a unique culture, and
laws that protect the foundation of the system—the small retailer

11. I. Channel Structure Trends: Crossing Borders 14.2 pg. 410
Impact of the internet:
7-11 Japan has a joint venture with
When order is placed on the web, customer then uses 7-11 convenient stores for pick-up points for their orders.
E-commerce retailers (eBay, e-Toys, Amazon.com)
Ford, Daimler-Chrysler and GM created a website that allows purchase of automotive parts from suppliers:
Sears and Carrefour of France created a retail exchange for retailers and supplier transactions:

12. II. Distribution Patterns
Understanding these general patterns is important:
Middlemen services
Line Breadth
Costs and margins
Channel length
Non-existent channels
Blocked channels
Stocking
Power and Competition
Retail Patterns
Size patterns
Direct Marketing
Resistance to Change

14. II. Distribution Patterns
Retail Patterns
Size patterns
Exhibit 14.3 pg. 415
Direct Marketing
Amway
Resistance to Change

16. International Channel-of-Distribution Alternatives
Home Country
Foreign Country
The foreign marketer or producer sells to or through
Foreign consumer
Domestic producer or marketer sells to or through
14-10
Open distribution via domestic wholesale middlemen
Foreign agent or merchant wholesalers
Foreign retailers
Exporter
Importer
Export management company or company sales force
Irwin/McGraw-Hill

17. III. Alternative Middlemen Choices
Classification of Middlemen
Agent Middlemen
Do not take title to the goods distributed
Less risk (manufacturer assumes risk)
Merchant Middlemen
Take title of goods being distributed (manufactures have less control)
Motivated by profit, tend to be less loyal to one brand
3 Alternative Types of Middlemen:
1. Home-Country Middlemen
Types & characteristics
see exhibit 14.6
2. Foreign-Country Middlemen
See exhibit 14.7
3. Government Affiliated Middlemen

20. IV. Factors that affect choice of Channels
The “6 C’s” need to be considered:
1. Cost
Investment cost of developing channel; and cost of maintaining channel
2. Capital requirements
How much capital is required
3. Control
How much control is desired
Example: company’s own sales force exerts most control vs. using middlemen

21. IV. Factors that affect choice of Channels (Cont.)
The “6 C’s” need to be considered (cont):
4. Coverage
Full market coverage, or targeted coverage to densely populated areas…
5. Character
Channel of the distributions system must meet the “character of the company” seeking to do business
6. Continuity
Will there be longevity issues
How to build loyalty with middlemen is much more difficult than a company’s own sales force

22. V. Locating, Selecting, Motivating and Terminating Middlemen
Factors affecting locating middlemen:
Things to look for:
Financial stability, managerial stability, productivity, reputation, etc.
Sources to use:
U.S. Dept. of Commerce, foreign consulates, commercially published directories
Selecting Middlemen
Two steps
1. Screening
2. Developing the “Agreement”

23. V. Locating, Selecting, Motivating and Terminating Middlemen (Cont.)
Motivating Middlemen
Common methods used to motivate middlemen:
Financial rewards, psychological rewards, communications, company support and corporate rapport
Terminating Middlemen
Must consider things such as:
Legal protection
Control over middlemen
Controlling Middlemen
Control over the system (distribution network)
Control over the middlemen
Volume of sales, market coverage, services offered, pricing, advertisement, payment of bills and profitability.

24. The Internet
How the internet affects distribution of products and services
E-commerce, B2B (most prevalent in the U.S. oldest companies)
Lowers distribution costs (middlemen often eliminated)
Example:
Crossing Borders 14.4 pg. 429 “No More Roses for my Miami Broker

25. Cost Cutting Using B2B Internet
It reduces procurement costs, making it easier to find the cheapest supplies.
It cuts the cost of processing the transactions.
It makes possible tighter inventory control.

26. E-Vendor’s Issues of Concern
1. Culture
2. Adaptation (Translation)
3. Local contact (Buying server space and create mirror sites creating virtual offices in foreign countries.)
4. Payment (Credit cards)
5. Delivery
6. Promotion (Promoting on the web means creating a “retail store” on-line with the same promotional activities (press releases, search engine registration, local news groups and forums))