14

International Marketing Channels

McGraw-Hill/IrwinInternational Marketing, 13/e

© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.

Chapter

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Chapter Learning Objectives

• The variety of distribution channels and how they affect cost and efficiency in marketing

• The Japanese distribution structure and what it means to Japanese customers and to competing importers of goods

• How distribution patterns affect the various aspects of international marketing

• The growing importance of e-commerce as a distribution alternative

• The functions, advantages, and disadvantages of various kinds of middlemen

• The importance of middlemen to a product’s success and the importance of selecting and maintaining middlemen

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Global Perspective A Single Stick of Doublemint Today – 18 Billion Tomorrow

• A product must be made accessible to the target market at an affordable price

• 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 marketer

• Competitive advantage will reside with the marketer best able to build the most efficient channel from among the alternatives available

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Channel-of-Distribution Structures

• All consumer and industrial products eventually go through a distribution process.

- Physical handling and distribution of goods- Passage of ownership- Buying and selling negotiations between producers and middlemen- Buying and selling negotiations between middlemen and customers

• Each country market has a distribution structure through which goods pass from producer to user.

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Import-Oriented Distribution Structure

• Demand exceeds supply• The customer seeks the supply from a limited number of

middlemen• Distribution systems are local• Few countries fit the import-oriented model today

In an import-oriented or traditional distribution structure, an importer controls a fixed supply of goods and the marketing system develops around the philosophy of selling a limited supply of goods at high prices to a small number of affluent customers.

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Japanese Distribution Structure

1. A structure dominated by many small middlemen dealing with many small retailers

2. Channel control by manufacturers

3. A business philosophy shaped by a unique culture

4. Laws that protect the foundation of the system

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Comparison of Distribution Channels between the United States and Japan

• Insert Exhibit 14.1

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High Density of Middlemen

• Not unusual for consumer goods to go through three or four intermediaries before reaching the consumer

• In Japan, small stores account for 57.7 percent of retail food sales• In the U.S., small stores generate 19.2 percent of food sales• Japan has a large number of independent groceries and bakers,

unlike America with an emphasis on supermarkets, discount food stores, and department stores

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Channel Control

1. Inventory financing

2. Cumulative rebates

3. Merchandise returns

4. Promotional support

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Business Philosophy

• Emphasizes loyalty, harmony, and friendship• Supports long-term dealer-supplier relationships• The cost of Japanese consumer goods are among the highest in the

world• Japanese law gives the small retailer enormous advantage over the

development of larger stores

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Large-Scale Retail Store Law and Its Successor

• Daitenho – the Large-Scale Retail Store Law- Large stores must have approval from the prefecture government- All proposals first judged by the Ministry of International Trade and

Industry (MITI)- Then, if all local retailers unanimously agreed, the plan was

approved- Could be a lengthy process- Applied to both domestic and foreign companies

• Replaced by the Large-Scale Retail Store Location Act of June 2000

- MITI out of the process- Relaxed restrictions

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Changes in the Japanese Distribution System

• Structural Impediments Initiative• Deregulation• Wal-Mart• “New” retailers• The Internet

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Trends: From Traditional to Modern Channel Structures

• European retailers merging with former competitors and other countries to form Europe-wide enterprises

• Foreign retailers attracted by the high margins and prices• The Internet may be the most important trend affecting distribution• Covisint• GlobalNetXchange• E-commerce• 7-Eleven competes with FedEx and UPS

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Distribution Patterns

• General patterns- Middlemen services- Line breadth- Costs and margins- Channel length- Nonexistent channels- Blocked channels- Stocking- Power and competition

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Distribution Patterns (continued)

• Retail patterns- Size patterns- Direct marketing- Resistance to change

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Alternative Middleman Choices

• Seller must exert influence over two sets of channels:- One in the home country- One in the foreign-market country

• Agent middlemen – represent the principal rather than themselves• Merchant middlemen – take title to the goods and buy and sell

on their own account

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Home-Country Middlemen

• Manufacturer’s retail stores• Global retailers• Export management companies• Trading companies• U.S. export trading companies• Complementary marketers• Manufacturer’s export agent• Home-country brokers• Buying offices

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Home-Country Middlemen (continued)

• Selling groups• Webb-Pomerene export associations• Foreign sales corporation• Export merchants• Export jobbers

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Foreign-Country Middlemen

• Manufacturer’s representatives• Distributors• Foreign-country brokers• Managing agents and compradors• Dealers• Import jobbers, wholesalers, and retailers

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Government-Affiliated Middlemen

• Marketers must deal with governments in every country of the world

• Products, services, and commodities for the government’s own use are always procured through government purchasing offices at federal, regional, and local levels

• Efficiency of public sector versus the private sector

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Factors Affecting Choice of Channels

• Cost• Capital requirements• Control• Coverage• Character• Continuity

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Locating, Selecting, and Motivating Channel Members

• Locating middlemen• Selecting middlemen

- Screening- The agreement

• Motivating middlemen• Terminating middlemen• Controlling middlemen

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The Internet

• E-commerce is used to market:- Business-to-business (BSB) services- Consumer services- Consumer and industrial products

• E-commerce is more developed in the U.S. than in the rest of the world

• B2B enables companies to cut costs in three ways:- Reduces procurement costs- Allows better supply-chain management- Makes possible tighter inventory control

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Concerns for e-Vendors

• Culture• Adaptation• Local contact• Payment• Delivery• Promotion

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Summary

• The international marketer has a broad range of alternatives for developing a distribution system.

• Three primary alternatives for using agent middlemen:- Agent middlemen- Merchant middlemen- Government-affiliated middlemen

• Channel structure may vary from nation to nation or from continent to continent.

• Information and advice are available relative to the structuring of international distribution systems.

• Traditional channels are being challenged by the Internet, which is offering an ever-wider range of possibilities for entering foreign markets.