International Distribution

• Direct foreign investment– Perform all distribution functions on your own

through ownership of distributors/retailers

Foreign Intermediaries

U.S. Company

Domestic Intermediaries

Foreign consumer

Internet

Direct marketing

Foreign Retailer

X owns/operates its own distribution & retail entities

or

Foreign distributor

Capital intensive!

International Distribution

Three general exporting alternatives1. Sell directly through your own sales force.

2. Sell indirectly through independent intermediaries.

3. Sell indirectly through an outside distribution system with regional or global coverage (e.g., Export Management Company).

Manufacturer’s Rep

Foreign Intermediaries

U.S. Company

Domestic Intermediaries

Foreign consumer

Internet

E-commerce

Export Management Company (EMC)

Foreign Retailer

Importer

Agent/

Broker

Distributor

Foreign Sales Corporation (FSC)

International Distribution Alternatives: Exporting

X Sales office

Intermediaries: two general types

• Types of intermediary relationships– Distributors; buy & resell; longer term– Agency; works on sales commissions

a) agents – short term; e.g., one time

b) representatives – longer term; independent sales people that represent your company’s products.

What do intermediaries do?(the short list)

• purchase inventory from the manufacturer or export intermediary; assumes risk for selling the product to smaller distributors, retailers and/or end users in the foreign market.

• Provide a sales force that is large enough to cover the country or region in which it is located.

• local advertising & promotion• warehousing for the product.

See also Table 11.2, p. 337, textJPG consulting, Going Global, Evaluating

Foreign Distributors; http://www.going-global.com/

What to consider when selecting foreign intermediaries (pp.336-345)

INTERNALCompany objectives – cost vs. control

Character; nature of product

Capital resources available to company

Continuity of relationships with intermediaries

Coverage

EXTERNALCustomer characteristics -

what needs should be satisfied?

• When, where, how?

Culture – to what extent do we need to adapt?

Competition – what intermediaries do competitors use?

Channel Design Considerations

• Coverage– The number of areas & retail outlets

in which a product is represented and the quality of that representation.

• Types of coverage– Intensive– Selective– Exclusive

Locating & selecting intermediaries

Locating Intermediaries - lists provided by gov’ts, chambers of commerce, business publications, etc. (Jan 16 lecture)

Selecting Intermediaries - screen carefully, be precise about what functions you want performed

Intermediary Evaluation Checklist:

• company characteristics: health of the business

• experience & reputation

• performance: sales force, territory, promotions, product movement

• compatibility:

Motivating intermediaries; provide incentives

• Inventory Financing• Cumulative Rebates

for larger quantities, early payments, achieving sales targets, maintaining inventory levels, performing sales promotions, etc.

• Returns of Unsold Merchandise• Promotion & Merchandising Assistance

DisplaysAdvertisingIn-store DisplaysFinancial Assistance

Terminating intermediaries

Terminating Intermediaries - be aware that some countries have provisions to protect intermediaries from termination

Example: • Honduras• distributors/agents protected by wrongful

termination law (Law of Agents, Distributors and Representatives of Foreign Enterprises)

• Requires “just cause” for termination (fraud, negligence, failed sales targets)

• terminating a distributor may require compensation

The Distributor Agreement

Typical terms include• Contract duration

• Typically short periods initially

• Geographic and customer boundaries• Well-defined territories and channels

• Compensation• Amounts, how and in what currency

• Products and conditions of sale• Products to be sold; terms and conditions of sales

• Means of communication between parties

Logistics: transportation of goods

Shipping Guinness beer to Bertoua, Cameroon (Africa)

From port to patrons

4 days from Douala to Bertoua

14

Check Export Requirements

• Department of Commerce, Bureau of Industry & Security (formerly Bureau of Export Controls http://www.bxa.gov)

• What types of products have restrictions:– primarily weapons, technology, defense related

• U.S. boycotts:– Iran, Iraq, Cuba, Libya

Bureau of Industry & Security

15

Export Documents

Export Declaration

Consular Invoice or Certification of Origin

Bill of Lading

Commercial Invoice

Insurance Policy or certificate

Licenses

Others Health Certificates Packing Lists Etc.

16

Logistics Specialists

Intermodal Marketing Companies (IMCs)IMC arranges entire distribution system from factory to customer’s port of entry

a broker: takes a percentage of the cost

Foreign-Freight Forwarderarranges documentation

advises on scheduling, routing & rates

checks consular, licensing, & labeling requirements

checks export restrictions

offers insurance

provides warehouse storage

will pack/containerize