international marketing 14 edition chapter14

I n t e r n a t i o n a l M a r k e t i n g I n t e r n a t i o n a l M a r k e t i n g

InternationalMarketing Channels

Chapter 14

1 4 t h E d i t i o nP h i l i p R. C a t e o r a

M a r y C. G i l l yJ o h n L . G r a h a m

McGraw-Hill/IrwinInternational Marketing 14/e

Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

14-2

What Should You Learn?What Should You Learn?

• 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

14-3

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

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 – The most critical and challenging task facing the international

marketer

• Competitive advantage – For the marketer best able to build the most efficient channel

from among the alternatives available

14-4

Channel-of-Distribution StructuresChannel-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

– Goods pass from producer to user

14-5

Import-Oriented Distribution Structure


• In an import-oriented or traditional distribution structure:

– Importer controls a fixed supply of goods– 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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• 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

14-7

Japanese Distribution StructureJapanese 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

14-8

Comparison of Distribution Channels between the United States and JapanComparison of Distribution Channels between the United States and Japan

Exhibit 14.1

14-9

High Density of MiddlemenHigh Density of Middlemen

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

• Japan has a large number of independent groceries and bakers (94.7% or all retail stores)

– Small stores account for 59.1% of retail food sales

• U.S. emphasis is on supermarkets, discount food stores, and department stores

– Small stores generate 35.7% of food sales

14-10

Retail Structure in Three CountriesRetail Structure in Three Countries

Exhibit 14.2

14-11

Channel ControlChannel Control

• Inventory financing

• Cumulative rebates

• Merchandise returns

• Promotional support

14-12

Business PhilosophyBusiness 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

14-13

Large-Scale Retail Store Law and Its Successor

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)– 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

14-14

Changes in the Japanese Distribution System

Changes in the Japanese Distribution System

• Structural Impediments Initiative

• Deregulation

• Wal-Mart

• “New” retailers

• The Internet

14-15

Trends: From Traditional to Modern Channel Structures

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 high margins and prices

• The Internet may be most important distribution trend

• Covisint

• GlobalNetXchange

• E-commerce

• 7-Eleven competes with FedEx and UPS

14-16

General Distribution PatternsGeneral Distribution Patterns

• Middlemen services

• Line breadth

• Costs and margins

• Channel length

• Nonexistent channels

• Blocked channels

• Stocking

• Power and competition

14-17

Retail Distribution PatternsRetail Distribution Patterns

• Size patterns

• Direct marketing

• Resistance to change

14-18

Retail Structure in Selected CountriesRetail Structure in Selected Countries

Exhibit 14.3

14-19

International Channel-Distribution Alternatives

International Channel-Distribution Alternatives

Exhibit 14.4

14-20

Alternative Middleman ChoicesAlternative 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

14-21

Home-Country MiddlemenHome-Country Middlemen

• Manufacturer’s retail stores

• Global retailers

• Export management companies

• Trading companies

• U.S. export trading companies

• Complementary marketers

• Manufacturer’s export agent

14-22

How Does an EMC Operate?How Does an EMC Operate?

Exhibit 14.5

14-23

Home-Country MiddlemenHome-Country Middlemen

• Home-country brokers

• Buying offices

• Selling groups

• Webb-Pomerene export associations

• Foreign sales corporation

• Export merchants

• Export jobbers

14-24

Foreign-Country MiddlemenForeign-Country Middlemen

• Manufacturer’s representatives

• Foreign Distributors

• Foreign-country brokers

• Managing agents and compradors

• Dealers

• Import jobbers, wholesalers, and retailers

14-25

Government-Affiliated MiddlemenGovernment-Affiliated Middlemen

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

• Government purchasing offices

– Procure products, services, and commodities for the government’s own use

– Work at federal, regional, and local levels

• Efficiency of public sector versus the private sector

– Wal-Mart did better than FEMA after Hurricane Katrina

14-26

Factors Affecting Choice of ChannelsFactors Affecting

Choice of Channels• Cost

• Capital requirements

• Control

• Coverage

• Character

• Continuity

14-27

Locating, Selecting, and Motivating Channel Members

Locating, Selecting, and Motivating Channel Members

• Locating middlemen

• Selecting middlemen

– Screening– The agreement

• Motivating middlemen

• Terminating middlemen

• Controlling middlemen

14-28

The InternetThe Internet

• E-commerce

– Business-to-business (BSB) services– Consumer services– Consumer and industrial products

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

• B2B enables companies to cut costs

– Reduces procurement costs– Allows better supply-chain management– Makes possible tighter inventory control

14-29

Concerns for e-VendorsConcerns for e-Vendors

• Culture

• Adaptation

• Local contact

• Payment

• Delivery

• Promotion

14-30

SummarySummary

• 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 varies– Nation to nation– Continent to continent

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

• The Internet is challenging traditional channels, offering a wider range of possibilities for entering foreign markets