Chapter 15

International Marketing
Channels

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Learning Objectives

15-1 The variety of distribution channels and how they affect

cost and efficiency in marketing
15-2 The Japanese distribution structure and what it means to
Japanese customers and to competing importers of goods
15-3 How distribution patterns affect the various aspects of
international marketing
15-4 The functions, advantages, and disadvantages of various
kinds of middlemen
15-5 The importance of selecting and maintaining middlemen
15-6 The growing importance of e-commerce as a distribution
alternative
15-7 The interdependence of physical distribution activities
Channel-of-Distribution Structures

The Distribution Process

• Physical handling and distribution of goods
• Passage of ownership or title
• Buying and selling negotiations; between producer
and middlemen, middlemen and customers
Channel-of-Distribution Structures

Distribution Structure
• Marketer must select channel of distribution
• Activities of middlemen reflect existing competition,
characteristics, tradition, and economic development
Channel-of-Distribution Structures

Import-Oriented Distribution Structure

Importer controls fixed Limited supply sold at high price to small group
supply of goods of customers
Demand for products exceeds supply
Market penetration and mass distribution not
necessary
Importer/wholesaler Not a chain of intermediaries like in mass-
performs most marketing marketing system
functions Leads to underdeveloped, nonexistent
marketing infrastructure
Marketing and Distribution in China

© John Graham
They’re in China, but they aren’t Peking ducks. The birds are for sale in
Guangzhou’s Qingping Free Market, the first farmers’ market to be opened in
China after the Cultural Revolution in 1979. This market was the place where
free enterprise found its rebirth. Every kind of food is for sale here—from
ducks to dogs, from scorpions to dried lizards on sticks.
Channel-of-Distribution Structures

Japanese Distribution Structure

• Distinguishing features
1. High density of middlemen
2. Channel control by manufacturers
3. Business philosophy shaped by unique culture
4. Laws that protect the foundation of the system—the
small retailer
Channel-of-Distribution Structures

Japanese Distribution Structure continued

Daitenho—the Large-Scale Large stores must seek permission to operate or
Retail Store Law expand
Protects small retailers from competition
Lack of competition leads to highest cost of
goods in world
Japanese system changing U.S. government’s Structural Impediments
Initiative, deregulation, Walmart causing some
changes
Ultimately, local merchants must demand
quality products and competitive and fair prices
Channel-of-Distribution Structures

Trends: From Traditional to Modern Channel

Structures
Countries with Global economic and political changes altering structures
traditional New forms, alliances, and processes to increase
structures efficiency
changing
The Internet a large component in model channel
structures

Shift in structure Importers, retailers more involved in new product

leads to more development
innovation Invention of new middleman systems
Company experimentation to maintain competitive edge
Modernization of System in Russia

Now that Russians can own their homes, they’re spending fast in home
improvement stores like this one in St. Petersburg. In English it would be
called “Super Home.”
© John Graham
Distribution Patterns

“Traditional” system will not change overnight

• Nearly all international firms forced by structure of
market to use some middlemen in distribution
arrangement
Variety of distribution patterns
• Foreign channels different from domestic channels
• Differences in retail patterns
Distribution Patterns

Retail Patterns
Size patterns Retailer to consumer ratio varies dramatically by market
High concentration of retailers, more competition for
marketer

Direct selling Often used in markets with underdeveloped distribution

systems

Resistance to Innovation seen as threat to domestic business

change Consumer demand for high quality, low cost products
prevails
International Competition: Resistance and
Acceptance

PEMEX (Petróleos Mexicanos), the Mexican national oil company, will not let
foreign firms distribute there. However, in Malaysia, a Mobil station sits right
across the boulevard from a government-owned PETRONAS (Petroliam Nasional)
station. © John Graham
Alternative Middleman Choices

Channel Selection
Range of options for Assume entire redistribution activity
marketers Depend on intermediaries for distribution

Should be given Difficult to change once initiated

considerable thought Impacts future growth of the market share
Alternative Middleman Choices

Channel Process
• Includes all activities from manufacturer to consumer
• Seller must exert influence over two sets of channels
1. Channels in the home country
2. Channel in the foreign-market country
• Ideally, company will control or be involved in process
through various channel members to final consumer
• Selection of middlemen a high priority
Figure 15.3 International Channel-of-
Distribution Alternatives

Jump to long description.

Alternative Middleman Choices

External Middlemen
Agent Do not take title to the merchandise
middlemen Manufacturer assumes all trading risk but can establish
policy guidelines and prices

Merchant Take title to merchandise: assume all trading risks

middlemen Primary concern is profit; don’t always have
manufacturer’s best interests in mind
Alternative Middleman Choices

Home-Country Middlemen
• Provide marketing services from a domestic base
• Foreign-market distribution relegated to others
• Many types of domestic middlemen
Alternative Middleman Choices

Home-Country Middlemen continued

• Manufacturers’ retail stores

• Global retailers
• Export management companies (EMCs)
• Low cost, independent marketing department
• Direct responsibility to firm; close working relationship
 Global Retailing

© John Graham
Target, while a strong competitor for Walmart in the United States, has had
trouble keeping up abroad. Its biggest international adventure into Canada,
circa 2015, has not performed well. If you are driving around Australia, you
might see the brand and logo on more than 300 stores down under, such as
the one in Mareeba, Victoria. The American company had granted rights to
the trademark, but it is otherwise unrelated to the Australian stores.
Alternative Middleman Choices

Home-Country Middlemen continued

• Trading companies
• Accumulate, transport, and distribute goods from many
countries
• Important intermediaries through history; broad distribution
channels make them best means for intensive coverage of
market
Alternative Middleman Choices

Home-Country Middlemen continued

• Export trading companies (ETCs)
• ETC Act allows producers of similar products to form ETCs
• Joint export ventures more efficient for producers and
suppliers
Alternative Middleman Choices

Home-Country Middlemen continued

• Complementary marketers
• Take on noncompetitive but complementary products,
distributes them for another firm hoping to broaden product
line
• Commonly called ‘piggybacking’
• Boosts profit for both carrier and piggybacker
Alternative Middleman Choices

Home-Country Middlemen continued

• Manufacturer’s export agent (MEA)
• Agent middleman or firm providing selling services
• Short-term relationship with producer, operates on straight
commission basis
Alternative Middleman Choices

Home-Country Middlemen continued

• Webb-Pomerene export associations (WPEAs)
• Major form of group exporting
• Unique benefits
1. Reduction of export costs
2. Demand expansion through promotion
3. Trade barrier reduction
4. Improvement of trade terms through bilateral
bargaining
Alternative Middleman Choices

Home-Country Middlemen continued

• Foreign sales corporation (FSC)
• Set up in foreign country or U.S. possession
• Manufacturers and export groups can form FSCs
• Can act as own principal, buying and selling for its own
account, or a commissioned agent
• Can obtain corporate tax exemption or portion of earnings
from sale or lease of export property
Alternative Middleman Choices

Foreign-Country Middlemen
• Variety of agent and merchant middlemen in most
countries similar to that in U.S.
• Moves manufacturer closer to the foreign market
• Involvement with problems of language, distribution,
communications, and financing
• Shorter distribution channels
• Manufacturers’ representatives and foreign
producers
Alternative Middleman Choices

Government-Affiliated Middlemen
• Marketers must deal with governments in every
country
• Products, services, commodities for government’s own use
always procured through government purchasing offices at
federal, regional, and local levels
• Seen to be less efficient than other middlemen
• Walmart planned for and delivered better aid than FEMA
during the 2005 Hurricane Katrina disaster
Factors Affecting Choice of Channels

Points to address prior to selection process

1. Identify specific target markets within and across
countries
2. Specify marketing goals in terms of volume, market
share, and profit margin requirements
3. Specify financial and personnel commitments to the
development of international distribution
4. Identify control, length of channels, terms of sale, and
channel ownership
Factors Affecting Choice of Channels

Six Cs of Channel Strategy

1. Cost
2. Capital requirements
3. Control
4. Coverage
5. Character
6. Continuity
Factors Affecting Choice of Channels

Cost
• Two kinds of channel cost
1. Capital or investment cost of developing the channel
2. Continuing cost of maintaining the channel
• Cost of middlemen includes many things
• Transporting and storing goods, breaking bulk, providing
credit, local advertising, sales representation,
negotiations
• Inefficient middlemen can be eliminated to reduce
cost
 Cost of Tuna

Recall that the Japanese are the world-

champion fish consumers at more than 32
kg per person per year. World prices for
fish are set at the Tsukiji fish market in
Tokyo. A big fresh bluefin tuna caught in
the Atlantic, iced and shipped by air to
Tokyo, can bring as much as $1.76 million
at auction (the previous record price was
only $396,000) and then be shipped by air
to Boston for hungry sushi consumers.
© John Graham
Factors Affecting Choice of Channels

Capital Requirements
• Financial ramifications of distribution policies
• Maximum investment needed without middlemen
• Middlemen may lessen capital investment, but initial
inventories on consignment, loans, floor plans, or other
arrangements usually need to be provided

Control
• Longer channels reduce manufacturer’s control
• Price, volume, promotion, and types of outlets
Factors Affecting Choice of Channels

Coverage
• Full-market coverage major goal
• May require changes in distribution per country through time

Character
• Selected channel must coincide with character of
company and markets in which it is doing business
• Perishability or bulk of product, complexity of sales, sales
service required, value of product
Factors Affecting Choice of Channels

Continuity
• Channels often pose longevity problems
• Distribution may be lost in area where an individual retires
or moves on from business
• Most middlemen have little loyalty to vendors
• Distributors and dealers probably most loyal, but brand
loyalty still must be built downstream through the channel
Channel Management

Locating Middlemen
• Begin with study of market
• Determine criteria for evaluating middlemen
• Main subject areas for criteria
1. Productivity or volume
2. Financial strength
3. Managerial stability
4. Capability
Channel Management

Selecting Middlemen
• Screening process should include:
• Exploratory letter or e-mail sent to prospective middleman in
native language with product info and distributor requirements
• Follow-up with best respondents for more specific info
• Check of credit and references from other clients of prospect
• Personal check of the most promising firms
• Agreement
• Initial contract for selected middlemen to sign is recommended
• Spells out responsibilities; annual sales minimum established
Channel Management

Motivating Middlemen
• Clear correlation between sales volume and motivation
• Categories of motivational techniques
1. Financial rewards
2. Psychological rewards
3. Communications
4. Company support
5. Corporate rapport
Channel Management

Controlling Middlemen
• Control over system and middlemen important
• Especially with long international distribution channels
• Standards of performance should include:
• Sales volume objective, inventory turnover ratio, number of
accounts per area, growth objective, price stability object,
quality of publicity
• Useful tactics for management
• Specifically contracted behavior
• Good social relations
Channel Management

Terminating Middlemen
• Situations in which termination is necessary:
• Middlemen not performing up to standards
• Restructure of distribution needed to reflect changing market
• Competent legal advice needed when entering contracts
• Middlemen often have legal protections in other countries
• Should be avoided by thoroughly screening prospects
• Poor choices can adversely affect future business in countries
The Internet

E-commerce
• Important distribution method for multinationals
• Marketing and sales of B2B and B2C products and services
• Services ideally suited for international sales via the Internet
• Online B2B enhances performance
• Reduces procurement costs; easier to find cheapest supplier
• Allows for better supply-chain management
• Makes tighter inventory control possible
The Internet

Main factors to consider

• Culture
• Adaptation (especially of language)
• Local contact information
• Payment
• Delivery
• Promotion
Logistics

Logistics Management
• Total systems approach to managing distribution process
• Moving good from point of origin to point of use or consumption
• Physical distribution system
• More than just physical movement of goods
• Location of plants and warehousing (storage), transportation
mode, inventory quantities, packaging
• All aspects interdependent in terms of cost and efficiency
• Goal is to find optimum system cost still consistent with
customer service objectives of firm
 Trade Infrastructure

Trade infrastructure is crucial for international competitiveness and cooperation. There is

a lot going on in this picture of the Port of Oakland, California. You can see the three
apparently full, foreign-owned container ships sitting low in the water—the many empty
containers onboard will be heading east to Asian ports and then will return full. The
Matson ship moving down the Oakland Estuary is heading to Hawaii with containers and
private automobiles onboard.
© John Graham
Appendix of Image Long Descriptions
Appendix 1 Figure 15.3 International
Channel-of-Distribution Alternatives
The most direct channel of distribution is the domestic producer or
marketer selling directly to the foreign consumer.
The domestic producer or marketer can also sell directly to or
through the following domestic and foreign intermediaries:
• Domestic: wholesale middlemen, export management company
or company salesforce, exporter
• Foreign: importer, agent or merchant wholesaler, retailer.
Each intermediary can pass the product to the next in the distribution
chain, while some can bypass intermediaries and sell directly to the
consumer.

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