Chapter 14

International Marketing Channels

McGraw-Hill/Irwin

2005 The McGraw-Hill Companies, Inc. All rights reserved.

Chapter Learning Objectives

1.
1. The
The variety
variety of
of distribution
distribution channels
channels and
and how
how
they
they affect
affect cost
cost and
and efficiency
efficiency in
in marketing
marketing
2.
2. The
The Japanese
Japanese distribution
distribution structure
structure and
and what
what
itit means
means to
to Japanese
Japanese customers
customers and
and to
to
competing
competing importers
importers of
of goods
goods
3.
3. How
How distribution
distribution patterns
patterns affect
affect the
the various
various
aspects
aspects of
of international
international marketing
marketing

Chapter Learning Objectives

4.
4. The
The growing
growing importance
importance of
of e-commerce
e-commerce as
as aa
distribution
distribution alternative
alternative
5.
5. The
The functions,
functions, advantages,
advantages, and
and disadvantages
disadvantages
of
of various
various kinds
kinds of
of middlemen
middlemen
6.
6. The
The importance
importance of
of middlemen
middlemen to
to aa products
products
success
success and
and the
the importance
importance of
of selecting
selecting and
and
maintaining
maintaining middlemen
middlemen

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
Chinas distribution channels:
Mastering the distribution system is the single
most important challenge of Chinas 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

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

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

I. Channel Structure

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)

Japanese Distribution Structure

Distribution
Distribution in
in Japan
Japan has
has long
long been
been considered
considered the
the most
most
effective
effective non-tariff
non-tariff barrier
barrier to
to the
the Japanese
Japanese market
market The
The Japanese
Japanese
distribution
distribution structure
structure is
is different
different enough
enough from
from its
its U.S.
U.S. or
or
European
European counterparts
counterparts
ItIt has
has four
four distinguishing
distinguishing features:
features:
1.
2.
3.
4.

a structure dominated by many small

middlemen dealing with many small
retailershigh density of middlemen,
channel control by manufacturers,
a business philosophy shaped by a
unique culture, and
laws that protect the foundation of the
systemthe small retailer

I. Channel Structure

Trends:
Crossing Borders 14.2 pg. 410
Impact of the internet:

7-11 Japan has a joint venture with

www.7dream.com
When order is placed on the web, customer
then uses 7-11 convenient stores for pickup 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: www.covisint.com
Sears and Carrefour of France created a retail
exchange for retailers and supplier
transactions: www.gnx.com

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

II. Distribution Patterns

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

International Channel-of-Distribution
Alternatives
Home Country

Foreign Country
The foreign marketer or
producer sells to or through

14-10

Foreign
consumer

Domestic producer
or marketer sells to
or through

Open distribution via

domestic wholesale
middlemen

Exporter

Importer

Foreign agent
or merchant
wholesalers

Foreign
retailer
s

Export management
company or company
sales force

Irwin/McGraw-Hill

Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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
Types & characteristics
See exhibit 14.7

3. Government Affiliated Middlemen

IV. Factors that affect choice of Channels

The 6 Cs 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: companys own sales force exerts most
control vs. using middlemen

IV. Factors that affect choice of Channels

(Cont.)
The 6 Cs 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 companys own sales force

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

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.

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

Cost Cutting Using B2B Internet

1. It reduces procurement costs, making it easier
to find the cheapest supplies.
2. It cuts the cost of processing the transactions.
3. It makes possible tighter inventory control.

Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

E-Vendors 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))