Export Channels of Distribution: Export-Import Theory, Practices, and Procedures Belay Seyoum 3 Edition (Or Newer)

LECTURE 3
Export Channels of Distribution

Export-Import Theory, Practices, and Procedures
Belay Seyoum
3rd Edition (or newer)
Chapter 5
Export Import Process Saiful Islam

1
EMBA Program, Fall 2020 Dept. of International Business
Lecture Overview
• Introduction to Channels of Distribution
• Determinants of Channel Selection to Market Products Abroad
• Indirect Channels and its types
• Direct Channels and its types
• Major Clauses in Representation Agreements

2
Introduction
• Selecting and managing the right distribution systems is the key to
successful internationalization
• Provide a competitive advantage in global markets
• Contracting with others for managing distribution
channel or managing it by own depends on
• Assets specificity
• Uncertainty
• Frequency

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Channel of Distribution
Indirect Direct
• Firm exports through an • Firm sells directly to foreign
independent local middleman distributors, retailers, or trading
• Middleman assume companies
responsibility for marketing and • Can also be made through
shipping the product overseas agents located in a foreign
country

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Indirect Channel of Distribution
Advantages Disadvantages
• Incurs no start-up cost • Loses control over the marketing
• Facilitate to enter in foreign of its product overseas
trade with little experience • Success totally depends on the
• Access to overseas markets initiative and efforts of the
without their direct involvement chosen intermediary

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Direct Channel of Distribution
• Manufacturer get opportunities • Can be expensive and time
to learn markets and customers consuming
• Maintain better relationships
with trading partners
• Allows greater control over
various activities

6
Determinants of Channel Selection
International Marketing Objectives of the Firm
Manufacturer’s Resources and Experience
Availability and Capability of Intermediary
Customer and Product Characteristics
Marketing Environment
Control and Coverage
Types of Intermediaries

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Determinants of Channel Selection
• Types of Intermediaries and channel alternative depends on,
1. Location of the second channel
• Second channel in producer’s country- Indirect
• Second channel in buyer’s country- direct
2. Ownership of the distribution channel
• Owned and managed by company – direct
• Managed by outside agents and middleman- indirect
3. Percentage of equity held by parent company in the distribution
organization

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Indirect Channel
1. Exporters that sell on behalf of the manufacturer
• Manufacture’s Export Agents (MEAs)
• Export Management Company (EMCs)
• Export Trading Companies (ETCs)
2. Exporters that buy for their overseas customers
• Export Commission Agents (ECAs)
3. Exporters that buy & sell for their own accounts
• Export Merchants
• Cooperative Exporters
• Export Cartels
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Indirect Channel
1. Exporters that
Sell on Behalf of
the Manufacturer
B. Export
A. Manufacture’s C. Export Trading
Management
Export Agents (MEAs) Companies (ETCs)
Company (EMCs)

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1-A. Manufacture’s Export Agents (MEAs)
• Usually represent various manufacturers of related and
noncompeting products
• The usual roles of the MEA are as follows,
• Handle direct marketing, promotion, shipping, and sometimes financing of
merchandise
• Take possession but not title to the goods
• Represent the manufacturer on a continuous or permanent basis

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1-B. Export Management Company (EMCs)
• They act as the export department for one or several manufacturers
of noncompetitive products- may as a distributor/ agents
• Usually specialize by product/foreign market/ both
• Solicit and carry on business in their own name or in the name of the
manufacturer

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1-B. Export Management Company (EMCs)
• The usual roles of the EMC are as follows:
• Market analyses
• Documentation
• Financial services
• Purchase for resale
• Own advertising and promotion
• Serves as a shipping/forwarding agent
• Legal advices

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1-C. Export Trading Companies (ETCs)
• Identify the needs of overseas customers and often act as
independent distributors linking buyers and sellers to arrange
transactions
• Buy and sell goods as merchants taking title to the merchandise
• ETC offer services to manufacturers similar to those provided by EMCs
but with limited differences.
• The disadvantages of ETCs are similar to the ones mentioned for
EMCs

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Indirect Channel
2. Exports that Buy

for their Overseas
Customers
A. Export
Commission Agents
(ECAs)

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2-A. Export Commission Agents (ECAs)
• Represent foreign buyers and seek to obtain products that match the
buyer’s preferences and requirements
• Reside and conduct business in exporter’s country
• Exporter get an easy access to foreign market with little credit risk
• Exporter has little control over the marketing of products-
disadvantage

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2-A. Export Commission Agents (ECAs)
• Another variation of the ECA is The Resident Buyer
• Resident buyer maintain a long-term relationship with its overseas
principal (importer/ clients)
• Undertakes not only the purchasing function at the best possible
price, but also ensures timely delivery of merchandise and facilitates
principal’s visits to suppliers and vendors

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Indirect Channel
3. Exporters that
Buy & Sell for their
Own Accounts
A. Export B. Cooperative
C. Export Cartels
Merchants Exporters

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3-A. Export Merchants
• Purchase products directly from manufacturers, pack and mark them
according to their own specifications, and resell to their overseas
customers
• Take title to the goods and sell in their own names
• Assume all risks associated with ownership
• Handle undifferentiated products

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3-B. Cooperative Exporters
• Manufacturers or service firms that sell the products of other
companies in foreign markets along with their own
• It works when a company has a contract with an overseas buyer to
provide a wide range of products or services but it could not alone
• Company (providing the remaining products) could sell its products
without incurring export marketing or distribution costs

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3-C. Export Cartels
• Organizations of firms in the same industry for the sole purpose of
marketing their products overseas
• For example
• Webb-Pomerene associations (wpas) - in USA
• Certain export cartels in japan

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Direct Channel
2. Marketing through
1. Direct Marketing
Overseas Agents and
From the Home Country
Distributors
Overseas Agents Overseas Distributors

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1. Direct Marketing From the Home Country
• Sell directly to a foreign retailer or end user
• Medium
• Catalog sales or traveling sales representatives
• Products
• Sell books, magazines, house wares, cosmetics, travel, and financial services
• Consumers
• Foreign governments and institutions such as banks, schools, hospitals, or
businesses

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1. Direct Marketing From the Home Country (cont.)
• Foreign sales branches or subsidiaries
• When to use
• If products are specifically designed for each customer
• Internet is available

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1. Direct Marketing From the Home Country (cont.)
• Increased revenues and profits • Duty and clearance problems
• Lower cost of products or • Country’s import regulations or
services trade regulations
• Better product support services
• Enhanced image and reputation

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2. Marketing Through Overseas Agents
and Distributors » Overseas Agents
• Independent sales representatives of various noncompeting suppliers
• Work on a commission basis
• Pay their own expenses
• Assume no financial risk or responsibility
• Rarely take delivery of and never take title to goods
• Do not provide product support services to customers
• In some countries, agents are required to register with the
government as commercial agents

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2. Marketing Through Overseas Agents
and Distributors » Overseas Distributor
• Import products for resale and are compensated by the markup they
charge their customers
• Overseas distributors take delivery of and title to the goods and have
contractual arrangements with the exporters as well as the
customers.
• No contractual relationships exist between the exporters and the
customers and the distributors may not legally obligate exporters to
third parties

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Major Clauses in Representation Agreements
1. Definition of Territory
• Geographical Scope of the Territory
• Sole Marketing Rights
2. Definition of Product

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3. Representative’s Rights and Obligations
• Commitment to periodically inform the exporter of all pertinent information
• Provide due protection to each other’s confidential information
• A provision as to whose responsibility it is to arrange for all the necessary
approvals, licenses, and other requirements for the entry and sale of goods in
the foreign country
• Right to carry noncompetitive and complemenatary product

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4. Exporter’s Rights and Obligations
• Agency contracts- price schedules, catalogs, and brochures
• Distributor contracts- training and technical assistance
• Both- terms and party responsible for warranty

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5. Definition of Price
• Agency agreements- agreed price list and discount structure is base
• Distributor agreements- price to be charged by the seller upon purchase of
goods by the distributor. Any discounts available are also stated
• The parties could also agree that the exporter charge the distributor the best
price it provides other customers

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6. Renewal or Termination of Contract
• Right to Terminate Without Cause
• Force Majeure
• Acts of god, wars and civil disorder, acts of government and other acts beyond the
parties’ control
• Other Causes of Termination
• Bankruptcy or liquidation of either party, assignment of contractual rights or duties,
change of ownership or management, and non-exclusivity, or the firm’s decision to
establish its own sales office or assembly operations
7. Applicable Law and Dispute Settlement

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End of Lecture 3

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LECTURE 3

Export Channels of Distribution

Export Import Process Saiful Islam

Export Import Process Saiful Islam

Export Import Process Saiful Islam

Export Import Process Saiful Islam

Export Import Process Saiful Islam

Export Import Process Saiful Islam

Manufacturer’s Resources and Experience

Availability and Capability of Intermediary

Customer and Product Characteristics

Control and Coverage

Export Import Process Saiful Islam

Export Import Process Saiful Islam

Export Import Process Saiful Islam

Export Import Process Saiful Islam

Export Import Process Saiful Islam

Export Import Process Saiful Islam

Export Import Process Saiful Islam

2. Exports that Buy

Export Import Process Saiful Islam

Export Import Process Saiful Islam

Export Import Process Saiful Islam

Export Import Process Saiful Islam

Export Import Process Saiful Islam

Export Import Process Saiful Islam

Export Import Process Saiful Islam

Overseas Agents Overseas Distributors

Export Import Process Saiful Islam

Export Import Process Saiful Islam

Export Import Process Saiful Islam

Export Import Process Saiful Islam

Export Import Process Saiful Islam

Export Import Process Saiful Islam

Export Import Process Saiful Islam

Export Import Process Saiful Islam

Export Import Process Saiful Islam

Export Import Process Saiful Islam

Export Import Process Saiful Islam

Export Import Process Saiful Islam

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