Channels of Distribution

Issues Related to International Distribution
Using Established Channels: Channels that already exits
Could charge high prices
Could be blocked by competition
Channel partnership is a long-term decision: Company may be bound indefinitely to the channel choice.
Building Own Channels:
Necessary if there are no channels/ or existing channels do not conform to company needs.
Expensive
Time-consuming

Using Home-Country Middlemen: The Company is likely not to be involved in managing the marketing mix in the host market
Export Management Companies:
Highly specialized in certain industries and/or regions. Mostly represent smaller businesses. E.g. Amex
Works as a “company's export department”
Trading Companies:
Large Companies that specialize in intermediary services (risk reduction, financial assistance)
The Japanese Model: sogo shoshas or general trading company (more investment holdings)

International Distribution
Using Home-Country Middlemen
Home-Country Brokers and Agents:
Middlemen who bring international buyers and sellers together in the company's home country.
Do not carry title to the product/ commission based
Manufacturer’s export agent: represent a manufacturer
Buying offices: buyers located in the firm’s home country, representing different international firms

International Distribution
Using Home-Country Middlemen
Cooperative Export Arrangements:
Also known as piggybacking and mother henning e.g. car manufacture market tires
Involve exporters agreeing to handle export functions for unrelated companies on a contractual basis
Complementary export agents export complementary products on a commission basis.
Complementary export merchants take title to the complementary products that they export.

International Distribution
Using Home-Country Middlemen
Export merchants:
Intermediaries who take title to and possession of the products they carry.
Responsible for shipping and marketing the products in the target market.
Carry competing brands
Examples:
Export jobber, who carries commodity goods, but does not take physical possession of the goods.
Norazi agent, who deals in illegal and/or gray market products.

International Distribution
Using Foreign-Country Middlemen
Using Host-Country Middlemen: The Company is likely to have a presence in the host country
Merchant Middlemen:
Intermediaries who carry the manufacturer’s product line in a particular country.
Usually carries title to and has physical possession of the products.

International Distribution
Using Foreign-Country Middlemen
Agents and Brokers:
Bring Seller and buyers together but do not carry title and take possession of the products
There are many types of agents and brokers in international markets, such as manufacturers’ representatives and managing agents.
Act as the manufacturer’s sales representatives and are paid on commission.
Act as managing agents (also known as compradors), with an exclusive arrangement with the company, representing it in the foreign market; they are paid as a percentage of sales.

Direct & Indirect
Selling Channels
INDIRECT SELLING CHANNELS
- selling through home-country intermediaries
- simple and inexpensive
- lack of marketing control

Direct & Indirect
Selling Channels
DIRECT SELLING CHANNELS
- direct contact with overseas intermediaries or consumers
- requiring more time and cost
- better control

Agent vs. Merchant
Taking possession vs. taking title (ownership)
Compensation: profit/loss vs. fee/commission
Employee vs. independent contractor

Agent
may or may not take possession
never taking title
compensation: commission
more difficult to terminate relationships

Merchant
may or may not take possession
always taking title
compensation: profit/loss
easier to terminate relationships

Types of Intermediaries:
Direct Channel
Foreign Distributor
Foreign Retailer
State-Controlled Trading Company
End User

Types of Intermediaries:
Indirect Channel
Export Broker
Manufacturer's Export Agent or Sales Representative
Export Management Company (EMC)
Cooperative Exporter
Purchasing/Buying Agent
Country-Controlled Buying Agent

Types of Intermediaries:
Indirect Channel
Resident Buyer
Export Merchant
Export Drop Shipper
Export Distributor
Trading Company

Channel Decisions
Channel length
Number of times a product changes hands among intermediaries
Channel width
Number of middlemen at a particular point in the channel
Number of channels
Single channel vs. dual/multiple channels

Determinants of Channel Types
Legal Requirements
Product Image
Product Characteristics
Middlemen's Loyalty and Conflict
Local Customs
Power and Coercion
Control

Representation Agreement and Termination
paying attention to agency termination laws
having agreements in writing
avoiding evergreen contract

Gray Market
Causes
Price differential
Legal Dimension
Protecting independent U.S. trademark owner
Ethical Dimension
Product Quality

Gray Marketing: Manufacturers’ Strategies
Identifying and punishing offenders
Educating consumers
Standardized worldwide price
Multiple brands

Self Work
Direct and Indirect Selling Channels
Types of Intermediaries: Direct Channel
Types of Intermediaries: Indirect Channel
Channel Development
Channel Adaptation
Channel Decisions

Determinants of Channel Types
- Legal Requirements
- Product Image
- Product Characteristics
- Middlemen's Loyalty and Conflict
- Local Customs
- Power and Coercion
- Control
Self Work