1.

Explain how and why distribution channels are affected as they are when the stage of
development of an economy improves.

Retail Distribution
Retail distribution is the most traditional form of distribution channel. The common
model includes the manufacturer using an intermediary such as a wholesaler or
distributor to deliver products directly to retailers, then ultimately to the consumer. This
model delays delivery to the consumer and increases consumer cost as each participant in
the distribution channel must take possession of the product and receives compensation
for its individual role in distribution. Manufacturers may choose to eliminate wholesalers
or distributors to decrease product delivery time and decrease the cost to the consumer.

Wholesalers
Manufacturers may also employ wholesale operations that purchase products from
manufacturers at a deeply discounted price. The wholesaler often uses a distributor or
other smaller wholesaler as an intermediary to deliver products in bulk to retailers, or it
may offer products directly to retailers or consumers. The scope of the manufacturer
relationship with the wholesaler can have varying effects on product delivery time and
price. If a wholesaler deals directly with the end consumer, a reduction in end consumer
delivery time and price can result. In wholesale relationships the manufacturer's role in
the marketing process is to choose quality wholesaler relationships and find the best fit
with the company's strategic vision.

Distributors
Distributors are links in the distribution channel chain that deliver products to retailers.
Distributors may either be dedicated to one manufacturer as a captive representative or
represent a number of manufacturers and wholesalers. Distributors are often used with
high volume products such as beverages when retailers must be consistently supplied
with product.

Direct Sales
Manufacturers may use a direct sales force to deliver products to consumers.
Manufacturers who choose this distribution channel often deliver higher priced products
with lower sales volume. The use of wholesalers and distributors is less cost effective in
this scenario as lower volume products carry higher holding costs, so intermediaries can
be more costly. Manufacturers who remove these intermediaries can command higher
profit margins as a result. Manufacturers using direct sales take on full responsibility for
direct consumer communications and marketing.

2. Review the key variables that affect marketer's choice of distribution channels.
The international marketer needs a clear understanding of market characteristics
and must have established operating policies before beginning the selection of channel
middlemen. The following points should be addressed prior to the selection process:
1. Identify specific target markets within and across countries.

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 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.

Once these points are established, selecting among alternative middlemen

choices to forge the best channel can begin. Marketers must get their goods into the
hands of consumers and must choose between handling all distribution or turning
part or all of it over to various middlemen. Distribution channels vary depending on
target market size, competition, and available distribution intermediaries.

Although the overall marketing strategy of the firm must embody the company’s
profit goals in the short and long run, channel strategy itself is considered to
have six specific strategic goals. These goals can be characterized as the six Cs
of channel strategy: cost, capital, control, coverage, character, and continuity.

Costs. Two kinds of channel cost: (1) the capital or investment cost of developing
the channel and (2) the continuing cost of maintaining it. The costs of middlemen include
transporting and storing the goods, breaking bulk, providing credit, local advertising,
sales representation and negotiation. Some marketers have found, in fact, that they can
reduce cost by eliminating inefficient middlemen and thus shortening the channel. For
example, Mexico’s largest producer of radio and television sets has built annual sales of
$36 million on its ability to sell goods at a low price because it eliminated middlemen,
established its own wholesalers, and kept margins low.

Capital Requirements. The financial ramifications of a distribution policy are

often overlooked. Critical elements are capital requirement and cash-flow patterns
associated with using a particular type of middleman. Maximum investment is usually
required when a company establishes its own internal channels, that is, its own sales
force. Use of distributors or dealers may lessen the capital investment, but manufacturers
often have to provide initial inventories on consignment, loans, floor plans, or other
arrangements. For example, Coca-Cola initially invested in China with majority partners
that met most of the capital requirements. However, Coca-Cola soon realized that it could
not depend on its local majority partners to distribute its product aggressively in the
highly competitive, market-share–driven business of carbonated beverages. To assume
more control of distribution, it had to assume management control, and that meant greater
capital investment from Coca-Cola.

Control. The more involved a company is with the distribution, the more control it
exerts. re control it exerts. A company’s own sales force affords the most control but often
at a cost that is not practical. Each type of channel arrangement provides a different level
of control; as channels grow longer, the ability to control price, volume, promotion, and
type of outlets diminishes.

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 Coverage. Another major goal is full-market coverage to gain the optimum
volume of sales obtainable in each market, secure a reasonable market share, and attain
satisfactory market penetration. Coverage may be assessed by geographic segments,
market segments, or both. Adequate market coverage may require changes in
distribution systems from country to country or time to time. For example, In China,
the often-cited billion-person market is, in reality, confined to fewer than 25 to 30
percent of the population of the most affluent cities. Even as personal income increases in
China, distribution inadequacies limit marketers in reaching all those who have adequate
incomes.

Character. The channel-of-distribution system selected must fit the character of

the company and the markets in which it is doing business. Some obvious product
requirements, often the first considered, relate to the perishability or bulk of the product,
complexity of sale, sales service required, and value of the product.

Continuity. Channels of distribution often pose longevity problems. Most agent

middlemen firms tend to be small institutions. When one individual retires or moves out
of a line of business, the company may find it has lost its distribution in that area.
business either. Most middlemen have little loyalty to their vendors. They handle
brands in good times when the line is making money but quickly reject such
products within a season or a year if they fail to produce during that period. Distributors
and dealers are probably the most loyal middlemen, but even with them, manufacturers
must attempt to build brand loyalty downstream in a channel lest middlemen shift
allegiance to other companies or other inducements.

3. Discuss the most frequently encountered trade restrictions.

(pg37)
Tariffs (pg37). It is a tax imposed by a government on goods entering at its borders.
Tariffs may be used as revenue-generating taxes or to discourage the importation of
goods, or for both reasons. Tariff rates are based on value or quantity or a combination of
both. For instance, In the United States, the types of customs duties used are classified as
follows: (1) ad valorem duties, which are based on a percentage of the
determined value of the imported goods; (2) specific duties, a stipulated amount per unit
weight or some other measure of quantity; and (3) a compound duty, which combines
both
specific and ad valorem taxes on a particular item, that is, a tax per pound plus a
percentage
of value. Therefore, Because tariffs frequently change, published tariff schedules for
every country are available to the exporter on a current basis.

Quotas and Import Licenses. A quota is a specific unit or dollar limit applied to a
particular type of good. For instance, Great Britain limits imported television sets;
Germany has established quotas on Japanese ball bearings; Italy restricts Japanese
motorcycles; and the United States has quotas on sugar, textiles, and, of all things,
peanuts.

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 Quotas put an absolute restriction on the quantity of a specific item that can be imported.
Like In early 2010, as Avatar dominated cinema around the world, China ordered its
movie houses to limit showings to the 3D version only. Like tariffs, quotas tend to
increase prices.

As a means of regulating the flow of exchange and the quantity of a particular imported
commodity, countries often require import licenses. The fundamental difference between
quotas and import licenses as a means of controlling imports is the greater flexibility of
import licenses over quotas. Quotas permit importing until the quota is filled; licensing
limits quantities on a case-by-case basis.

Nontariff barriers include quotas, regulations regarding product content or quality, and
other conditions that hinder imports. One of the most commonly used nontariff barriers
are product standards, which may aim to serve as “barriers to trade.” For instance, when
the United States prohibits the importation of unpasteurized cheese from France, is it
protecting the health of the American consumer or protecting the revenue of the
American cheese producer?

Other nontariff barriers include packing and shipping regulations, harbor and airport
permits, and onerous customs procedures, all of which can have either legitimate or
purely anti-import agendas, or both.

4. Explain the reasoning behind the various regulations and restrictions imposed on the
exportation and importation of goods.

Answer: (Page 212-213, 347, 524)

The reasons for various regulations and restrictions imposed on the exportation of certain
products are mainly protective. In the United States, in an effort to alleviate many of the
problems and confusions of exporting and to expedite the process, the Department of
Commerce has published a revised set of export regulations known as the Export
Administration Regulations (EAR). They are intended to speed up the process of granting
export licenses by removing a large number of items from specific export license control
and concentrating licensing on a specific list of items, most of which pertain to national
security, nuclear nonproliferation, terrorism, or chemical and biological weapons. The
EAR is intended to serve the national security, foreign policy, and nonproliferation
interests of the United States and, in some cases, to carry out its international obligations.
It also includes some export controls to protect the United States from the adverse impact
of the unrestricted export of commodities in short supply, such as Western cedar. Many
import regulations are also protective. Import restrictions forbid other means of entry, a
country is sensitive to foreign ownership, or patents and trademarks must be protected
against cancellation for nonuse. Besides the protection offered to domestic industries and
markets, they are a source of revenue, as in the case of tariffs. Import restrictions can also
serve to prevent the excessive flow of money of scarce foreign currencies out of the
country. Restrictions brought about by import quotas and high tariffs also can lead to
parallel imports and make illegal imports attractive. India has a three-tier duty structure

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 on computer parts rang- ing from 50 to 80 percent on imports. As a result, estimates
indicate that as much as 35 percent of India’s domestic computer hardware sales are
accounted for by the gray market.

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