SESSION: 8

International Distribution Decisions

Dr Gautam Dutta
 Learning Outline:

International distribution system and its difference with domestic

one
Basic functions of channel in international markets.
Alternate international marketing channels
Forces for change in distribution channel
Selecting channels of international distribution
 Problems in Planning International Distribution

Operating distribution system varies from one market to other. E.g. Japan

Selecting of distribution channel. E.g. Body Shop forced to open shop in

malls when entered in USA.

Distance between manufacturing and POS makes logistics part

more important. (Lack of supply, delivery delay, lost shipment,
access to spare part ) Sony PS 2 in USA

Problem in getting information about the channel.

Organizing Resources Financial, Personnel

Pricing FactorsCommitment: Difference between manufacturer

and distributor
e.g. Nike had 9% spend , its distributors had only 4%.
 However , distribution is important……

“In
“In aa market
market system,
system, all
all aspects
aspects of
of economic
economic activity
activity are
are
interdependent,
interdependent, and
and the
the whole
whole cannot
cannot function
function properly
properly if
if any
any major
major
element
element is
is not
not in
in its
its place.”
place.”

Michel
Michel Camdessus,
Camdessus,
Managing
Managing Director,
Director,
International
International Monetary
Monetary Fund
Fund
 Distribution: it provides Competitive advantage

“An
“An organised
organised action
action of
of networks
networks of
of agencies
agencies and
and institutions,
institutions, which,
which, in
Wh in
combination, enall
combination, perform
perform all the
the activities
activities required
required to
to link
link producers
producers with
with
users
users to
to accomplish the rmarketing
accomplish the efr
marketing task”
task”
ref iger
rig ato
era r i
tor s n
ot
a
Structure of channel
 International marketing Channel (Indirect)

International marketing Channel (Indirect)

Agent Merchant
intermediary

Broker/ Importers’ Country Buying office

Commission buying controlled
agent
agent buying
agent

Merchant Export
Int. trading Co trading
Exporter
International “SOGO SOHAS”Mitsubishi, house
mitsui, itochu, sumitomo, STC,MMTC
Border marubeni
 International marketing Channel (Direct)

International
Border International marketing Channel (Direct)

Agent Merchant
intermediary

Broker Manufacturer’s Country Buying agent

/commiss agent/sales controlled
ion agent
representative buying
agent

wholesaler
Merchant Retailer
distributor
importer
 Forces for change in distribution channel

1. Increasing Customer Needs

Higher the required investments in specialized assets for servicing end
Customers, the more appropriate is direct reach.
However, markets are becoming increasingly fragmented with
diversity of their need –requiring channel diversity.
Addressability and channel diversity raise customer expectations.
Expectations put further strain on distribution channel.
2. Shift in the balance of Channel Power
Intermediaries gain in power and control.
3. Changing Strategic priorities
• More towards confederation of specialists
 Implication for Channels

1. Shifting pattern of commitment

Fewer firms are committed to retaining their vertically integrated
distribution channel. More emphasis on outsourcing.
2. Vertical compression
Indirect channels are getting shorter with few intermediary layers.
Manufacturer

1 2 3

Wholesaler Own distributor

sales force

Dealer

customer
3. Horizontal diversity
Zabaracki termed it as high velocity environment. Companies are
experimenting with many different way of reaching market.
E.G Often simultaneous use
Direct mail,
telemarketing,
distribution joint venture,
equity options in a distributor,
.
 4. Multiple channel with range of service options

NoNo
frills/low cost Channel
frills/low cost Full service/full cost

Price Customer who wear different Service

hats for different Sensitive
Sensitive
customer
customer Purchase occation
5. Composite channels

Demand
Generation Physical After Sales
Distribution Service

Own Outside Inside or outside

Sales force distributor Service specialists

Customer
 International Marketing Channels: Direct

e-channels

Producers Intermediaries Customer

 Field study: Eight corporation in consumer ,industrial, and
service sector entered in almost 250 new country market

-- David Arnold,2000

In great majority of cases multinational bought or fired

their distributors at some point during partnership or
created their own sales subsidiaries.
Only in 5% cases they switched over to new distributors.
Those lasted long are located in countries not considered of
strategic importance

The reasons were

“the distributors did not know how to grow the market”
“the distributors did not invest in business growth”
“the distributors were not ambitious enough”
 Distribution Characteristics:
Japan
1. Distributors accept subservient social 1. Predominantly market exchange
status in return of economic security
from manufacturer.
2. The interaction leads to formation of
‘ryutsu -keiretsuka’ in which units are
arranged in hierarchical layers
headed by large ‘keiretsus’.
3. No firms can trade outside the group.
4. There is a bonds of loyalty, mutual
obligation, trust and power that
extends throughout the structure.
5. Continued over generations . Gain or
losses are shared.
6. Wholesalers sales volume 3.1 times
total retail sales volume
USA
driven.
2. Channel arrangement precludes trust,
loyalty.
3. Reciprocal exchange elements are
pervasive in the distribution element.
4. Channel participation are largely
effected by price mechanism.
5. Wholesalers sales volume is about
the same as its retail sales volume.
6. Only 25 percent of the wholesalers
purchases from other wholesalers.
 Marketing Flows

Manufacturers

Direct Transaction
Trading co Wholesalers
(Sogo Shosha)

Primary
Wholesaler
Primary
Broker Secondary
Wholesalers Sales
Subsidiary
Secondary
Broker Tertiary
wholesalers

Retailer, Industrial Buyers

 Comparative Cultural Background

USA JAPAN
Cultural Type Low context High context
Prevalence Logic Emotions
Communication Explicit ,verbal Abstract less
style verbal

Sense Efficiency
Value Substance Harmony

Constraints Legal sanctions Presentation

Business bondage Economic well- Social obligations

being Human relations
 Distribution Channels : Japan

Automobile Parts
Automobile makers Independent Repair parts
affiliated parts parts makers makers
makers

Automobile makers Wholesalers Special agents

Dealers Cooperative 2nd-level

sales companies wholesalers

Sub-dealers Retailers

Gasoline
Large users stations

Automobiles
repair shops

End users

SOURCE: McKinsey industry studies

 Distribution Channels : USA

Automobile Parts

51%
Manufac- Warehouse Jobber buy-
Jobber Installer Customer
turer distributor ing groups

10%

18% Mass
merchandiser

21% Repair
specialist

Primary channel

Secondary channel

SOURCE: McKinsey industry studies

 Total Cost Concept for Selecting Distribution
Channel

D=T+W+I+P+O+S

D - Total distribution cost of system

T - Transport Cost
W - Warehouse Cost
I - Stocks and inventory costs
P - Packaging cost
O - Order processing and documentation
S - Total cost of lost sales due to not meeting service standards set.