International Marketing

14th Edition P h i l i p R. C a t e o r a M a r y C. G i l l y John L. Graham

International Marketing Channels

Chapter 14
McGraw-Hill/Irwin International Marketing 14/e

Copyright 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

What Should You Learn?

The variety of distribution channels and how they affect cost and efficiency in marketing The Japanese distribution structure and what it means to Japanese customers and to competing importers of goods How distribution patterns affect the various aspects of international marketing The growing importance of e-commerce as a distribution alternative The functions, advantages, and disadvantages of various kinds of middlemen The importance of middlemen to a products success and the importance of selecting and maintaining middlemen
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A Single Stick of Doublemint Today 18 Billion Tomorrow

Global Perspective

A product must be made accessible to the target market at an affordable price Getting the product to the target market
Can be a costly process

Forging an aggressive and reliable channel of distribution

The most critical and challenging task facing the international marketer

Competitive advantage
For the marketer best able to build the most efficient channel from among the alternatives available
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Channel-of-Distribution Structures
All consumer and industrial products eventually go through a distribution process
Physical handling and distribution of goods Passage of ownership Buying and selling negotiations between producers and middlemen Buying and selling negotiations between middlemen and customers

Each country market has a distribution structure

Goods pass from producer to user

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Import-Oriented Distribution Structure

In an import-oriented or traditional distribution structure:
Importer controls a fixed supply of goods Marketing system develops around the philosophy of selling a limited supply of goods at high prices to a small number of affluent customers

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Import-Oriented Distribution Structure

Demand exceeds supply The customer seeks the supply from a limited number of middlemen Distribution systems are local Few countries fit the import-oriented model

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Japanese Distribution Structure

1. A structure dominated by many small middlemen dealing with many small retailers 2. Channel control by manufacturers 3. A business philosophy shaped by a unique culture 4. Laws that protect the foundation of the system

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Comparison of Distribution Channels between the United States and Japan

Exhibit 14.1

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High Density of Middlemen

Not unusual for consumer goods to go through three or four intermediaries before reaching the consumer Japan has a large number of independent groceries and bakers (94.7% or all retail stores)
Small stores account for 59.1% of retail food sales

U.S. emphasis is on supermarkets, discount food stores, and department stores

Small stores generate 35.7% of food sales

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Retail Structure in Three Countries

Exhibit 14.2

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Channel Control
Inventory financing Cumulative rebates Merchandise returns

Promotional support

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Business Philosophy
Emphasizes loyalty, harmony, and friendship Supports long-term dealer-supplier relationships The cost of Japanese consumer goods are among the highest in the world Japanese law gives the small retailer enormous advantage over the development of larger stores

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Large-Scale Retail Store Law and Its Successor

Daitenho the Large-Scale Retail Store Law
Large stores must have approval from the prefecture government All proposals first judged by the Ministry of International Trade and Industry (MITI) If all local retailers unanimously agreed, the plan was approved Could be a lengthy process Applied to both domestic and foreign companies

Replaced by the Large-Scale Retail Store Location Act of June 2000

MITI out of the process Relaxed restrictions
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Changes in the Japanese Distribution System

Structural Impediments Initiative Deregulation Wal-Mart

New retailers
The Internet

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Trends: From Traditional to Modern Channel Structures

European retailers merging with former competitors and other countries to form Europe-wide enterprises Foreign retailers attracted by high margins and prices The Internet may be most important distribution trend Covisint GlobalNetXchange

E-commerce
7-Eleven competes with FedEx and UPS
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General Distribution Patterns

Middlemen services

Line breadth
Costs and margins Channel length Nonexistent channels Blocked channels

Stocking
Power and competition
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Retail Distribution Patterns

Size patterns Direct marketing Resistance to change

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Retail Structure in Selected Countries

Exhibit 14.3

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International Channel-Distribution Alternatives

Exhibit 14.4

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Alternative Middleman Choices

Seller must exert influence over two sets of channels
One in the home country One in the foreign-market country

Agent middlemen represent the principal rather than themselves Merchant middlemen take title to the goods and buy and sell on their own account

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Home-Country Middlemen
Manufacturers retail stores Global retailers Export management companies

Trading companies
U.S. export trading companies Complementary marketers Manufacturers export agent
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How Does an EMC Operate?

Exhibit 14.5

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Home-Country Middlemen
Home-country brokers Buying offices Selling groups

Webb-Pomerene export associations

Foreign sales corporation Export merchants Export jobbers
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Foreign-Country Middlemen
Manufacturers representatives Foreign Distributors Foreign-country brokers

Managing agents and compradors

Dealers Import jobbers, wholesalers, and retailers

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Government-Affiliated Middlemen
Marketers must deal with governments in every country of the world Government purchasing offices
Procure products, services, and commodities for the governments own use Work at federal, regional, and local levels

Efficiency of public sector versus the private sector

Wal-Mart did better than FEMA after Hurricane Katrina

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Factors Affecting Choice of Channels

Cost Capital requirements Control

Coverage
Character Continuity

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Locating, Selecting, and Motivating Channel Members

Locating middlemen Selecting middlemen
Screening The agreement

Motivating middlemen
Terminating middlemen Controlling middlemen

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The Internet
E-commerce
Business-to-business (BSB) services Consumer services Consumer and industrial products

E-commerce is more developed in U.S. than in rest of world B2B enables companies to cut costs
Reduces procurement costs Allows better supply-chain management Makes possible tighter inventory control
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Concerns for e-Vendors

Culture Adaptation Local contact

Payment
Delivery Promotion

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Summary
The international marketer has a broad range of alternatives for developing a distribution system Three primary alternatives for using agent middlemen
Agent middlemen Merchant middlemen Government-affiliated middlemen

Channel structure varies

Nation to nation Continent to continent

Information and advice are available relative to the structuring of international distribution systems The Internet is challenging traditional channels, offering a wider range of possibilities for entering foreign markets
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