Distribution: Foreign-Market Channels and Global Logistics

1. How do I get my products into foreign markets? 2. Distribution of the product within the foreign markets Management of foreign distribution Management of International Logistics

Management of foreign distribution

Method of entry decides for firms the task of distribution in that market Trading Companies, Export Management Companies or other indirect method must accept the Foreign distribution of offered by these intermediaries The same is true for those firms selling through Licensing and direct exporting Firms having marketing subsidiaries or complete manufacturing and marketing operation in the national markets Even in Joint Venture and Wholly owned venture, resulting from an acquisition managers are constrained by desires of national partner Steps in managing foreign distribution: 1. Identity the firms goal in foreign market 2. Achievement of Goals decide marketing program including distribution 3. Identify the specific tasks to be performed by channel in the market like Inventory, promotion, credit extension, physical distribution, service. 4. Marketer must match this job description with the channel possibilities available in the market Compromise is often necessary as seldom there are exact matches

Marketing Through Distributors in Foreign Markets

1) 2) Direct Exporting through Distributors-less investment, lack of resources for a greater commitment. Hence commonly used by small firms and MNCs who do not have their own marketing presence in all of their global markets. Success depends on performance of these distributors---relationship management (rewards, careful selection , careful drafting of agreement, marketing support given) Initial Distributor Selection: Careful specification what we want from distributor will help a firm choose the suitable candidate Firm should evaluate the distributors track record-past performance, determined by talking with other clients of the distributor Firm should try to assure that its line will reasonably import of distributor's business (Firms account for 10% of distributors business) Distributor Agreement: Legal Document-spell out the responsibility and interest of each party, protecting both Carefully drafted to Minimize any misunderstandings Living Agreement i.e. can adjust to new circumstances strengthening relationship

Relationship management with Distributors

3) Financial and pricing Consideration: Distributor wants to make as much as money possible and work conveniently. Firms use of financial and pricing variable will affect the distributors ability to reach the above goals E.g.: Firm must determine what margin or commissions are needed-Low margin if product-mix is good and less competition or offer higher margins to break markets or to overcome competitive disadvantages Credit Terms-Does firm needs to be generous or competitive? Firms use of price quotations-CIF and FOB Choice of currency-Distributors prefer local current rather than USD or EURO Payment terms-Open account or LC Balance between financial security with its need to satisfy the distributor 4) Marketing Support Considerations: Well-established brand name and customer franchise will make the distributor's task easier E.g: Coca-cola, IBM, Sony are partially pre-sold Heavy advertisement and promotional input given by manufacturer will make the distributor's task easier Cooperative advertising with distributor Participation in trader fairs preferably in cooperation with the distributors in the region Exporters will train the distributors sales force-beginning or as new products are added Product and promotional material to be supplied on Timely basis from home office Establishing a regional warehouse for better product supply and service to distributors

Relationship management with Distributors

5) Communications: Telephone contacts and emails to ensure timely response to problems and opportunities Visits from home office allow face-to-face contact that humanizes the long distance relationship Corporate travelers could include the export manager, product engineer and occasionally the CEO Establishing a regional headquarters allows closer contact and support of all the distributors in a region Company Newsletter-Corporate spirit among the family of distributors Regional meetings of distributors can further encourage the family spirit and also provide economies of scale for training or motivation session. Computer link with distributor's System that provides instant information, reduced transaction time and fewer errors. E.g.: General Motors realized these benefits when it established such system with the system of its European dealers. The dealer benefited from quicker, more accurate service and better availability of product and supplies. Levi Strauss implemented this similar system with major department store accounts in Europe E.g.: Toro-First international Sales Conference in Switzerland-Distributors from 13 Western European countries attended-previously attended US-but not useful for EU. Separate conference to gain better insights of each of represented countries-Language problem was solved by simultaneous translation.

Relationship management with Distributors

1. 2. 3. 6) Other Considerations: Some firms use contest to provide excitement and motivation for distributors for superior performance Popular Award: Visit to the home country of supplier Such visits are popular with US and Chinese PartnersDisney world-Orlando, Florida Giving the distributor exclusive territory Firms take equity position in distributor Rosson and Ford Study-performance of distributor was highest when manufacturer-distributor relationship exhibited the following characteristics: The roles and routines were not rightly fixed but were adapted over time to changing circumstances Marketing decisions are made jointly by the manufacture and distributor and not imposed on distributor There should be high degree of contact between manufacturer and distributor (phone calls, visits, letters)

Marketing Through Firms own presence

Firm has to take responsibility for local distribution but it still must deal with existing distribution infrastructure( i.e., wholesale, retail and transport system) which differs from country to country Wholesaling in Foreign Markets Gathering assortments, breaking bulk, distribution to retailers are performed in all countries with varying efficiency as Economies, infrastructure and level of development is different Size: Differences in Size and number of wholesalers from country to country Industrializing countries have large scale Wholesaling serving large number of retailers Developing countries are more likely to have fragmented wholesalingfirms with small number of employees serving limited number of retailers. E.g.: India and Finland-has concentrated wholesaling operations in the world. Finland has 4 groups account for wholesale trade..The largest Kesko (the Wholesale Company of Finnish Retailers) has Market share of 20% serving 11000 retailers India has thousand of stockiest (like Wholesalers) serving hundreds of small retailers. Because of large number of stockiest, manufactures have Agents have been introduced to sell to stockiest-additional set in channel.

Wholesaling in Foreign Markets

ExceptionsSome industrialized countries like Italy and Japan have small scale wholesaling much like developing countries Italys fragmented distribution system, P&G had to use and intermediary to reach the whole sale level as firms in India have to do Japan is notorious for its fragmented distribution with wholesalers selling to other wholesalers-4 employees Japan has as many wholesalers as US Wholesaler sales are five time retailers sales in Japan, four times the US ratio Size of wholesaling operation does not fall a pattern across world-challenge for international marketer Fragment wholesaling structures exist in Europe, Asia, Africa and Latin America Kenya-largest number of wholesalers in world and many former African Colonies have large trading houses established during the colonial period. E.g.: Unilever subsidiary-The United Africa Company has large scale operation in many African countries Opportunity for wholesalers to internationalize-US-Makro, Dutch firm-has large operations in Latin America (Argentina, Brazil, Colombia) and in Eastern Europe (Poland)

Wholesaling in Foreign Markets

Service: Services offered to the manufacturer. Quality of services relates to the size of operations Small operators have limited capital know-how and cannot give good services as given by large wholesalers Manufacturer is tempted to bypass the wholesaler because of its costs or inefficiencies study feasibility-power of wholesalers stops firms from taking such actions of by-passing E.g: Kraft Foods found in more efficient to ship direly to retailer in Germany. But wholesalers control over the channel was strong enough to force Kraft to give it a payment, even though the services were not being used. Japan-Coca-Cola and Nestle gone completely to direct sale but the cost is high as many dealers were financially weak. Japanese wholesalers give liberal credit-10 month Levis Strauss worked with wholesalers in Japan for 10 years. Capitalizing on craze for jeans, it set up its own direct sale force, Levis demanded monthly payment but Japanese department stores pay vendor on 6 month basis

Wholesaling in Foreign Markets-Service

Majority of world markets have small wholesaling and with fragmented structure and marketer face the following problems: 1. Where the number of wholesalers is large, the contact and transaction cost of the manufacturer may be high, This raises the consumer price too, further limit market penetration 2. Instead of providing credit to the channel, wholesaler may demand credit, placing financial burden on manufacturer 3. Small wholesalers carry a narrow assortment of goods-omit some products or look for other wholesalers for those omitted products 4. Small wholesalers give limited geographic market coverage-omit those markets or look for other wholesalers covering those neglected regions 5. Small wholesalers give limited service in other ways too. Carry less inventory, less effective selling and promotional inputs and less feedback to company. Strategy for Fragmented Wholesaling: Firms must resign to incomplete market coverage Pull Strategy-Heavy advertising E.g.: Italy-P&G used pull strategy and inserted an extra level in channel. P&G-uses no less than 17,000 distributors in Japan-greatest challenge to manage 17000 distributors China-large Government owned department stores to fill in wholesaling -70% of revenue The above rules also apply to industrial goods but more for consumer goods as the Know-how and service are important in Industrial market than consumer markets. Industrial markets might use some other solution E.g.: Unisys is able to use United Africa Company in several African nations and piggybacks with Plessey, a British electronic firm in Southeast Asia.

Retailing in Foreign Markets

Greater Numbers, Smaller Size: Difference in numbers and size of the retail businesses, US and advanced industrial countries have larger retail outlets and smaller number per capita in developing countries-They have economies of scale Exception: Some industrial countries like Japan, Italy, Belgium and France do not have an extensive modern retail sector Germany-75% of retailing is one by large units, whereas in Italy over 75% is done by small independents. Italy has 4 times as many as retailers as Germany Lack of large-scale retailing in above countries-Legislation Italy and Belgium-Law gives Veto power to existing retailers over the establishment of any new large-scale retailing Japan and France also have the restrictive laws Japans law states that no one can open the store larger than 5382 sq feet without permission from the communitys store owners-8-10 years to receive such permission Lawson chain built a store in Shizuoka, Japanese shopkeepers beat up a construction worker, stormed the store at night, screaming at employees and intimidating customers, Late night calls. 1 year deadline Visit to citys capital does not give a true retailing picture-dual economyrural and urban (malls and supermarkets)

Retailing Services
Services provided to manufacturers like stocking, displaying, selling product, promoting product (orally or by display or by advertising), extending credit to customers, servicing the product and gathering market information Carrying Inventory: Basic expected function Services are not identical-small retailers-limited inventory, limited line of products, out of stock situation. New entrant have a lot of difficulty getting their products accepted by retailers Due to their weak financial position, they carry certain products only if they do not have to invest in them Retailers carries inventory physically but the wholesaler or manufacturer carries financially Small dealers get credit up to 10 months Consignment sales are one possible answer to the retailers inventory problem. E.g.: Drink can be supplied in 48-can cases to 24 and 12 can cases

Retailing-Product display
Package plays a important role in persuading consumers, display is important-observe great variations. Display depends on physical facilities (space, shelves, lighting) African duka-200 square feet of store space, no electric lighting, one door, one window, few shelves and 1-2 tables Seller in open retail market or bazaar could have same limited space Developed countries-hypermarket or large department stores-250,000 square foot-found in US or Europe General Foods in Brazil have to deal with mom and pop stores usually with less than 200 sq feet and almost no space for display Customer asks for item and retailers gets it from under the counter Local GF manager hope to develop a display counter that could be suspended from ceiling Merchandising skills correlate somewhat with the level of economic development Retailers do have flair for display but manufacturer do not depend on them Not possible in all markets as small size and dispersion of retail business and because the firm may have narrower line offering Cooperation is also affected by retailer's overall relations with the producer-Kimberley Clark-Kotex-pharmacies in France and Supermarkets in US-France tried to opt for supermarket-pharmacies banned the product.

Retailing-Promotion of the products

Manufacturer expects only display from retailer Retailer do personal selling and advertising Retailer has favorable attitude for product and is important part of their sales Retailer promotions tends to be limited in most markets because of retailers limited resources POP display may become difficult due to smaller space-Point of Purchase material Manufacturer relies on its own advertising. Other Retailing Services: Credit extension, product service and market information Manufacturers have to be involved due to retailer's limited financial resources Small firms are unable to give technical support and serviceproducer is involved E.g.: Turkey-60% of all farm tractors were all incapacitated. International Harvester found only 50% qualified mechanics in its own Turkish organization and the government equipment centers International Harvester had to undertake an extensive training program to maintain its franchise with the consumers and government Giving feedback to manufacturer is considered as Retailers job Retail audit only happens in large retail organizations Retailer cooperation for marketing or advertising testing-retailers do not cooperate as they do not understand the benefit and look at it suspiciously-tax implications

Distribution Trends in World Markets

Predict a change by observing one point in time. Statistics on distribution are limited-rough idea Think of future-wholesaling and retailing is related to economic growth and hence follow the economic growth as a rough guide to predict distribution changes Review of development of wholesaling and retailing in US is instructive as development elsewhere are parallel US retailers have carried their techniques aboard E.g.: Jewel Companies, the Chicago-based retailer entered a JV with Aurrera, Mexican retailer -Aurrera is 10th on retailing. By adapting Jewels technique it rose of No: 1 in Mexico Comparative study approach-Firms selling already in some markets gives insights into markets with similar characteristics.

Distribution Trends in World Markets

Retailing technology is transferred internationally in 4 ways 1) Seminars and Training programs-E.g.: Programs of American Supermarket Institute and National Cash Register (NCR)-played major role in spread of widespread supermarket concept 2) Foreign Direct Investment-By establishing or acquiring stores abroad, retailers transfer know-how within international family.. Wal-Mart, Safeway are US examples. European examples Marks & Spencer's, IKEA Wal-Mart has tie up with Walton Institute of Retailing in Arkansas in which US and Non-US managers are trained 3) Management contracts and Joint ventures Sears have a contract with Seibu for transfer of a total package on retail technology, including systems manuals. 4) Franchising: McDonalds, Kentucky Fried Chicken

4 major Distribution trends in world markets

1. Growth of Large-scale retailing 2. Continuing internationalization of retailing 3. Growth of direct marketing 4. Spread of discounting Large Scale, Great Retailing Power: French invention-hypermarket Trend is toward larger units and more on self-service No of retail outlets is decreasing but average size is increasing Sweden, 30,000 food stores reduced to 5000 Trend is same everywhere but rate is different and these changes are caused by: Rising Affluence Increased Car ownership More household with refrigerators More wives working outside the home Japan and Italy-seen the same trend-Many 7-Eleven franchisees in Japan were former Mom-andpop stores Developing nations, especially newly industrializing countries are seeing a growth in large-scale retailing Korea-First supermarket appeared in 1971-number increased over to 1500 in next decade Hong Kong number of supermarkets has increased 6-fold The reasons are the same as US and Europe-Life cycle of retailing works its way around the world These trends means Strong retailing with more bargaining power than manufacturer Spar International is a voluntary chain of several hundred wholesalers and about 40,000 retailers in 12 Western European countries. As a result of larger operations and greater power, European retailers are demanding more private (distributors) brands-strongly bargain on prices Private brands already have good share in Europe than in US and EU has strengthened distributors in Europe.

Internationalization of Retailing
Continuous integration of the world economy is internationalizing not only the advertising, banking and manufacturing industries but also reaching retailing Life cycle of todays large retailers begin with a store in one city grew into national operation and today it is going international The retailers are expanding their international ties both with respect to procurement and marketing Leading examples of retailing internationalists are US franchisers-about 450 of them Mcdonalds alone has 21000 outlets in 104 countries-8% Market share in restaurant business in France Amway, Avon and Tupperware, Pizza Hut has 2000 outlets abroad Goodyear, IBM and Tandy-Radio Shack are US producers with retailer aboard Kmart and Sear are traditional retailers operating overseas Internationalism is pushing new Retailers abroad very early in their life cycleWalmart has expanded rapidly in US and Asia Starbucks are in 10 Asian countries-using Britain base for expansion in Europe Europe has 10% holding in US grocery business E.g.: IKEA, Swedish furniture retailer and boutique retailers such as Benetton and Laura Ashley are visible in US Carrefour is in Europe and US and is retailing leader in Latin America Japanese are the new entrants. Jusco has supermarkets in Hong Kong, Thailand, and Malaysia Major Japanese groups like Daiei, Seibu and Jusco have entered US with tie-ups with US retailers-Kmart, Safeway, Sears Yaohan even has a Yoahan Plaza in London

Direct Marketing
Mail order has grown in Europe and Japan and in modernizing economies like Mexico Firms like Lands End, Otto Burlington, sell several billion dollars a year with their catalog and use of toll-free number Personal selling direct to consumers continues to be important internationally Amway, Tupperware and Avon and Sara Lee in Japan Brazil-Avon has 470,000 sale representatives Electrolux, Swedish company has direct sales force in 10 Asian Countries from Japan to India Piggybacking is a growing concept E.g.: Mattel uses Avon to introduce Barbie in China, Latin America, Avon ladies sell Duracell batteries Telemarketing-ad agencies IBM uses it in Europe. Special attacks in Britain and Netherlands and hence ad agencies like McCann Erickson and Ogilvy and Mather have come into picture. Internet-Developmental stage

Discounting
Japan, discount chain stores have replaced department stores as countrys largest retailer Their share of household products is higheliminating mom-and-pop stores Europe, discounters are also increasing market share at the expense of department store Britain Supermarket giant, Sainsbury and Tesco has seen their margins decline because of them Pressure on manufacturers pricing and distribution pattern

Marketing Through Foreign Distribution Channels

Should the firm extend its domestic distribution approach to foreign markets of adapt its distribution strategy to each national market? Should the firm use direct or indirect channels in foreign markets? Should the firm use selective or widespread distribution? How can the firm manage the channel? How can the firm keep its distribution strategy up-to-date?

International Or National Patterns

The question is not whether the firm should have uniform distribution pattern in foreign markets but which channel in each market is more profitable. Few factors favor standard approach due to Economies of scale .not so easy in distribution as in productioneconomic integration Channels in channel should be same in other as tested. Market Analysis before deciding on local channels Distribution structure in country is different i.e. nature of wholesale and retail operations Storage and transportation possibilities, plus the dispersion of the market, also help to determine channel alternatives E.g.: Pepsi-Cola uses similar channels all over the world-local bottler to truck driver/sales representatives to retailer. However in sparse areas, truck driver/sales representatives are too expensive and company must find another option Another channel determinant is the Market-consumer income, buying habit, strength and behavior of competitors-use same channel or find other sources. E.g.: Initially application of Allstate Insurance in Japan was rejected. Its entry would disrupt existing firms. In a different approach, Allstate joined with Seibu, the Japanese Retailer. This gave Allstate a powerful sales channel. It also fulfilled a requirement that it provide something new to customers-opportunity to buy insurance over the counter. Difference in manufacturers own situation might suggest channel differences from market to market. Level of Involvement in market Firm supplies through Importer-Distributor-firm has Less freedom Working through License or JV-Restrictions on channel selection than wholly owned operations Even if the level of involvement is same-firms product line and sale volume may differ Smaller the line and volume of sales, the less direct the channels the firms can afford to use.

International Or National Patterns

Firm generally tries to use the same channels from market to market All through in some cases, adaptations are frequently used. E.g.: Industrial goods-technical aspects Even with consumer goods, there can be some carryover from country to country Direct sales have been successful for some US companies entering foreign markets E.g.: Tupperware entered Japan, the only channel it know was parities in the home with hostess. Avon-In Taiwan, 11,000 Avon ladies are selling to customers at Home. Amway-1.2 million direct sellers in Japan, making it second largest foreign firm in Japan

Direct Versus Indirect Channel

Direct channels are more effective Volume of sales decide direct or indirect Other factors are: small markets, Lower income, narrower product line of firm and fewer large scale buying organization E.g.: Unilever in India sells to agents to stockiest to retailers P&G in Italy use similar three stage channel Japan-More indirect than India Many firms prefer to go direct distribution to gain strong market position. E.g.: Goodyear established its own franchised dealers in Europe just like those it had in US IBM gone direct to its customer with tits large equipment. With smaller equipment, using direct sales force was too expensive. So initially it opened its retail outlets in Argentina and Europe and after getting success IBM began operating its own retail outlets in US Growth of Internet, multimedia and Interactive TV are giving new meaning to direct marketing Both manufacturers and retailers will have to adapt these developments.

Selective versus Intensive Distribution

Intensive Distribution: Policy of selling through any retailer that wishes to handle the product Selective Distribution: Choosing a limited number of resellers in a market area. Necessary to ensure that these limited distributors carry inventory and provide service and promotion For shopping or specialty goods, retailer may demand selective distribution, which protect their market by limiting competition Industrial goods or consumer durable, selective distribution may be the only way to induce intermediaries to cooperate in providing service Manufacturers give exclusive franchise to importers or distributors at the national level However selectivity of retailer depends on local market conditions Low consumer mobility also limits the value of selective distribution E.g: Benetton expanded rapidly in US, opening 700 outlets. Many outlets were in overlapping categories and hence stores began to cannibalize one another. Dealer dissatisfaction 700 came down to 300Benetton was force to become more exclusive in distribution

Selective versus Intensive Distribution

GM in Belgium tried to hinder the import of GM cars by anyone other than the company owned distributor in Belgium. However European commission ruled that the GM distributor charged excessive prices for inspections and conformity certificates for cars bought outside the GM channel. The commission levied a fine for abuse of dominant position. In countries with every uneven income distribution, firm might use selective distribution iof it sells only to a group above a certain income level For consumer durables or industrial products, the distribution in smaller market might be more selective because of the thinness of the market and it relative concentration.

Working with Channel

Firms sell directly to retailer or consumer-costs of distribution bring the benefits of control, flexibility in responding to market and better market feedback Indirect distribution: Coordination is major issue than control. Firm's situation varies from country to country, making channel management a somewhat different task in each market. E.g.: Clinique in Japan-Major channel of selling cosmetics in Japan is small cosmetic specialty Stores. Shiesdo, sell through 25000 stores 2nd Option-Department Stores Clinique promised department stores ti would sell only through tem , in turn of giving them most desirable space, right to hire it sown staff and dress them in white coats. Mc Donalds in Switzerland-Brightly painted dinning cars n Swiss trains

Working with Channel

Firm success depends on how well independent intermediaries do their job Helping them to do their job becomes major responsibility of international marketer Coca-cola ran into trouble in Japan. They appointed manager whos forte was dealing with franchised bottlers-visited the bottlers in Japan, listened to their problems, solved them and imparted training Firms have developed other techniques to encourage cooperating from members of the channel like offering margins, exclusive territory, valuable franchise, advertising support, cooperative advertising, market research Levi Strauss when found a weakness in retail link of its channel in Europe, it decided to use more selective distribution and give more support to these retailer who were willing to emphasize Levi products. More Support-special discounts, local advertising help, merchandising assistances, raining of retailers sales staff Firm needs to be competitive in each of its market. Pricing cutting can lead firms to tough situations. International Firm may or may not have a valuable franchise to offer its channel members. When a firm enters a new market, its brand is unknown. So problems in finding ready distributor/subsidiary Strong advertising support makes intermediaries more cooperative International firms have an advantage over national firms They have financial resources to advertise extensively They more expertise in advertising than most of their national competitors German competitor of P&G was able to enter any European Country and buy 15% market share based just on the strength of its advertising Cooperative advertising with channel members The same financial resources makes them competitive by giving credit to channel members

Working with Channel

Size and experience of MNC helps them in other avenues of obtaining cooperating Training sales or service personnel, business advisory service and market research associate Economies in training centralized training Additional prestige by regional meetings with representatives from all around world E.g.; Auto firm found a new way to rain its far-flung network of dealers by leasing a plane and outfitting it as a classrom-18 stops through Central and Latin America in Spanish. Increasing firms commitment to local market. When firm changes from import to local production, it increased reliable and can give better deliver and service . Transportation, custom, inventory and communication problems also decreases Missionary Selling: Way to maintain contact with channel members and to help them to sell product. In markets with many small retailers, it is more difficult Where market is not too thin, missionary selling can play vital role Wrigley Company: As chewing gum caught on in Europe, European competitors emerged and used a low price strategy to attack Wrigleys position. Wrigley responded by convincing retailer of the greater profits they could obtain with well-established , strongly advertised brand

Working with Channel

Keeping Channels Up-to-date: Dynamic Environment-occurs at different rates in different markets 1. Volume of sales 2. Product line expansion 3. Level of involvement-importer-exporter to marking subsidiary or from licensee to joint venture and so on 4. Wholesaling and retailer Development 5. Technological Change in Distribution 6. Change in purchasing behaviors 7. Laws affecting distribution Growth of a firm in a market: Union Carbide has been selling its consumer products in the fragmented Philippine market through one national distributor (indirect channel) When the company expanded it involvement by building plant in Philippines it wanted a more vigorous sales effort Established 4000 Class A dealers, while functioning as retailers served primarily as wholesalers to Class B and C dealers Union Carbide appointed 100 of its own sales people to work class A dealer System resulted in more aggressive marketing with more control

Environmental Change: Large Scale Retailing

The trend over retail concentration and buying co-ops in Europe have two-fold impact Concentrate-Direct distribution Increased demand for private brands Bargaining power of such large groups affect pricings The strategic response of firm to large scale retailing would be to either direct channel or dual channels that is selling directly to large retail groups and indirectly to smaller retailers E.g: Kodak expanded its market share in Japan by private branding for a large Japanese retailer Large scale retailing organizations have cause manufactures to make still other adaptations. UK: Manufactures have increased promotional activities to large retailers using missionary selling and at same time reduced their efforts with smaller retailers (who will be taken care by wholesalers)-Dual Channel E.g.; Heinz-found that fewer than 300 buying points controlled over 80% of market for its product, it stopped deliveries to the small independent retailer, leaving them for retailers

Changes on formation of Regional Blocks

1. Retailers will become larger and more powerful with continuing concentration and integration 2. Private brand will increase further and there will be retailers Euro brands 3. Retailer power will mean lower supplier (manufacturer) margins 4. Logistics including warehouse and production locations, must adjust for the integrated market and retailer concentration 5. Greater pricing uniformity will occur in Europe with Euro. This means less freedom for manufacturers 6. Mail order will continue to grow and become international

Other Changes
Rising wages Self service retailing E.g.: Nissan in Japan has to change distribution channelDoor-to door-> automobile showrooms Technological developments like Cold Chain-enlarge product line possibility. E.g.: Unilever found out that major deterrent to growth to be the retail link of the cold chain. Many retailers could not afford freezer unit. Unilever helped by financing in frozen-food unit in the expectation that the growth in the companys frozen-food sales would be enough to cover financing costs Managing distribution often requires changing the channel when conditions change E.g..: After world war II, ice cream producer-dilemmatraditional drugstores..supermarkets started also stocking it Although firm may reap ill will from existing channels, Goodwill and strong place in the new outlet by being the first to change

Logistics for International Marketing

Logistics includes those activities involved with the choice of number and location of facilities to be used and material or products to be stored or transported from suppliers to customers in all the firms markets. Affects the number and location of production and storage facilities, production schedules, inventory management and event he firms level of involvement in foreign market Export Logistics differs from domestic in following ways: 1. Documentation for an international sale: (a) Costs more, (b) involves more parties (c ) has a higher penalty for error and (d) requires more data. 2. The average export order is much larger than a domestic sales, requiring more rigorous credit check of foreign buyer 3. There is a new intermediary in export sales-the international freight forwarder Logistics management offers international marketer two ways to increase profit: cost reduction and market expansion

Firm has subsidiary-seek ways to optimize physical distribution Distributors or licensees, it has only a limited role in local logistics Logistics depends on size of the market, the way the market is supplied, degree of urbanization, the topography and the transportation and storage facilities. Developing Nations have weaker infrastructure and this combined with poorer market forces logistic adjustment E.g: PepsiCo acquired Mexican company whose fleet was 37 bicyclesPepsiCo expanded operations and covers Mexico with 7000 vehicles Even in Industrial markets, fragmented wholesaler-retail structure and led to distribution inefficiencies Japan-because of coverage problem, many firms limit themselves to Tokyo and Osaka metropolitan areas Coca-cola felt the need to cover entire Japanese market, franchising 54 bottlers who distribute from 500 warehouse to 8500 trucks Topography also plays a major problem-rivers, mountains, etc Some Latin American Countries are divided into almost inaccessible regions due to Andes Mountains. Firms concentrate on urban market E.g.: Bata In Peru concentrate on rural Europe-Inland Transportation is good

Logistics within Foreign Markets

following path: Ocean shipping arrives inland on the Congo River at Matadi, where it is unloaded and put on train Train goes to Kinshasa, capital, by passing the falls between Matadi and the Capital At Kinshasa, the goods are put on a boat for 1000 mile river trip to Kisangani, where the river is again un-navigable There the goods are put on a train for Kindu At kindu, goods are transshipped back by truck Physical distribution cost??? Inadequate storage facilities and Climate conditions-damage and loss The rebel fighting in Eastern Congo?? 2) Trouble at NAFTA Highway US and Mexico. 90% of such trade was by truck. In a year-300 hijacking and hundreds of millions of dollar was lost UPS-not allowed to take trucks bigger than 4 Tons. Stopped Deliveries US cancelled plans to open US highways to Mexicans citing that Mexican trucks were unfit for US roads.

Distribution problems in Congo part of Congo take the Imported goods destined for the eastern

Factors affecting Multi market Logistics

1) Governments: Tariff barriers, Import Quotas and license Local Content laws National Currencies, monetary systems and exchange control Differing tax systems and rates Differing transportation policies Differing laws on products (food, drug, labeling, safety)

Logistics management has to overcome all these barriers and try to achieves integrated work market in it own physical distribution Sales will increase if customer service level increases (Delivery times, availability of parts and services and other elements required to meet customer needs and desires) The appropriate customer level varies among countries because of competition and customer expectation

Factors affecting Multi market Logistics

2) Affected by the level of involvement by the firm. Wholly owned subsidiaries, it has the most control of the customer service level. Joint Venture-Less control Licensee and distributor market-offer least control 3) Given choice, firms would concentrate on logistics in their home and export to world markets. Advantage being Economies of scale and eliminates many international business problems such as dealing with foreign labor or governments operating unknown environment Japanese used this approach but still many factors worked against it: (1) Transportation cost (2) trade barrier (3) Foreign exchange (4) Political Resistance (5) customer service needs These factors often force to choose a deeper commitment to the foreign market E.g.; Japanese built Auto plants in US and Europe because of protectionist pressures US firms also expanded production in Europe due to Protectionist fears Coca-cola built a concentrated plant in India because of trade restrictions

Dynamic Environment
Designing a logistics system for international market is dynamic task-all parameters change-Competition and markets Transportation continuous evolution Government barriers change too. Tariff barriers have been reduced. Grouping has come Government changes in import quotas and local-content requirement Many countries require exports form foreign firms in their country Changing relations (E.g. Arab-Israel or East-west) also affect physical distribution Opening up of large new markets in such places as Eastern Europe, China and Vietnam These market pose large logistic challenges because of their inadequate infrastructure Russia , security is a serious problem E.g: Colgate has its own warehouse in Moscow-24x7..truck-armed escort follows, rail, armed guard inside the locked car Flexible Response system-investment---Contingency planning must be an inherent part of modus operandi.

Management of International Logistics

Physical distribution cost is major cost affecting profit as it affect sales and customer service Facilities and Technology: 1. Service Organizations such as transportation companies and freight forwarders 2. Institutions such as free trade zones and public warehouses 3. Modern technology and hardware such as computers, telex, containerization and jumbo jet planes Freight Forwarders: Specialist in Transportation and documentation for international shipments. Handle shipments, insurance and consolidate shipments for lower cost, Provide information on shipping and foreign import regulations Free-Trade Zones (FTZs): 50 nations have established 500 free trade zones, free ports, bonded warehouses and similar services to overcome some of self-created problems. There are over 300 foreign trade zones in US. These facilities are government owned and supervised by Customs officials. Firms do assembly, sorting and repacking within this zone. Goods are permitted to be brought here without paying duties. Increase Employment

Free-Trade Zones (FTZs): Advantages

1. They permit economies of bulk shipping to a country without the burden of customs duties. Duties are paid if goods are released on lot basis from the zone 2. Permit manufacturers to carry a local inventory at less cost than in facilities they own because in their own facilities they must pay the duty as soon as the goods enter the country. Duties are significant, financial burden is high. E.g.: Bausch & Lomb Inc, leased 500 sq meters in the public bonded warehouses at Netherlands Schipol Airport and shipped merchandise there at bulk rates from US Company used Schipol as its European Distribution Center Big saving by concentrating on European inventories in one sport and delivery within 2 days Distributor and agents also reduced their own inventories thereby improving distributor relationships. 3. US FTZs offer some advantage as others and are used by US and foreign firms, though more by the latter Among major US users are GM and Ford with 10 zones each. Import ingredients or components into zone without paying duty and after assembly product is shipped in to US market at much lower rate AOC, Taiwanese TV producer, imported tubes and components without paying duty(22%) and after assembly it shipped them into US market with 11% duty.

Free-Trade Zones (FTZs): Advantages

4. The ability to engage in local processing, assembly and repacking can mean savings to the firm. Local labor cost may be less than at home Mercosurs growth has caused FTZs to boom in that region. In Dominican Republic there are 42 such zones New Variation: Allows a company to have all or some parts of its own plant declared as free-trade zone or bonded warehouse. Hondas motorcycle plant in Ohio are located in FTZs Brazil permitted Caterpillar to have an on-site free zone Saving are significant to Caterpillar because duties on its imports in 50% & Goods have to be financed for one year Good way to retain foreign companies threatening to leave Firms over 20 countries are operating in US FTZ Evaluation of Free Zones: Usefulness to firms situation. Usefulness depends on duty rates-primarily to overcome tariff barriers they are less import for products with low duty Less important for product with low duties Economies of bulk shipment and low cost labor Minimize investment needs Evaluate each zone as each zone does not deliver promised advantages E.g.: Latin American FTZs

Modern Technology
Supertankers, containerization, jumbo jets and computers Physical distribution depends on the State of art in transportation and storage European integration, Philips spent heavily on super automated Euro distribution centers for each product division. Comprehensive computer systems run the entire operation on an orderingto-forwarding basis Computers and Communications-with in instant, firms markets and supply sources around world can be made of the same physical distribution network

Case let: The Limited

The Limited is a US retail chain with 3200 outlets and different kinds of stores: The Limited, Express and Victoria's Secret Success was due to its mastery of modern technology in international logistics giving an increase the level of customer service and gained competitive advantage 1. From point of sales computers in all it stores, daily sales reports flow back to company HO in Columbus, Ohio 2. To restock its best seller, The Limited sends production orders by satellite to plants in US, Hong Kong, Srilanka, South Korea and Singapore 3. When goods are finished, they are flown back to Columbus in a chartered 747 that makes 4 flights weekly 4. At its automated distribution center in Columbus, apparel is sorted, priced and shipped within 48 hours 5. Trucks and planes carry goods from Columbus to 3200 stores 6. Within 40 days of the order, apparel is on sale. 7. Most competitors order 6 months or more in advance.

Coordination of International Logistics

International logistics inevitably involves more than 1 country...coordination Some ITT Europe companies lost major orders because their distribution costs were too high Managers perceived the distribution cost is 1 to 1.5% Reality it is at least 6% or over US 700 million Brought in system-cost saving For One Market: Within each market physical distribution is primarily handled by subsidiary or distributor there Corporate HQ should provide assistance in planning local physical distribution. Some government require balancing of each dollar of import with that of export. E.g.: To improve its customer-service level in North America, BMW established 3 parts distribution centers for its 420 auto dealers and 290 motorcycle dealer, By calling the nearest center, dealer can hook into BMWs inventory network

Coordination of International Logistics

For Regional Market: Operating within regional groupings need coordination EU integration, a subsidiary or distributor in one member country cannot be considered merely a national operation EU, physical distribution must be organized on EU-wide basis Manufacturers have to rationalize and centralize their logistics. E.g.: Reduction in number of warehouse. Whirlpool went from 30 warehouses to 8 regional centers; Bosch from 30 to 10, 3M claimed saving of USD 80 Million/year by reducing the number of warehouses and reorganized and centralizing its logistics SKF, Swedish firm, worlds largest producer of ball bearing. SKF choose Singapore as its sales service and distribution center for South East Asia. Singapore was chosen due to its excellent shipping and air-freight services, offered a free port, enabling the company to avoid tariffs and sales tax on transshipments.

Coordination of International Logistics

For International Market: Firms having many markets and supply sources need overall coordination for optimum integration of demand and supply. Centralized basis-each plant to perform efficiently and have adequate inventory and gives customer service in each market One office, not necessarily HQ coordinates all export orders and assigns production sources for the order. E.g: Eaton produces in 43 countries. All products are exported to more than 100 countries through a marketing organization based in Switzerland Centralized exports is often tied up with regional distribution centers where inventories are held for faster local delivery. E.g.: Caterpillar has a parts depot if Far east from which it ships inventory and provides services to dealers and customers in 19 Asian Countries Conclusion: Centralized control is necessary. Benefit of efficient international logistic planning should be to increase profit produced by: 1. More stable production levels at plants in different countries 2. Lower cost distribution resulting in part from the possibility of combining small orders into container of planeload lots 3. Better customer service level in international markets

Case let: Dow Chemical Company

Dow Chemical Company processed 25000 orders in one year and made 12000 export shipments . Ocean freight costs came to USD 12 million. Dow handled the shipments from its Midland, Michigan HQ though International Distribution and Traffic Department which had 55 employees Dow had overseas manufacturing in 20 locations and bulk terminal or package storage facilities in more than 35 locations Dow made price lists enabling sales representatives to quote a price on any chemical in more than 100 market. Had Insurance, freight costs, consular fees and duty Computerized and updated list was always available as the rules and norms changed Freight rates were changing due to bargaining with over 30 steamship conferences on rates and classification on its chemicals. Dowpon, reclassified this chemical and brought cost from USD 64 to USD 42 per ton. This opened new market and bet its competitive German product Volume shipments-Firm operated 3 vessels under long term contract This was in addition to its regular spot and medium term charter arraignments Though it did its own logistic planning it used the service of freight forwardstwo on Gulf Coast (East and West Coat) and one on Great Lakes