Tom Gillpatrick, Ph'D'

1

International Marketing

• Tom Gillpatrick, Ph.D.
• Juan Young Professor of Marketing Executive
  Director, FILC
• Master International Management Program
• School of Business Administration
• Portland State University

• 25 February 2004

2
Global Distribution Channels

• Overview
• 1. Channel Mapping-Who are Players?
• 2. Six Cs of Channel Strategy
• 3. Channel design
• 4. Global Retailing
• 5. Comparison U.S. vs. Japan
• 6. Logistics exports
• Gray markets

3
SOFT DRINK INDUSTRY CHANNELS
CP Suppliers Coke Pepsi
Food Stores (40)
E N D M A R K E T
Bottlers -Captive -Independent
Other Outlets (21)
Fountain (17)
Raw Materials
Convenience Gas Marts (14)
Vending (8)
Package Suppliers
4
International Channel-of-Distribution Alternatives
Home Country
Foreign Country
The foreign marketer or producer sells to or
through
Foreign consumer
Domestic producer or marketer sells to or through
Foreign agent or merchant wholesalers
Open distribution via domestic wholesale middlemen
Foreign retailers
Exporter
Importer
Export management company or company sales force
5
Home Country Middlemen
? Export Management Company ? Trading Companies
(Foreign) ? U.S. Export Trading Companies ?
Complementary Marketers ? Manufacturer's Export
Agent ? Broker ? Buying Offices ? Selling
Groups ? WPEA ? FSC ? DISC ? Norazi Agent ?
Export Merchants ? Export Jobbers
6
Home-Country Middlemen

• Export Management Companies
• Highly specialized in certain industries and/or
  regions
• Trading Companies
• The Japanese Model sogo shoshas
• The U.S. Model and the Export Trading Company Act

7
Home-Country Middlemen, continued

• 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
• Manufacturers export agent represent a
  manufacturer
• Buying offices buyers located in the firms home
  country, representing different international
  firms

8
Home-Country Middlemen, continued

• Cooperative Export Arrangements
• Also known as piggybacking and mother henning
• 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 actually take
  title to the complementary products that they
  export

9
Home-Country Middlemen, continued

• Webb-Pomerene Associations of Exporters
• Competing companies that join resources and
  efforts to export internationally
• Are exempt from antitrust scrutiny
• Are present especially where cartels are active

10
Home-Country Middlemen, continued

• Foreign Sales Corporation (FSC)
• Sales corporation that is set up overseas
• Allows for a portion of U.S. firms
  foreign-source income to be exempt from U.S.
  income tax
• To qualify for tax exemption, firm must
• have a foreign presence
• meet certain management and economic requirements
• incur abroad a minimum level of direct costs in
  sales activities, in areas such as marketing,
  advertising, and order processing.

11
Home-Country Middlemen, continued

• 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

12
Foreign Country Middlemen
? Manufacturer's Representatives ?
Distributors ? Brokers ? Managing Agents ?
Dealers ? Import Jobbers ? Wholesalers and
Retailers
13
Foreign-Country Middlemen

• Merchant Middlemen
• Intermediaries who carry the manufacturers
  product line in a particular country
• Usually carries title to and has physical
  possession of the products

14
Foreign-Country Middlemen, continued

• Agents and Brokers
• Many types of agents and brokers in foreign
  markets, such as manufacturer's representatives
  and managing agents
• Could act as the manufacturers sales
  representatives and are paid on commission
• Or they could take on the role of managing agents
  (also known as compradors), with an exclusive
  arrangement with the company, representing it in
  the foreign market the latter are paid as a
  percentage of sales

15
Foreign-Country Middlemen, continued

• Alternative Distribution Structures Network
  Marketing
• Using acquaintance networks for the purpose of
  both sales and distribution
• Have high potential in emerging markets

16
Six Cs of Channel Strategy
? Cost ? Capital ? Control ? Coverage ?
Character ? Continuity
17
Issues Related to International Distribution

• Using Established Channels
• Could charge high prices
• Could be blocked by competition
• Choice is a long-term decision company may be
  bound indefinitely to the channel choice
• Building Channels
• Necessary if there are no channels at all and if
  the existing channels do not conform to company
  needs
• Expensive

18
SOFT DRINK INDUSTRY CHANNELS
CP Suppliers Coke Pepsi
Food Stores (40)
E N D M A R K E T
Bottlers -Captive -Independent
Other Outlets (21)
Fountain (17)
Raw Materials
Convenience Gas Marts (14)
Vending (8)
Package Suppliers
19
International Channel-of-Distribution Alternatives
Home Country
Foreign Country
The foreign marketer or producer sells to or
through
Foreign consumer
Domestic producer or marketer sells to or through
Foreign agent or merchant wholesalers
Open distribution via domestic wholesale middlemen
Foreign retailers
Exporter
Importer
Export management company or company sales force
20
Evaluating Channel alternatives
21
Channel Control by Manufactureror Trading Company

• ? Inventory Financing
• ? Cumulative Rebates
• ? Quantity Purchased ? Early Payments ?
  Achieving Sales Targets ? Performing
  Services ? Maintaining Inventory Levels ?
  Sales Promotions ? Loyalty ? Maintain
  Prices ? Cooperation
• ? Merchandise returns of unsold Merchandise
• ? Retailers Receive
• ? Displays
• ? Advertising
• ? In-store Displays
• ? Financial Assistance

22
Channel Design process
23
Evaluating Channel alternatives
24
Global Retailing

• Push versus Pull
• On-Time Retail Information Management
• Reduced Inventory
• Market Information at the Retail Level
• Retailing Differences across the World

25
Retail Patterns
Retail Outlets Population Employees Country (000
) per Outlet per Outlet
Argentina 787.0 40 3 Canada 134.5 185 9 South
Korea 716.8 60 2 Australia 160.2 100 6 India 3,140
.0 259 -- Malaysia 148.3 124 9 Mexico 825.0 109 3
Philippines 118.5 531 29 U.S.A. 1,872.5 228 11 Jap
an 1,821.0 68 3
26
Global Leaders Sales Growth

• Country 1994 1999
• Wal-Mart US 82 160 95
• Carrefour France 25 65 171
• METRO Germany 41 61 48
• Ahold Netherlands 16 47 194
• Edeka Germany 19 44 131
• Intermarche France 22 43 95
• Kroger US 23 42 83
• Ito Yokado Japan 28 40 43
• Albertsons US 12 36 227
• Auchan France 12 36 200

27
Retailing in U.S. and Japan
Food Store Comparison
Small Stores Sales Japan 95 57 U.S. 70 19
Japan 94 50 U.S. 81 33
Non-Food Stores
28
Cutting Out the Middleman
141,597
97,882
181,374
Total number
100
Manufacturers
90
80
Wholesalers
70
60
50
40
Retailers
30
20
10
0
Japan
Britain
United States
Number of companies involved in each level of the
food industry, of total, 1993
29
Nonstore Retailing

• Television Home Shopping
• A venue for selling merchandise to consumers in
  their homes using cable channels
• Examples infomercials and direct response
  advertising
• Popular in North America and Europe, and becoming
  increasingly popular in Asian markets

30
Nonstore Retailing

• Catalog Retailing and Direct Mail Retailing
• Venues for selling merchandise to consumers using
  catalogs and other types of direct mail
• It allows for the international expansion of
  retailers
• Must be adapted to local market needs and
  practices
• Obstacles in developing countries
• deficient telephone service
• unreliable mail service
• low income
• unavailability of credit cards

31
Nonstore Retailing

• Direct Selling
• A retailing venue whereby a salesperson,
  typically an independent distributor, contacts a
  consumer, demonstrates product use and benefits,
  takes orders and delivers the merchandise
• Direct selling firms are most active in the
  growth markets (in emerging markets, in
  particular)

32
Network Marketing

• Variation on direct selling
• Involves signing up sales representatives to go
  into business for themselves with minimal
  start-up capital and sell more "distributorships"
  and merchandise
• Network marketing is growing rapidly, especially
  in emerging markets

33
Issues in International Retailing

• Legislation and Regulation
• Taxation and Cross Border Shopping
• Variations in Retailing Practice and Customs

34
Gray Markets

• Why Gray Markets Develop
• Currency Fluctuations
• Differences in Market Demand
• Segmentation Strategy
• How to Combat Gray Market Activity

35
KEY FACTORS DRIVING GRAY MARKTS
I. PRODUCTS It should be capable of
being stored or inventoried. It should
have appeal to broad array of users. II.
CHANNELS Have an organized distribution
channel in parallel to gray channel. The
promotional efforts of mfg. dealers spare gray
marketer the task. III. PRICES The use
of price/quantity discounts.
36
STRATEGIES GRAY MARKETS
I. MAINTENANCE/FIELD SERVICE II.
DISTRIBUTOR TRAINING III. WARRANTY/GUARANTY
AGREEMENTS IV. CUMULATIVE DISCOUNTS YEAR END
BONUSES V. OFFER DISCOUNTS DIRECTLY TO
CONSUMER VI. CONFUSE THE BUYER WITH "BUNDLED"
GOODS VII. DELETE CHANNEL MEMBERS WHO Dont
Cooperate VIII. GO AFTER GREY MARKETERS IX.
OWN YOUR OWN CHANNEL X. ONE PRICE FOR ALL

37
Global Logistics

• Global logistics
• Materials management
• Physical distribution

38
Managing Global Logistics

• Distance
• Exchange Rate Fluctuations
• Foreign Intermediaries
• Modes Of Transportation
• value-to-volume ratio
• perishability
• cost of transportationOcean Shipping
• Air Freight
• Intermodal Transportation

39
Managing Global Logistics

• Warehousing and Inventory Management
• Hedging against Inflation or Exchange Rate
  Fluctuations
• Benefiting from Tax Differences
• Logistic Integration and Rationalization
• Intra-Company versus Inter-Company (Third Party)
  Logistic Management

40
International Distribution and Logistics

• Distribution Centers
• Transportation Firms
• Freight Forwarders and Customs Brokers
• Government Agencies
• Promote national security
• Promote international involvement of local firms
• Provide financing and insurance for high risk
  ventures

41
Government Agencies

• International Trade Administration
• Bureau of Export Administration
• U.S. Commercial Service
• Export/Import (Ex-Im) Bank
• United States Trade and Development Agency

42
Other Service Providers

• Non-governmental
• International Chamber of Commerce
• Banks
• Insurance agencies
• Marketing research firms
• Consultants

43
Logistics Alliances

• Establish objectives
• Identify providers
• Express needs/wants
• Evaluate and select bidder
• Develop integration plan
• Create win-win relationship
• Measure and analyze performance
• Redefine goals and objectives

44
Challenges to International Distribution and
Logistics

• Distribution challenges in developing countries
• Parallel imports (gray markets)
• Distribution systems that are not authorized by
  the manufacturer products purchased in a
  low-price market are diverted to other markets
• Hurt company image
• Charge similar prices worldwide
• Create product for low-markets not as attractive
  to up-market
• Complicate repair/servicing process for gray
  market goods
• Inform consumers
• Litigate

45
Logistics Challenges

• Combating Parallel Imports
• Charging similar prices worldwide
• Creating product for low-price markets not as
  attractive to up-market
• Complicating the repair/servicing process for
  gray market goods
• Informing consumers
• Litigating

46
Whos Responsible for Costs Under Various Terms?
FOB (Free on FOB (Free on FAS (Free CIF
(Cost Board) Inland Board) Inland Along
Side) Insurance, Carrier at Carrier at Vessel
or Freight) at Factory Points of Plane at
Port Port of Shipment of Shipment Destination
Export packing Buyer Seller Seller Seller Inlan
d freight Buyer Seller Seller Seller Port
charges Buyer Buyer Seller Seller Forwarder's
fee Buyer Buyer Buyer Seller Consular fee
Buyer Buyer Buyer Buyer Loading on vessel
orplane Buyer Buyer Buyer Seller Ocean
freight Buyer Buyer Buyer Seller Cargo
insurance Buyer Buyer Buyer Seller Customs
duties Buyer Buyer Buyer Buyer Ownership of
When goods on When goods When goods When
goods goods passes board an inland unloaded
by alongside on board air carrier (truck,
rail, inland carrier carrier, in or
ocean etc.) or in hands hands of air carrier
at port of inland carrier or ocean carrier of
shipment
Who absorbs export packing? This charge should
be clearly agreed on. Charges are sometimes
controversial. The seller has responsibility
to arrange for consular invoices (and other
documents requested by buyer's government).
According to official definitions, buyer pays
fees, but sometimes as a matter of practice,
seller included in quotations.
47
Real Physical Distribution Costs Between Air and
Ocean Freight - Singapore to the United States
In this example, 44,000 peripheral boards worth
7.7 million are shipped from a Singapore plant
to the U.S. West Coast. Cost of capital to
finance inventories is 10 percent annually
2,109 per day to finance 7.7 million. Transpor
t costs 31,790 127,160 (in transit 21
days) (in transit 3 days) In-transit inventory
financing costs 44,289 6,328 Total
transportation costs 76,079
133,487 Warehousing inventory costs (60 days _at_
2,109 per day) Singapore and U.S.
126,540 Warehouse rent 6,500 Real physical
distribution costs 209,119 133,487
Ocean Air
SOURCE Adapted from "Air and Adaptec'c
Competitive Strategy," International Business,
September 1993, p.44.
48
Export and Import Management

• Overview
• 1. Organizing for Exports
• 2. Indirect Channels of Distribution
• 3. Direct Export Marketing
• 4. Linkages between FDI and Exports
• 5. Mechanics of Exporting
• 6. Role of the Government in Promoting Exports
• 7. Managing Imports - The Other Side of the Coin
• 8. Mechanics of Importing
• 9. Gray Markets

49
The Exporting Process
Leaving the Exporting Country
Physical Distribution
Entering the Importing Country
LicensesGeneralValidated DocumentationExport
declarationCommercial invoiceBill of
ladingConsular invoiceSpecial certificatesAnd
other documents
International shipping and logistics Packing Insur
ance
Tariffs, taxes Non-tariff Barriers Standards Ins
pection Documentation Quotas Fees Licenses Sp
ecial certificates Exchange permits And other
barriers
50
Indirect Channels of Distribution

• combination export manager (CEM)
• export merchants
• export commission house
• trading companies
• Major Types of Trading Companies and their
  Countries of Origin
• piggyback exporting

51
Mechanics of Exporting

• FORM 7525-V Information to be Reported On The
  Shippers Export Declaration
• Legality of Exports
• U.S. Export Licensing Authorities for Specific
  Commodities
• Export Transactions
• Terms of Shipment and Sale
• Terms of Shipment

52
Export Documents
l Export Declaration l Consular Invoice or
Certification of Origin l Bill of
Lading l Commercial Invoice l Insurance
Certificate l Licenses l Others u Health
Certificates u Packing Lists u Etc.
53
Mechanics of Exporting

• Payment Terms
• Terms of Payment in an Export Transaction
• Currency Hedging

54
International Personal Selling and Personnel
Management
55
Objectives

• Examine companies' expatriate management
  strategies
• Describe the different types of employees suited
  for a company's international operations
• Address issues related to expatriate management,
  such as motivating international employees and
  ensuring successful assignment performance and
  repatriation

56
Sales Management

• Overview
• 1. Market Entry Options and Sales Force Strategy
• 2. Cultural Considerations
• 3. Impact of Culture on Sales Management and
  Personal Selling
• 4. Expatriates

57
Cultural Considerations

• Personal Selling
• Cultural Generalization
• Five Cultural Dimensions
• Corporate Culture
• Myers-Briggs Type Indicator
• Myers-Briggs Type Indicator of Personal
  Characteristics

58
Impact of Culture on Sales Management and
Personal Selling Process

• Sales Force Objectives
• Sales Force Strategy
• Recruiting and Selecting
• Training

59
Impact of Culture on Sales Management and
Personal Selling Process

• Supervising
• Motivation and Compensation
• Management Style
• Ethical Perceptions
• Evaluating

60
International Presence

• Companies using home-country middlemen
• Rely on sales force of the intermediary for
  international sales
• Companies using host-country brokers and agents
• Rely on sales force of the intermediary for
  international sales
• Companies using host-country manufacturers
  representatives and distributors
• Are engaged, at some level, in personal selling
• Hires local salespeople to call on distributors
• May have local sales office, or a wholly-owned
  subsidiary that engages in the marketing function

61
Expatriates

• Advantages of Expatriates
• Better Communications
• Development of Talent
• Difficulties of Sending Expatriates Abroad
• Cross-Cultural Training
• Motivation

62
Expatriates

• Compensation
• The Price of an Expatriate
• Family Discord
• The Return of the Expatriate - Repatriation
• Generalizations About When Expatriates are
  Good/Bad

63
International Personnel Issues

• Hiring expatriates or locals is a function of the
  companys involvement in the market
• Market presence, entry mode and commitment to
  market determine
• Size of the sales team
• Types of sales representatives

64
Expatriates Home-Country Nationals

• Preferred by companies whose products are at the
  forefront of technology
• Preferred when selling relies on extensive
  training and highly specialized information
• Preferred where there is a greater
  interdependence between overseas unit and
  corporate headquarters

65
Expatriates Home-Country Nationals, continued

• Disadvantages
• High costs
• Cultural barriers
• Lack of local personal connections in the local
  environment
• Difficulty finding employees willing to take on
  international assignments

66
Expatriates Third-Country Nationals

• Employees working temporarily in the assignment
  country who are NOT nationals of that country OR
  of country in which headquarters is located
• Speak numerous languages
• Familiar with customs and business practices in
  different environments
• Have learned, through experience, to adapt
  optimally for international assignments
• Cost less than home-country nationals

67
Host-Country Nationals

• Local salespeople who work in the home country
  for an international corporation
• Understands the business environment and business
  practices in the companys home country
• Well trained technically
• Willing to return to home country to work for the
  multinational firm

68
Long Distance International Selling

• Selling via the Internet or mail is likely to
  become an important venue in approaching new
  customers overseas in the near future.
• Costs of distance selling are lower, allowing
  for greater market coverage,but the selling
  infrastructure (mail, Internet accessibility)
  lags behind in developing countries.

69
Managing International Employees

• Companies that attempt to transplant personnel
  policies proven successful in the home country
  will run against obstacles in different
  international environments.
• Issues related to culture come into play

70
Buyer-Seller Relationship

• Certain selling approaches work better than
  others
• Hard sell
• Eye-to-eye contact
• Business cards
• Negotiation
• Building relationships

71
Understanding Values

• National Character
• Organizational Culture
• Individual Personality
• CONTENT substantive aspects of the interaction
• STYLE rituals, format, mannerisms, and ground
  rules

72
National Character

• Personality traits shared at the national level
• Individualism
• Power Distance
• Uncertainty Avoidance
• Masculinity/Femininity

73
Low- and High-Context Cultures

• Low Context cultures use formal, direct
  communication that is verbally expressed.
• High Context cultures use extensive nonverbal
  information to convey the message cues,
  gestures, and facial expressions.

74
Successfully Managing Expatriates

• Success requires
• Effective selection / screening
• Training and development strategies
• Motivating for peak performance
• Ensuring successful repatriation

50 of expatriateassignments FAIL
75
Recruiting Expatriates Ideal Expatriate

• Has high cultural sensitivity and awareness
• Has the ability to adapt behavior in
  cross-national settings
• Has high level of resiliency
• Has extensive international knowledge and
  willingness to gain it
• Has a strong desire to work overseas

76
Culture Shock and Motivation

• A pervasive feeling of anxiety resulting from
  ones presence in an unfamiliar culture.
• Lessen shock by
• Helping employees know what to expect
• Physical Environment
• Social Environment
• Creating additional incentives
• Extrinsic factors compensation, leave and
  family policies, and career incentives

77
Compensation Incentives

• Cost of living adjustment
• Housing allowance
• Education allowance
• Home-leave allowance
• Moving allowance
• Repatriation allowance

78
Expatriate Obstacles

• Gravitating toward home-country expatriates
• Relying extensively on expatriate groups and
  forums (websites that unite expatriates in a
  region, newspapers, etc.)
• Isolation

Isolation
Going Native
79
Repatriation Issues

• Vast company changes
• Loss of status
• Lack of community
• Reverse culture shock
• AVOID by maintaining connection to company
  headquarters

80
International Publicity, continued

• Publicity includes
• Print articles
• Broadcast messages
• Word-of-mouth communication about the company
  and/or its products
• The company could attempt to influence publicity
  through public relations

81
International Publicity, continued
 

• Negative publicity can be harmful to the company
  the company needs to address it promptly
• Positive publicity is difficult to come by, but
  very valuable
• High impact on consumer purchase decisions
• Due to its independent nature, it is considered
  more credible than any other component of the
  promotional mix

82
International Public Relations
 
A concerted effort on the part of a company to
generate good will among publics (community,
government, consumers, employees, and among
others) that are essential to the company.
83
International Public Relations Efforts

• News releases
• Letters
• Company publications
• Event sponsorship and presence
• Corporate advertising
• Image advertising
• Advocacy advertising
• Public appearances

84
Consumer Sales Promotion

• Sweepstakes
• Contests

• Point of Sale Displays
• Free Samples
• Coupons
• Gifts

85
Adaptation of International Consumer Sales
Promotion

• Global Campaigns
• Requires a priori feedback from local markets
• Rarely attempted in sales promotion
• Useful for markets where there are multiple
  languages and dialects, and which have a unifying
  language
• Modular Campaigns
• Provide a template that can be varied from market
  to market
• Campaign centered around one theme message is
  customized for each market

86
Adaptation of International Consumer Sales
Promotion, continued

• Local Campaigns
• Tailored to local needs
• Retailer cooperation is of particular importance
• Gain significant importance in markets not
  reached by other media

87
Online Sales Promotion

• Pervasive mode of communication with prospective
  consumers
• Sweepstakes
• Coupons
• Promotional Pricing

88
Legal and Ethical Issues

• Sales-promotionrelated legislation differs from
  one country to another
• Certain campaigns may be illegal, such as
• Buy one, get one free
• Sweepstakes based on pure chance
• Promotions may have to be printed in multiple
  languages
• Number of responses may overwhelm the company and
  the postal system

89
Future of International Consumer Sales Promotion
Consumer sales promotion is emerging as an
important component not only of a companys
international promotional strategy, but also of
its international brand strategy.
90
Trade Promotion
Trade shows and exhibitions offer potential
buyers and sellers a chance to meet face-to-face
They bring many decision makers to a single
location for a limited time, enabling firms to
get their message to a large number of people at
one time.
91
Trade Shows

• Account for one-fifth of the overall U.S. firms
  communication budgets
• Organized at set intervals (usually one year),
  and tend to be specialized in one domain
• Neutral sales environment
• Bring together managers from different
  departments in buyers organizations
• Governments ensure that national/local companies
  are represented

92
Examples of International Trade Shows

• Frankfurt Book Fair
• documenta
• Venice Biennale
• DRUPA
• Interkama
• World Fair

93
Summary

• Provided an overview of international publicity
  and the public relations activities that
  influence it
• Described approaches to consumer sales promotion
• Described approaches to international trade
  promotion