Ch 14 Quality

1
International Marketing Channel
2
Distribution Terminology

• Distributor wholesale intermediary that
  typically carries product lines or brands on a
  selective basis
• Agent an intermediary who negotiates
  transactions between two or more parties but does
  not take title to the goods being purchased or
  sold

3
Home Country Middlemen
? Global Retailers ? Export Management
Company ? Trading Companies (Foreign) ? U.S.
Export Trading Companies ? Complementary
Marketers ? Manufacturer's Export Agents ? Home
Country Brokers
14-11
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4
Home Country Middlemen
? Buying Offices ? Selling Groups ? Foreign
Sales Corporations ? Norazi Agents ? Export
Merchants ? Export Jobbers
14-12
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5
Foreign Country Middlemen
? Manufacturer's Representatives ?
Distributors ? Brokers ? Managing Agents and
Compradors ? Dealers ? Import Jobbers ?
Wholesalers ? Retailers
14-17
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6
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
14-10
Foreign agent or merchant wholesalers
Open distribution via domestic wholesale middlemen
Foreign retailers
Exporter
Importer
Export management company or company sales force
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7
Cutting Out the Middleman
Number of companies involved in each level of the
food industry, of total, 1993
141,597
97,882
181,374
Total number
100
Manufacturers
90
14-8
80
Wholesalers
70
60
50
40
Retailers
30
20
10
0
Japan
Britain
United States
Irwin/McGraw-Hill
8
Japanese Distribution Structure
? High Density Middlemen ? Channel Control ?
Business Philosophy ? Large-Scale Retail
Store Law and Its Successor ? Changes Effected
by SII
14-2
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9
Large-scale Retail Store Law
Protect Small Retailer 500 Sq Meters (5,382 Sq.
Ft.) Approval from MITI and Prefectural
government to Build Expand Changing
Operating Hours Change Days Closed Local
Retailers must unanimously approve plan Months
to years for approval Japanese Supermarket - 10
years Toys "R" US - 3 years Licenses required
to operate Full Service Store - 39 Licenses need
approval
14-5
Irwin/McGraw-Hill
10
Japanese Consumer Philosophy
? Harmony and Friendship ? Consumer ? Brand
Loyalty ? Service and Quality Over Price ?
Small, Frequent Purchases
14-6
Irwin/McGraw-Hill
11
Retail Patterns
Retail Outlets Population Employees Country (000)
per Outlet per Outlet
Argentina 199.5 164 4 Australia 160.2 111 5 Canada
157.2 183 9 India 3540.0 253 NA Japan 1591.2 79 4
Malaysia 170.6 109 8 Mexico 899.3 96 2 Philippine
s 120.1 547 28 South Africa 60.4 675 7 South
Korea 730.0 60 2 U.S.A
1516.3 170
13
14-9
SOURCES International Marketing Data and
Statistics, 21st ed.
(London Euromonitor
Publications, 1997), and "Indicators of Market
Size for
115 Countries," Crossborder Monitor, August 27,
1997.
Irwin/McGraw-Hill
12
General Distribution Patterns
? Middlemen Services ? Line Breadth ? Costs and
Margins ? Channel Length ? Nonexistent
Channels ? Blocked Channels ? Stocking ?
Power and Competition
14-7
Irwin/McGraw-Hill
13
6 Cs of Channel StrategyFactors affecting
choice of channels

• Cost of developing and maintaining the channel
• Capital greater capital required if company
  wants internal channels (own sales force)
• Control as a channel lengthens, it becomes more
  difficult to control the marketing mix
• Coverage geographic, market segment or both
• Character must fit character of company and
  market in which it does business
• Continuity longevity and loyalty

14
Channel Development
? Locating Middlemen ? Selecting Middlemen ?
Screening ? Agreements ? Motivating
Middlemen ? Terminating Middlemen ? Controlling
Middlemen
14-15
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15
Getting PaidForeign Commercial Payments

• ? Letters of Credit
• ? Revocable
• ? Irrevocable
• ? Bills of Exchange
• ? Cash in advance
• ? Open Accounts
• ? Forfaiting

15-16
Irwin/McGraw-Hill
16
A Typical Letter of Credit Transaction

• After you and your customer agree on the term of
  sale, the customer arranges for his or her bank
  to open a letter of credit. (Delays maybe
  encountered if, for example, the buyer has
  insufficient funds. In many developing
  countries, foreign currencies, such as the U.S.
  dollar, may be scarce.
• The buyers bank prepares an irrevocable letter
  of credit, including all instructions.
• The buyers bank sends the irrevocable letter of
  credit to a U.S. bank requesting confirmation.
  (Foreign banks with more than one U.S.
  correspondent bank generally select the nearest
  one to the exporter.
• The U.S. bank prepares a letter of confirmation
  to forward to you, along with the irrevocable
  letter of credit.
• You review carefully all conditions in the letter
  of credit, in particular, shipping dates. If you
  cannot comply, alert your customer at once.
  (Your freight forwarder can help advise you.

15-17
Source A basic Guide to Exporting. U.S.
Department of Commerce, International Trade
Administration. Washington D.C.
Irwin/McGraw-Hill
17
A Typical Letter of Credit Transaction

• You arrange with your freight forwarder to
  deliver your goods to the appropriate port or
  airport. If the forwarder is to present the
  documents to the bank (a wise move for
  new-to-export firms), the forwarder will need
  copies of the letter of credit.
• After the goods are loaded, the forwarder
  completes the necessary documents (or transmits
  the information to you).
• You (or your forwarder) present documents
  indicating full compliance to the U.S. bank.
• The ban reviews the documents. If they are in
  order, it issues you a check. The documents are
  airmailed to the buyers bank for review and
  transmitted to the buyer.
• The buyer (or agent) gets the documents that may
  be needed to claim the goods.

15-18
Source A basic Guide to Exporting. U.S.
Department of Commerce, International Trade
Administration. Washington D.C.
Irwin/McGraw-Hill
18
Export Payment Terms Risk/Cost Tradeoff
Risk to Exporter Least Risk_______________________
_____________________ Highest Risk Confirmed Ir
revocable Bank Bank Cash in Irrevocable Letter
of Collection Collection Open Advance Letter of
Credit Credit Sight Draft Time Draft Account Cost
to Buyer Highest Cost ___________________________
________________ Least Cost
15-19
SOURCE Business America, February 1995.
Irwin/McGraw-Hill
19
Customs-Privileged Facilities
Foreign Trade Zones
15-21
Maquiladoras, In-Bond Companies, Twin Plants
Irwin/McGraw-Hill
20
Transportation Considerations

• Rail
• Truck
• Air
• Water
• Inland water transportation
• Ocean transportation
• Pipeline

21
Comparison of Transport Modes
22
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/day) Singapore and U.S.
126,540 Warehouse rent 6,500 Real physical
distribution costs 209,119 133,487
15-15
Ocean Air
SOURCE Adapted from "Air and Adaptec'c
Competitive Strategy,
International Business, September 1993, p.44.
Irwin/McGraw-Hill