Chapter 14

International Distribution Systems

In International Distribution• The firm sells to its customers:

– directly through its own sales force– indirectly through independent intermediaries– indirectly through an outside distribution

system with regional or global coverage

International Distribution Systems

I. Problems in International Distribution1) More stringent legal restrictions2) Goods must be transferred further3) May be difficult to get product to the consumer (infrastructure issues)

II. Channel Design- Length, width, and the “11 C’s”

Intermediaries• Sources for Finding Intermediaries

– Distributor inquires– Governmental agencies

• Commerce Department’s Trade Opportunities Program

• U.S. Exporters Yellow Pages– Private sources

• Trade directories

• Screening Intermediaries– Performance– Professionalism

Selection of IntermediariesAgents• Foreign (Direct)

– Brokers– Manufacturer’s Reps– Factors– Managing agents– Purchasing Agents

• Domestic (Indirect)– Brokers– Export Agents– EMCs– Webb-Pomerene– Commission agents

Distributors• Foreign (Direct)

– Distributors/dealers– Import jobbers– Wholesalers/retailers

• Domestic (Indirect)– Domestic wholesalers– EMCs– ETCs– Complementary

marketers

International Distribution Systems

III. Moving the Product Overseas1) Ocean shipping2) Air freight

IV. Types of Middlemen1) Freight forwarders2) Trading Companies3) Export Management Cos.

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.

Transport 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 $ 133,487Warehousing inventory costs (60 days @$2,109/day)Singapore and U.S. $ 126,540Warehouse rent $ 6,500Real physical distribution costs $ 209,119 $ 133,487

Ocean Air

SOURCE: Adapted from: "Air and Adaptec'c Competitive Strategy,” International Business, September 1993, p.44.Irwin/McGraw-Hill

15-15

International Distribution Systems

IV. Types of Middlemen (Cont.)4) Piggybacking5) Domestic export middlemen

V. Choosing a Middleman

4

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Japanese Consumer Philosophy

Harmony and Friendship

Consumer

Brand Loyalty

Service and Quality Over Price

Small, Frequent Purchases

Irwin/McGraw-Hill

14-6

Retail Patterns

Argentina 199.5 164 4Australia 160.2 111 5Canada 157.2 183 9India 3540.0 253 NAJapan 1591.2 79 4Malaysia 170.6 109 8Mexico 899.3 96 2Philippines 120.1 547 28South Africa 60.4 675 7South Korea 730.0 60 2U.S.A 1516.3 170 13

Retail Outlets Population EmployeesCountry (000) per Outlet per Outlet

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.