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Managing International Distribution Operations and Logistics. Dana-Nicoleta Lascu Chapter 11. Chapter Objectives. Describe the functions of home-country and host-country intermediaries involved in international distribution. - PowerPoint PPT Presentation
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Copyright Atomic Dog Publishing, 2008Copyright Atomic Dog Publishing,
Managing International Distribution Operations and Logistics
Dana-Nicoleta Lascu
Chapter 11
Copyright Atomic Dog Publishing, 2008
Chapter Objectives
• Describe the functions of home-country and host-country intermediaries involved in international distribution.
• Identify the facilitators of international distribution and logistics and describe their involvement in the international distribution process.
• Address the challenges encountered by distribution in countries of different development levels.
Copyright Atomic Dog Publishing, 2008
Issues Related to International Distribution• An important distribution decision for the company is whether to
use established channels or to build its own channels.
• Using Established Channels Could charge high prices. Could be blocked by competition. Channel partnership is a long-term decision: company
may be bound indefinitely to the channel choice.
• Building Own Channels Necessary if there are no channels at all and if the
existing channels do not conform to company needs. Expensive. Time-consuming.
Copyright Atomic Dog Publishing, 2008
Home-Country Middlemen
• Export Management Companies Highly specialized in certain industries, they
typically represent smaller companies in a region of the country.
Typically work as a company's export department.
Copyright Atomic Dog Publishing, 2008
Home-Country Middlemen (contd.)• Trading Companies
• Large companies that provide intermediary services, risk reduction through extensive information channels, and significant financial assistance to manufacturing firms.
• In Japan, trading companies (sogo shoshas) act as intermediaries, but are also involved in manufacturing and finance.
• In the U.S., they are consortia of smaller suppliers, service-oriented firms, multinational corporations and public and quasi-public entities; they were created by the Export Trading Company Act to encourage and promote exports.
Copyright Atomic Dog Publishing, 2008
Home-Country Middlemen (contd.)
• 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. Manufacturer’s export agent: represents a
manufacturer. Buying offices: buyers located in the firm’s home
country, representing different international firms.
Copyright Atomic Dog Publishing, 2008
Home-Country Middlemen (contd.)
• 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 take title to the complementary products that they export.
Copyright Atomic Dog Publishing, 2008
Home-Country Middlemen (contd.)
• Webb-Pomerene Associations of Exporters Competing companies that join resources and
efforts to export internationally. Companies are exempt from antitrust scrutiny. Companies are present especially where
cartels are active.
Copyright Atomic Dog Publishing, 2008
Home-Country Middlemen (contd.)
• 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.
Copyright Atomic Dog Publishing, 2008
Other Tax Incentive-Based Structures for Internationalization
• No longer viable options:• For years, setting up a Foreign Sales Corporation
(FSC) has been a popular approach to allowing a portion of the firm's foreign-source income to be exempt from U.S. income tax.
• It was followed by the Extra Territorial Income Act.
• Both were repealed in 2004 by the U.S. Senate as a result of WTO complaints regarding what essentially were export subsidies.
Copyright Atomic Dog Publishing, 2008
Foreign-Country Middlemen
• Merchant Middlemen: Carry the manufacturer's product line in a
particular country. Usually carry title to and have physical
possession of the products they distribute in the foreign target market.
Copyright Atomic Dog Publishing, 2008
Foreign-Country Middlemen (contd.)
• Agents and Brokers: There are many types of agents and brokers in
international markets – for example, manufacturers’ representatives, managing agents, etc.
Could act as the manufacturer’s sales representatives and are paid on commission.
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; they are paid as a percentage of sales.
Copyright Atomic Dog Publishing, 2008
Foreign-Country Middlemen (contd.)
• Alternative Distribution Structures: Network Marketing Using acquaintance networks for the purpose of
both sales and distribution – have both a retailing and distribution function.
Have potential in emerging markets.
Copyright Atomic Dog Publishing, 2008
International Logistics
• The international distribution function is supported by a number of service providers:
• Transportation firms• Home country freight forwarders and customs brokers• Government agencies• Nongovernmental organizations• Logistics alliances• Other firms
• Logistics costs account for a large percentage of GDP (more than 10 percent in the United States), making logistics the single highest operating cost.
Copyright Atomic Dog Publishing, 2008
International Transportation• Distribution Centers
• Designed to speed up warehousing and delivery by channeling distribution to a hub.
• Transportation Firms• Intermodal transportation firm.• Containerization.
• Freight Forwarders and Customs Brokers
• Government Agencies Promote national security. Promote international involvement of local firms. Provide financing and insurance for high risk ventures.
Copyright Atomic Dog Publishing, 2008
International Transportation
• The choice of transportation determines whether products arrive at the international destination on time and in good condition.
• The cost of transportation is also essential because transportation costs can increase the product price in the target country.
• Important is the transportation infrastructure of the country where the company is doing business: transportation networks are excellent in industrialized countries, with the countries easily accessible by rail, air, and water.
Trucks offer flexibility on China’s crowded roadways.
Copyright Atomic Dog Publishing, 2008
U.S Merchandise Value by Mode of Transportation
Sources: U.S. Department of Transportation, Bureau of Transportation Statistics,
Mode of TransportationImports
Total (in millions of U.S. Dollars)
Water 724,946
Air 329,387
Truck 237,706
Rail 78,131
Pipeline 36,829
Other and unknown 61,672
Total Imports 1,469,671
Exports
Water 233,639
Air 270,041
Truck 215,247
Rail 30,229
Pipeline 1,671
Total Exports 817,936
Copyright Atomic Dog Publishing, 2008
Flexibility, Cost, and Speed Characteristics of Each Mode of Transportation
Mode Flexibility(re: Area coverage)
Cost Speed Product Examples
Truck High Higher Higher Consumer goods, perishables, automobiles
Rail Medium Medium Lower Coal, gasoline, forestry products, grains, automobiles
Air High High Highest Jewelry, electronics, expensive low-volume products
Water Low Low Low Grains, gasoline, forestry products, cement and fertilizers
Pipeline Low Lower Low Oil and gasoline, chemicals, semi-liquid coal, refined products
Copyright Atomic Dog Publishing, 2008
Logistics Facilitators• Critical: determining the number of warehouses and
distribution centers needed to optimally implement the logistics function.
• Distribution Centers and Warehousing: • In most industrialized countries, distribution centers
are an option for the international firm; they perform the following functions:
receive goods from different producers.
take orders from buyers.
distribute goods promptly.
speed up warehousing and delivery by channeling distribution to a hub.
Copyright Atomic Dog Publishing, 2008
Logistics Facilitators (contd.)• Distribution Centers and Warehousing
(contd.): • Warehouses are often located in free trade zones;
the warehouses may be customs privileged facilities, as well as facilities where product assembly and packaging may be conducted.
• Trend: worldwide, companies are attempting to address customer demand while reducing inventory costs, using just-in-time inventory systems, creating product flow rather than stock.
• Transportation Firms
• Freight Forwarders
• Customs Brokers
Copyright Atomic Dog Publishing, 2008
Government Agencies as Logistics Facilitators
• Government Agencies Promote national security. Promote international involvement of local firms. Provide financing and insurance for high risk ventures.
• International Trade Administration
• Bureau of Export Administration
• U.S. Commercial Service
• Export/Import (Ex-Im) Bank
• United States Trade and Development Agency
Copyright Atomic Dog Publishing, 2008
Other Service Providers Facilitating Logistics
• Non-governmental International Chamber of Commerce
• Banks
• Insurance agencies
• Marketing research firms
• Consultants
Copyright Atomic Dog Publishing, 2008
Steps Involved in Forming Logistics Alliances
1) Establish objectives
2) Identify providers
3) Express needs/wants
4) Evaluate and select bidder
5) Develop integration plan
6) Create win-win relationship
7) Measure and analyze performance
8) Redefine goals and objectives
Copyright Atomic Dog Publishing, 2008
Parallel Imports
• Parallel imports (gray markets) Defined as distribution systems that are not authorized by the
manufacturer: products purchased in a low-price market are diverted to other markets.
Hurt company image and bottom line.
• Combating Parallel Imports by: 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.
Copyright Atomic Dog Publishing, 2008
Challenges to Distribution in Developing Countries
• Unreliable transportation infrastructure.
• Limited or nonexistent containerization capabilities.
• Unreliable roads.
High-quality roads are standard in high-income countries (see photo). However, in developing countries, many roads are not paved and are impassable during the rainy season.
Copyright Atomic Dog Publishing, 2008
Chapter Summary
• Described functions of home-country and host-country middlemen involved in international distribution.
• Identified different facilitators of international distribution and logistics.
• Described their involvement in distribution process.
• Addressed challenges encountered by distribution in countries of different development levels.