Marketing Through Distributors in Foreign Markets

8/3/2019 Marketing Through Distributors in Foreign Markets

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Distribution: Foreign-MarketChannels and Global Logistics

1. How do I get my products intoforeign markets?

2. Distribution of the product withinthe foreign markets

Management of foreign distribution

Management of InternationalLogistics


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Management of foreigndistribution

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 theseintermediaries

The same is true for those firms selling through Licensing and directexporting

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 nationalpartner

Steps in managing foreign distribution:1. Identity the firms goal in foreign market2. Achievement of Goals decide marketing program including distribution

3. Identify the specific tasks to be performed by channel in the market likeInventory, promotion, credit extension, physical distribution, service.

4. Marketer must match this job description with the channel possibilitiesavailable in the market

Compromise is often necessary as seldom there are exact matches


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Marketing Through Distributorsin Foreign Markets

Direct Exporting through Distributors-less investment, lack of resourcesfor a greater commitment. Hence commonly used by small firms andMNCs who do not have their own marketing presence in all of their globalmarkets.

Success depends onperformance of these distributors---relationshipmanagement (rewards, careful selection , careful drafting of agreement,marketing support given)

1) 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)

2) 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


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Relationship management withDistributors

3) Financial and pricing Consideration: Distributor wants to make as much as moneypossible 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 marketsor to overcome competitive disadvantages

Credit Terms-Does firm needs to be generous or competitive?

Firms use of price quotations-CIFand 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 distributor4) 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 thedistributor'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 materialto be supplied on Timely basis from home office Establishing a regional warehouse for better product supply and service to

distributors


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5) Communications:

Telephone contacts and emails to ensure timely response to problems andopportunities

Visits from home office allow face-to-face contact that humanizes the longdistance relationship

Corporate travelers could include the export manager, product engineer andoccasionally 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 usefulfor EU. Separate conference to gain better insights of each of representedcountries-Language problem was solved by simultaneous translation.


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6) Other Considerations: Some firms use contest to provide excitement andmotivation for distributors for superior performance

Popular Award: Visit to the home country of supplier Such visits are popular with US and Chinese Partners-

Disney 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 relationshipexhibited the following characteristics:

1. The roles and routines were not rightly fixed but wereadapted over time to changing circumstances2. Marketing decisions are made jointly by the manufacture

and distributor and not imposed on distributor3. There should be high degree of contact between

manufacturer and distributor (phone calls, visits, letters)


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Marketing Through Firms ownpresence

Firm has to take responsibility for local distribution but it still must dealwith existing distribution infrastructure( i.e., wholesale, retail andtransport 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 wholesaling-

firms with small number of employees serving limited number ofretailers. 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 ofsmall retailers. Because of large number of stockiest, manufactures haveAgents have been introduced to sell to stockiest-additional set inchannel.

W F


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W o esa ng n Fore gnMarkets

ExceptionsSome industrialized countries like Italy and Japan havesmall scale wholesaling much like developing countries

Italys fragmented distribution system, P&G had to use andintermediary to reach the whole sale level as firms in India have todo

Japan is notorious for its fragmented distribution with wholesalersselling to other wholesalers-4 employees

Japan has as many wholesalers as US Wholesaler sales are five time retailers sales in Japan, four timesthe US ratio

Size of wholesaling operation does not fall a pattern acrossworld-challenge for international marketer

Fragment wholesaling structures exist in Europe, Asia, Africa andLatin America

Kenya-largest number of wholesalers in world and many formerAfrican Colonies have large trading houses established during thecolonial period. E.g.: Unilever subsidiary-The United Africa Companyhas large scale operation in many African countries

Opportunity for wholesalers to internationalize-US-Makro, Dutchfirm-has large operations in Latin America (Argentina, Brazil,Colombia) and in Eastern Europe (Poland)

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W o esa ng n Fore gnMarkets

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 stopsfirms from taking such actions of by-passing

E.g: Kraft Foods found in more efficient to ship direly to retailer inGermany. But wholesalers control over the channel was strongenough to force Kraft to give it a payment, even though the serviceswere not being used.

Japan-Coca-Cola and Nestle gone completely to direct sale but thecost is high as many dealers were financially weak. Japanesewholesalers 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 storespay vendor on 6 month basis


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Wholesaling in ForeignMarkets-Service

Majority of world markets have small wholesaling and with fragmented structure andmarketer face the following problems:

1. Where the number of wholesalers is large, the contact and transaction cost of themanufacturer may be high, This raises the consumer price too, further limit marketpenetration

2. Instead of providing credit to the channel, wholesaler may demand credit, placingfinancial burden on manufacturer

3. Small wholesalers carry a narrow assortment of goods-omit some products or look for

other wholesalers for those omitted products4. Small wholesalers give limited geographic market coverage-omit those markets or look

for other wholesalers covering those neglected regions5. 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 andpiggybacks with Plessey, a British electronic firm in Southeast Asia.


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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 percapita in developing countries-They have economies of scale

Exception: Some industrial countries like Japan, Italy, Belgium and Francedo 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 asGermany

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 toreceive such permission Lawson chain built a store in Shizuoka, Japanese shopkeepers beat up a

construction worker, stormed the store at night, screaming at employeesand intimidating customers, Late night calls. 1 year deadline

Visit to citys capital does not give a true retailing picture-dual economy-rural and urban (malls and supermarkets)


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Retailing Services

Services provided to manufacturers like stocking, displaying,selling product, promoting product (orally or by display or byadvertising), extending credit to customers, servicing the productand 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 to24 and 12 can cases


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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 usuallywith 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 onthem 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 andSupermarkets in US-France tried to opt for supermarket-pharmacies

banned the product.


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Retailing-Promotion of theproducts

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 organizationand 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


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Distribution Trends in WorldMarkets

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 growthas a rough guide to predict distribution changes

Review of development of wholesaling and retailing inUS 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 roseof No: 1 in Mexico Comparative study approach-Firms selling already in

some markets gives insights into markets with similarcharacteristics.


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Distribution Trends in WorldMarkets

Retailing technology is transferred internationally in 4 ways1) Seminars and Training programs-E.g.: Programs of

American Supermarket Institute and National Cash Register(NCR)-played major role in spread of widespreadsupermarket concept

2) Foreign Direct Investment-By establishing or acquiringstores abroad, retailers transfer know-how withininternational family.. Wal-Mart, Safeway are US examples.European examples Marks & Spencer's, IKEA

Wal-Mart has tie up with Walton Institute of Retailing inArkansas 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


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4 major Distribution trends inworld markets

1. Growth of Large-scale retailing

2. Continuing internationalization of retailing3. Growth of direct marketing4. Spread of discountingLarge Scale, Great Retailing Power:French invention-hypermarketTrend is toward larger units and more on self-serviceNo of retail outlets is decreasing but average size is increasingSweden, 30,000 food stores reduced to 5000Trend 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-and-

pop 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.


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Internationalization ofRetailing

Continuous integration of the world economy is internationalizing not only theadvertising, 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 cycle-

Walmart 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 andLaura 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


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Direct Marketing

Mail orderhas grown in Europe and Japan and in modernizingeconomies like Mexico

Firms like Lands End, Otto Burlington, sell several billion dollars ayear with their catalog and use of toll-free number

Personal selling direct to consumers continues to be importantinternationally

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


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Discounting Japan, discount chain stores have replaced

department stores as countrys largest retailer

Their share of household products is high-eliminating mom-and-pop stores

Europe, discounters are also increasing marketshare at the expense of department store

Britain Supermarket giant, Sainsbury and Tescohas seen their margins decline because of them

Pressure on manufacturers pricing and distributionpattern


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Marketing Through ForeignDistribution Channels

Should the firm extend its domesticdistribution approach to foreign marketsof adapt its distribution strategy to eachnational market?

Should the firm use direct or indirectchannels in foreign markets?

Should the firm use selective or

widespread distribution? How can the firm manage the channel?

How can the firm keep its distributionstrategy up-to-date?

International Or National


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International Or NationalPatterns

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 indistribution 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/salesrepresentatives to retailer. However in sparse areas, truck driver/sales representatives aretoo expensive and company must find another option

Another channel determinant is the Market-consumer income, buying habit, strength andbehavior of competitors-use same channel or find other sources.

E.g.: Initially application of Allstate Insurance in Japan was rejected. Its entry woulddisrupt existing firms. In a different approach, Allstate joined with Seibu, the JapaneseRetailer. This gave Allstate a powerful sales channel. It also fulfilled a requirement that itprovide something new to customers-opportunity to buy insurance over the counter.

Difference in manufacturers own situation might suggest channel differences from marketto 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.


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International Or NationalPatterns

Firm generally tries to use the same channels frommarket to market All through in some cases, adaptations are

frequently used. E.g.: Industrial goods-technicalaspects

Even with consumer goods, there can be somecarryover 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 tocustomers at Home. Amway-1.2 million directsellers in Japan, making it second largest foreignfirm in Japan


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Direct Versus IndirectChannel

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. Soinitially it opened its retail outlets in Argentina and Europe and aftergetting success IBM began operating its own retail outlets in US

Growth of Internet, multimedia and Interactive TV are giving newmeaning to direct marketing

Both manufacturers and retailers will have to adapt thesedevelopments.


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Selective versus IntensiveDistribution

Intensive Distribution: Policy of selling through any retailer thatwishes to handle the product

Selective Distribution: Choosing a limited number of resellers in amarket area.

Necessary to ensure that these limited distributors carry inventoryand provide service and promotion

For shopping or specialty goods, retailer may demand selectivedistribution, 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 providingservice

Manufacturers give exclusive franchise to importers or distributorsat 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 tocannibalize one another. Dealer dissatisfaction 700 came down to

300Benetton was force to become more exclusive in distribution


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Selective versus IntensiveDistribution

GM in Belgium tried to hinder the import of GMcars by anyone other than the company owneddistributor in Belgium. However Europeancommission ruled that the GM distributor chargedexcessive prices for inspections and conformity

certificates for cars bought outside the GMchannel. The commission levied a fine for abuseof dominant position.

In countries with every uneven incomedistribution, firm might use selective distribution

iof it sells only to a group above a certain incomelevel For consumer durables or industrial products, the

distribution in smaller market might be moreselective because of the thinness of the market

and it relative concentration.


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Working with Channel Firms sell directly to retailer or consumer-costs of

distribution bring the benefits of control, flexibility inresponding 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 eachmarket.

E.g.: Clinique in Japan-Major channel of selling cosmetics in

Japan is small cosmetic specialty Stores. Shiesdo, sellthrough 25000 stores

2nd Option-Department Stores

Clinique promised department stores ti would sell onlythrough 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 nSwiss trains


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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 ofthe channel like offering margins, exclusive territory, valuable franchise, advertisingsupport, cooperative advertising, market research

Levi Strauss when found a weakness in retail link of its channel in Europe, it decidedto use more selective distribution and give more support to these retailer who werewilling to emphasize Levi products. More Support-special discounts, local advertisinghelp, 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 infinding ready distributor/subsidiary

Strong advertising support makes intermediaries more cooperative Internationalfirms 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 advertisingwith channel members

The same financial resources makes them competitive by giving credit to channel

members


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Working with Channel

Size and experience of MNC helps them in other avenues of obtainingcooperating

Training sales or service personnel, business advisory service and marketresearch 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 andLatin 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, inventoryand 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 Wrigleysposition. Wrigley responded by convincing retailer of the greater profitsthey could obtain with well-established , strongly advertised brand


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Working with ChannelKeeping Channels Up-to-date: Dynamic Environment-occurs at different rates in different markets1. Volume of sales2. Product line expansion3. Level of involvement-importer-exporter to marking subsidiary or from

licensee to joint venture and so on4. Wholesaling and retailer Development

5. Technological Change in Distribution6. Change in purchasing behaviors7. Laws affecting distributionGrowth 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 inPhilippines it wanted a more vigorous sales effort

Established 4000 Class A dealers, while functioning as retailers servedprimarily as wholesalers to Class B and C dealers

Union Carbide appointed 100 of its own sales people to work class Adealer

System resulted in more aggressive marketing with more control


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Environmental Change: Large Scale Retailing

The trend over retail concentration and buying co-ops in Europehave 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 tolarge retail groups and indirectly to smaller retailers

E.g: Kodak expanded its market share in Japan by privatebranding for a large Japanese retailer

Large scale retailing organizations have cause manufactures tomake still other adaptations.

UK: Manufactures have increased promotional activities to largeretailers using missionary selling and at same time reduced theirefforts with smaller retailers (who will be taken care bywholesalers)-Dual Channel

E.g.; Heinz-found that fewer than 300 buying points controlledover 80% of market for its product, it stopped deliveries to thesmall independent retailer, leaving them for retailers


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Changes on formation ofRegional Blocks

1. Retailers will become larger and more powerfulwith continuing concentration and integration

2. Private brand will increase further and there willbe retailers Euro brands

3. Retailer power will mean lower supplier(manufacturer) margins

4. Logistics including warehouse and productionlocations, must adjust for the integrated marketand retailer concentration

5. Greater pricing uniformity will occur in Europewith Euro. This means less freedom formanufacturers

6. Mail order will continue to grow and becomeinternational


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Other Changes Rising wages

Self service retailing E.g.: Nissan in Japan has to change distribution channel-

Door-to door-> automobile showrooms Technological developments like Cold Chain-enlarge product

line possibility. E.g.: Unilever found out that majordeterrent to growth to be the retail link of the cold chain.Many retailers could not afford freezer unit. Unilever helpedby financing in frozen-food unit in the expectation that thegrowth in the companys frozen-food sales would be enoughto cover financing costs

Managing distribution often requires changing the channelwhen conditions change

E.g..: After world war II, ice cream producer-dilemma-traditional 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 firstto change

Logistics for International


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Logistics for InternationalMarketing

Logistics includes those activities involved with the choice

of number and location of facilities to be used and materialor products to be stored or transported from suppliers tocustomers in all the firms markets.

Affects the number and location of production and storagefacilities, production schedules, inventory management andevent 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 errorand (d) requires more data.

2. The average export order is much larger than a domesticsales, requiring more rigorous credit check of foreign buyer

3. There is a new intermediary in export sales-theinternational freight forwarder

Logistics management offers international marketertwo ways to increase profit: cost reduction and

market expansion

L i ti ithi F i


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Logistics within ForeignMarkets

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 storagefacilities.

Developing Nations have weaker infrastructure and this combined withpoorer market forces logistic adjustment

E.g: PepsiCo acquired Mexican company whose fleet was 37 bicycles-

PepsiCo expanded operations and covers Mexico with 7000 vehicles Even in Industrial markets, fragmented wholesaler-retail structure and ledto distribution inefficiencies

Japan-because of coverage problem, many firms limit themselves to Tokyoand Osaka metropolitan areas

Coca-cola felt the need to cover entire Japanese market, franchising 54bottlers 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

Di t ib ti bl i


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Distribution problems inCongo

Imported goods destined for the eastern part of Congo take the

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.

Factors affecting Multi market


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Factors affecting Multi marketLogistics

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 tryto achieves integrated work market in it own physical distribution

Sales will increase if customer service level increases (Deliverytimes, availability of parts and services and other elementsrequired to meet customer needs and desires)

The appropriate customer level varies among countries because ofcompetition and customer expectation

Factors affecting Multi market


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Factors affecting Multi marketLogistics

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 control3) Given choice, firms would concentrate on logistics in their home

and export to world markets.

Advantage being Economies of scale and eliminates manyinternational business problems such as dealing with foreign laboror governments operating unknown environment

Japanese used this approach but still many factors worked againstit:(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 theforeign market

E.g.; Japanese built Auto plants in US and Europe because ofprotectionist pressures

US firms also expanded production in Europe due to Protectionistfears

Coca-cola built a concentrated plant in India because of traderestrictions


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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.

M t f I t ti l


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Management of InternationalLogistics

Physical distribution cost is major cost affecting profit as it affectsales and customer service

Facilities and Technology:1. Service Organizations such as transportation companies and

freight forwarders2. Institutions such as free trade zones and public warehouses

3. Modern technologyand hardware such as computers, telex,containerization and jumbo jet planes

Freight Forwarders: Specialist in Transportation anddocumentation for international shipments. Handle shipments,insurance and consolidate shipments for lower cost, Provideinformation on shipping and foreign import regulations

Free-Trade Zones (FTZs): 50 nations have established 500 free

trade zones, free ports, bonded warehouses and similar servicesto overcome some of self-created problems. There are over 300foreign trade zones in US. These facilities are government ownedand supervised by Customs officials. Firms do assembly, sortingand repacking within this zone. Goods are permitted to bebrought here without paying duties. Increase Employment

d ( )


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Free-Trade Zones (FTZs):Advantages

1. They permit economies of bulk shipping to a country without the burden ofcustoms duties. Duties are paid if goods are released on lot basis from thezone

2. Permit manufacturers to carry a local inventory at less cost than in facilitiesthey own because in their own facilities they must pay the duty as soon as thegoods enter the country. Duties are significant, financial burden is high.

E.g.: Bausch & Lomb Inc, leased 500 sq meters in the public bondedwarehouses 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 with11% duty.

Free Trade Zones (FTZs):


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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 zonesNew 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 FTZEvaluation 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


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Modern Technology

Supertankers, containerization, jumbo jets andcomputers

Physical distribution depends on the State of artin transportation and storage

European integration, Philips spent heavily onsuper automated Euro distribution centers foreach product division. Comprehensive computersystems run the entire operation on an ordering-to-forwarding basis

Computers and Communications-with in instant,firms markets and supply sources around worldcan be made of the same physical distributionnetwork


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Case let: The Limited

The Limited is a US retail chain with 3200 outlets and differentkinds of stores: The Limited, Express and Victoria's Secret

Success was due to its mastery of modern technology ininternational logistics giving an increase the level of customerservice and gained competitive advantage

1. From point of sales computers in all it stores, daily sales

reports flow back to company HO in Columbus, Ohio2. To restock its best seller, The Limited sends production orders

by satellite to plants in US, Hong Kong, Srilanka, South Koreaand Singapore

3. When goods are finished, they are flown back to Columbus ina chartered 747 that makes 4 flights weekly

4. At its automated distribution center in Columbus, apparel issorted, priced and shipped within 48 hours5. Trucks and planes carry goods from Columbus to 3200 stores6. Within 40 days of the order, apparel is on sale.7. Most competitors order 6 months or more in advance.

C di ti f I t ti l


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Coordination of InternationalLogistics

International logistics inevitably involves more than 1country...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 savingFor 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 and290 motorcycle dealer, By calling the nearest center, dealer canhook into BMWs inventory network

Coo dination of Inte national


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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 80Million/year by reducing the number of warehouses andreorganized and centralizing its logistics

SKF, Swedish firm, worlds largest producer of ball bearing.SKF choose Singapore as its sales service and distributioncenter for South East Asia. Singapore was chosen due to itsexcellent shipping and air-freight services, offered a freeport, enabling the company to avoid tariffs and sales tax ontransshipments.

Coordination of International


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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. Allproducts 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 partsdepot if Far east from which it ships inventory and provides services todealers and customers in 19 Asian Countries

Conclusion: Centralized control is necessary.

Benefit of efficient international logistic planning should be to increase profitproduced by:1. More stable production levels at plants in different countries2. Lower cost distribution resulting in part from the possibility of combining

small orders into container of planeload lots3. Better customer service level in international markets

Case let: Dow Chemical


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Case let: Dow ChemicalCompany

Dow Chemical Company processed 25000 orders in one year and made12000 export shipments .

Ocean freight costs came to USD 12 million. Dow handled the shipmentsfrom its Midland, Michigan HQ though International Distribution and TrafficDepartment which had 55 employees

Dow had overseas manufacturing in 20 locations and bulk terminal orpackage storage facilities in more than 35 locations

Dow made price lists enabling sales representatives to quote a price on anychemical in more than 100 market. Had Insurance, freight costs, consularfees and duty

Computerized and updated list was always available as the rules and normschanged

Freight rates were changing due to bargaining with over 30 steamshipconferences 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 forwards-

two on Gulf Coast (East and West Coat) and one on Great Lakes

Documents

Marketing Through Distributors in Foreign Markets