Global Distribution Systems

1. Global Distribution Systems

2. Channel Configurations Manufacturer Manufacturer Manufacturer Agent Agent Agent Wholesaler Agent Industrial Distributor Agent Wholesaler Agent Retailer Agent Industrial Distributor Retailer Retailer Retailer Consumer Industrial User Consumer/ Industrial User Consumer Products Industrial Products Services

3. Modes of Entry • Exporting – Direct; Indirect • Licensing • Franchising • Outsourcing • Strategic Alliance • Joint Venture • Foreign Direct Investment

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. Modes of Entry • Exporting – Direct; Indirect • Licensing • Franchising • Outsourcing • Strategic Alliance • Joint Venture • Foreign Direct Investment

6. Channel Configurations Manufacturer Manufacturer Manufacturer Agent Agent Agent Wholesaler Agent Industrial Distributor Agent Wholesaler Agent Retailer Agent Industrial Distributor Retailer Retailer Retailer Consumer Industrial User Consumer/ Industrial User Consumer Products Industrial Products Services

7. Comparison of Distribution Channels Between the United States and Japan Automobile parts: Japan Automobile makers affiliated parts makers Independent parts makers Repair parts makers Automobile makers Wholesalers Special agents Dealers Cooperative sales companies 2nd-levelwholesalers Sub-dealers Retailers Gasoline stations Large users Automobiles repair shops End users SOURCE: McKinsey industry studies

8. Automobile parts: United States 51% Manufac-turer Warehouse distributor Jobber buy-ing groups Jobber Installer Customer 10% 18% Mass merchandiser 21% Repairspecialist Primary channel Secondary channel Comparison of Distribution Channels Between the United States and Japan SOURCE: McKinsey industry studies

9. Cutting Out the Middleman Number of companies involved in each level of the food industry, % of total, 1993 Total number 141,597 97,882 181,374 100% Manufacturers 90% 80% Wholesalers 70% 60% 50% 40% Retailers 30% 20% 10% 0% Japan Britain United States

10. International Channel Intermediaries • Agents • Foreign (Direct) • Domestic (Indirect) • Distributors

11. Selection Criteria for Choosing an International Agent or Distributor • Agent vs. Distributor • Agent • Exercise a high level of control over marketing and sales activities of representative • Sell directly to customer to build goodwill in market • Commission-based compensation • Distributor • Decrease risk of nonpayment by customer • Need to carry inventory and parts and provide service and warranty

12. Channel Configurations Manufacturer Manufacturer Manufacturer Agent Agent Agent Wholesaler Agent Industrial Distributor Agent Wholesaler Agent Retailer Agent Industrial Distributor Retailer Retailer Retailer Consumer Industrial User Consumer/ Industrial User Consumer Products Industrial Products Services

13. 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 Philippines 120.1 547 28 South Africa 60.4 675 7 South Korea 730.0 60 2 U.S.A 1516.3 170 13 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.

14. Retailing ComparisonU.S. and Japan Food % Small Stores % Sales Japan 95 57 U.S. 70 19 Japan 94 50 U.S. 81 33 Non-Food

15. 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 Insurance Tariffs, taxes Non-tariff Barriers Standards Inspection Documentation Quotas Fees Licenses Special certificates Exchange permits And other barriers

16. Examples of Commerce Control List Export Regulations 4997B Viruses or viroids for human, veterinary, plant, or laboratory use, except hog cholera and attenuated or inactivated systems. Controls for ECCN 4997B: Unit: Report in "$ value." Validated License Required: Country Groups QSTVWYZ. GLV $ Value Limit: $0 for all destinations. Processing Code: CM. Reason for Control: National security. Special Licenses Available: See Part 373. 3D94F "Software" specially designed for the "development" "production," or "use" of items controlled by 3A80C, electronic test equipment controlled by 3A93F, or manufacturing and test equipment controlled by 3B91F. Controls for 3D94F: Unit: $ value Validated License Required: Country Groups S, Z, Iran, Syria, South African military and police. Reason for Control: FP (foreign policy) GTDU (general license): Yes, except destinations listed under Validated License Required. SOURCE: Export Administration Regulations, Commerce Control List, Part 799, 1, March 1994.

17. Export Documents  Export Declaration  Consular Invoice or Certification of Origin  Bill of Lading  Commercial Invoice  Insurance Policy or certificate  Licenses  Others Health Certificates Packing Lists Etc.

18. Import Restrictions  Tariffs  Exchange Permits  Quotas  Import Licenses  Boycotts  Standards  Voluntary Agreements  Other Restrictions

19. 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 $ 133,487 Warehousing inventory costs (60 days @ $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.

20. Terms of Sale  CIF- (Cost, Insurance, Freight) to a named overseas port of import. A CIF quote is more meaningful to the overseas buyer because it includes the costs of goods, insurance, and all transportation and miscellaneous charges to the named place of debarkation.  C&F- (Cost and Freight) to a named overseas port. The price includes the costs of goods and transportation costs to the named place of debarkation. The cost of insurance is born to the buyer.  FAS- (Free Alongside) at a named U.S. port of export. The price includes cost of goods and charges for delivery of the goods alongside the shipping vessel. The buyer is responsible for the cost of loading onto the vessel, transportation, and insurance.

21. Who’s Responsible for CostsUnder 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 Inland 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.

22. Customs-Privileged Facilities Foreign Trade Zones Offshore Assembly (Maquiladoras)

23. Potential for Gray Markets Average Tokyo Shop America Product Retail Price Catalog Price Audio cassette $11 - $14 $6 - $8 Auto-Reverse Walkman 70 50 Braun Juicer 32 20 Canon Autoboy Camera 260 180 Channel No. 5 (1/2 oz) 153 85 Compact disk 15 - 20 8 - 11 Lady Remington shaver 86 46 Rolex watch 4,857 3,078 SOURCE: Shop America LTD. as quoted in "Can This Catalog Company Crack the Japanese Marketing Mass?" Business Week, March 19, 1990, p. 60.