Success Strategies in Channel Management

Success Strategies in Channel Management Global Challenges and Opportunities

Types of International Exchange Relationships Multinational Exchange Relationships Global Exchange Relationships Transnational Exchange Relationships Reasons for International Exchange Relationships Success and Failure Factors Indirect Marketing Channels Global Partner Selection Factors Develop Flexible Transaction Structures International Marketing Channels and the Environment Sociocultural Factors Technological Factors Selecting International Exchange Partners the Five Cs

International exchange relationships can help channel partners: Address shortfalls in how a market's needs and wants are being satisfied by current entrants. Optimize their manufacturing and distribution capabilities. Share the risks associated with entering new markets. Facilitate new product innovation. Gain and then exploit economies of scale. Extend the market scope of their existing operations. As always, issues of products, targeting, and positioning remain critical to success in any market. There are other reasons for pursuing international channel relationships. For instance, channel members can also seek new technologies, ,more stable currencies, or greater sales volume through their entry into international exchange relationships. Reasons for International Exchange Relationships

Types of International Exchange Relationships • The term internationalmerely suggests something is occurring between nations. Thus, as a term, international fails to fully capture the diversity actually present within international exchange relationships. • The term multinational corporation (MNC) is usually used to describe organisations operating in different countries, yet there is no agreement as to what a multinational corporation really is. Three criteria have been proposed in the identification and characterization of MNCs.

The first category of international channel activity may be referred to as multinational exchange relationships. In multinational exchange relationships (MERs), channel members view the global market as segments and employ distinctive strategies for each segment. MERs occur between trading partners who operate in foreign markets as if they were local concerns. MERs offer international marketers the opportunity to engage in domestic-like strategies executed in foreign markets. As exchange relationships, MERs are based on the ability of the exchange partner located in the target market to effectively adapt and then respond to the environmental circumstances and opportunities prevailing in that market. Multinational Exchange Relationships

Global Exchange Relationships • GERs require the highest levels of integration - involving a pursuit of consolidation and synthesis - among exchange partners. By definition, synthesized channel strategies do not come from any individual member. Channel strategies are instead borne from the collective goals associated with the exchange relationship itself. In GERs, issues of centralization and control are immaterial.

Transnational exchange relationships (TERs) essentially fall between the MERs and GERs. Rather than engaging in country-by-country adaptation, TERs approach international relationships from a regional perspective. TERs employ channel strategies that have been tailored to the requirements of entire market regions. In comparison to MERs, TERs are characterized by greater centralization and fewer exchange partners. TERs are unique in several ways. While TERs involve fewer exchange partners than MERs, these partners are larger in scope. TER exchange relationships tend to be fairly consistent within a region. Direct and Indirect International Marketing Channels In broad terms, we can classify these entry modes into direct and indirect methods. Transnational Exchange Relationships

There are several types of direct entry modes: Local Facility. The local facility method involves the development of a organisation-based management team operating in the host country. The level of centre corporate involvement tends to vary greatly based on the industry, channel function, and market. This involvement may range from having a local manufacturing facility to simply having a domestic salesforce. The host-country facility is usually controlled from a home-country location. Marketing Subsidiary. In this mode, the channel member establishes a subsidiary organisation in the host country or region. The subsidiary then behaves as an essentially autonomous unit and tries to develop a strong local presence.. Foreign Sales Agents (FSAs). Foreign sales agents are organisation designates that, for the most part, function as a sales and support staff for goods produced in home-country locations. FSAs do not take title to goods; instead, they operate fairly autonomously, arranging for the consummation of orders. Transnational Exchange Relationships

When indirect entry is used, the domestic channel member manages the distribution of products and/or services in a foreign target country or region through foreign designates. A foreign designateis any intermediary that contributes to the distribution of domestically produced goods through some foreign target market. The most prevalent types of indirect entry modes are: Export Management Organisations (EMC). Export management organisations offer the services of a manufacturer's representative who specializes in cultivating international exchange relationships in particular locales. Piggybacks. Piggybacks involve a joint effort at international market entry generally shared among several channel members. Piggybacking is a coordinated effort in which different exchange partners perform their own specialized channel functions in a foreign market. Indirect Marketing Channels

Foreign Distributors. Foreign distributors are the most common way for organisations to indirectly enter a foreign market. Here, an established domestically based distributor operating at the wholesale or retail level is contracted to develop and cultivate ex-change relationships within the entry market. These distributors take title to goods, usually stock inventories, and provide local marketing activities. Foreign distributors are valuable because they provide an immediate market presence. Foreign distributors generally also have pre-existing customer contacts. Trading Organisations. Trading organisations are large, international channel members that have a worldwide presence. What separates trading organisations from other types of indirect marketing channels is the expanse of their market coverage. Channel members may actually use several direct and indirect entry modes simultaneously in a single international market, depending on the level of market presence they wish to establish. Indirect Marketing Channels

International Marketing Channels and the Environment • International environmental conditions can be classified into five categories: economic, political/legal, sociocultural, technological, and physical/geographical factors.

The beliefs, values, and lifestyles that prevail within a target nation should be evaluated before an international marketing channel is developed. All exchange activity occurs within the boundaries of a social system. That social system reflects the norms and values native to the marketplace. Thus, all marketing channels are affected by the social system in which they do business. Too often, channel members treat an international market as a single entity to be conquered. The fact is that virtually all countries' populations are made up of several different homogeneous consumer segments that jointly define the social system of that country. These consumer segments often differ from one another. International marketers must, therefore, deal with the norms and values associated with the different market segments within the countries they pursue. Sociocultural Factors

Culture is the shared meaning assigned to individuals' beliefs, values, and customs that results from those individuals' interactions with their social system. Culture has four basic functions: Culture provides a way to classify exchange partners' behaviours and events. It provides appropriate codes or standards of behaviour among exchange partners. It prioritizes codes or standards of conduct in exchange relationships. Lastly, culture legitimizes the use of certain proactive and reactive exchange behaviours, while condemning the use of other exchange behaviours. Culture

Technological Factors • Technological advances can lead to a more efficient use of raw materials, improved manufacturing productivity, and improved product quality. Such advances force international exchange partners to monitor competitive technologies. Naturally, the rate at which new technology is introduced and adopted will differ across markets. • Innovations diffuse more rapidly through the relevant social system in some nations and regions than in others.

Selecting the wrong channel partner invariably proves costly. Each organisation taking part in an exchange relationship wields substantial power because of the need for someone to have local market expertise. So even the less powerful partner - usually operating in the target country - is still influential. Several basic criteria need to be evaluated when international partnerships are being initiated. We call these factors the Five Cs: Costs, Coordination, Coverage, Control, and Cooperation. The Five Cs are useful for several reasons. First, they are easily identifiable - most exchange partners have access to this information in some form. Second, these factors are applicable across all countries or regions. Finally, organisations can make quantitative assessments of each "C" prior to entering any international exchange relationship. Selecting International Exchange Partners

What costs are associated with the selection of a particular exchange partner? Three types are especially germane. The first is initial costs, which involve those outlays needed to set up the marketing channel. Preservation costs are the expenses of maintaining an exchange relationship. They include the disbursements necessary to provide salespeople, promotional materials, and accounting systems, as well as to cover travel expenses. Preservation costs also include the allocation of profit margins between the exchange partners. Preservation costs are often difficult to estimate. The third major consideration is logistics costs. Logistics costs reflect the expenses related to transporting goods and managing inventories. Several questions must be answered to calculate logistics costs. These include: Who will be responsible for stocking inventories? Who receives returned goods? Who is responsible for making transportation arrangements? Costs

Co-ordination • This factor requires that prospective partners estimate how each of the necessary marketing functions (i.e., pricing, promoting, distributing, negotiating, etc.) will be allocated among the channel participants. • A preliminary description of which partner will perform what channel function(s) should be derived for each potential exchange partner. This preliminary description draws heavily on the expected competencies that each organisation brings to the international marketing channel. • While a organisation's distinctive competencies are usually easily identifiable, each partner's competencies relative to the other partners can prove difficult to assess without prior experience. It is not unusual for prospective exchange partners to provide evidence of their role performance in previous or ongoing exchange activities.

The territorial coverage that a prospective exchange partner can comfortably handle should be determined and agreed upon. Will a single exchange partner provide sufficient coverage for the targeted market? Or, are several exchange partners required? This criteria is not as easily evaluated as it might seem. Control Exchange partners must negotiate with one another to determine who will control key channel resources. When an exchange partner demands an inappropriately high level of control in certain areas, the chances for cultivating a long-term relationship are dampened. The exchange partner targeted by such control efforts is likely to feel less secure and optimistic. Coverage

Finally, issues of cooperation are an important concern in the selection process, although they may likewise prove difficult to assess. From the early stages of negotiation, potential exchange partners receive cues from one another. These cues can help indicate the degree to which a prospect will be flexible and cooperative in the pursuit of mutually satisfying transaction terms. One such cue may be reflected in a sixth "C," namely, the level of Commitment the prospective channel partner has toward the proposed relationship. Establish a "Walk-Away" Rationale. Because profit margins are allocated among channel members, some pre-specified criteria should be in place for deciding when to maintain or forsake an international exchange relationship. If profit margins fall below a pre-specified standard, the channel member should withdraw from the channel relationship. The impact of negative fiscal policies can often even be detrimental to channel relationships transpiring in other countries. Cooperation

Select Experienced Exchange Partners. Prospective exchange partners should demonstrate knowledge of or experience with the relevant economic environment. Why would anyone initiate a relationship with an exchange partner that possessed no specialized knowledge of the market area Many countries view foreign investment as a necessity for their economic advancement. These nations encourage foreign investment through tax incentives or providing breaks on infrastructure investment costs. Channel members operating in such nations usually find it easier to coordinate their exchange relationships. In nations that have a historical basis for distrusting foreign corporations, attempts to restrict or curtail their involvement through regulations, punitive taxes, or outright expropriation are often initiated. Develop Flexible Transaction Structures.

There is one overriding concern at all channel levels- the ability of the channel member to manage dynamic environmental factors. Failures in international relationships usually result from one or more of the following factors: Differing expectations among exchange partners. Slow reactions to changing market conditions. Clashes in exchange partners' corporate cultures. Prematurely developed international exchange relationships. Success and Failure Factors

Local Experience Strong local brand names Established distribution channels Links with major buyers Knowledge of local market Knowledge of local culture Production Capacity Access to advanced technology An outstanding product Knowledge of the production process Skilled labour Experience in related technologies Natural resources Managerial competence A high quality management team A compatible senior management team A good reputation Funding availability Ability to finance operations Capital Global Partner Selection Factors

A strong financial standing Political Networks Ability to deal with government Linkages with government International experience Compatibility Shared objectives allow us to minimise the intensity of conflicts Our individual objectives are likely to achieved by cooperating Our partner and ourselves place a similar value on this alliance We have a common view on most business issues Goal Congruence The interests of our firm and our partner are the same The long term aims of our firm and partner are the same Resource Complementarity Market knowledge Customer knowledge Competitor knowledge Global Partner Selection Factors

Industry knowledge Reputation Reputation with suppliers Reputation with customers Networks Established customer base Established channels to market Location Innovative culture Innovative culture Leaning-orientated culture Reputation for innovation Financial resources Availability of working capital Access to finance Manufacturing resources Raw materials Plant and equipment Patents, trademarks, Licences etc Global Partner Selection Factors

Capability Complementarity Managerial capabilities Financial management skills Risk management capabilities Ability to deal with complex legal issues Ability to implement strategies Relationship management capabilities Managing stakeholders Managing industry relationships Managing government relationships Operating capabilities Product extension capabilities New product development capabilities Time-to-market proficiency Production capabilities Global Partner Selection Factors

Resource allocation efficiency Ability to perform market research Marketing capabilities Managing customer relationships Distribution capabilities Serving customer needs Communication capabilities Ability to gather useful information Ability to share useful information Ability to communicate Governance Operating and Managerial control Assigning highly experienced managers to the alliance Appointing critical personnel Frequent interaction with partner Detailed operating procedures Capital budgeting and Resource allocation External auditing Limiting authorised spending Controlling access to technology Majority shareholding Policy and Procedures Periodical management reports Capital budgeting and expenditure Global Partner Selection Factors

Success Strategies in Channel Management