INTERNATIONAL MARKETING MKTG3417

INTERNATIONAL MARKETINGMKTG3417 Professor: Bob Carpenter

1. The variety of distribution channels and how they affect cost and efficiency in marketing 2. The Japanese distribution structure and what it means to Japanese customers and to competing importers of goods 3. How distribution patterns affect the various aspects of international marketing

4. The growing importance of e-commerce as a distribution alternative 5. The functions, advantages, and disadvantages of various kinds of middlemen 6. The importance of middlemen to a product’s success and the importance of selecting and maintaining middlemen

Introduction • Getting the product to the target market can be a costly process • Forging an aggressive and reliable channel of distribution may be the most critical and challenging task facing the international marketer • Each market contains a distribution network with many channel choices whose structures are unique and fixed • In some markets the distribution structure is multi-layered, complex, inefficient, even strange • Competitive advantage will reside with the marketer best able to build the most efficient channel

Channel-of-Distribution Structures • The distribution process includes the physical handling and distribution of goods, the passage of ownership (title), and the buying and selling negotiations between producers and middlemen and between middlemen and customers • Each country market has a distribution structure through which goods pass from producer to user • Within this structure are a variety of middlemen whose customary functions, activities, and services reflect existing competition, market characteristics, tradition, and economic development • Channel structures range from those with little developed marketing infrastructure, such as those found in many emerging markets, to the highly complex, multi-layered system found in Japan

Direct and Indirect Channels

Direct Sales Approach: Viable When

Indirect Distribution Generally Found Where: • Markets are fragmented and widely dispersed. • Low transaction amounts prevail. • Buyers typically purchase a number of items.

Typical Sales Cycle: Tasks Performed Through Sales Process

Manufacturer-Rep Channel Used When: • Product is not standard--closer to made-to-order. • Product tends toward technical complexity. • Gross margin is not large. • Relatively few customers, concentrated geographically and concentrated in few industries. • Customers order relatively infrequently and allow fairly long lead times.

Factors Limiting Choice of Industrial Channel • Availability of Good Intermediaries • Traditional Channel Patterns • Product Characteristics • Company Financial Resources • Competitive Strategies • Geographic Dispersion of Customers

Channel Alternative Issues • Number of levels in the channel • Types of intermediaries to use. • Number of channel intermediaries at each level. • Number of channels to use.

Channel Administration • Must choose channel participants and arrange to ensure all obligations are assigned. • Motivate members to perform tasks necessary to achieve channel objectives. • Control any inter-channel conflict • Control and evaluate performance regularly

LaserQC Case Study • Channel partner expectations

Trends: From Traditional to Modern Multinational marketers are seeking ways to profitably tap market segments that are served by costly, traditional distribution systems. To provide efficient distribution channels the following methods were introduced: • Direct marketing • Door-to-door selling • Hypermarkets • Discount houses • Shopping malls • Catalogue selling • The Internet

Distribution Patterns • Distribution patterns are always evolving and new patterns are developing and marketing channels are not the same throughout the world. • Middlemen Services • Line Breadth • Costs and Margins • Channel Length • Nonexistent Channels • Blocked Channels • Stocking • Power and Competition

Alternative Middleman Choices

Foreign-Country Middlemen • Some of the more important foreign-country middlemen, who find markets for foreign manufacturers include: • Manufacturer’s Representatives • Distributors • Foreign-Country Brokers • Managing Agents and Compradors • Dealers • Import Jobbers, Wholesalers, and Retailers

Factors Affecting Choice of Channels The following points should be addressed prior to selecting intermediaries: • Identify specific target markets within and across countries. • Specify marketing goals in terms of volume, market share, and profit margin requirements. • Specify financial and personnel commitments to the development of international distribution. • Identify control, length of channels, terms of sale, and channel ownership.

Six Cs of Channel Strategy Channel strategy itself is considered to have the following six specific strategic goals: • Cost • Capital Requirements • Control • Coverage • Character • Continuity

Locating Middlemen Firms seeking overseas representation should compile a list of middlemen from such sources as the following: • The Department of Foreign Affairs and International Trade of the Canadian federal government • Commercially published directories • Foreign consulates • Chamber-of-commerce groups located abroad • Other manufacturers producing similar but noncompetitive goods • Middlemen associations • Business publications • Management consultants • Carriers – particularly airlines • Internet-based services such as Unibex

Selecting Middlemen • Screening based on the following criteria: (a) reputation (b) creditworthiness (c) markets served (d) products carried (e) number of stores (f) store size 2. The Agreement that details terms of the contract and the functions to be performed on behalf of the foreign manufacturer. Agreements must spell out specific responsibilities of the manufacturer and the middleman, including an annual sales minimum.

Motivating Middlemen There is a clear correlation between the middleman’s motivation and sales volume. Motivational techniques may be grouped into five categories: (1) financial rewards (2) psychological rewards (3) communications (4) company support (5) corporate rapport

1. How the Canadian government helps exporters 2. The additional steps necessary to move goods across country borders 3. How various import restriction are used politically

4. Means of reducing import taxes to remain competitive 5. The main instruments of foreign commercial payments 6. The mechanics of export documents and their importance 7. The logistics and problems of the physical movement of goods

Introduction • Exporting is an integral part of all international business • Goods manufactured in one country and destined for another must be moved across borders to enter the distribution system of the target market • It is important to be knowledgeable about the export and import documents, tariffs, quotas, and other barriers to the free flow of goods between countries • The rules and regulations that cover the exportation and importation of goods and their payment, and the physical movements of those goods between countries, are all included under exporting and logistics

The Exporting Process

Export regulations may be designed to conserve scarce goods for home consumption or to control the flow of strategic goods to actual or potential enemies • To comply with various regulations, the exporter may have to acquire export licenses or permits from the home country • To alleviate problems of exporting, the Export Import Controls Bureau (EICB) has developed its Export Import Controls System (EICS), which allows electronic interchange between exporters, or their agents, and export control offices Export Restrictions

Determining Export Requirements • The two most common permits are: the individual export permit and the general export permit • The individual exportpermit allows specific products to be exported during the permit’s legitimacy period (up to five years). Typical permit is good for two years. • General exportpermits are granted for specific commodities destined for eligible destinations and have no expiry date.

Import Restrictions • Import regulations may be imposed to protect health, conserve foreign exchange, serve as economic reprisals, protect home industry, or provide revenue in the form of tariffs. • Tariffs • Exchange Permits • Quotas • Import Permits • Standards • Boycotts and Embargoes • Voluntary Restrictions

Import Restrictions 1. Tariffs: • ad valorem duties, which are based on a percentage of the determined value of the imported goods; • specific duties, a stipulated amount per unit weight or some other measure of quantity; and • a compound duty, which combines both specific and ad valorem taxes on a particular item, that is, a tax per pound plus a percentage of value Taxes or Custom duties, which are levied against goods imported from another country. They are based on value or quantity or a combination of both and are classified as follows:

2. Exchange Permits: Import Restrictions To conserve scarce foreign exchange many countries impose restrictions on the amount of their currency they will exchange for the currency of another country

Import Restrictions 3. Quotas: Countries may also impose limitations on the quantity of certain goods imported during a specific period 4. Import Permits: As a means of regulating the flow of exchange and the quantity of a particular imported commodity, countries often require import licenses 5. Standards: Health standards, safety standards, and product quality standards are necessary to protect the consuming public and imported goods are required to comply with local laws

Import Restrictions 6. Boycotts and Embargoes: A boycott is an absolute restriction against trade with a country, or trade of specific goods. A boycott involves groups abstaining from or acting together in abstaining from using, buying or dealing with another person or group as an expression of protest or disfavour, or as means of coercion. An embargo is a specific government order that imposes a ban on trade with another country. An embargo is more specifically related to government actions compared to a boycott. 7. Voluntary Restrictions: Countries may themselves impose restrictions on firms exporting to specific countries

Terms of Sale 1. CIF (cost, insurance, freight) to a named overseas port of import, including the costs of goods, insurance, and all transportation and miscellaneous charges to the named place of debarkation. 2. C&F (cost and freight) to a named overseas port, including the cost of the goods and transportation costs to the named place of debarkation. The cost of insurance is borne by the buyer. 3. FAS (free alongside) at a named U.S. port of export, including 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.

Terms of Sale 4. FOB (free on board) at a named inland point, at a named port of exportation, or at a named vessel and port of export, including the cost of the goods and delivery to the place named 5. EX (named port of origin) covers costs only at the point of origin (example, EX Factory). All other charges are the buyer’s concern.

Terms of Sale

Getting Paid: Foreign Commercial Payments The five basic payment arrangements for exported goods include: • Letters of Credit • Bills of Exchange • Cash In Advance • Open Accounts • Forfaiting

Letter-of-Credit Transaction

Export Documents • Each export shipment requires many documents to satisfy government regulations controlling exporting as well as to meet requirements for international commercial payment • Export Documents • Consular Invoices or Certificates of Origin • Bill of Lading • Commercial Invoice • Insurance Policy or Certificate • Permits • Other documents

Principal Export Documents

Customs-Privileged Facilities • Foreign trade zones (also known as free trade zones) • Free ports • In-bond arrangements or Maquiladoras • To facilitate export trade, countries designate areas called customs-privileged facilities, where goods can be imported for storage and/or processing with tariffs and quota limits postponed until the products leave the designated areas. Customs-Privileged Facilities include:

Physical Distribution Costs

Foreign Freight Forwarder • The foreign freight forwarder, licensed by the Federal Maritime Commission, arranges for the shipment of goods as the agent for an exporter • The forwarder is an indispensable agent for an exporting firm that cannot afford an in-house specialist to handle paperwork and other export trade mechanics • A freight forwarder double-checks all assumptions made on the export declaration, such as commodity classifications, and will check the list of denied parties and end uses

INTERNATIONAL MARKETING MKTG3417