Learning unit summary (International distribution).
Objectives. In this unit you will learn:
- The importance planning an appropriate International distribution
strategy when entering new export markets, examine the distribution options available to the exporter, outline the criteria to be used
when selecting a distribution option and analyze strategies which can be
implemented for consumer and/or industrial products.
- The channel options that may be used when
entering new export markets. We are going to examine the direct and indirect export channels open to the exporter, analyze the
functions of importers and
representatives, discuss the use of company personnel and
sales or production
subsidiaries as well as explore franchising, licensing and other channels.
- The process of evaluating, recruiting and managing international sales
representatives and the mechanism involved in selling into department stores and
This will be achieved by:
- Examining the distribution options available to the exporter.
- Outlining the criteria to be used when selecting a distribution option.
- Introducing strategies which can be implemented for consumer and/or industrial
In finishing this Learning Unit, you will know the different possibilities that
a company has for creating a network of international representatives and
negotiation factors with possible agents at the time of signing contracts.
In general, it would be ideal for an exporter to be
able to sell direct to his final client with no need for intermediaries. In this
way the exporter: reduces cost of sales, increasing the product's Competitiveness; is in direct contact with the market, obtaining a continuous
feedback of information; he can control the company's
marketing policy directly. However, the truth is that
this is not always possible (due to the costs involved or market idiosyncrasies)
and in these cases the company should seek an intermediary.
We will analyze the most appropriate profile
of a Foreign trade representative or agent, how to find him, how to apply
control mechanisms, etc. What we must keep in mind is that the representative or
agent is only useful when he starts to sell. Finding the agent isn't the end in itself, rather obtaining orders through him.
We will learn about selling into
hypermarkets and department stores. You will outline the organization of a
purchasing department. You will learn how to best approach department stores.
You will examine the role of purchasing agents. You will analyze an interview
with a purchasing manager.
To help overcome the difficulties encountered in International markets, it may often be in the interests of small and medium size Companies to resource a separate
organization for the promotion and/or
sale of their products abroad. It is quite common in Europe. It consists
of uniting the export departments of several companies to form one Common one for use by all.
The option "growing from zero" of the export department which can be
seen as the most effective, is the creation of shared structures between
various companies; what we will call "export consortiums"
Trading Companies are companies that sell domestically
produced products abroad. They play an important role in giving an
impulse to foreign trade and operate as commission agents for exporters.
The Trading Company usually operates by finding a client who wishes to
purchase a certain product somewhere in the world. Generally, these are
clients who require a component that is almost unique and incorporated
into their own product so it can be difficult for them to find a vendor.
Japanese trading companies (Sogo Shoshas) or the corresponding in South Korea (Chaebols), are the ones that are furthest from the prototype of small companies described; they have a higher number of employees which allows them to specialize in specific products: cement,
steel, heavy machinery and food.
Sales Subsidiary. This formula enables having much stricter
control of the marketing policy. For the company, the creation of a
subsidiary means a long-term investment. Thus, the company should make a
series of really in-depth research studies, in order to prevent any
mistakes. Alternatively, the company could create a sales subsidiary but
only when the sales potential is really high. Fully owned subsidiaries
have been viewed as an international movement of capital. Now, however,
capital transfers are accompanied by technological flow, managerial
control, and access to input and output markets otherwise unattainable
to the receiving country.
The various formulae analyzed so far correspond to what we could
describe as a traditional distribution chain: from manufacturer to
importer, from importer to wholesaler, from wholesaler to the representative, from the representative to the sales point and from the sales point to the end user. Once the necessary experience has been
obtained, it cedes the opportunity to sell its products to those people
or companies that wish to invest, creating a direct sales point similar
to the one already set up.
Finally, we will analyze how e-business can influence International distribution. We believe that companies nowadays should look at digital
distribution strategies. We see a business environment changing from
consolidated multinational companies with established distribution channels
selling "atoms" to pure Internet start-ups which only sell "bits". When we think
about "bits" products we automatically think about digital distribution over the net, a global, flexible, instantaneous distribution which in many cases will not
be controlled by national customs controls. What's more, implementing digital distribution strategies can create tensions in our
traditional distribution network if we cannot create synergies.