International Sales &

Distribution Management

SDM-Ch 16 Tata McGraw Hill Publishing Ltd 1

 WHY GO INTERNATIONAL?

• The WTO agreement has resulted in opening up of

new areas for freer trade (Textiles, Services &
Agricultural products)
• China, Russia, India & the East European countries
have embraced free market policies resulting in huge
opening up of underserved populations.
• Domestic competition has increased especially from
imports.
• Outsourcing in manufacturing and services has
increased due to cost pressures & improvement in
infrastructure.

SDM-Ch 16 Tata McGraw Hill Publishing Ltd 2

 CHOOSING THE MARKET

Factors to be borne in mind while choosing markets:

• Size of the market

• Language & Culture of the market
• Competition in the market
• Proximity of the market
• Political and Financial stability of the country
• Ease of doing business

SDM-Ch 16 Tata McGraw Hill Publishing Ltd 3

 CULTURE & INTERNATIONAL
BUSINESS
• Culture influences everything from taste &
preferences to consumption patterns and attitude to
foreigners.
• Culture influences communication modes
• Culture influences dress and behavior
• Culture influences usage of a product
• Language is very important in international business
to communicate effectively.

SDM-Ch 16 Tata McGraw Hill Publishing Ltd 4

 LEGAL ASPECTS OF INTERNATIONAL
BUSINESS
• Laws vary from country to country – there is no
“international law”
• Important to know the local laws to do business – on
investment, management, employment, marketing,
pricing, royalties, profit repatriation, taxation etc
• Developed countries have stringent laws on safety,
pollution, intellectual property rights etc.
• In times of disputes, which law will prevail – this
needs to be spelt out in contracts

SDM-Ch 16 Tata McGraw Hill Publishing Ltd 5

 RISKS IN INTERNATIONAL BUSINESS

Two main risks in international business:

• Political risks – involve disruption of contracts

or payments due to sudden political changes,
expropriation of businesses etc

• Commercial & Financial risks – failure of the

buyer to pay due to bankruptcy or sudden
changes in the exchange availability or rate.

SDM-Ch 16 Tata McGraw Hill Publishing Ltd 6

 RISKS IN INTERNATIONAL BUSINESS

• Risks can be insured with agencies like the export

credit guarantee corporation(ECGC) for a premium
based on the country’s risk.

• Letters of credit may be guaranteed by international

banks located in major financial centers like London,
New York, Singapore etc.

SDM-Ch 16 Tata McGraw Hill Publishing Ltd 7

 TRADE BETWEEN COUNTRIES

Reasons for trade between countries include:

• Non availability of a product or resource

• Cost advantages in buying rather than making a
product locally
• Differentiated products-Luxury products or better
designed products in the same category may be
available from different countries (cars, electronics,
textiles and garments etc)

SDM-Ch 16 Tata McGraw Hill Publishing Ltd 8

 INTERNATIONAL TRADE – COMPANY
PERSPECTIVE
• Companies may choose to sell internationally for the
reasons given below:
• Limited growth in home market
• Overseas markets offer large profitable opportunities
• Excess capacity which cannot be absorbed locally
• Cost advantage over international competitors
• Mitigating risk of increased domestic competition

SDM-Ch 16 Tata McGraw Hill Publishing Ltd 9

 ENTRY STRATEGIES

• Exporting through local agent

• Exporting through foreign agent
• Exporting to foreign importer / distributor
• Setting up local office / representative
• Licensing / Franchising
• Setting up Joint ventures for distribution /
manufacture
• Setting up wholly owned manufacturing facilities

SDM-Ch 16 Tata McGraw Hill Publishing Ltd 10

 ORGANIZING FOR INTERNATIONAL
SALES
• Structure depends on volume of sales and nature of
the product.
• In situations of low volumes, exporting through local
or foreign agents is cost effective
• As volume grows and in complex products or large
value deals, using own sales personnel is preferable.
• To be effective, it is preferable to have local
personnel in the sales force

SDM-Ch 16 Tata McGraw Hill Publishing Ltd 11

 DISTRIBUTION

• Distribution is a vital aspect of marketing – ensuring

availability of the product in the right quantity, at the
right time and right place.
• More important in international markets due to
distance and transportation time.
• Importers, manufacturers and retailers are
increasingly asking for Just in Time deliveries.
• Distribution strategy varies from market to market
depending on size and local conditions.
• Multiple channels may be used in countries.
SDM-Ch 16 Tata McGraw Hill Publishing Ltd 12
 DISTRIBUTION OPTIONS

Depends on the volume of the business

• Positioning of the product
Infrastructure of distribution in the country
• Local laws – some countries insist on local
companies in the distribution business
• Internet as a channel of sales and distribution

SDM-Ch 16 Tata McGraw Hill Publishing Ltd 13

 ROLE OF LOGISTICS

• Very important aspect of international selling

• Logistics can make up over 15% of the cost of the
product
• Involves multiple modes of transport – land, sea and
air
• Considerable paperwork and formalities to be
completed in international trade
• Logistics providers now offer complete one stop
solution including distribution, invoicing and collection
of payment
SDM-Ch 16 Tata McGraw Hill Publishing Ltd 14
 PROFILE OF AN INTERNATIONAL
SALES PERSON
• Pleasant and amiable personality
• Ability to adapt to foreign culture – especially food,
drink etc
• Conversant in one or more foreign languages
• Ability to act independently and decisively
• Ability to understand complexities of financing,
foreign exchange etc
• Some local sales persons in the force will be useful to
overcome some barriers and leverage local networks
for business development
SDM-Ch 16 Tata McGraw Hill Publishing Ltd 15
 Incoterms
• International Commercial Terms (‘Incoterms’) are
internationally recognized standard trade terms used
in sales contracts. They’re used to make sure buyer
and seller know:
– Who is responsible for the cost of transporting the goods,
including insurance, taxes and duties.
– Where the goods should be picked up from and transported
to.
– Who is responsible for the goods at each step during
transportation.
The current set of Incoterms is Incoterms 2010. A copy of the
full terms is available from the International Chamber of
Commerce.

SDM-Ch 16 Tata McGraw Hill Publishing Ltd 16

 PRICING AND PAYMENT TERMS

Common pricing terms are:

• Ex Works – at the mfrs factory gate

• FOT, FOR – free on truck / rail –loaded on truck/rail
• FAS – free along side – at port next to ship
• FOB – free on board – loaded on ship
• C&F – cost and freight – inclusive of to destination
• CIF – cost, insurance and freight – inclusive to
destination

SDM-Ch 16 Tata McGraw Hill Publishing Ltd 17

 PRICING AND PAYMENT TERMS

Payment terms can include:

• Cash in advance
• Cash on delivery – cash against documents
• Consignment basis – payable after sale
• Usance – payment … days after acceptance of
documents
• Letter of credit
• Long term credit financing – for machinery / projects
• Each method has risks for the buyer or seller. The LC
offers safety and comfort for both

SDM-Ch 16 Tata McGraw Hill Publishing Ltd 18

 CURRENCY OF PRICING

• The US Dollar is the most widely used currency for

pricing international sales
• Importers in some countries may prefer invoicing in
local currencies like Japanese Yen or Euro or Pound
Sterling, Singapore Dollars or UAE Dirhams Saudi
riyals etc.
• This reduces the risk of exchange rate fluctuations for
the buyer
• Exchange fluctuation is a major risk for sellers and
can be managed by hedging the currency.

SDM-Ch 16 Tata McGraw Hill Publishing Ltd 19

 PACKING AND SHIPPING

• Packing is of two types:

• Industrial packing – bulk for protection during
shipping & transport
• Consumer packing – to enhance sales appeal
• Packing could makeup up to 5% of product costs
• Countries have laws or practices in packing which
must be understood and adhered to.
• Packing depends on the product and must be
suitable for containerized shipping and mechanical
handling.
SDM-Ch 16 Tata McGraw Hill Publishing Ltd 20
 MARKET INTELLIGENCE

• Secondary data is very easy to gather from various

publications, agencies like chambers of commerce,
trade bodies, embassies, trade shows, internet,
banks etc

• Usually secondary data is sufficient to establish the

feasibility of the market.

• Care must be taken to understand the data and the

measures used before drawing conclusions.
SDM-Ch 16 Tata McGraw Hill Publishing Ltd 21
 Key Learnings

• Markets differ in culture, language, taste,

consumption patterns, economic strength, level of
development of market and distribution infrastructure
• The main risks in international business are political
and commercial and financial
• Currency fluctuation is major risk.
• Risks can be mitigated by hedging or insuring
• Legal aspects of a country must be understood well
before venturing in

SDM-Ch 16 Tata McGraw Hill Publishing Ltd 22

 Key Learnings

• The organizing for international markets starts with

choosing the market, planning suitable entry
strategies, staffing with salespersons of appropriate
profile, pricing the products in an acceptable
currency, distributing the products based on the
market needs and infrastructure, in suitable packing
for efficient handling and consumer appeal.
• Payment terms must be acceptable to buyer and
seller with minimum risk to both.
• Secondary market data can be collected from various
sources before venturing into the market.

SDM-Ch 16 Tata McGraw Hill Publishing Ltd 23