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EXPORT CHANNELS OF

DISTRIBUTION
MODULE 4: IMPORT / EXPORT
MARKETING
Selecting and managing the right
distribution systems is the key to
successful internationalization.
Principal Channels of
Distribution
Indirect channels

Firmexports through an independent local


middleman

Itentails reliance on another firm to act as a


sales intermediary.

No start-up cost.
Principal Channels of
Distribution
Indirect channels

Disadvantages:
Manufacturer loses control over the marketing of
its product overseas.

Manufacturers success totally depends on the


initiative and efforts of the chosen intermediary.
Principal Channels of
Distribution
Direct channels

Firm sells directly to foreign distributors, retailers,


or trading companies.

Expensive and time consuming.

Better relationships with their trading partners.

Greater control over various activities.


International Marketing
Objectives of the Firm

The marketing objectives of the firm will often


determine channel choice.

Provide opportunities for high profit margins


even with high financial commitments.
Manufacturers Resources and
Experience

If companys resources &/commitment is limited


= NOT FEASIBLE for direct channel structure.

Small to medium firms tend to use indirect


channels due to their limited resources and small
export volumes.

It is advisable to use independent intermediaries


during early phases of internationalization efforts.
Availability and Capability of
Intermediary
Firms that have used specific types of
distribution channels in certain countries may
find it difficult to use similar channels in other
countries.

Distributors have exclusive arrangements


with other suppliers/competitors, or

When such channels do not exist.


Customer and Product
Characteristics
Number of consumers is large and concentrated in
major population centers = direct or multiple
channels of distribution.

Direct exporting is often preferable if:


customers are geographically homogeneous,
have similar buying habits, and
are limited in number.

Direct channels are also frequently used for


products of a perishable nature or high unit value.
Marketing Environment
Some countries requires the use of export intermediaries.

Exporters have to use these distribution channels to gain


a significant penetration of the market.

Legislation in certain countries requires that foreign


firms be represented by local firms.

The intention of such legislation is to place the firm


closer to the market so as to react and adapt to
unforeseen circumstances.
Control and Coverage
Types of Control for the Manufacturer:
Process Controls - manufacturers intervention is
intended to influence the means intermediaries use
to achieve desirable ends.

Output controls - used to influence indirectly the


ends achieved by the distributor. It includes
monitoring sales volume, profits, and other
performance-based indicators.
INDIRECT CHANNELS
1 Export Agents
They represent various manufacturers of related and
noncompeting products.

Roles of Export Agents:


Handle direct marketing, promotion, shipping, and
sometimes financing of merchandise. The agent does
not offer all services.
Take possession but not title to the goods.
Represent the manufacturer on a continuous or
permanent basis as defined in the contract.
INDIRECT CHANNELS
2 Export Management Companies
They act as the export department for one or several
manufacturers of noncompetitive products.

They provide market analyses, documentation, financial


and legal services, purchase for resale, and agency
services.

Does extensive research on foreign markets, conducts its


own advertising and promotion, serves as a
shipping/forwarding agent, and provides legal advice on
intellectual property matters.
INDIRECT CHANNELS
Disadvantages:
Manufacturer may lose control over foreign sales.

Export management companies that work on


commission may lose interest if sales do not happen
immediately.

Exporters may not learn international business since


EMCs do most of the work related to exports.
INDIRECT CHANNELS
3 Export Trading Companies
They are demand driven; they identify the needs of overseas
customers and often act as independent distributors linking
buyers and sellers to arrange transactions.

Buys and sells goods as merchants taking title to the


merchandise.

Commission-based transactions.

Handles goods on consignment.


INDIRECT CHANNELS
Difference of Trading Companies versus
EMCs:

Offers more services and have more diverse product


lines. They are larger and better financed than
EMCs.

Trading companies are not exclusively restricted to


export-import activities.
INDIRECT CHANNELS
4 Export Commission Agents
They represent foreign buyers such as import firms
and large industrial users and seek to obtain
products that match the buyers preferences and
requirements.

Resides and conduct business in the exporters


country and are paid a commission by their foreign
clients.
INDIRECT CHANNELS
5 Export Merchants
They purchase products directly from
manufacturers, pack and mark them according to
their own specifications, and resell to their overseas
customers.

Take title to the goods and sell under their own


names, assuming all risks associated with
ownership.
INDIRECT CHANNELS
6 Cooperative Exporters
Manufacturers or service firms that sell the products
of other companies in foreign markets along with
their own.

Occurs when a company has a contract with an


overseas buyer to provide a wide range of products
or services.

Often used to export products that are


complementary to that of the exporting firm.
DIRECT CHANNELS
Direct Marketing from the Home Country

Accomplished through catalog sales or traveling


sales representatives.

Buyers can be identified at trade shows, through


international publications, and so on.

Can also be undertaken through foreign sales


branches or subsidiaries
DIRECT CHANNELS
Overseas Agents
When to use Overseas Agents:

Sell products to small markets that do not attract


distributor interest,
Market to distinct individual customers (custom-made
for individuals or projects),
Sell heavy equipment, machinery, or other big ticket
items that cannot be easily stocked, or
Solicit public or private bids.
DIRECT CHANNELS
Overseas Agents
Disadvantages:

Legal and financial problems in the event of


termination,
Firms assume the attendant risks and responsibilities,
ranging from pricing and delivery to sales services
including collections, and
Agents have limited training and knowledge about the
product and this may adversely impact product sales.
DIRECT CHANNELS
Overseas Distributors
Independent merchants that import products for
resale and are compensated by the markup they
charge their customers.

Takes delivery of and title to the goods and have


contractual arrangements with the exporters as well
as the customers.

Given exclusive representation for a certain territory.


DIRECT CHANNELS
Overseas Distributors
Disadvantages:

Loss of control over marketing and pricing,


Limited access to or feed-back from customers,
Limited opportunity to learn international business
know-how and about developments in foreign markets,
and
Dealer protection legislation in many countries that
may make it difficult and expensive to terminate
relationships with distributors.
MAJOR CLAUSES IN
REPRESENTATION AGREEMENTS
Definition of Territory
Definition of Product
Representatives Rights and Obligations
Exporters Rights and Obligations
Definition of Price
Renewal or Termination of Contract
Applicable Law and Dispute Settlement
Renewal or Termination of
Contract
What should be included:
Right to Terminate Without Cause
Force Majeure
Acts of god
Wars and civil disorder
Acts of government such as exchange controls or host
government regulations
Other acts beyond the parties control
Other Causes of Termination