Managing International Distribution Operations and Logistics

Managing International Distribution Operations and Logistics Dana-Nicoleta Lascu Chapter 11

Chapter Objectives • Describe the functions of home-country and host-country middlemen involved in international distribution • Identify the different facilitators of international distribution and logistics and describe their involvement in the international distribution process • Address the challenges encountered by distribution in countries of different development levels

Issues Related to International Distribution • Using Established Channels • Could charge high prices • Could be blocked by competition • Choice is a long-term decision: company may be bound indefinitely to the channel choice • Building Channels • Necessary if there are no channels at all and if the existing channels do not conform to company needs • Expensive

Home-Country Middlemen • Export Management Companies • Highly specialized in certain industries and/or regions • Trading Companies • The Japanese Model: sogo shoshas • The U.S. Model and the Export Trading Company Act

Home-Country Middlemen, continued • Home-Country Brokers and Agents • Middlemen who bring international buyers and sellers together in the company's home country • Do not carry title to the product • Manufacturer’s export agent: represent a manufacturer • Buying offices: buyers located in the firm’s home country, representing different international firms

Home-Country Middlemen, continued • Cooperative Export Arrangements • Also known as piggybacking and mother henning • Involve exporters agreeing to handle export functions for unrelated companies on a contractual basis • Complementary export agents export complementary products on a commission basis • Complementary export merchants actually take title to the complementary products that they export

Home-Country Middlemen, continued • Webb-Pomerene Associations of Exporters • Competing companies that join resources and efforts to export internationally • Are exempt from antitrust scrutiny • Are present especially where cartels are active

Home-Country Middlemen, continued • Foreign Sales Corporation (FSC) • Sales corporation that is set up overseas • Allows for a portion of U.S. firm’s foreign-source income to be exempt from U.S. income tax • To qualify for tax exemption, firm must: • have a foreign presence • meet certain management and economic requirements • incur abroad a minimum level of direct costs in sales activities, in areas such as marketing, advertising, and order processing.

Home-Country Middlemen, continued • Export merchants • Intermediaries who take title to and possession of the products they carry • Responsible for shipping and marketing the products in the target market • Carry competing brands • Examples: • export jobber, who carries commodity goods, but does not take physical possession of the goods • Norazi agent, who deals in illegal and/or gray market products

Foreign-Country Middlemen • Merchant Middlemen • Intermediaries who carry the manufacturer’s product line in a particular country • Usually carries title to and has physical possession of the products

Foreign-Country Middlemen, continued • Agents and Brokers • Many types of agents and brokers in foreign markets, such as manufacturer's representatives and managing agents • Could act as the manufacturer’s sales representatives and are paid on commission • Or they could take on the role of managing agents (also known as compradors), with an exclusive arrangement with the company, representing it in the foreign market; the latter are paid as a percentage of sales

Foreign-Country Middlemen, continued • Alternative Distribution Structures: Network Marketing • Using acquaintance networks for the purpose of both sales and distribution • Have high potential in emerging markets

International Distribution and Logistics • Distribution Centers • Transportation Firms • Freight Forwarders and Customs Brokers • Government Agencies • Promote national security • Promote international involvement of local firms • Provide financing and insurance for high risk ventures

Government Agencies • International Trade Administration • Bureau of Export Administration • U.S. Commercial Service • Export/Import (Ex-Im) Bank • United States Trade and Development Agency

Other Service Providers • Non-governmental • International Chamber of Commerce • Banks • Insurance agencies • Marketing research firms • Consultants

Logistics Alliances • Establish objectives • Identify providers • Express needs/wants • Evaluate and select bidder • Develop integration plan • Create win-win relationship • Measure and analyze performance • Redefine goals and objectives

Challenges to International Distribution and Logistics • Distribution challenges in developing countries • Parallel imports (gray markets) • Distribution systems that are not authorized by the manufacturer: products purchased in a low-price market are diverted to other markets • Hurt company image • Charge similar prices worldwide • Create product for low-markets not as attractive to up-market • Complicate repair/servicing process for gray market goods • Inform consumers • Litigate

Logistics Challenges • Combating Parallel Imports: • Charging similar prices worldwide • Creating product for low-price markets not as attractive to up-market • Complicating the repair/servicing process for gray market goods • Informing consumers • Litigating

Chapter Summary • Described functions of home-country and host-country middlemen involved in international distribution • Identified different facilitators of international distribution and logistics • Described their involvement in distribution process • Addressed challenges encountered by distribution in countries of different development levels

Managing International Distribution Operations and Logistics