Marketing in the International Environment

1. Marketing in the International Environment Chapter 13 Distribution Management Chapter 16 Global Logistics and Materials Management Group 3 Sylvia Atkinson NoviniaLiady TanapongWorakasemsuk

2. DISTRIBUTION Chapter 13 MANAGEMENT

3. Distribution channels • Distribution systems: • Direct selling • Intermediaries • Outside distribution Distribution Mix of Software Firms

4. Channel Design Determinants External Determinants • Customer Characteristics • Demography • Psychography • Culture • Options: • Mainstream • Non-mainstream • Globalization in distribution: • Globalized distribution mix • Globalized intermediaries • Competition

5. Channel Design Determinants Internal Determinants • Company Objectives • Multiple channels • Character of the Product • Specialized, expensive, big, perishable • Staple items • Capital • Cost • Cooperative advertising

6. Channel Design Channel Configuration

7. Channel Structure Determinants Internal Determinants • Coverage • Intensive • Selective • Exclusive • Control • Product Types • Channel length • Continuity • Commitment • Communication • Social distance • Cultural distance • Tech distance • Time distance • Geographical

8. Selection of Intermediaries • Other concepts: • Commissionario • Del credere agent • Types of relationship: • Distributor relationship • Agency relationship International Channel Intermediaries

9. Sources for Finding Intermediaries • Governmental Agencies • US Department of Commerce • Trade Opportunity Program (TOP) • Country Directories of International Contacts (CDIC) • The US Exporters Yellow Pages, Commercial News USA • Private Sources • Trade directories • Banks • Airlines • Chambers of Commerce

10. Screening Intermediaries • Performance • Financial report • Sales • Existing product lines • Market coverage • Professionalism Distributor Agreement (refer to Exhibit 13.13) • 1 or 2 year period • Specific types • Currency • Discounts • Product and conditions

11. Channel Management • Channel relationship-like a marriage-it brings two independent entities that have shared goals together. • Must have clear expectations and openly communicate about changes perceived in the other’s behavior that might be contrary to the other’s behavior. • Conflicts that may arise • Small grievances (such as billing errors) • Major ones (rivalry over channel duties) • Overall, they are issues that can be resolved Conflicts can be caused by outside entity, such as “grey markers” competitors for market share Harmonious relations can be built on trust, communication, and cooperation between the entities and, as a result by less conflict and perceived uncertainty. As an exporter’s operations expand, the need for coordination across markets may grow. Exporter may want to establish distributor advisory councils to help in reactive measures (how to combat parallel importation) or proactive measures (how to transfer best practice from one distributor to another).

12. Factors in Channel Management • Manufacturers and distributors are usually independent entities. • Distributors do business for more than one manufacturer. • International Marketers offer monetary or psychological rewards in exchange for special favors and assistance. • Two-way communication • Personnel- may have people cross-trained so that they will know job of the other person • Cross-cultural differences in people’s belief systems and behavior patterns have to be acknowledged and acted on for effective channel management. • Economic distance measures itself in exchange rates. • Instability of exchange rates can cause serious difficulties for distributors. • Manufacturers and distributors should develop some flexibility in prices. • Laws and Regulations • Restricts the manufacturer in terms of control. • International marketer can not prevent a distributor from re-exporting products to customers in another member country, even thought the market has another distributor in that market. • Criteria in selecting intermediaries- evaluation of intermediaries (can be used to evaluate prior intermediaries) • Distributor should be informed of the evaluative criteria and should be part of overall assessment. • Sharing of data- the distributor should share information about market and performance data information of the product with the exporter. Some may be reluctant to share, but it’s indicator of a “Successful Relationship” • Part of the Management process is Channel Adjustment • Channel Shift (eliminating a particular type of channel) • Channel Modification (changing individual members while leaving channel structure intact) • Role or relationship modification (changing functions performed or the reward structure) as a result of channel evaluation. • Some companies have protocols that executives should consider before changing processes.

13. Exhibit 13.14Performance Problems and Remedies When Using Overseas Distributors

14. Gray Markets • Parallel Importation-Authentic and legitimately manufactured trademark items that are produced and purchased abroad but imported or diverted to the markets by bypassing designated channels. • Gray market of IT sales-$40 billion in revenue which causes IT loss of $5 billion yr. • Vary form inexpensive goods to expensive goods • Causes of gray markets • Price segmentation and fluctuating exchange rates • The distribution of Counterfeit Pharmaceuticals • In 2008, it was estimated that 7% of were counterfeit • 2 major routes of counterfeiters use: • Parallel importation and online pharmacies. Three methods of preventing counterfeit pharmaceuticals 1. Use of technology-barcode built into labeling of all products 2. Switch from the traditional wholesaler model- relationship with manufacturer and pharmacy. 3. Use of dual pricing-medications are sold at premium compared to drugs used for domestic use.

15. Seiko’s Authorized and Unauthorized Channels of Distribution Ex. 13.15 K. Hattori & Co. Ltd. Tokyo, Japan Japan United States Rest of the World Unauthorized Importers Seiko Time Corp. (Importer) Authorized Importers Regional Distributors 15 Regional Distributors Unauthorized Distributors Regional Distributors 15,000 to 20,000 Retailers Authorized Seiko Dealers Numerous Retailers Unauthorized Retailers Numerous Retailers Japanese Consumers American Consumers Other Consumers

16. Termination of the Channel Relationship Reasons for termination of a channel relationship • Changes in the international marketer’s distribution approach • Lack of performance by the intermediary • Not honoring agreements • Selling assigned territories and initiating price wars Termination conditions just causes-fraud or deceit, damage to the other party’s interest, or failure to comply with contract obligations. -carry stiff penalties for the international marketer Before signing distribution agreement • One must think about before signing • One must ask about local laws about termination • Experiences from have had in particular country. • Exporter may enclose a clause about early termination without litigation.

17. Exhibit 13.16International Distribution Life Cycle Co. A’s own ability And willingness to build market share in market X Effort/ Commitment Intermediary’s willingness and ability to build Co.A’s market share in marker X

18. E-Commerce • Marketers utilizing web for networking and selling products and services. • In 2012, people are expected to spend trillion of dollars on line. • Hub sites: • Priceline.com http://www.priceline.com • eBay http://www.ebay.com • Quadremhttp://www.quadrem.com • ECnethttp://www.ecnet.com • Delivery can be outsourced by • DHL, FedEx, and UPS • Largest on line sellers • Dell Computers

19. Global Logistics Chapter 16 and Materials Management

20. A Definition of International Logistics • International logistics is the design and management of a system that controls the flow of materials into through, and out of the international corporation.

21. 2 Major Logistical Important Factors in the Movement of Materials • Materials management • The timely movement of raw materials, parts, and supplies into and through the firm. • Physical distribution • Which involves the movement of the firm’s finished product to it’s customers.

22. 3 Major Concepts of the Growth of Logistics as Field: • Systems Concept • Based on the notion that materials-flow activities within and outside of the firm are so extensive and complex that they can be considered only in the context of their interaction. • Total Cost Concept • Cost is used as a basis for measurement: the purpose of the total cost concept is minimize the firm’s overall logistics by implementing the systems concept appropriately. • Trade-off Concept • It recognizes that linkages within logistics systems lead to interactions: for example, locating a warehouse near the customer may reduce the cost of transportation, but requires investment in a new warehouse.

23. Supply Chain Management • An integration of the three major concepts of the logistics in which a series of value-adding activities connect a company’s supply side with its demand side.

24. The Impact of International Logistics • Logistics cost • 10 to 30 % of the total landed cost of an international order. • China • Struggling to get demand and supply in line. • Battling insufficient transportation systems, poor lines of supply, and intellectual theft. • Total Logistics Cost transportation, storage, and management activities • 21% of GDP

25. The International Supply Chain suppliers Corporation Customers Inbound MaterialsThrough FlowOutbound Materials Domestic/Export Materials Domestic/ Import Sourcing Order Processing Order Placement Order Processing Order Placement Transportation Transportation Supplier Firm Transportation Transportation Materials Management PhysicalDistribution Management Physical Distribution Management Customer Firm Interface Customer Service Interface Storage Storage Inventory Management Storage Inventory Management Inventory Management

26. The New Dimensions of International Logistics • Domestic Operations: logistic decisions are guided by the experience of the manager, possible industry comparison, an intimate knowledge of trends, and the development of heuristics-or rules of thumb. • International firm-logistics manager needs to make educated guesses to determine the steps required to obtain a desired service level. • Lack of familiarity may cause uncertainty in the decision making process. • Currency variation-Changes in exchange rates which can affect the purchases and profitability of the international firm. • Transportation modes-Choices among airfreight , ocean freight, pipeline, rail, and trucking.

27. International Transportation Issues • International transportation is one of the major concerns because it determines how and when goods will be received. • Transportation issue can be divided into three components: • Infrastructure • The availability of modes • Choice of Modes

28. Transportation Infrastructure • In industrialized nations, firms can count on an established transportation network. • Internationally, major infrastructural variations may be encountered. • Some countries may have weak transportation links within country. • Ex. Shipping to market may be easy, but distribution within market may be difficult and time consuming. • Extreme variations also exist in the frequency of transportation services. • Ex. A particular port may not be visited for a long time. Mistakes in the transportation selected can become costly if the right method is not chosen.

29. Availability of Modes • Goods shipped through rail or truck • International Transportation: Ocean or Airfreight modes. • Land bridges or Sea bridges • International Marketer must understand different modes of transportation.

30. Ocean Shipping • Key mode for international freight movements. • Liner Service offers regularly scheduled passage on established routes. • Bulk Service mainly provides contractual individual voyages or for prolonged periods of time. • Tramp services is available for irregular routes and is scheduled only on demand. • Container Ships are cargo vessels that carry standardized containers, which greatly facilitate the loading and unloading of cargo and intermodal transfers.

31. Air Shipping • Airfreight is available to and from most countries. • High-value items are more likely to be shipped by air. • Also, a product that is perishable or that needs short transit time will need to be sent via airfreight. • Density-Weight-to-volume ratio of a good; high-density goods are more likely to be shipped as airfreight, rather than ocean freight. • From the shippers perspective, the products involved must be amendable to air shipment in terms of their use. The market situation must be evaluated. • The shipment of an industrial product that is vital to the ongoing operations of a customer may be much more urgent than the shipment of packaged consumer products.

32. Choice of Transport Modes • International Marketer’s decision • Depends on need of customer • Consider performance of each mode: predictability, cost, and noneconomic factors.

33. Transit Time • The period between departure and arrival of the carriers varies significantly between ocean freight and airfreight. 45 day shipment of an ocean freight can reduced to 12 hours if shipped by airfreight. Length of transit time will have a major impact on the overall operations of a firm. Inventories can be significantly reduced if they are stocked frequently. Transit time can play a major role in emergency situations. Perishable items require shorter transit times Examples: fresh flowers, seafood and other perishable food items. It is very important for marketing manager to understand the logistics of transit times.

34. Exhibit 16.3 International Airfreight 1960-2027

35. Predictability Reliability-The vagaries of nature can impose delays on transportation services; these delays tend to be shorter in absolute time for air shipments which are more predictable. Ocean freight delays may be seen more severe than airfreight delays. Due to higher predictability of airfreight, stock levels can be kept at lower levels. The merchandise may also suffer less damage and less loss from exposure from cargo.

36. Cost • Major consideration in choosing international transportation is the cost factor. • Cost of the service-One of the major considerations in choosing international transportation modes. Generally depends on the burden the international shipper or service provider can bear. Should therefore be seen in the context of product value. • Value of the service-One of the major considerations in choosing international modes generally depends upon the value that the shipper will gain from using the services. • The international marketer must justify higher cost of airfreight. • Overall logistical considerations-product, competition, and environment.

37. Evaluation Transportation ChoicesExhibit 16.5 Mode of Transportation _______________________________ Characteristics of Mode Air Pipelines Highway Rail Water ___________________________________________________________ Speed (1=fastest) 1 4 2 3 5 Cost (1=highest) 1 4 2 3 5 Loss and Damage (1=least) 3 1 4 5 2 Frequency *(1=best) 3 1 2 4 5 Dependability (1=best) 5 1 2 3 4 Capacity+ (1=best) 4 5 3 2 1 Availability (1=best) 3 5 1 2 4 ___________________________________________________________ *Frequency: number of times mode is available during a given time period. +Capacity: ability of mode to handle large or heavy goods.

38. Noneconomic Factors • Noneconomic dimensions will enter into the selection process for a proper form of transportation. • The transportation sector, nationally and internationally, both benefits and suffers from heavy government involvement. • Governmental pressure is exerted on shippers to use nationwide carriers. • Carriers may be heavily subsidized by the governments. • Most enforced when government cargo is being transported. • Ex. In US, all government cargo and all official government travelers must use national flag carriers when possible.

39. The International Shipment

40. Documentation for an International Shipment Documentation is sometimes considered to be a trade barrier. Trading regions such as the European Union have greatly simplified their documentation requirements.

41. Documentation for an International Shipment – Bill of Lading

42. International Inventory Issues There are 3 factors for deciding the level of inventory • Order Cycle Time • The length of the total order cycle : order transmission, order filling, packing and preparation for shipment, and transportation. • Consistency • Customer Service Levels • How is a firm able to fill all orders within a set time. • Inventory as a Strategic Tool • Avoid currency risk and high inflation.

43. International Storage Issues • Customers expect quick responses to orders and rapid delivery. • Warehousing space is expensive. • The trade-offs between service and cost

44. International Storage Issues

45. International Storage Issues:ABC analysis C Product B Product A Product U.S. China

46. International Storage Issues • Outsourcing • Shifting of traditional corporate activities to parties outside of the firm and often outside of the country • Foreign Trade Zones • Trade zones are considered, for purposes of tariff treatment, to be outside the customs territory of the country within which they are located.

47. International Packaging Issues • Climate • Transportation mode • The weight • Customer Requirements • Government Requirements • Cost (shipping, insurance, pilferage)

48. Management of International Logistics Logistics management • Centralized • logistics management - Headquarters retain decision-making power and control over logistic activities. • Decentralized • Each subsidiary is made a profit center. • Leads to greater local management satisfaction and better adaptation to local market condition. • Contract logistics (Outsourcing logistical management) • Helps firms to achieve improved service at equal or lower cost. • Leads to loss of the firm’s control in the supply chain.

49. The Supply Chain and the Internet

50. Logistics and Security • Terrorists • Government • Cargo Security • Impact of security measures for international shipment • Affect the firm’s ability to plan their international shipments and distributions. • Increases the cost of supply chain activities.