LESSON 16: MODES OF ENTRY

Place, Distribution, Interm ediar y Channel or

They provide storage facilities. For example,

A channel of distribution comprises a set of institutions, which perform all of the activities utilized to move a product and its title from production to consumption . Another element of Neil H.Bordens Marketing Mix is Place. Place is also known as channel, distribution, or intermediary. It is the mechanism through which goods and/or services are moved from the manufacturer/ service provider to the user or consumer. There are Six Basic Channel Decisions: 1. Do we use direct or indirect channels? (e.g. direct to a consumer, indirect via a wholesaler) 2. Single or multiple channel s 3. Cumulative length of the multiple channels 4. Types of intermediary (see later) 5. Number of intermediaries at each level (e.g. how many retailers in Southern Spain). 6. Which companies as intermediaries to avoid intrachanne l conflict (i.e. infighting between local distributors ) Selection Consideration - How do we Decide upon a Distributor?

cheese manufacturers seldom wait for their product to mature. They sell on to a wholesaler that will store it and eventually resell to a retailer. Wholesalers offer reduce the physical contact cost between the producer and consumer e.g. customer service costs, or sales force costs. the marketing responsibilities. Many produce their own brochures and use their own telesales operations.

A wholesaler will often take on the some of

2. Channel Intermediaries - Agents

Agents are mainly used in international

markets.

An agent will typically secure an order for a

producer and will take a commission. They do not tend to take title to the goods. This means that capital is not tied up in goods. However, a stockist agent will hold consignment stock (i.e. will store the stock, but the title will remain with the producer. This approach is used where goods need to get into a market soon after the order is placed e.g. foodstuffs) .
Agents can be very expensive to train. They

are difficult to keep control of due to the physical distances involved. They are difficult to motivate. 3. Channel Intermediaries - Retailers
Retailers will have a much stronger personal

Market segment - the distributor must be familiar with your target consumer and segment. Changes during the product life cycle different channels can be exploited at different points in the PLC e.g. Foldaway scooters are now available every where. Once they were sold via a few specific stores.

relationship with the consumer.

The retailer will hold several other brands and

products. A consumer will expect to be exposed to many products. e.g. electrical wholesalers, or travel agents.
Products and services are promoted and

Retailers will often offer credit to the customer

Producer - distributor fit - Is there a match between their polices, strategies, image, and yours? Look for synergy. Qualification assessment - establish the experience and track record of your intermediary.

merchandised by the retailer.

The retailer will give the final selling price to the

product.

Retailers often have a strong brand

How much training and support will your distributor require? Types of Channel Intermediaries. There are many types of intermediaries such as
104

themselves e.g. Ross and Wall-Mart in the USA, and Alisuper, Modelo, and Jumbo in Portugal. 4. Channel Intermediaries - Internet
The Internet has a geographically disperse

Export Entry Modes

Indirect Export

Home-country based merchants

Export Merchants Trading company Export desk jobber

Home-country based agents

Export commission house, Confirming house,

Resident buyer, Broker, Export management company, Manufacturers export agent

Cooperative organization

Piggyback marketing

Although international trading companies based in Brazil, South Korea, Taiwan, Thailand,Turkey and other countries, including some in Europe, have been active throughout the world, it is in Japan that are trading company concept has been applied most effectively and perhaps most uniquely. There are thousands of trading companies in Japan that are involved in exporting and importing, and the largest firms are referred to as general trading companies or sogo shosha.

Direct Export

Indirect Export-Home country based merchants

Home-country based departments

Trading company-Sogo Shosha (Continue)

Built-in department Separate export department Export sales subsidiary

Foreign sales branch Storage or warehousing facilities Foreign sales subsidiary Traveling Salesperson

Indirect Export

Sogo Shosha includes Mitsui & Co.,Ltd., Mitsubishi Shoji Kaisha, Ltd., and Marubeni, handle a large share of Japans exports and imports. While the smaller trading companies usually limit their activities to foreign trade, the larger general trading companies are also heavily involved in domestic distribution and other activities.

Indirect Export-Home country based merchants

Export merchants

Indirect Export-Home country based merchants

Trading company-Sogo Shosha (Continue)

The domestic-based export merchant buys and sells on its own account. Generally engaged in both exporting and importing, it operates in a manner similar to a regular domestic wholesaler. All aspects of the international marketing task are handled by this merchant except for any needed modification in such things as the product itself, its package, or in the quantity included in the unit package to meet any special needs of individual overseas markets.

The Japanese general trading companies are engaged in a far wider range of commercial and financial activities than simply trade and distribution. They also play a central role in such diverse areas as shipping, warehousing, finance, technology transfer, planning, resource development, construc tion and regional development (e.g., turnkey projects), insurance, consulting, real estate, and deal making in general.

This also includes selecting the channels within foreign markets as well as activities relating to sales, marketing, merchandising, advertising, delivery, and services.

Indirect Export-Home country based merchants Trading company-Sogo Shosha (Continue)

Indirect Export-Home country based merchants

Export merchants (continue)

Limitation: To use export merchants, they firstly may not be available for all markets. Export merchants are principally interested in staple commodities, which are generally open-market items not subject to a high degree of identification

The sogo shosha differ from multinationa l corporations chiefly in that their wideranging investments are all in some way directly connected with trade, with the broad aim of stimulating internationa l business. They also differ from other companies in that they are not necessarily user or manufacturer oriented. Rather, they are supply/demand oriented and function as problem solvers. Recognizing demand for goods or services, the sogo shosha look for ways to supply it, either taking the intermediary role in trade deals between a number of parties or
105

 Essentially becomes a domestic buyer

Pros: Easy, prompt payment guaranteed, resolved problems of physical movement of the goods, little credit risk Cons: Little direct control over the international marketing products.

foreign sales representative on a permanent basis. Thus, producers are seldom encouraged to establish their own export departments . Indirect Export-Cooperative organizatio n
Piggyback marketing

Indirect Export-Home country based agents

Confirming house

Its basic function is to assist the overseas buyer by confirming orders already placed, so that the exporter may receive payment from the confirming house when the goods are shipped.

Piggyback marketing, also known as mother henning, occurs when one manufacturer (the carrier) uses its foreign distribution facilities to sell another companys (the supplier) products alongside its own. Usually used when all types of products includ e textiles, industrial and electrical machinery and equipment, chemicals, consumer soft goods, and books. Piggyback marketing is used for products from different companies that are noncompetitive (but related), complementary (allied), or unrelated.

It is widely used among Europe, particularly in the United Kingdom.

Indirect Export-Home country based agents

Resident buyer

Large retailers, like Harrods (UK), and Nordstrom (US), use this.

Although the resident buyer operates almost exactly like the commission house, that is, the buyer places an order, specifies the process, and either pays cash or furnishes the manufacturer with a lowrisk means o f financing-there is one important difference. Because resident buyers are permanently employed representatives of foreign buyers, the exporting manufacturer has a good chance to build up a steady and continuous business with foreign markets.

Direct Export Direct export-Home-country based department

There are basically three different types of

home-country based export organizations : 1. Built-in export department; 2. Separate or self-contained export department; 3. Export sales subsidiary. Direct export-Home-country based department
Built-in department

Indirect Export-Home country based agents

Broker

Simplest in structure, easiest to establish, flexible and economical in use In its most simple form, this organization will consist of an export sales manager with some clerical help. The primary job of the sales manager is to do the actual selling or direct it. Most other export marketing activitiese.g., advertising, logistics, credit, etc. It is suitable if, small in size, new or relatively new to export marketing, expected foreign sales volume is moderate to small, management philosophy not oriented toward growth of foreign business, existing marketing resources capacity not fully utilized in the domestic market, either the company is unable to acquire additional resources or, if able to do so, key resources are not available.

Its main function is to bring a buyer and seller together

The broker is a specialist in performing the contractual function, and does not actually handle the products sold or bought. They may act as the agent for either the seller or the buyer.

Indirect Export-Home country based agents

Export management company (EMC)

An international sales specialist who functions as the exclusive export department for several allied but noncompeting manufacturers. E.g., an EMC may serve five sailboat parts manufacturers, each making a different part.

Indirect Export-Home country based agents

106

 In attempting to divorce completely export

marketing activities from domestic operations, some companies have established an export sales subsidiary as a separate corporation.

Direct export-Home-country based department

Export sales subsidiary (continue)

Several important reasons to use this:

1. Unified control. - not subject to conflicting pressures from various domestic departments 2. Cost and profit control 3. Allocation of orders in multiple plant enterprises 4. Ease of financing 5. More complete line of products-it can purchase products from outside sources to offer overseas buyers a more complete line. 6. Tax advantages. Corporate income tax laws in some countries may result in some savings in total corporate taxes. Direct export-Home-country based department
Foreign sales branch

A company may be able to reach the point where it is believed necessary to have closer supervision over the sales made in a particular market area by establishing a foreign sales branch. It handles all of the sales distribution and promotional work throughout a designated market area and sells primarily to marketing organization s (wholesalers and dealers) or, under certain conditions, industrial users.

Direct export-Home-country based department

Storage or warehousing facilities Foreign sales subsidiary-it operates much the

same as the home-country based export sales subsidiary. One major difference is the somewhat greater autonomy enjoyed by the foreign-based subsidiary because of its foreign incorporatio n

107