ĐẠI HỌC FPT CẦN THƠ

Session 4

Chapter 5 c

Export Channels of
Distribution
 Contents
1 • Indirect Channels

2 • Direct Channels

• Locating, Contacting, and Evaluating Agents and

3 Distributors
• Contracts with Foreign Agents and Distributors
4 (Representatives)
5 • Major Clauses in Representation Agreements

• Maintaining and Motivating Overseas

6 Representatives
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 Direct vs. Indirect
channels of distribution
With direct channels, the firm sells directly to foreign
distributors, retailers, or trading companies. Direct
sales can also be made through agents located in a
foreign country. Direct exporting could be expensive
and time consuming.
 Direct vs. Indirect
channels of distribution
With indirect channels, the firm exports through an
independent local middleman that assumes
responsibility for moving the product overseas. Helps
increase overall sales and cash flow with little or no
investment; Good way to test-market products, develop
goodwill, and allow clients to be familiar with firm’s
trade name or trademark before making substantial
commitment. However, the disadvantage is that the firm
will lose control over marketing and pricing and will
have a lower profit margin..
 Direct and Indirect Channels
Figure 5.1: Direct and indirect channels

Direct
E x p o rtin g

Resources

Indirect
e x p o rtin g

Control / feedback/ time to market

 I n d i re c t e x p o r t i n g is a s s o c i a t e d w i t h p o o r c o n t ro l , i n a d e q u a t e f e e d b a c k a n d s h o r t e r
t i m e t o m a r k e t c o m p a r e d t o d i re c t e x p o r t i n g .
 D i re c t e x p o r t i n g re q u i re s a h i g h e r level o f i n v e s t m e n t i n financial, t e c h n i c a l a n d
o t h e r r e s o u r c e s t h a n i n d i re c t e x p o r t i n g
 Determinants of Channel Selection
 International Marketing objectives of the firm:
Objectives with regard to profits, sales, market
share etc.
 Manufacturer’s resources
and experience: Limited
resources and experience
(indirect)
 Availability of
intermediary: Certain
distribution patterns vary
from country to country.
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 Determinants of Channel Selection
 Customer and product characteristics: Direct
channels preferable in cases where customers
are geographically homogeneous, have similar
buying habits, and are limited in number, and
concentrated in major population centers.
 Marketing environment: Direct channels are
preferable in cases of countries that are more
similar in culture to the exporter’s home country.
 Control and coverage: A direct channel affords
the manufacturer more control over its
distribution and its link to the end user.
 InDirect Channels - 1
Exporters that sell on behalf of
manufacturer
- Manufacturing exports agents: Represent
non-competitive/related products; handle
marketing, promotion, shipping (sometimes
financing); takes possession not title to
goods; risk of loss remains with
manufacturer.
 InDirect Channels - 1
Exporters that sell on behalf of
manufacturer
- Export management companies: EMCs act as
the export department for one or several
manufacturers of noncompetitive products.
Provide extensive services to manufacturers
including market analyses, documentation,
financial, and legal services, purchase for resale
and agency services, collect and furnish credit
information on overseas customers, consolidate
freight of several principals.
 InDirect Channels - 1
Exporters that sell on behalf of
manufacturer
- Export trading companies: They buy and sell
goods as merchants taking title to the
merchandise. Some work on a commission.
They have more diversified product lines, are
larger and better financed than EMCs.
 InDirect Channels - 2
Exporters that buy for their overseas
customers
- Export commission agents: represent
foreign buyers such as import firms and
large industrial users and seek to obtain
products that match the buyer’s preferences
and requirements. They reside and conduct
business in the exporter’s country and are
paid a commission by their foreign clients.
 InDirect Channels - 2

Exporters that buy for their overseas

customers
- The resident buyer: Handles purchasing
function for the overseas buyer and also
ensures timely delivery of merchandise and
facilitates principal’s visits to suppliers and
vendors.
 InDirect Channels - 3
Exporters that buy and sell for their
own accounts:
- Export merchants: Export merchants purchase
products directly from manufacturers, pack and
mark them according to their own specifications,
and resell to their overseas customers. They take
title to the goods and sell under their own names.
- Cooperative exporters: These are manufacturers
or service firms that sell the products of other
companies in foreign markets along with their
own.
 InDirect Channels - 3
Exporters that buy and sell for their
own accounts:
- Export Cartels: Organizations of firms in the
same industry for the sole purpose of
marketing their products overseas. They
include the Webb Pomerene Associations
(WPAs) in the United States,. as well as
certain export cartels in Japan. There are
WPAs in various areas such as pulp, movies,
sulphur, and not allowed for services (not
suitable for differentiated goods).
 InDirect Channels
Advantages
 Little or no investment or marketing
experience needed. Suitable for firms with
limited resources or experience.
 Helps increase overall sales and cash flow.
 Good way to test-market products, develop
goodwill, and allow clients to be familiar with
firm’s trade name or trademark before
making substantial commitment.
 InDirect Channels
Disadvantages
 Firm’s profit margin may be dwindled due to
commissions and other payments to foreign
intermediaries.
 Loss of control over marketing and pricing.
Firm totally dependent on the marketing
initiative and effort of foreign intermediary.
Product may be priced too high or too low.
 InDirect Channels
Disadvantages
 Limited contact/feedback from end-users.
 Foreign intermediary may not provide
product support or may damage market
potential.
 Limited opportunity to learn international
business know-how and develop marketing
contacts. Creates difficulty in taking over the
business after the relationship has ended.

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 Direct Channels
 Direct marketing from home country: Catalog
sales, traveling sales representatives who are
domestic employees of the exporting firm. Duty,
clearance problems with Internet sales.

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 Direct Channels
 Marketing through overseas agents and
distributors: Overseas agents are
independent sales representatives of various
non-competing suppliers. They are residents of
the country or region where the product is sold
and usually work on a commission basis, pay
their own expenses, and assume no financial
risk or responsibility. Distributors are
independent merchants that import products
for resale and are compensated by the markup
they charge their customers.

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 Selecting the right channel
 A f i r m m a y u s e direct c h a n n e l for its lucrative m a r k e t s o r m a r k e t s w h e r e it h a s

s o m e internal s t r e ng t h a n d e x pe r i e nc e . It will u s e indirect c h a n n e l s for

u n f a m i l i a r, s m a l l o r r i s k y m a r k e t s .

 A f i r m m a y u s e b o t h c h a n n e l s if it h a s different p r o d u c t lines w i t h different

c u s t o m e r profiles. It c a n u s e direct c h a n n e l s for t h e p r o d u c t i n w h i c h it h a s a

g o o d n e t w o r k o f r e s o u r c e s a n d c u s t o m e r s a n d u s e indirect c h a n n e l s s u c h a s

c o o p e r a t i v e e x p o r t i n g for o t h e r p r o d u c t lines w h e r e certain a d v a n t a g e s d o n o t

exist.

 Indirect c h a n n e l o p t i o n s s h o u l d n o t b e i g n o r e d just b e c a u s e t h e f i r m h a s l o n g -

t e r m p l a n s to g o direct. E a r l y indirect e n t r y c o u l d facilitate t h e p r o d u c t ’s

s u c c e s s ( w h e n it g o e s direct) if a g o o d p r o d u c t i m a g e a n d c u s t o m e r s u p p o r t

h a s b e e n c r e a t e d b y t he indirect partner.

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 Major Clauses
in Representation Agreement
• Definition of territory and product: Geographical
scope of the territory to be represented by the
agent or distributor and whether the
representative has sole marketing rights.
• Definition of product:
Products or product
lines covered by the
agreement as well as
the procedures for
the addition of
successive products.
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 Major Clauses
in Representation Agreement
• Representative’s rights and obligations:
Representative’s obligations to promote and
market the product; to inform exporter of market
conditions; to protect confidential information
and to carry noncompetitive and complementary
products.
• Exporter’s rights and obligations: The exporter is
often required to provide the agent with its price
schedules, catalogs and brochures describing the
company, its product and other pertinent
features. In the case of distributors, provision of
training and technical assistance.
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 Major Clauses
in Representation Agreement
• Definition of price: All sales of products are
made in accordance with the price list and
discount structure agreed upon between the
parties. Seller can change the price at any time.
Distributor agreements also contain provisions
relating to the price to be charged by the seller
upon purchase of goods by the distributor. Any
discounts available are also stated.

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 Major Clauses
in Representation Agreement
• Renewal or termination of contract: I t i s
important to state the duration of appointment
and the basis for renewal or termination. Right
to terminate with/without cause.
• Applicable Law and dispute settlement: Most
contracts state the applicable law to be that of
the manufacturer’s home state. Parties are free
to determine the applicable law. .Many contracts
provide for arbitration in the event of a dispute.

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 QUIZ
1. Who does international trade allow to seek out products,
services, and components in foreign countries?
a. Manufacturers and distributors
b. Distributors and suppliers
c. Suppliers and public officials
d. Manufacturers and suppliers
2. International Trading companies (ITCs) often
offer.......services and have ....... diverse product lines
than Export Management companies (EMCs). ITCs are
also much......than EMCs
A. More, more, bigger
B. Less, less, smaller
C. More, more, smaller
D. Less, less, bigger
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 QUIZ
3.Direct exporting is likely to provide opportunities for.......even
though it requires a high degree of financial commitment
A. High profit margins
B. Low profit margins
C. Medium profit margins
D. No profit margins
4.If a producer sells through an import agent, a wholesaler, and a
retailer, then:
A. A long channel exists
B. The retail system must be concentrated
C. The Internet probably does not plays a big role in the economy
D. There is no channel

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 QUIZ
5.A(n)........ distribution channel is one that is difficult for outsiders to
access
A. Selective
B. Intensive
C. Exclusive
D. Multichannel
6.Which of the following is not recommended when considering
exporting ?
A. Begin by focusing on many markets and enter those markets on a
large scale
B. Hire an Export Management Company (EMC) and be prepared to
commit a lot of time and effort to build relationships with foreign
distributors and/or customers
C. Be prepared to hire additional personnel in the home office to
oversee export operations and to hire local personnel to help the firm
established itself in the foreign market
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 QUIZ
7.Which of the following is not a feature of direct distribution
channel ?
A. It can be cheap and not time consuming
B.It offers manufacturers opportunities to learn about their
markets and customers
C. It allows firms greater control over their activities
D.It offer manufacturers a chance to gain better relationship
with their trading partners
8.When evaluating and selecting..........., there are some major
factors which should be consider, including their local reputation,
experience with a similar product or industry and commitment
not to present competing brands
A. A potential representatives(agents and distributors)
B. A potential customs broker
C. A potential bond warehouse
D. A potential State Government and city agencies
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 QUIZ
9. Which of the following is not true for indirect distribution channel ?
A. Indirect channel needs little or no investment or marketing
experience, and it is suitable for firms with limited resources or
experience
B. Indirect channel helps increase overall sales for the firms
C.Indirect channel is a good way to test market products before
making substantial commitment
D. Indirect channel increases the contact/feedback from end users
10 Which of the following is not a disadvantage of using an indirect
channel?
a. The supplier loses control over the marketing of its product
overseas
b.The manufacturer loses control over the marketing of its product
overseas
c.The distributor loses control over the marketing of its product
overseas
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 QUIZ

11. Direct sales can be made through located in a foreign

country.
a. Suppliers
b. Manufacturers
c. Agents
d. Investors
12 Which two types of controls are available for the
manufacturer and exporter?
a. Process controls and input controls
b. Process controls and output controls
c. Servicing controls and input controls
d. Servicing controls and output controls
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 QUIZ
13. Disadvantages of using EMCs include:
a. Manufacturer may lose control over foreign sales.
b.EMCs that work on commission may lose interest if sales do not
come immediately.
c. Exporters may not learn international business since the EMC does
most of the work related to exports.
d. All of the above are disadvantages of using EMCs
14. Which of the following describes the difference between trading
companies and EMCs?
a.Trading companies offer more diverse product lines than EMCs,
which offer more
services.
b.Trading companies offer more services and have more diverse
product lines than EMCs.
c.Trading companies are largely restricted to export-import activities.
d. EMCs are not restricted to export-import activities.
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 REVIEW QUESTIONS
1.Distinguish between direct and indirect channels of distribution.
What are the advantages and disadvantages of using indirect channels?
2.Discuss three major determinants of channel selection to market
products abroad.
3.Do firms that export high-technology products exercise high levels of
control?
4. Discuss the role and function of manufacturer’s export agents.
5. Discuss the disadvantages of using export management companies.
6.What are the differences between export trading companies and
export management companies?
7. Briefly describe Webb-Pomerene Associations (WPAs).
8. What are some of the disadvantages of using overseas distributors?
9. State some of the clauses (provisions) in representation agreements.
10. Briefly describe force majeure.
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ĐẠI HỌC FPT CẦN THƠ

Chapter 5