International Distribution Strategy

• Depends on mode of entry:– Exporting– Contract (franchise, licensing, joint ventures)– Direct foreign investment

International Distribution• Direct foreign investment/joint ventures

– Perform all distribution functions on your own through ownership/partnership of manufacturing, distributors, retailers

Foreign Soil

U.S. Company

The United States

Foreign customer

Foreign Retailer

X owns/operates its own retail stores

Foreign distributor

X owns/operates its own sales offices

X owns/operates its own manufacturing plant

International Distribution

Exporting 1. Sell directly through your own U.S. sales

force.2. Sell indirectly through independent (U.S.

or foreign) intermediaries.3. Sell indirectly through an outside

distribution system with regional or global coverage (e.g., Export Management Company).

4

The Exporting Process

Check for U.S. export

requirements

Arrange for payment

Exporting Considerations

Physical Distribution Considerations

Packing & marking

Documentation

Logistics

Importing Country Considerations

Tariffs, taxes

Non-tariff Barriers

5

Check Export Requirements

• Department of Commerce, Bureau of Industry & Security (formerly Bureau of Export Controls)

• What types of products have restrictions:– primarily weapons, technology, defense related

• U.S. boycotts:– Iran, Iraq, Cuba, Libya

Bureau of Industry & Security

6

Export Documents

7

Logistics Specialists

Intermodal Marketing Companies (IMCs)IMC arranges transportation, using a combination of transportation modes, from factory to customer’s port of entry. e.g., truck → rail → truck

a broker: takes a percentage of the cost

Foreign-Freight Forwarderarranges documentation

advises on scheduling, routing & rates

checks consular, licensing, & labeling requirements

checks export restrictionsoffers insuranceprovides warehouse storagewill pack/containerize

Manufacturer’s Rep

Foreign Intermediaries

U.S. Company

Domestic Intermediaries

Foreign consumer

Internet

Direct marketing

Domestic Wholesaler

U.S. Retail Chain

U.S. Retailer, foreign unit

Export Management Company (EMC)

Foreign Retailer

Importer

Agent/

Broker

Distributor

Export Merchant Wholesaler (LT, Buy/Sell)

Export Agents/Brokers (ST, Fee/Commission)

Foreign Sales Corporation (FSC)

International Exporting Alternatives

Intermediaries: two general types

• Types of intermediary relationships– Distributors; buy & resell; longer term– Agency; works on sales commissions

a) agents – short term; e.g., one time

b) (manufacturer’s) representatives – longer term; independent sales people that represent your company’s products.

Foreign Intermediaries

U.S. Company

Domestic Intermediaries

Foreign consumer

Internet

Direct marketing

Export Management Company (EMC)

Foreign RetailerDistributor

Foreign Sales Corporation (FSC)

Exporting: Company-based alternatives

Foreign Intermediaries

U.S. Company

Domestic Intermediaries

Foreign consumer

Foreign Retailer

Distributor

Export Merchant Wholesaler (LT, Buy/Sell)

Export Agents/Brokers (ST, Fee/Commission)

Exporting: U.S. Based Intermediaries

Domestic Wholesaler

U.S. Retail Chain

U.S. Retailer, foreign unit

Foreign Retailer

Manufacturer’s Rep

Foreign Intermediaries

U.S. Company

Domestic Intermediaries

Foreign consumer

Foreign Retailer

ManagingAgent

Distributor

Exporting: Foreign-based Alternatives

Broker

Assign 4: You will not need to consider:

• Webb-Pomerene associations

• Foreign Trading Companies*

• Foreign Sales Corporation*

* Unless you can provide evidence that your company currently has one and is using it

What do intermediaries do?(the short list)

• purchase inventory from the manufacturer or export intermediary; assumes risk for selling the product to smaller distributors, retailers and/or end users in the foreign market.

• Provide a sales force that is large enough to cover the country or region in which it is located.

• local advertising & promotion• warehousing for the product.

JPG consulting, Going Global, Evaluating Foreign Distributors; http://www.going-global.com/

Locating & selecting intermediaries

Locating Intermediaries - lists provided by gov’ts, chambers of commerce, business publications, etc.

Selecting Intermediaries - screen carefully, be precise about what functions you want performed

Intermediary Evaluation Checklist:

• company characteristics: health of the business

• experience & reputation

• performance: sales force, territory, promotions, product movement

• compatibility

Channel Design Considerations

• Coverage– The number of areas & retail outlets

in which a product is represented and the quality of that representation.

• Types of coverage– Intensive– Selective– Exclusive

The Distributor Agreement

Typical terms include• Contract duration

• Typically short periods initially

• Geographic and customer boundaries• Well-defined territories and channels

• Compensation• Amounts, how and in what currency

• Products and conditions of sale• Products to be sold; terms and conditions of sales

• Means of communication between parties

Motivating intermediaries; provide incentives

• Inventory Financing• Cumulative Rebates

for larger quantities, early payments, achieving sales targets, maintaining inventory levels, performing sales promotions, etc.

• Returns of Unsold Merchandise• Promotion & Merchandising Assistance

DisplaysAdvertisingIn-store DisplaysFinancial Assistance

Terminating intermediaries

Terminating Intermediaries - be aware that some countries have provisions to protect intermediaries from termination

Example: • Honduras• distributors/agents protected by wrongful

termination law (Law of Agents, Distributors and Representatives of Foreign Enterprises)

• Requires “just cause” for termination (fraud, negligence, failed sales targets)

• terminating a distributor may require compensation

What to consider when selecting foreign intermediaries

INTERNALCompany objectives – cost vs. control

Character; nature of product

Capital resources available to company

Continuity of relationships with intermediaries

Coverage

EXTERNALCustomer characteristics -

what needs should be satisfied?

• When, where, how?

Culture – to what extent do we need to adapt?

Competition – what intermediaries do competitors use?

Logistics: transportation of goods

Shipping Guinness beer to Bertoua, Cameroon (Africa)

From port to patrons

4 days from Douala to Bertoua