Global Distribution Systems Channel Configurations Manufacturer Wholesaler

Global Distribution Systems

Channel Configurations Manufacturer Wholesaler Agent Wholesaler Agent Retailer Manufacturer Industrial Distributor Agent Industrial Distributor Retailer Consumer Industrial User Consumer/ Industrial User Consumer Products Industrial Products Services

Modes of Entry F Exporting – Direct; Indirect F Licensing F Franchising F Strategic Alliance F Joint Venture F Foreign Direct Investment

International Channel-of-Distribution Alternatives Home Country Foreign Country The foreign marketer or producer sells to or through Foreign consumer Domestic producer or marketer sells to or through Open distribution via domestic wholesale middlemen Export management company or company sales force Exporter Importer Foreign agent or merchant wholesalers Foreign retailers

Comparison of Distribution Channels Between the United States and Japan Automobile parts: Japan Automobile makers affiliated parts makers Independent parts makers Automobile makers Dealers Repair parts makers Wholesalers Special agents Cooperative sales companies Sub-dealers 2 nd-level wholesalers Retailers Gasoline stations Large users Automobiles repair shops End users SOURCE: Mc. Kinsey industry studies

Comparison of Distribution Channels Between the United States and Japan Automobile parts: United States Manufacturer 51% Warehouse distributor Jobber buying groups Jobber Installer 10% 18% Mass merchandiser 21% Repair specialist Primary channel Secondary channel SOURCE: Mc. Kinsey industry studies Customer

Cutting Out the Middleman Number of companies involved in each level of the food industry, % of total, 1993 Total number 141, 597 97, 882 181, 374 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Manufacturers Wholesalers Retailers Japan Britain United States

Retail Patterns Country Argentina Australia Canada India Japan Malaysia Mexico Philippines South Africa South Korea U. S. A Retail Outlets (000) Population per Outlet 199. 5 160. 2 157. 2 3540. 0 1591. 2 170. 6 899. 3 120. 1 60. 4 730. 0 1516. 3 164 111 183 253 79 109 96 547 675 60 170 Employees per Outlet 4 5 9 NA 4 8 2 28 7 2 13 SOURCES: International Marketing Data and Statistics, 21 st ed. (London: Euromonitor Publications, 1997), and "Indicators of Market Size for 115 Countries, " Crossborder Monitor, August 27, 1997.

Retailing Comparison U. S. and Japan Food % Small Stores % Sales Japan 95 57 U. S. 70 19 Non-Food Japan 94 50 U. S. 81 33

International Channel Intermediaries F Agents – Foreign (Direct) – Domestic (Indirect) F Distributors

F Agent Selection Criteria for Choosing an International Agent or Distributor vs. Distributor – Agent Exercise a high level of control over marketing and sales activities of representative u Sell directly to customer to build goodwill in market u Commission-based compensation u – Distributor Decrease risk of nonpayment by customer u Need to carry inventory and parts and provide service and warranty u

The Exporting Process Leaving the Exporting Country Physical Distribution Entering the Importing Country Licenses General International shipping and logistics Tariffs, taxes Validated Documentation Export declaration Commercial invoice Bill of lading Consular invoice Special certificates And other documents Packing Insurance Non-tariff Barriers Standards Inspection Documentation Quotas Fees Licenses Special certificates Exchange permits And other barriers

Examples of Commerce Control List Export Regulations 4997 B Viruses or viroids for human, veterinary, plant, or laboratory use, except hog cholera and attenuated or inactivated systems. Controls for ECCN 4997 B: Unit: Report in "$ value. " Validated License Required: Country Groups QSTVWYZ. GLV $ Value Limit: $0 for all destinations. Processing Code: CM. Reason for Control: National security. Special Licenses Available: See Part 373. 3 D 94 F "Software" specially designed for the "development" "production, " or "use" of items controlled by 3 A 80 C, electronic test equipment controlled by 3 A 93 F, or manufacturing and test equipment controlled by 3 B 91 F. Controls for 3 D 94 F: Unit: $ value Validated License Required: Country Groups S, Z, Iran, Syria, South African military and police. Reason for Control: FP (foreign policy) GTDU (general license): Yes, except destinations listed under Validated License Required. SOURCE: Export Administration Regulations, Commerce Control List, Part 799, 1, March 1994.

Export Documents Export Declaration Consular Invoice or Certification of Origin Bill of Lading Commercial Invoice Insurance Policy or certificate Licenses Others Health Certificates Packing Lists Etc.

Real Physical Distribution Costs Between Air and Ocean Freight - Singapore to the United States In this example, 44, 000 peripheral boards worth $7. 7 million are shipped from a Singapore plant to the U. S. West Coast. Cost of capital to finance inventories is 10 percent annually; $2, 109 per day to finance $7. 7 million. Ocean Transport costs In-transit inventory financing costs Total transportation costs Warehousing inventory costs Singapore and U. S. Warehouse rent Real physical distribution costs Air $31, 790 (in transit 21 days) $ 127, 160 (in transit 3 days) $ 44, 289 $ 76, 079 (60 days @ $2, 109 per day) $ 126, 540 $ 6, 500 $ 209, 119 $ 6, 328 $ 133, 487 SOURCE: Adapted from: "Air and Adaptec'c Competitive Strategy, " International Business, September 1993, p. 44.

Terms of Sale CIF- (Cost, Insurance, Freight) to a named overseas port of import. A CIF quote is more meaningful to the overseas buyer because it includes the costs of goods, insurance, and all transportation and miscellaneous charges to the named place of debarkation. C&F- (Cost and Freight) to a named overseas port. The price includes the costs of goods and transportation costs to the named place of debarkation. The cost of insurance is born to the buyer. FAS- (Free Alongside) at a named U. S. port of export. The price includes cost of goods and charges for delivery of the goods alongside the shipping vessel. The buyer is responsible for the cost of loading onto the vessel, transportation, and insurance.

Who’s Responsible for Costs Under Various Terms? FOB (Free on Board) Inland Carrier at Factory Export packing* Inland freight Port charges Forwarder's fee Consular fee Loading on vessel or plane Ocean freight Cargo insurance Customs duties Ownership of goods passes * FOB (Free on Board) Inland Carrier at Points of Shipment FAS (Free Along Side) Vessel or Plane at Port of Shipment CIF (Cost Insurance, Freight) at Port of Destination Buyer Buyer Seller Buyer Seller Seller Buyer ** Buyer When goods on board an inland carrier (truck, rail, etc. ) or in hands of inland carrier Buyer When goods unloaded by inland carrier Buyer When goods alongside carrier, in hands of air or ocean carrier Seller Buyer When goods on board air or ocean carrier at port of shipment Who absorbs export packing? This charge should be clearly agreed on. Charges are sometimes controversial. ** The seller has responsibility to arrange for consular invoices (and other documents requested by buyer's government). According to official definitions, buyer pays fees, but sometimes as a matter of practice, seller included in quotations.

Import Restrictions Tariffs Exchange Permits Quotas Import Licenses Boycotts Standards Voluntary Agreements Other Restrictions

Customs-Privileged Facilities Foreign Trade Zones Offshore Assembly (Maquiladoras)

Potential for Gray Markets Product Audio cassette Average Tokyo Retail Price Shop America Catalog Price $11 - $14 $6 - $8 Auto-Reverse Walkman 70 50 Braun Juicer 32 20 Canon Autoboy Camera 260 180 Channel No. 5 (1/2 oz) 153 85 15 - 20 8 - 11 86 46 4, 857 3, 078 Compact disk Lady Remington shaver Rolex watch SOURCE: Shop America LTD. as quoted in "Can This Catalog Company Crack the Japanese Marketing Mass? " Business Week, March 19, 1990, p. 60.