CHANNEL DEVELOPMENT

The suitability of a particular channel depends greatly upon the country in which it is used. A particular type of
intermediary that works well in one country may not work well elsewhere or may lose effectiveness over time. This
does not necessarily mean that each country requires a unique channel. However, a company may find that a country
classification system is useful, a system that can be used to determine how the distribution strategy should be set up
from one group of countries to another. It can be classified into groups based on these environmental characteristics:

 Political stability
 Market opportunity
 Economic development and performance
 Cultural unity
 Legal barriers/restrictions
 Physiographic barriers
 Geo-cultural distance.

Based on these characteristics, countries may be classified as hot, moderate, or cold. A hot country is one that scores
high on the first four characteristics (USA, Canada, Germany etc.) and low on the last three. A cold country is exactly
the opposite (Sudan, Iraq, Iran etc.) and a moderate one is medium on all seven characteristics (India, Brazil etc.).

In a cold country, direct channels are tough to operate. In Egypt, only persons born of Egyptian fathers or Egyptian
legal entities can represent foreign principals. In China, all tobacco must be sold through the China National Tobacco
Co. monopoly.

For a hot country, restrictions are less and Middlemen who fail to adjust may be bypassed and go out of existence.
The survival of a channel member is thus a function of the ability to adapt to the principal’s condition because the
channel member cannot hide behind local regulations for protection. For example, in the UK, either the principal or
the intermediary can terminate an agency relationship provided reasonable notice is given.

Channel Decisions
Like domestic market, the international market requires a marketer to make at least three channel decisions: length,
width, and number of channels of distribution.

Channel length is concerned with the number of times a product changes hands among intermediaries before it
reaches the final consumer.

Channel width is related to the number of middlemen at a particular point or step in the distribution channel. As more
intermediaries or more types are used at a certain point in the channel, the channel becomes wider and is Intensive.
If only a few qualified intermediaries are needed to provide proper product support at a particular level or at a specific
location, the channel is Selective. Finally, the distribution becomes Exclusive if only one intermediary of one type is
used in that particular area.

Timex, as a low-priced, mass-market product, is intensively distributed in the sense that any intermediary, no
matter what kind, is allowed to carry the brand. Seiko is more selective. Seiko, as an upper-medium-priced
brand, is sold through jewellery stores and catalogue showrooms and is less likely to be found in discount or
drug stores. Patek Philippe, in order to promote an image of elegance and exclusivity, limits its U.S. outlets to
100 meticulously selected fine jewellery stores.

Number of distribution channels to be used is important to decide. Some may employ many channels to move its
product to consumers, may use a long channel and a direct channel simultaneously. The use of dual distribution is
common if the manufacturer has different brands intended for different kinds of consumers. Another reason for using
multiple channels may involve the manufacturer setting up its own direct sales force in a foreign market where the
manufacturer cannot remove the original channel (e.g., agents) for strategic or legal reasons.
Determinants of Channel Type
Legal regulations - Countries may have specific laws that rule out the use of particular channels or middlemen. France
prohibits the use of door-to-door selling. Saudi Arabia requires every foreign company to have a local sponsor who
receives about 5 percent of any contract. Many Saudis, acting as agents, have become millionaires almost overnight.
In China, foreign firms cannot wholly own retail outlets, and they cannot engage in wholesaling activities.

Product image - The product image desired by a manufacturer can dictate the manner in which the product is
distributed. A low-price image product requires intensive distribution but it is not necessary nor even desirable for a
prestigious product to have wide distribution.

Product characteristics - It determines how the product should be distributed. For low-priced, high-turnover
convenience products, the requirement is for an intensive distribution network. For high-unit-value, low-turnover
specialty goods, short and narrow distribution channel is preferred.

Middlemen’s loyalty and conflict – A distribution channel is effective when channel members are satisfied. As the
channel widens and as the number of channels increases, more direct competition among channel members is
inevitable.

Local customs - Local business practices can interfere with efficiency and productivity and may force a manufacturer
to employ a channel of distribution that is longer and wider than desired. Japan’s multi-tiered distribution system
relies on numerous layers of middlemen, making companies often finding it necessary to form a JV with a Japanese
firm, such as Xerox with Fuji, and KFC with Mitsubishi. It is not unique. the custom in many Far-Eastern countries is to
have multiple intermediary mark-ups on imported goods. Yet the rule of thumb in Hong Kong is that there should be
no more than two layers between a US exporter of finished goods and Hong Kong consumers, usually consisting of an
importer, agent retailer, or distributor.

Power and coercion - The least-dependent member of the channel has more power and may be able to force other
channel members to accept its plan. This hypothesis explains why it has been difficult for Japanese and Korean
semiconductor manufacturers to recruit US distributors to reach customers who are too small to buy directly from
computer chip manufacturers. The major US semiconductor manufacturers have long adopted a tacit policy of not
allowing their distributors to sell Japanese competitors’ products.

Control - If it has a choice, a manufacturer that wants to have more control over its product distribution may want to
both shorten and narrow its distribution channel.

Locating and Selecting Channel Members

Selection of a mode of business in a foreign company is followed by the development of criteria for locating and
selection of specific intermediaries. The criteria generally includes factors as

1. Financial soundness
2. Local government contacts
3. Business reputation
4. Distribution network
5. Technical support and infrastructural facilities (esp. relating to heavy industrial goods)
6. Business experience and managerial expertise
7. Commercial terms
8. Extent of exclusivity to the international marketer

As the selection of the channel members commit the marketer to them for a relatively long period of time, their
selection involves a cautious process and a careful analysis and referencing. Some international marketers make us of
an elaborate process in this regard which begins with relative rating of candidate firms on pre-determined criteria.

After the channel member is selected it is a prudent business practice to enter into a written agreement spelling out
the scope of commitment to each other and thus minimizing the possibility of disputes and misunderstandings.
Items that should be included in a typical agreement with the foreign channel members.

1. Name and address of both parties

2. Date when the agreement goes into effect
3. Duration of the agreement
4. Provisions for extending or terminating the agreement
5. Description of sales territory
6. Establishment of discount and/or commission schedules and determination of when and how paid.
7. Provisions for revising the commission or discount schedules
8. Establishment of a policy governing resale prices
9. Maintenance of appropriate service facilities
10. Restrictions to prohibit the manufacture and sale of similar and competitive products
11. Designation of responsibility for patent and trademark negotiations and/or pricing
12. The assign ability or non-assign ability of the agreement and any limiting factors
13. Designation of the country and state of contract jurisdiction in the case of dispute

Motivation of Channel Members

In order to get the best out of the international marketer and channel member relationship it is necessary that
economic and non-economic incentives be used for the purpose. It may be emphasized that channel members being
independent business entities, their key consideration for relationship is economic. If the channel member does not
get an adequate economic return it is unlikely that he will put in his best in the business. In addition, regularity of
contact, involvement in goal setting, better understanding of the international marketer's business, and provision of
assistance in market development or other areas of deficiency of the channel members capability prove useful for
getting the channel members more than what they are generally expected to contribute.

Robert Douglas Stuart suggests the following ways for strengthening the channel member's loyalty:

 Build your distributor with your company: bring him into your picture; discuss future plans as they affect his
area with him, seek his advice.
 Give your distributor an effective profit margin; try to keep in mind that you want to be in business with him
for several years; make him want to continue the relationship.
 Be sure he has credit terms which make him competitive, or more so, in amount and length of payment.
 Maintain regular correspondence, and make sure he can clearly understand what you have to say.
 Make a point of commenting on successful distributors in whatever communication you use in his area
(advertising, publicity, sales bulletins, and so on)

Control of Channel Members

Control of channel members in international distribution though difficult yet is an important aspect of its management.
Accomplishment of sales targets, market coverage and development goals, payment schedules, and profit contribution
made are some of the factors on which the performance of channel members is appraised and controlled. Constant
monitoring, periodic reviews, regular communications and intermittent suggestions help a marketer to control its
channel members and keep the marketer-channel member power balance in its favor. Legal requirements and adverse
impact on reputation must be given their due weight age if and when the unavoidable decision of termination of
channel member is to be taken.
PLANNING INTERNATIONAL LOGISTICS
Logistics is a process which interfaces and interacts with the entire company and with external companies, vendors,
customers, carriers and more. Logistics is responsible for the movement of products from your vendors right through
to the delivery at your customer's door, including moves through manufacturing facilities, warehouses, third-parties,
such as re-packagers or distributors. It is not shipping and receiving, nor is it traffic or warehousing. It is more.

Logistics must make work effectively. This is required by your customers and, in turn, by your company. For effective
logistics Planning International distribution includes decisions in regard to the factors mentioned below to support the
supply chain and distribution of an organisation.

Movement of product - Products movement should complement the company strategy. If the emphasis is on cost
reduction, lower inventories, customer service or whatever, then products must move in a way that is consistent with
the emphasis. Product must also flow, not just move, from, to, between and among vendors, manufacturing sites,
warehouses and customers. If it does not flow, then there is not a supply pipeline. Instead there are imbalances in
inventories with components and finished goods not being where they should be.

The movement may be extremely broad in geographical scope. Raw materials and completed units can move between
and among all regions of the world. While other departments in the company may focus on select geographical regions
for sourcing, manufacturing or sales, logistics must deal with all of these. Everything must move.

Movement of information - It is not enough to move product and materials. You must know where they are. You must
know what inventories are where and if critical action is required. You must know what orders are coming in and when
they must be delivered. Information--timely and accurate-- is vital for sound decision-making.

The information must flow between the company and its suppliers, carriers, forwarders, warehouses and customers.
It must also move internally among purchasing, customer service, logistics, manufacturing, sales, marketing and
accounting. And doing this goes beyond Email, faxes and phone calls. Investment in information technology is not an
alternative anymore; it is a requirement for logistics and corporate effectiveness

Time - The ability to respond to the dynamics of the global marketplace--changing forecasts, customer requirements,
new product introductions, new sourcing, and how to manage all these changes--must be done quickly. Raw materials
and components must be ordered and arrive completely, accurately and quickly. Orders must be filled completely,
accurately and quickly. It is no longer months or weeks for lead times. It may not even be days. Hours may decide
customer service, competitiveness and value-added. Back orders are not tolerated. If your company cannot properly
respond, your customers will look for those who can.

Service - It is more than having to expedite a shipment. Service is a factor of competition, customer requirements,
your company's position in the industry, your corporate culture, how well everyone in the global supply chain works
together, and how well everyone works together in your company.

Cost - It is the key measure by which logistics effectiveness is often measured. Cost control, containment and
management is important for corporate profitability. The highest price does not mean the best service, and it may not
be the service you need. Nor does the lowest price necessarily meet your needs. Company must be careful. Minimizing
the cost of the various logistics elements, such as freight and warehousing, can sub-optimize the effectiveness of the
logistics group and of the company in satisfying its customers. Hence a balance has to be maintained.

Integration - within your company, between you and your customers and between you and your vendors. Integration-
-bringing it all together--within your company is vital. Logistics is a process. Effectiveness requires that each relevant
element of the organization do its part.

Packaging – Quality packaging is an important factor for the goods to move in International logistics system. Safe
packaging ensures customer’s satisfaction and builds his trust towards the company.
ISSUES IN INTERNATIONAL LOGISTICS
With International Distribution Logistics, companies of all sizes face a number of logistical challenges. Effectively
planning, controlling, and managing the movement and storage of goods and services as they extend over
international boundaries - from raw-material suppliers to end customers - poses several logistics challenges that
companies should contemplate before going global.

Unknown supply-chain risks and volatility

The longer the supply chain, the more exposure to risk and potential disruption. Toyota and Sony encountered supply
disruptions due to multiple earthquakes in Japan. When disasters such as this occur, it's important to "develop a supply
chain plan that helps mitigate as much of the risk as possible". To best manage global supply-chain risk, companies
must identify and assess the potential issues, work through various what-if scenarios, and gain transparency into their
own suppliers' operations by assessing the financial stability and wherewithal of their Tier 1, 2, and 3 vendors. These
steps will help prepare companies to face unknown supply-chain risks as they arise.

Greater supply-chain variability

Variability - the difference between what we expect from something and what actually happens - becomes a key issue
when doing business overseas. Within the supply chain, deviation from planned production, supply, and transit times
can increase variability. Rather than invest in large buffer inventories to cover those gaps, companies should closely
examine their supply-chain capabilities and then determine how well those competencies translate into the global
environment. If infrastructure is inadequate, then a multipurpose distribution network that incorporates new physical
warehouses and transportation options can guarantee responsiveness and flexibility in high-variability environments.

Less supply-chain visibility

Maintaining good supply-chain visibility - tracking shipments as they move around the world - becomes difficult when
multiple carriers, third-party logistics providers, and modes are used to transport goods overseas. According to KPMG,
40% of global manufacturers lack information and material visibility across their supply bases. Poor visibility can lead
to shipment delays, supply-chain disruptions, and revenue losses that can severely affect a global business.

To reduce the business and supply-chain risk associated with visibility, organizations are using collaborative processes
like data sharing and demand planning across departments and business partners. They are also turning to cloud-
based software platforms for data collection and information sharing and are working with global logistics experts to
effectively identify and address any visibility gaps before they become problems.

Maintenance of Quality of goods and service during movement

People involved in handing of goods or service during movement are usually third-party employees having no direct
communication with the transacting parties. They may not be well trained to handle the goods they are unaware of
and handling. Proper labelling and written instruction on packaging helps reduce the intensity of this risk, but is hard
to monitor.

Lack of information on international traffic laws and regulations

Frequent change in transportation cost due to varying logistics cost and labour cost globally

Going global adds time, complexity, distance, and new risks to the logistics equation. As the global marketplace
continues to expand, those companies that assess their skills and capabilities now - and look to partners with the
expertise and infrastructure to help - will be well-positioned to support both existing and future global business
initiatives.