UNIT 10 INTERNATIONAL DISTRIBUTION

Structure .I.

10.1 Objectives
10.2 Introductioll
10.3. International Distributi'oa - Mecaning and Inlportance
10.4 International Channel System
10.4.1 Indirect Exporting
10.4.2 Direct Exporting
10.5 Types of Iritermediaries and their Functions
10.5.1 Direct Cllannel (Foreign Market Channel Members)
10.5.2 Indirect Channel (Domestic Market Cliannel Mcrnbers)
Factors Affecting Channel Choice
Selecting and Motivating Overseas Agents
10.7.1 Overseas Agents
10.7.2 Identifying Foreign Agents
.
10.7.3 Motivating and Controlling t l ~ eAgents
10.7.4 Payment of Agency Commission - Rules in India
Export Agency Agreement
Overview of Physical DiStribulion Decisions
Let Us Sum Up
Key Words
Answers to Check Your Progress
Terminal Questions

1 0 OBJECTIVES
After going through this unit, you should be able to:
describe the systems of international channel
explain the types of intern~ediariesand their functions
discuss the factors affecting the choice of channel '
describe the guidelines for selecting, motivating and colltro1li;lg the channels
draft an agency agreement
discuss the issues of physical distributioil in international marketing.

10a2 INTRODUCTION
The distribution process for international marketing involves all those activities related to
' time, place and ownership utilities for industrial and en& consumers. The selection,
operation and' motivation ,of effective channels of distribution often turn out to be crucial
facprs in a firm's differential advantage in international markets, Tbe diverse activities
,and culturally differentiated roles of channel intermediaries make the formulation Of ,
distribution strategies a challenge for uly firm entering international markets.
International marketing distribution is similar tp that in domestic' marketing. What differs,
of cokse, at the environmental influences that, in the end, may lead to substantially
different policies and channel options, The international marketer needs to understand how
t environmental influences may affect the distribution policies and options. 'Using this
.
 International Distribution knowledge the international company must use the most appropriate channels on a Intelnational Distribution
and Promotion the marketing job and makes direct sale to any or more of the foreign customer. The
.J
country-by-country basis. important kinds of foreign customers (here the word customer is used to refer to the firml
The sfructure of the distribution system available in a country is influenced by the' person who buys the product from the exhorter) - are importers, distributors, government
economic development of the country, the persollal disposable income of consumers and departments, industrial buyers, rethilers and c?nsumers. If any of these customers is not a
the quality of the infrastnicture, as well is factors such as culture, physical environment final consumer, he is a marketing middleman ;or a channel member between the producer
and the legal/political system. Marketers, while developing a distribution strategy must and the final consumer. Whether to sell directly to the custoiners or indirectly through
focus on how to transport the goods from the manufacturing locations to Ule consumer agents or distributors will depend on the relative strengths of the various factors involved.
most effectively. Although distribution can be totally handled by the manufacturer, often
the goods are moved through middlemen such as wholesalers, distributors, retailers
a 10.4.1 Indirect Exporting
agents. An understanding of the structure of the available distribution system is extremely The distinction between direct exporting and indirect exporting is on the basis of how the
important in the development of a so'und distribution strategy. In this unit you will learn exporter carries oul the transactioll flow between himself and the foreign importer and the
various international channel system, the types of intermediaries, factors affecting the buyer. In indirect exports, the manufacturer utilizes the services of various types of
channel choice and the process of selecting and motivating the overseas agents. You will independent marketing middlemnen. In other words, when a ma~~,ufacturer exports
be further acquainted with method of drafting of an export agency agreement. indirectly, he trmsfers the responsibility for the selling job to some other organization.
On the other hand, in direct export, the responsibility for performing international selling
activities rest on t l ~ eproducers. These activities are carried out by organizations that are
10.3 INTERNATIONAL DISTRIBUTION - MEANING administratively part of the manufacturerfs conlpany.
AND IMPORTANCE The indirect method is more popular with firms, which are beginners in exporl activities,
Distribution channels are the link between producers and customers. It is ackilowledged and with those whose export business is not sizeable. Indirect exporling has the following
that effectiveness of marketing depends among other factors, on making the product advantages:
available at the right places, at the right time and at h e minimum possible cost. A i) Standing in the market: Since a new exporter is likely to be an unlcnown
distribution channel is defined as "the path traced in the direct and indirect transfer of element and even if the price and quality of his product may match those of the
title to a product as it moves from a producer to the ultimate cousumer or industrial competing companies, many buyers will no1 lake risk of dealing with an
user."A distribution channel, in other words, is a set of f h s and individuals that take unknown party's offer. In such a situation it would be easier and, in fact,
title, or assist i n transferring title to a particular good or service as it moves from the advisable, to gain credibility in the market by persuading a known distributor to
producer to the consumers. Channels of distribution consist of two categories of handle the product because the standing of the distributor.wil1 make the
intermediaries or middlemen, namely: customers accept the offer.
i) merchants who take title to the goods; ii) Economies of Scale: Customers of certain range of products gellerally purchase
ii) agents who do not take title to the goods but assist in the transferring of the title. a set of complementary products rather than one. A distributor handling a
- .complete line can therefore effectively economize on selling costs. A
Each member of a channel is a link in a distribution network of ,organizations that -
extends from the producer to the users of products and services. Though it is found that , manufacturer-exporter, selling directly, may not enjoy its economic advantage,
unless it is a very large company manufacturing a complete line of
some firms perform all channel functions, typically several organizations are linked
,complementary products.
together in a distribution channel to carry out the various activities including storage,
transportation, sales contract, service, sorting and re-packing. The channels of distribution iii) Th'e firm does not have to build up an overseas marketing venture.
available in a country depend on its stage of economic development. The economic
iv) The channel is simple and inexpensive.
development of a country may influence the channels of distribution in the following way,
v) The risk' involved is less, since a 1ocal.party is involved.
i) The more developed countries have more levels of distribution, more specially
stores and supermarkets, more department stores and more stores in the rural vi) bttle or no invesm~entis rehuGed to enter the overseas market.
areas.
vii) The manufacturer incurs no start-up costs for the channel and is relieved of the
if) The influence'of foreign agents declines with economic development. responsibilities for physically moving the goods overseas.
iii) The manufacturer - wholesaler -
retailer hnctions become separated with viii)The intermediary is likely to represent several clients who can help share
increasing economic development. distribution costs.
iv) Financing function of wholesalers decline and wholesale markets increase with ix) No company personnel are required lo do the overseas business.
increasing development.
x) The middleman may have established nblwork of sales offices and better
v) The number of small stores declines and the size of the average store increases ' markcting and distribution knowledge.
with increasing development.
This method is, therefore, adiantageous for f i r m with small means and for those wllose
vi) RetaiI margins improve with increasing economic development. . limited export business does not justify large investments in the development of their owl1
international marketing infrastructure.
The main limitations of the indirect method of exporting are:
10.4 INTERNPa'IONAL CHANNEL SYSTEM '

i) The manufacturer gives up control over the marketing of its products to another
In international marketing, two categories of channels are involved, namely, channels firm. This situation may adversely affect the product's success in the future.
between the nations and channels within the foreign market. In other words, the
, internationpl distribution system consists of two sub-systems, namely, the domestic system ii) If the chosen intermediary is not aggressive, the manufacturer may become
'
and the foreign system, There are two ways of exporting, namely, direct exporting and vulnerable, especially in cases where competitors are able to obtain the services
6
indirect exporting. When the export is direct, the producer himself takes the responsibility
.
of. 'more aggressive intermediaries.
$te~~~atianaI Distribution iii) The indirect channels may not necessarily be permanent. Being in the business of
pilil Promotion
handling products of profits, tbe intermediary may discontinue handling a Figure 10.1. : International Marketing Chnnncl System
maiufacturer's product if the profit margin is low or if a competitive product
offers a better profit margin.
iv) If the product $hasa long purchase cycle and requires substantial resources for
market development then the export middlemen may not devote the necessary
effort to promote the market.

1'0.4.2 Direct Exporting

7I Home
market

Direct export refcrs to the sale in the foreign market by the manufacturer himself. Instead
I I Middlemen

of signing an export agent or export merchant, the manufacturer makes the sale directly to
the foreign buyers. The export is direct, as the manufacturer does not use any middleman
in the channel between the home country and the overseas market. Due to the comp!exity
of trade regulations like bank formalities, insurance requirements and problems
associated with transportation, personnel with special training and experience are required
to handle these tasks. Also the volume of export sales must be sufficient large to support
the in-house staff. Factors in favour of direct exporting are as follows:
i) Control: The exporting company will have direct and full control over marketing
ophations and, therefore, can device and implement the proper marketing strategy
.Foreign
in tune with the conditions prevailing in the export maiket.
Market
ii) Customer Satisfaction: 111the case of highly specialized equipments, buyers Middlemen
would generally prefer to deal direckly with the manufactusers as they expect to
be completely assured of the service and backup system. Distributors may not
have personnel with the requisite technical knowledge and experience for
providing pre-sde, point of sale and aft& - sales service.
iii) Profit: By selling directly the exporti~~gcompany can save on the cornmissio~i
that otherwise becomes payable to the agent. If the volume of sales is fairly high,
it inay become more profitable for a 'firm to establish its own sales office than
paying commission to a distributor.
The greatest advantage in direct selling is active market exploitatio~i by the manufacturer
and the consequent benefits of gainer of experience in export marketing and being in .. 10.5.1 Direct Channel (Foreign Market Channel Members)
touch with the market. The channel improves communicalion Between the manufacturer
and the customer and information and data from the market will be more reliable and ~ i r e cExporting
t channels are shown in Figure 10.2
more easily available,
Rgum 10.2 : Direct Exporting Channels
, Direct selling has some limitations, It is a difficult channel to manage if the manufacturer
is ul~familiarwith the foreign market. Moreover, the channel is time consuming and
without a large volume of business, the manufacturers may find it too costly to maintain
the channel. In short, direct export entails more risks, but more control and more return.
A number of organizational arrangements are available to a company for carrying on
direct exporting. These are:
i) The export business may be conducted by a domestic export department or Department1
division. State buying
ii) ?he compauy may establish overseas sales branches or subsioiarie~in addition to
domestic marketing department. As part of overseas s3es branch, the company
may also establish storage/warehousing facilities.
iil) A company may employ travelling.salesmen in the overseas market. lbese
!ravelling salesmen may be home based or attached to the foreign branches or
subsidiarigs. Importers: Importers identify local market requirements and find products ~ o nthel
world markets to satisfy these requirements. Importers purchase goods in their own names
and act independently of the manuficturers. As independent middlemen, these channel
. 10.5 TYPES OF JNNTE-DIARIES AND THEIR membbs use their own marketing strategies and keep in close contact with the mirkets
FUNCTIONS they serve.
Foreign Distributors: A foreign distributor is a firm in the overseas country that has
There we several types of intermediaries aasooiated withtboa direct and indirect channels. exclusive rights to undertakd the distribution function for a manufacturer in its country Or
8
Look at Figire 10.1 which gives the ?broad,chwnsls 'that *areavailable to a'manufacturer. specific area. The ashibutor purchases merchandise from the m a n d a c t u r ~at a discount
and then resells the merchandise to retailers and, at times, to final consumers also. The
distributoris function in many countries may be a combination of wholesaler and retailer.
htemational Distribution But in most cases, the distributor is usually considered as an importer or wholesaler. International DislFfbuUon
and Pro~notion He negotiates the terms for the seller (i.e., manufaclurer) but cannot conclude the
There are a number of benefits in using a foreign "distributor. Unlike agents, the . transaction without the principal's approval of the arrangement. For any action performed,
distributor is a merchaut who buys and mah~tainsmerchandise in his own name. This the broker receives a fee or commission. An export broker does not take possession or
arrangement simplifies credit and payment activities for the nlanufact~~rer. To carry out the title to the goods. In effect, he has no financial responsibility other than sometimes
distribution function, the foreign distributor is often required to warehouse products, parts making an arrangement for credit. The export broker is considered useful because of his
and accessories and to have adequate facilities to service buyers and users. a extensive knowledge of the overseas markets and foreign customers. This knowledge
enables the broker to negotiate the most favourable terms for the principal.
Foreign Retailers: If a manufacturer directly supplies to foreign retailers it means that
the products in questiol~are consumer products rather than industrial products. .Thefe are Manufacturer's Export Agent: Export agents are individual or firms that assist
several means by which a manufacturer may contact the foreign retailers and may manufacturers in exporting goods. Unlike EMC's, export agents provide limited services.
provoke their interest in carrying his product: These range from personal visit by the These agents focus more on sale and handling of goods. Using an export agent has the
manufacturer's representative to mailing of catalogue, brochures and other literature to advantage that the firm does not need to have an export manager to handle all the
prospective retailers. For various reasons, most large retailers prefer to deal directly with docunlentation ,and shipping tasks. While the disadvantage arises from the export agentls
the manufacturers. Large food chains in USA and Europe are mostly in direct contact limited market coverage, which may require the services of a number of export agents to
with foreign manufacturers. Department stores, supermarkets, specially stores, discount cover different parts of the world. The export agent works on commission.
stores and hypernlarkets are among the most important retailers, which buy directly from Purchasing Agent: The purchasing agent represents the foreign buyer. By residing and
supplying countries. conducting business in the exporter's country, the purchasing agent is in a favourable
Government DepartmentlState Owned Trading Companies: In some countries, position to seek a product that matches the foreign principal's (buyer's) preferences and
government departments zu~dlorgovernment owned co~npaniesbuy large quantities of requireme~~ts. Operating on the overseas customerfs behalf, the purchasing agent acts in
certain goods oflen on long-term basis directly from suppliers. These are generally the interest of the buyer by seeking the best possible terms. The purchasing agent's client
essential goods, meant for mass consu,mption or for use in Government Departments. pays a comnlission for the services rendered. The purchasing agent is also known as the
commissioll agent or buying agent.
End Users: Sometimes, a.manufacturer may sell direclly to foreign end users with no,
intermediary involved in the process. This direct channel is a logical and natural choice Country Controlled Buying Agent: This kind of agent performs exactly the same
for high unit value and high technology items. hnctions as the purchasing agent, the only distinction being that a country controlled
buying agent is a foreign government's agency or a quasi-government firm. The country
Overseas Agents: Details regarding this channel are discussed in sub-unit 10.7.
10.5.2 Indirect Channel (Domestic Market Channel Members) ~
I
'controlled buying agent is empowered to locate and procure goods for his country. This
.agent may have offices located in countries that are major suppliers.
Resident Buyer: Another variation on the purchasing agent is the resident buyer. A
A manufacturer may often not sell directly to the various foreign parties (i.e. foreign
distributors, foreign retailers, government department, state controlled trading companies, , resident buyer is an independent agent who is locatcd near highly concentrated production
end users etc.). There are many intermediaries that operate between the foreign buyers centres. Although functioning much like a regular purchasing agent, the resident buyer is
and the local manufacturers. different because he is retained by the principal on a long term basis to maintain
continuous search for suitable new products. The long-term relationship makes it possible
The manufacturer deals with one or more domestic middlemen who, in turn, move or sell for the resident buyer to be compensated with a retainer, besides commission for business
the product to foreign middlemen or final users. Although there are many kinds of local , transacted.
sales intermediaries, all of them call be grouped under two broad categories:
i) Domestic Agents I Domestic Merchant
Export Merchant: The domestic based export merchant buys the manufacturer's product
ii) Domestic Merchants
and sells it abroad on his own. When this type of middlemen is used for overseas
The basic difference between h e two arises on account of ownership(tit1e) and not the marketing, the job of tlle ~na~lufacturer
is limited to essentially production and at most
physical possession of the merchandise. Domestic agents never take title to the goods, domestic marketing. In such cases, except production related functio~~s such as carry out
regardless of whether they take possession of the goods or not. While domestic modifications in the product and product mix which may-be sometimes required to suit .
merchants, on the other hand, own the merchandise, regardless of whether they take the export market, all other international marketing tasks are handled by the export
possession of the goods or not. Let us discuss them in detail. merchant.
Domestic Agents Export Houses: In India, there are a number of export houses that export products
' produced by manufacturers. Some companies have established thcir own export marketing
Agents can be classified according to the principal whom they represent. Some agent 'subsidiaries. They perform export marketing functions for manufacturing companies
intermediaries represent the buyer; others represent the interest of the manufacturer. Those
including physical handling of the products, promotion in overseas markets, etc. leaving
who work for the manufacturer include export broker; manufacturer's export agents,
the manufacturer to concentrate on production. They extend credit to marmfacturers,
export management companies and co-operative exports. Agents who look after the
provide advice on product modification etc, They have good contacts in the overseas
interests of the buyer include purchasing agents and country controlled buying agents.
markets and may also have established network of sales offices round the world.
These ate discussed below:
Trading Companies: Unlike an export house, which concentrates on exports, a trading
Export Management Companies: In some countries, there are Export Management
company is active both in exports and imports. Japanese trading companies have been
Companies (EMC), which manage, under contract, the entire export activities of a
very successful in promoting the country's exports. Like export houses, the Pading
manufacturer. When compared with export agents, the EMC has greater freedom and
authority. EMCs provide extensive servibes to manufacturers ranging from promotion.of companies, offer a broad range of servlces from marketing research to financing and
present a relatively inexpensive choice for the small and medium enterprises to undertake
products overseas to shipping arrangement and documentation. In short, the EMC is
international business. The advantages to manufacturers in routing their products through
responsible for all the manufacturer's international marketing activities and they are
compensated in forms of commission or retainers plus commission. trading companies are:
'

axport Broker: The function of an export broker is to bring the buyer and the seller i) They can benefit from the ecoqomies of scale inherent in the operations of large
together for a fee. The broker may be assigned one or more foreign markets by the seller! sized tradin4 firms;
Internntia~lalDlrtdhutlon
11 4. 'State whether the following statements are True or False,
i) The more developed countries have leas levels of distribution.
Internntlmnl Distribution

ii) They cai benefit from the technical and financial support provided by the
and Promotion 1
trading Arms; ii) The indirect exporting method is more vopn1a.r with firms, which are beginners
iii) Since trading conlpanies are resource rich, they are in a position to employ in export activities. .
qualified arid specialized staff to look after the complicated work relating to
export marketing and the manufacturer gets the benefit of specialized service; I iii) Doinestic agents take till,e to the goods.
iv) The export broker negotiates the terms for the seller but can not conclude the
iv) The bargaining strength of trading firms, particularly dealing with powerful transaction. without the prirlcipal's approval of the arrangement.
overseas buyers is a great advantage to small sized manufacturers;
v) The purchasing agent represents the foreign seller.
v) The popularity of non established lradillg firm in overseas markets will be a
significant advantage to a small or nlediuln enterprise, particularly in the earlier
stages of venturing into export markets; 10.6 FACTORS AFFECTING CHANNEL CEIOXCE
vi) Trading firms are able to absorb many of the risks inherent in international trade
because of their strong resource base. The followi~igare some Factors that need to be considered before taking a decision
whether to go for direct or indirect export.
Piggybackings: When a conlpauy does not find any channel-partner with sufficieiit '
interest to pioneer new products, the practice of piggybacking may offer a way out of the
situation. Piggybacking is an arrarigemelit with another company, which sells to the same
customer-segment, to take on the new products as if it were the manufacturer. The
I Factors
The Market
I
Illdirect
Dispersed
I
Direct
Concentrated
Small potential sales Large potential sale
products retain the name of the manufacturer and both partners normally sign a multi-year Consumer market InclusMal market
contract to provide for continuity. The new colilpany is, in essence, 'piggy-backing' its
l l ~ eProduct Non-technical product Technical products
products on the shoulders of thc established company. A Japanese manufacturer of soyu
Consumer goods 1nduski:inl goods
sauce 'Kikkomm' decided to piggyback on Del Monte's sales force for its entry into
USA. The two companies had earlier signed a technical agreement allowing Kikkoman to Marketing skill of t l ~ e Company lacks: marketing Company possess
sell Del Monte's tomato juice in Japan. Following Kikkoman's entry into the US Company skill and experience marketing skill nnil
market, the company planned to alter several South American Countries. As a result of cxpeiience
this move, Kikkoman was in a position to gain immediate distribution for its products, a ' Degree of control Company desires little
process it would have taken the firm years to develop, on its own. Similarly, Colgate colltrol degree of control
Palmolive Company has been distributing Wilkinson blades in many international markets.
Financial condition of the Weak financial coudition Strong financial conditi~n
Sony Corporation serves as a distributor in Japan far a number of European arid US
company
co~npanies,Thraugh it's Sony Interr~ationalHouse wares, Sony distributes for such
cornpauies as Whirlpool, Schick, Regal Ware and Health Company. The principal asset of
the exporting firms being their experience in deding with overseas markets as
manufacturers themselves, they are well aware of and sympathetic towards the problems
of other manufacturers interested in developing exports.
I
1
Following are some additional poii~tsto be considered for channel choice:
1. Characteristics of the Product
Under a piggyback arrangement the lnanufacturer retains control over a number of
marketing decision areas, particularly. pricing, positioning and promotion. The partner acts
I , i) Unit Value - In general, direct sales are preferred for items of high unit value,
ii) Bulk and weight - If bulk transportation is possible, direct exporting is
as a 'rented' sales force only.
preferred.
Check Your Progress A
iii) Perishability - The more perishable is the product, the shorter should be the
1. What do you mean by distribution chan~lel? channel.

I iv) Fashion goods are usually sold direct to retailers,

v) Standardization - Indirect sales are recommended for standarclized products.
vi) Stages of market development - New products are promoted by direct sales.
Indirect sales may be adopted for established products,
............................................................................................................................................
2. Distinguish between direct exporting and indirect &cporting. 1 2. Who is the Buyer ?

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i) -
Government Departments In some countries, government departments buy
commodities directly, often on a long-term basis.
............................................................................................................................................
u...

.
P..I.~.............lil...........l,.,.,,......,..,,.~.,...,....,.,,,,.,.....,..,,,.,,,,,.,.....*...,......,..........,*........~......

............................................................................................................................................
.
. . . i ii) Industrial Buyers - Large industrial companies often buy, direct from producers,
their requirements of raw materials, spares and components.
iii) Distributors - A distributor buys and holds large stocks of a product in return
'

for an exclusive right to sell the product hl the area represented by him,
3, .Distinguish between 'domestic agent and domestic merchants.
iv) Wholesalers - Some large wholesalers may prefer to buy directly from
producers.,
v) Large Retail Stores - Large departmental stores may prefer to buy their
I req~~irementsdirectly from producers.
 .
,
Ii~ternntionnlDistribuiion 3. Volume of Sales Expected, i.e., the existing and the potenlial future size of the International Distribution .
and Promotion ix) An agent can also provide after sales service, which is crucial in promoting sales
market. The larger the size, the shorter will be the channel. of durable 'consumer goods and capital equipment.
4. Firm's Own Resources - How much resources in terms of finance, skill, time and
attention the firm can devote to ex,porting will also determine the channel choice.
Resource rich firms can opt for direct export. While resoutce scarce fums can export
/ 10.7.2 identifying Foreign Agents
There are various ways to identify agents in the foreign markets. Embassies and High
their products through intermediaries.
Commissions iii the concerned countries, Internatiol~alMerchant Banks and Chambers of
Criteria for Selection of Channels I Commerce in various countries generally provide information on local agents. Import
-
Costs involved How much investment is required on the part of the firm promotion centres established in various countries also help in this regard. The
i) International Union of Commercial Agents and Brokers based in Amsterdam provides
moving its 'products through a particular channel ?
information 011 agents in European countries and the United States of America. Anothdr
ii) The behaviour of the conlpetitors, i.e. what are the firms in similar line doing ? method of identifying agents is to visit fairs and exhibitions. Since a large number of
iii) Possibilities of getting appropriate feedback from customers regarding the agents also visit these fairs, it is possible to contact them personally. Advertisements in
response to the product. trade jour~~alscar1 also bring in fruitful resulls.
Once a list of potential agents is prepared the next step for an exporter is to decide on
the particular agent whom he would like to appoint. Agents have to be selected with care,
10.7 SELECTING AND MOTIVATING OVERSEAS . and selection of agents takes time and effort and calls for good judgement. There are
AGENTS essentially three qualities, which an exporter should look for in an agent. First is
character, which means that the agent must have established his credibility. in the
YOUhave learnt about various channels operating in theoverseas markets. Let us nqw particular business he is engaged in. the secoi~dquality is capital, i.e. he must have a
discuss how to select and motivate the agents ? ! sound financial base for his business operations. And finally, he must, have the capacity,
1.e. he should have contacts in the right places and possess adequate marketing expertise
10.7.1 Overseas Agents I to promote the producls of the principal. These are the three 'Cs' that'really make an
i agent successful.
In order to be in constant tonch with a particular territory and to exploit the full potential
of the market, it may be necessary for an exporting organization to have its own offices
I B,efore deciding on a particular agenl, the exporter should decide as to what type of agent
I
he would like to have. A question may arise as to wheher a big agency house should be
in that market. But many small and medium enterprises may no1 be able to afford the approached or a smaller one will be better. The answer to this question depends on the
resources required to open .their own offices abroad. Under such circumstances, I level of busiiless that the exporter expects to generate in the tkst and subsequent years.
commercial agents may be a viable alternative. They can perform the functions, which an.
overseas office af the parent body is expect&dto do. The role of conlmercial agent$,thus, If the initial level of business is not expected to be large, a big agency house will not be
, interested in taking up his agency. In such a case, a medium size agency organization will
becomes crucial fmm the standpoint of exporting firms. The agent, being a local person, be better suited for the exporting firm. Similarly, there are both advantages and
is likely to be thoroughly conversant with the market and is expected to have wide
disadvantages in appointing a very small agency firm. The advantage is that, the firm
contacts not only in the business but also in government and, theiefore, will be in a - being small, is likely to make sincere attempts to generate businesS and will devote more
position to promote the interest of the exporting firm. l11e agent does not trade on his '

attention to the proinotion of exporting company's products. The disadvantage is that such '
own but secures orders in the name of and on account of the principal and gels
an organization may not have adequate contacts and resources.
commission on the basis of the business that he has able to generate. The m;ijor
advantages of having an agent in the export market are: Once the firm has identified the characteristics of the agent and the range of service, he
' has to render, the firm should obtain the following information in order to find out the
i) In some countries there are legal stipulations that all inlportsltenders are to be appropriateness of that agent. These are:
handled through a local agent, who is a resident and citizen of the country. In '

such cases, appointment of the agent becomes obligatory. 1 i) How long has the agent been in business ?
ii) The agent is a local man and is, therefore, expected to be more knowledgeable of
the marketing conditions and prospects of specific products in that market than
I ii) How many salesmen has he got ?,their experience and reputation.
iii) Names of the other accounts he is presenlly handling. Does he carry any lines
' an .outsider,
that are directly competitive with or complementary to the firmis lines ?
iii) He is likely to have good conlacts with the decision-makers at various levels, I iv) Total turnover during the last few years.
. which- is crudal for building up large sales. 1
iv) He will have offices in the major com~nercialcenters of the country and, 1 v) What is the average turnover per account ?
therefore, will be in a position to call personally on main buyers at regular
intervals.
1 vi) Has he got adequate working capital ?
On the basis of the answers to these queries the firm should be able to evaluate the
a) Data and information relevant to the principat's operations can be collected and potentialities of varigus agents and make the final choice.
. dis,serninated by the local agent faster and cheaper,
vi) since agent is paid on commissiol~based on the value of the orders secured by 10.7?3 Motivating and Controlling the Agents
him, h e has incentive to get large business and besides no fixed or overhead cost The exporting fum nust develop a system for motivating the agent. One way to
,is to be incum$ by the parent firm. motivate the agent is through granting exclusive agency rights in a particular territory.
vii)] A well established fim geperally has warehousing facilities, which are crucial in This means that he will be solely responsible for the development of a particular market
the exporf marketing of certain types of products. and will receive commission on all orders, which the firm gets from the market.
> . viii)An agency firm also has specialized sales staff competent to handle sales of Another method of praviding incentive to the agent is to introduce variable commission
I4 different types of items, rates. h the beginning of the year a target mEy be set. If the agent is able to surpass the
1 target, he may be givdn a higher rate of commission. Supplying the sample orders
 WHEREBY IT IS AGREED as follows: Internotiol~al
Distribution
(for use by Sole Agent)
I
Intcrnntionnl Distribution promptly is also one way to keep the agent happy. Providing promotional materials is an
and Pro~notlon important way of motivating the agent. It may also be desirable to invite the agent
The Principal appoints the Agent as and from the 1
.........................................................................................................................................
to be
periodically to the head office so that he can see the company's operations firsthand and its Sole Agents in ................... called "the area") for the sale of
also participate in the formulation of the marketing strategy. ...............................................Manufactured by the Principal and such other goods and
The export firm must also develop a system to evaluate the performance o f the agent, merchandise (all of which are hereinafter referred to as "the goods") as may hereafter be
One criterion of evaluation can be the share of the market that the company has secured mutually agreed between them.
and how the market share is changing over time. The annual rate of growth in sales is
another criterion. Number of new customers developed by the agent can be another factor OR
in the evaluation process. (for use by Export Houses/Exporter not being manufacturer)

The Principal appoints the agent as and from the ......................................... to be its
10.7.4 Payment of Agency Commission - Rules in Lndia Sole AgentslAgent in ............................................ (hereinafter called "the area7') for the
Payment of commission to overseas agents is allowed either by remitting the amount or sale. of ...............................
. . .;... .
by deducting it from the invoice value. The applicalion iiidicating the particulars, such as Manufactured in India or ...............:.......................................(hereinafter referred to as "the
exporterfs code number, customslshipping bill number and date, name of commodity. goods") as may hereafter be mutually agreed between them.
name and address of the buyerlagent and export value should be submitted to the 2. The Agent will during the term of ........................................ years (and thereafter
authorized dealer together with an attested copy of invoice and .documentary evidence in until determined by either party giving .........Months' previous notice in writing)
support of the amount to be remitted. diligently and faithfully serve the Principal as its Agelit and will endeavour to extend
For.rem,itting Lhe agent's commission, the exporter will have to purchase foreign, exchange to the sale of the Principal within the area and will not do anything that may prevent
from the free market. Alternatively, he can maintain a foreign exchange account to the ' such sale or interfere with the developmelit of the Principalis trade in the area.
extent of 50 per ceiit of the f.0.b value of his export earnings. 3. 11e principal will from time to time furnish the Agent with a statement of the
minin1um prices and the terms at which the goods are to be sold and the Agent shall
not sell below such minimum price but shall endeavour in each case to obtain the
10.8 EXPORT AGENCY AGREEMENT best price oh tainable.
Agency agreement is a legal document, which establishes the commercial relationship 4. The Agent shall not sell any of the goods to any person, company, or firm residing
between the principal and the agent. It incorporates the conditions agreed upon by the* outside the area, nor shall be knowing sell of any of the goods to any person,
concerned parties for the conduct of business. When negotiating 'an agency agreement, the company, or firm residing within the area with a view to their exportation to any
points to be noted are: other country or area without the consent in writing of the Principal.
. -
i) Parties to the contract 5. The Agent shall riot during the contiliuance of the Agency hereby constituted, sell
ii) Contractual products goods of similar class of such as wouldlor might compete or interfere with sale of
the Principal's goods, whether on his own account or 011 behalf of any other person,
iii) Contracted territory company, or firm whatsoever.
iv) Duration of the contract 6. Upon receipt by the Agent of any order for the goods, the Agent will imnlediately
v) International buying groups miy like to contact the exporter directly. Exporter's transmit such order to the Principal who (if such order is accepted by the Principal)
should reserve the right to negotiate directly with international buying groups in will execute the same by supplying the goads direct to the customer, or his order,
their own countries for orders which ultimately will be executed in the agents 7. Upon the execution of any such order, the Principal shall forward to the Agent, a
territory - whether the agent will be eligible to commissions on such sales duplicate copy of the invoice sent with the goods to customer and, in like
should be made explicit in the agreement. manner, shall, from time to time, inform the Agent when payment is made by the
vi) When credit terms are involved and the principal is not sure of the credit customer to the Principal.
worthiness of the buyer, he should have the right to reject the order. 8. The Agent shall duly keep an account of all orders obtained by him and shall, every
vii) Payment of commission three months, send a copy of such account to the Principal.

a) Rate at which commission is to be paid 9. The Principal shall allow the Agent the following commissions (based on f.0.b. Indian
Rupee values) in respect of all orders obtained by the agent in the area, which have
b) Calculated on percentage basis -
the base for such calculation been accepted mid executed by the Principal. The said colnmission shall be payable
c) The time when commissioli becomes payable every ....... Mollths on the amounts actually received by the Principal from the
viii) Settlement of disputes customers.
1
ix) Renewal and termination of agency, 10. The Agent shall be entitled to commission on the terms and conditions mentioned in I
the last preceding clause on all export orders for the goods received by the Principal,
A specimen agency agreement is given below: I
for export into the area. Export orders in this clause mentioned shall not include
I
AN AGREEMBNT made this ......................... ,,.day of .....................20... ordersfor the goods received by the Principal Erom and sole delivered to customer's i
BETWEEN.'............................................
WhoseRegistepd office is situated principal place of business outside the area although such goods may subsequently be I
exported by such customer into the area, excepting where there is conclusive
evidence that orders which may actually be transmitted via the Head Office in India
11
.,.,..........,,..,.....,........,.......:'...,(
hereinafter called "the Principal") of the one part and are resultant kern work by the Agent with the customers. I
17.
.................;..........c:...............,@ereinafter called
- ~. . . . . . . -- . . 1 : ..
' $ '
. "the
.
Agent") of the other part.
i
 administering warehousing, transportation and inventory functions are inter-related, and '
Distribuli~~n
Irltcn~atio~l:~l
Intcrnetioual Distribution 11. Should any dispute arise as to he amount of commission payable by the Principal to they must be coi1siderc.d simultaneously for effective decision-making,
and Promotion the Agent, the same shall he settled by the Auditors for the time being of the -
Principal whose certificate shall be final and binding on both the Principal and the Check Your Progress B I
Agent.
12. The Agent shall not in any way pledge the credit of the Principal.
1. Enumerate threc factors affecting the channel choice.
1
13. The Agent shall not give any warranty in respect of the goods without theauthority
in writing of the principal.
14. The Agent shall not, without the authority of the Principal, collect any money from
customers. ............................................................................................................................................
15. The Agent shall not give credit to or deal with any person, company, or Turn, which 2. Enumerate four characteristics of the product.
the Principal shall, from time to time, direct him not to give credit to or deal with.
16. The Principal shall have the right to refuse to execute or accept any order obtained
by the Agent or any part thereof and the Agent shall not be entitled to any
comrnissiou in respect of any such refused order o; part thereof so refused.
17. All disputes or differences whatsoever arising between the parties out of or relating to ............................................................................................................................................
the construction, meaning and operation or effect of this contract or the breach
thereof shall be settled by arbitratio11 in accordance with the Rules of Arbitration of 3. What is an export agency agreement ?
the Indian Council of' Arbitration and the award made in pursuance thereof sh4l be .' I
binding on the parties.
18. This agreement shall, in all respects, be governed and interpreted in accordance with
the Laws of India. ............................................................................................................................................
IN WITNESS whereof, the parties hereto have subscribed their signature on the day .....#.....
...............,......s .........................................................................................................
and year first herein before written. 4. State whether the followillg statements are True or False.
i) New prodficts are promoted by direct sales.
ii) Large industrial company often buy from the intermediaries.
(Signatures) iii) Commercial agents are not viable for small firms.
iv) In some countries there are legal stipulations that all imports are to be handled
through a local agent.
10.9 OVERVIEW OF PHYSICAL DISTRIBUTION
v) Physical distribution shauld be considered as an integrated system.
DECISIONS
International physical distribution encompasses the logistics or movements of goods across
countries from the sources of supply to the centers of demand. In other words, it is
10,lO LET US SUM UP
concerned with getting the right product to the right place at the right time in a good
Distribution channels link the original producer with the final consumer. It is said "a
condition at a reasonable cost. Warehousing, transportation and inventory control are the
product is not produced unless and until it is distributed". Distributioi~provides time and
major components of physical distribution. In international distribution there are place utility to the product.
compIexilie,s of national borders, customs of trade, tariff and now tariff barriers, carrier I
performances, credit risks, exchange regulations and the attendant necessity of filling A manufacturer can directly reach his product to the end users, government departments
numerous docurnents, and state trading organizations or reach the consumer though importers, distributors,
retailers, wholesalers or agents in overseas countries or he can avail of the services of
As inentioned earlier, the three importance aspects of physical distribution are
specialized channel members such as export broker, export agent, buying agent, export
warehousing, transportation and inventory management. The basic decisions to be made
merchant, export house or tradi~~g house. There are also the practice of 'piggybacking' by
concerning warehousing relate to the number of warehouses needed by the company, size
some companies in arranging with other companies which serve the same customer
and their poisls or location. The decisions on the above will depend on where the firmls
segments to carry their products. A ~iumberof factors such as the nature of the market,
customers, both current and potential are geographically located around the world; what is
the type of product, the objectives and resources of the firm, the skill and experience of
. the patten1 of their current demand and what demand pattern is likely to emerge in the
the firm in export marketing, the degree of risk and control associated with the type of
. future; and what level of customer service should be provided. The transportation decision
distribution, the rehun desired, the type of buyer, the stage of market development, the
mainly revolves round the choice of the model of transportation for moving the goods
type of channel available in a country, the legal environment relating to distribution in a
from the original producer to the ultimate consumer. This decision will be influenced by
,particular country etc, affect the channel choice of a company.
such factors'@ the type of transportation available, the nature of product, the size of
shipment, the distances to be travelled, the type of demand and the relative costs of Overseas agents play an important role in promoting a firm's products in their territories. ii
different shipping alternatives, They, being located in the country of sales are generally known to be very familiar with i

the territory, have valudle contacts, employ specialized staff and provide constant
\
Inventory management deals with stocking inventory to fill customer orders. It involves k
feedback to the exporting firm. However, great care should be taken in selecting an !
18
two decisions - how often to order in a given period and how much to ordex. Physical
distribution should be considered as an integrated system. The cost involved in
overseas agent. In the selection of an agent, the services offered by Chambers of
<
19 ai
i
International Dlstrlbutio~a Commerce, International Banks Embassies and High Commissions etc., may be availed
and Promotion of. A suitable system for motivating and controlling the agent should also be devised. An
agency agreement, providing for all possible contingencies must also be concluded by the
UNIT 11 INTERNATIONAL MARKETING
export finn with the agent, Physical distribution encompasses important areas such as
warehousing, transportation, risk taking and inventory managelnent and all areas are inter-
COMMUNICATION
related. Hence, an integrated approach is suggested for physical distribution management.
I Structure
10.11 KEY WORDS I 11.0
11.1
Objectives
Introduction
Distribution Channel: The path traced in the direct and indirect transfer of title to a
product as it moves from a producer to the ultimate consumer or industrial user. 11.2 Marketing Communication

Indirect Exporting: ~raniferof the sellii~gresponsibility to other organization by the 11.2.1 Communication Process
manufacturer.' 11.2.2 Concept of Promotion Mix

Direct Exporting: Manufacturers retain the responsibility for performing international I 11.3 International Marketing Communication
selling activities. I
-
. 11.3.1 Objectives
Domestic Agents: The agents who never take the title to the goods, regardless of 11.3.2 Role
whether hey take possession of the goods or not.
Domestic Merchants: The agents who own the merchandise, regardless of whether they
I 11.4 , Key Issues in International Marketing Communication

take the possession of the goods or not. I

I
11.5 Major Marketing Promotion Tools

Piggybackings: An arrangement with another company, which sells to the same customer i 11.6 Let Us Sum Up
segment and takes the new products as if it were the manufacturer's product.
1 11.7 Key Words
Export Age~~cy Agreement: A legal document, which establishes the commercial
relationship between the principal and the agent. I 11.8
'11.9
Answers to Check Your Progress
Terminal Questions
,

10.12 ANSWERS TO CHECK YOUR PROGRESS

11.0 OBJECTIVES
A. 4 i) False ii) rue
iii) False iv) True v) False
B. 4 i) True iibFalse iii) False iv) True v) T'rue
I After studying this unit, you should be able to:

10.13 TERMINAL QUESTIONS I describe the concept of marketing communication

I explain the process of colnmunication

1) Distinguish between direct and indirect selling channel. Discuss the advantages and
disadvantages of both the channels. I identify the elements of promotion mix and explain them

2) Distinguish between domestic agents and domestic merchants. Explain various types I explain the concept - and role of international marketing communications
identify the key decisions and common issues in international marketing
of domestic agents.
communications.
3) Describe various types of domestic merchants with suitable examples.
1
4) What are the factors affecting the channel choice ? isc cuss' the criteria for selection
11.1 INTRODUCTION
of channels.
5)' Do you think that the overseas agents are advantageous. Discuss and explain how can
I 3L

Marketing communication-one of the 4 Ps of the marketing mix-refers to all .forms of

you identify a foreign agent, communications that organizations use to influence buying behaviour of present and
potential customers, Marketing communication should be designed to inform customers
6) Draft a hypothetical export agency agreement.
about the benefits and yalues that a product or service offers, The principal forms of
7) Write short notes on the following: marketing communication are advertising, personal selling, publicity and sales promotion.
(a) Overseas agent All these elements can be utilized in global marketing also. However, the environment in
(b) Piggybackings which marketing communication programmes are implemented can vary from country to
(c) Export agency agreements. country. In this unit, we shall discuss the meaning, objectives, role and key decisions,
. common issues and major communication tools in international marketing
communication.

11.2 MARKETING COMMUNICATION ,

Communication has a very important place in marketing. It is that function of marketing

which is charged with the task of informing the target customer about the nature and type
of,the firm's product and services, thdr unique benefits, uses and features as well as the