Page 178 - DMGT547_INTERNATIONAL_MARKETING

Unit 10: International Logistics and Distribution Channels

2. It is possible to export components of machines and drugs, if it is not possible to export Notes
finished versions.

10.2 International Distribution – Definition and Importance

Distribution is the course that goods take between production and the final consumer. This
course often differs on a country by country basis and MNCs will spend a considerable amount
of time in examining the different systems that are in place, the criteria to choose distributors
and channels and how distribution segment will be employed.

10.2.1 Importance of Distribution

The marketing function of distribution involves the critical process of ensuring that the products
of a firm reach the proper location for sale at the proper time and in proper quantity. Breaks in
the distribution flow can have critical ramifications, in the form of disgruntled customers,
spoiled or damaged goods, excessive costs, and lost sales. Thus, the type of product being
transported determines the appropriate method of distribution and choice of channel.

Distribution decisions are also of critical importance because they are often long-term in nature,
involving the signing of contracts with transporters or equipment leasers or the development of
expensive capital equipments or infrastructures, such as rail lines, wharfs, ports, docks and
loading facilities.
This process, difficult in domestic markets grows more complicated in international
environments because it has two stages. First, the international exporter must transport goods
from the domestic production site the foreign market, and then establish methods of distribution
for the goods within the foreign country.
Numerous players within distribution systems are required to get goods to markets. The
distribution chains begin with the producers of the goods and then generally close through an
intermediary or in the form of a wholesaler or distributor, whose in turn provides the retailer
with his goods for the sale. Other services provided in the distribution of goods are storage of
facilities, transportation to market via rail, truck, barge or plane and insurance services for those
goods being carried between the nations.
This relatively simple scenario becomes much more complicated with the addition of the
international component, at which point other people enter the act to facilitate these exchanges.
There are freight forwarders, who see the details of international transportation, and exporters
and importers who conduct their international trading as either agents or brokers. Sometimes,
these individuals seek title to the goods and trade them on their own behalf (merchant
middlemen); alternatively, they represent the firms’ interests and arrange for the distribution of
goods for a fee (agent middlemen). Other players in the distribution game are resident buyers
who work in foreign market to acquire goods and foreign sales agents who sell a product line in
international market. The classifications are augmented by such entrants in the process as export
management companies, which provide distribution services for firms under contract; buyers
for exports, who actively seek merchandise for purchase by the principals they represent and
selling groups, such as those established in the United States under the terms of the Webb-
Pomerene Act to promote trade. Some agents specialize and focus primarily on barter or counter
trade agreement with non-market economy countries. Further down the chain, key players are
those who deal directly with customers such as sales force, door to door sales persons, individual
merchants, and the customers themselves.

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