There are various systems and options when choosing a marketing and distribution channel for any given market. But, regardless of the nature of the product or service, we know it won’t reach the customer by itself.
Based on the nature of the market and of the product or service, the international marketer must consider the most effective and efficient means of reaching the market and providing support to that marketing and distribution channel.
Many of the decisions on how to access a market are determined by how the company carries out the domestic marketing and sales functions.
There is a natural inclination to go with what the company already knows. For example, if the product is sold domestically by sales representation then there will likely be a predisposition toward using sales representation in the foreign market. Whether these are company employees or commissioned agents is mainly a question of cost and volume.
There are obviously costs associated with market entry. The higher the volumes, added value and profitability of the venture, the higher the costs a company will be willing to incur to effect its entry strategy. Low-margin businesses will look for the easiest entry strategy possible, such as sales through local agents. High-margin businesses may contemplate strategies involving joint ventures or the establishment of local subsidiaries.
1. Direct investment or joint venture
While it requires a much higher level of investment and commitment to a market, many companies choose to establish a direct investment in the international market to facilitate the market entry and distribution process. The major difference in this format, when compared with some of the other market channel options, is the level of control and ownership. Level of control and ownership is discussed later in this section.
As with most decisions in the business strategy, companies must weigh the costs versus the benefits of direct investment in the international market. There are also many options and degrees to which companies may make the direct investment. Direct investment can range from 100 percent ownership and control to varying degrees of investment and ownership in a joint venture or partnership.
A traditional method for handling marketing and distribution within a target market is to form a relationship with an agent in the local marketplace. Within the agency relationship, it is important to understand the difference between an agent and a principal in a transaction. An agent would not take ownership of the product being sold, would act on behalf of the seller or buyer and would receive compensation for their efforts through the transaction. A principal would take ownership of the product itself, usually for resale to another level of the distribution channel.
There are several advantages and disadvantages to this relationship structure.
- Established distribution, delivery and distribution system in the market
- Warehousing capabilities
- Established network of customers for the product or service
- Familiarity with local business practices and regulations
- Potential for lack of loyalty
- May also represent competitor’s products or services
- Motivation may be a factor as the agent has very low risk in the transaction
A distributor is typically any organization or individual that is responsible for the physical delivery of the product within a market. The level of relationship between the seller and the distributor will vary from market to market because of the nature of the product or service to be delivered in the market.
The international marketer must consider the logistical requirements for product distribution and then choose a distributor or distribution method that will meet the needs of the customers in a cost-efficient and timely manner. This may require a direct and exclusive relationship with a shipping firm, retail network or other similar service. The relationship could also be completely arms length, such as using an international shipping or courier service like DHL or FedEx.
One of the major changes to retailing in international markets over the past ten years has been the growth and sophistication of online sales and distribution for international and domestic markets.
The growth and huge success of companies like Amazon have drastically changed and modified the international marketer’s ability to reach a consumer base in virtually any market.
Using the Internet, the consumer can easily find a vast range of products and services to purchase. However, that online purchase still requires delivery. For media and entertainment products, such as music and software, customers may be able to purchase and download the products online. For hard products, like books, international companies will use a variety of distribution networks, including local postal or courier services, to get their products to the end-purchaser.
Other marketing networks
Aside from direct investment, joint ventures, and agents and distributors, a company could consider other marketing networks as a form for market entry and distribution. These can be as formal as strategic alliances with companies that market complimentary products—such as package or cross-marketing promotions, as discussed earlier—or extremely ad-hoc. When considering other forms of marketing networks for market entry and distribution, remember that the level of cost, control and efficiency will vary for every option and should be matched to the objectives and marketing strategy for the specific market and product or service.