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International Distribution Systems

In International Distribution
The firm sells to its customers:
directly through its own sales force indirectly through independent intermediaries indirectly through an outside distribution system with regional or global coverage

International Distribution Systems

I. Problems in International Distribution
1) 2) 3) More stringent legal restrictions Goods must be transferred further May be difficult to get product to the consumer (infrastructure issues)

Sources for Finding Intermediaries
Distributor inquires Governmental agencies
Commerce Departments Trade Opportunities Program U.S. Exporters Yellow Pages

Private sources
Trade directories

Screening Intermediaries
Performance Professionalism

Selection of Intermediaries
Agents Foreign (Direct)

Distributors Foreign (Direct)

Distributors/dealers Import jobbers Wholesalers/retailers

Brokers Manufacturers Reps Factors Managing agents Purchasing Agents

Brokers Export Agents EMCs Webb-Pomerence Commission agents

Domestic (Indirect)
Domestic wholesalers EMCs ETCs Complementary marketers

Domestic (Indirect)

International Distribution Systems

II. Moving the Product Overseas
1) 2) Ocean shipping Air freight

III. Types of Middlemen

1) 2) 3) Freight forwarders Trading Companies Export Management Cos.

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 Air

Transport costs
In-transit inventory financing costs Total transportation costs Warehousing inventory costs Singapore and U.S. Warehouse rent Real physical distribution costs

$31,790 (in transit 21 days)

$ 44,289 $ 76,079 (60 days @$2,109/day) $ 126,540 $ 6,500 $ 209,119

$ 127,160 (in transit 3 days)

$ 6,328 $ 133,487

$ 133,487


SOURCE: Adapted from: "Air and Adaptec'c Competitive Strategy, International Business, September 1993, p.44.

International Distribution Systems

III. Types of Middlemen (Cont.)
4) 5) Piggybacking Domestic export middlemen

IV. Choosing a Middleman

International Logistics
V. International Logistics - the designing and managing of a system that controls the flow of materials into, through, and out of the international corporation.
Major decision areas: locating plants and warehouses; choice of transportation mode; managing inventory; packaging.

The Impact of International Logistics

Logistical costs are 10% to 30% of the total landed cost of an international order. Factors necessary for the use of logistics as a competitive tool:
Close collaboration with suppliers and customers Technologically advanced information processing and communication exchange capabilities An integrated business infrastructure

International Transportation Issues

Transportation infrastructure
Roads, rail lines, airports, seaports, pipelines

Availability of transportation modes

Overland shipping, ocean shipping, air shipping

Choice of modes
Transit time, predictability, cost, noneconomic factors

Noneconomic Factors
Government involvement, the UNCTAD and the 40/40/20 concept

International Logistics
VI. Inventory Management Considerations
Carrying costs Order cycle time Order cycle consistency Difficulty in applying service rules

International Inventory Issues

Inventory carrying costs can be up to 25% of the value of an inventory Just-in-Time policies minimize inventory volume by making it available when needed. Inventories assist in the movement of products. Factors in deciding on the level of inventory to maintain:
Order cycle time Desired level of customer service Use of Inventory as a strategic tool

Order Cycle Time

The total time that passes between the placement of an order and the receipt of the merchandise.
Length of the total order cycle
Longer cycle in international marketing than domestic

Consistency of the order cycle

More complicated delivery mode reduces consistency

Altering cycle times

Change transportation methods Change inventory locations Change ordering process

Long Tail Strategies