international marketing · exporting choices •marketers can use various approaches when a company...

International

Marketing

© Daniel W. Baack, Barbara

Czarnecka & Donald Baack

Part Five

International place or

distribution

Chapter 14

International distribution:

Exporting and retailing

Learning objectives

1. Why do companies export?

2. What methods of entry into foreign markets can companies

use?

3. What are the documents needed for exporting?

4. How can the marketing team effectively operate the five

tasks associated with the physical distribution of goods?

5. What factors influence the choice of retail outlets in host

countries?

4

Learning objective #1

• Why do companies export?

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Exporting choices

• Marketers can use various approaches when a company enters a foreign market. To limit risk and cost, in many cases company leaders select exporting or shipping a product to a foreign market, regardless of the method of delivery.

– In 2010, global exporting totaled $14.95 trillion in value.

– Bringing a foreign product into a market is importing.

• Relationships between exporting and importing can be complicated.

– Many of the items shipped across boundaries are the parts or resources businesses need to produce products. The completed products may then be exported.

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Internal reasons for exporting

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External reasons for exporting

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Market selection

• Once committed to exporting, the market to be entered will

be selected.

– The process of committing to exporting itself dictates the

countries chosen.

– Countries can be categorized using the various

segmentation processes.

• A choice also exists between market concentration and

market spreading.

– Market concentration occurs when a company exports to

a small number of markets or one key market and then

slowly expands into additional countries.

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Market selection

– Market spreading involves growing exports in many

different markets simultaneously.

• One key consideration is the amount of first-mover

advantage that exists.

– When barriers can be created to keep competitors from

exporting to the market, market spreading may be best,

while if many competitors already exist, market

concentration will lead to higher market share and

advantage.

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• What methods of entry into foreign markets can companies

use?

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Export entry modes

• In general terms, two modes of exporting, direct and

indirect, are possible.

• Direct exporting, or export marketing, involves the producer

or supplier being in charge of marketing to foreign buyers.

• Indirect exporting, or export selling, means the manufacturer

sells the product to intermediaries that then handle the

foreign selling of the product.

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Export entry modes

• The choice will be based on specific company features, the

characteristics of the target market country, and the quality

of potential intermediaries in that market.

– Marketers compare the costs associated with direct

exporting against the loss of control with indirect

exporting.

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Methods for direct exporting

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Methods for indirect exporting

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Pricing exports

• Companies may use export prices lower than domestic

prices, higher than domestic prices, or on par with domestic

prices and may use different prices in various markets.

• Lower prices than domestic may be needed in cases where

low consumer awareness of the brand or product category

is present.

– A lower price encourages product trials and helps gain

initial market share.

– Lower prices may also be necessary when local

competitors leverage local, low-cost resources to offer a

less expensive version of the product being exported.

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Pricing exports

• Charging higher prices than domestic prices often results from exporting costs.

– Governmental duties, transportation expenses, market research in the foreign country, and various other expenses all lead to higher exporting costs.

– A higher price also may lessen the additional risk from exporting to new markets.

• Keeping the prices the same in domestic and foreign markets represents the easiest choice.

– When companies initially enter markets, using a par price often allows for the use of the same overall positioning and marketing approach.

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• What are the documents needed for exporting?

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Regulations and documentation

• Governments require documentation before goods can

enter a country.

– Ports-of-entry customs officials expect proper

documentation and often may selectively search some of

the containers entering a country.

– One advantage of using indirect exporting is that the

intermediary assumes the responsibility and has the

expertise needed to manage customs entry requirements.

• Governments have the power to limit imports and exports.

– Such restrictions may be for national security reasons,

economic concerns, or to protect political constituencies.

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Export and import licenses

• One of the primary documents required for exporting from a

country is an export license.

• For many countries, such as the United States, these may

be general or validated licenses.

– The differences between the two licenses are driven by

the type of product, the final destination for the product,

and the use or user.

– General licenses apply to products that are not highly

regulated, and the licenses typically declare the product,

its value, and final destination.

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Export and import licenses

– Validated licenses are more complicated and contain far more information pertaining to the various regulations that apply to the product being exported.

• Understanding that companies seeking to export often feel overwhelmed by the various licensing requirements, various electronic services may be used to help deal with the process.

– Systems include the Electronic Request for Item Classification (ERIC), System for Tracking Export License Applications (STELA), the Export License Application and Information Network (ELAIN), and the Simplified Network Application Process (SNAP).

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Financing

• In some cases, exporters receive payment through on open

account.

– Open accounts operate in a manner that is similar to an

exchange in the domestic market.

– The exporter trusts the creditworthiness of the buyer and

ships the goods without worrying about receiving

payment.

– The exporter may also ship the products on consignment,

which involves simply sending a demand for payment,

basically an invoice, with the expectation of payment.

23

Financing

• Many companies assist in the financing of exporting by using cash on delivery or COD.

– For this process, the buyer pays for the goods when the carrier delivers them.

– No official title of ownership or bill of lading is part of this process.

• Similar to COD, a cash with order system involves the transfer of the official documentation of ownership, and the buyer making at least a partial payment before the order ships.

– Often the payment covers the cost of transporting the product both to and from the buyer, should it be returned for some reason.

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Financing

• In all of the previous examples, the manufacturer assumes

all of the payment risk.

– In other cases, the exporter does not have enough

knowledge to be confident of the creditworthiness of the

buyer.

– The concern exporters have is that the buyer may not pay

for the shipment, may not be willing to take ownership if

the goods are damaged in transit, or may not be willing to

take responsibility for other increases in costs, such as

currency movement or increased custom duties.

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Financing

• At this point, a third party, typically a bank, becomes

involved to ensure payment. The various documents and

processes that may be used are the following:

– Drafts

– Documents Against Acceptance

– Documents Against Payment

– Letter of Credit/Documentary Credit

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Drafts

• The core document for many exporters is a draft for

payment.

– This documentation is sent to both the buyer’s bank and

to the buyer.

– Drafts can vary based on the unique needs of the buying

situation.

– In general, drafts serve as documentation of the order

being placed.

– Having a draft does not represent the guarantee of

payment by the bank, but it does provide proof of an

agreement if a dispute occurs.

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Drafts

• Drafts can be of a type called documents against

acceptance.

– These refer to drafts in which the buyer agrees to pay the

exporter by a certain time; the agreement must be signed

before the buyer receives title to the goods.

• Drafts may also be documents against payment, where the

buyer must pay for the goods before receiving title.

– For many countries, customs officials will not release

goods to the buyer without a signed draft. The buyer can

refuse to sign the draft, which results in the exporter

having to pay to ship the goods back.

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Letters of credit

• The most secure option for exporters is a letter of credit.

• For this documentation, the bank receives payment in return

for providing credit guaranteeing the purchase.

– The buyer applies for the credit by providing specifics

regarding how the payment will be made to the exporter.

– The exporter bank reviews the agreement and then, if no

problems exist, extends payment to the exporter.

• The advantage of letters of credit lies in the agreement

between the two banks. Both institutions are backing the

payment.

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Features of letters of credit

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• How can the marketing team effectively operate the five

tasks associated with the physical distribution of goods?

31

Physical distribution

• The term logistics refers to all of the activities in the

physical movement and storage of goods from the producer

to the consumer.

• The ultimate objective of a logistics program will be to meet

the needs of customers in a convenient and timely fashion

at the lowest possible cost.

• Five tasks are associated with logistics and the physical

distribution of products.

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Five tasks of physical distribution

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Materials handling

• Part of physical distribution involves handling the inflow of

raw materials.

– Company leaders balance the costs of holding raw

materials against the problems associated with running

out.

• In global markets, materials handling becomes a major part

of the decision to use a mode of entry that involves

manufacturing items in different countries, such as

franchising, wholly owned subsidiaries, and joint ventures.

– A nation’s infrastructure will be the primary factor in this

analysis.

34

Materials handling

• As is the case with other aspects of physical distribution,

materials handling has largely been automated in many

industries, although human factors still play key roles in

materials handling activities.

• The manager of a company’s receiving department will be

responsible for raw material orders, counting them and

preparing them for use.

• A bill of lading specifies the exact amount of raw materials

that are in a shipment.

– The exporter must take care of bills of lading prepared in

different languages.

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Inventory location

• The production team identifies the most efficient and

effective methods for storing finished goods before shipping

to other businesses and customers.

• A warehouse facility stores products before they are placed

into the distribution channel.

– Three alternatives are available: a private warehouse, a

public warehouse, and a third-party warehouse.

• Private warehouses are owned or leased and operated by

firms storing products.

– In some countries, where real estate prices remain low, a

private warehouse represents a cost-effective method.

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Inventory location

• Public warehouses are independent facilities that provide

storage rental and related services for companies.

– When these are available in a host country, the costs tend

to remain low.

– When a company runs with lower levels of inventory,

storage space may be rented only when needed.

• Third-party warehouses involve a firm outsourcing the

warehousing function.

– A company that specializes in inventory and warehousing

can provide the service, thereby relieving the

manufacturer of the task.

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Distribution centers

• Distribution centers are not warehouses because they are

not designed to store products. Instead, a flow of goods

moves through the system.

• Delivery costs from distribution centers usually comprise a

large portion of overall distribution costs.

• The physical location of a distribution center will be

important.

– Most are located near major transportation routes, ports,

or terminals.

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Distribution centers

• Many international marketers maintain distribution centers

worldwide.

– Some of these centers are wholly owned by the producing

firm, while others are public warehouses.

– Small-sized products are often sent through distribution

centers.

• In general, distribution center activities are focused on

receiving products, storing them, preparing them for

delivery, and shipping.

39

Distribution Centers

• One growing trend is the use of 3PL (Third-Party Logistics)

for inclusion in warehousing activities.

– 3PL firms provide warehousing and other logistics

activities for firms without taking ownership of the

products.

• Warehousing and inventory control activities have been

significantly impacted by improved technologies.

– Technologies such as radio frequency identification

development (RFID) tagging and automated warehousing

systems have drastically changed these activities.

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Distribution Centers

– Automated warehousing systems vary greatly, but often

expedite the loading process of products from storage

locations to delivery docks.

41

Inventory control

• The process of determining the appropriate level of inventory to be manufactured, shipped, and stored at a reasonable cost.

• A balance must be achieved between carrying too little inventory, which leads to stock-outs and lost sales, and carrying an excess of inventory.

– Stocks-outs are especially troublesome for international marketers because reorders take additional time for shipment.

– Holding excess inventory increases carrying costs or the monies needed to finance the inventory and warehouse the product.

42

Inventory control

• The number of times per year in which the average

inventory on hand is sold is the stock turnover figure.

– A high stock turnover rate allows a company to be more

efficient, unless it creates stock-outs and the lost sales

that result.

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Calculating stock turnover

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Inventory management systems

• To achieve the objective of finding the correct amount of inventory to carry, a producer may use various inventory management system protocols.

• The traditional approach involves calculation of the economic ordering quantity, which identifies the point at which merchandise should be reordered along with the amount or volume to reorder.

– Unfortunately, the formula assumes zero lead time, which is the time from which merchandise is ordered until the time it is received.

– In international marketing, this assumption would almost always be false or inaccurate.

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• Many marketers employ the just-in-time inventory control

system.

• Just-in-time systems serve two purposes:

– The first is to order raw materials efficiently, but having

them arrive at the precise time they are needed.

– The second goal is to reduce inventories of finished

goods by anticipating future needs, which includes

identifying times when sales will be low or at their peak.

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• Just-in-time systems rely on dependable transportation

systems, which can be problematic in many countries.

– The just-in-time method also counts on the marketing

team’s ability to accurately forecast future sales and

future raw material needs, which may be harder to

calculate in less-stable international markets.

• The retail equivalent of just-in-time systems is the quick

response inventory system.

– It creates a flow that approximates consumer purchasing

patterns.

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Order processing

• Order processing involves completion of the paperwork

associated with shipping orders as well as oversight of the

physical movement of the goods.

• Bills of lading and other documents should be inspected to

make certain an order contains all items.

– Then, payment for the shipment can be authorized by the

importing company.

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Methods of transportation

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Container port traffic 2010

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Rail line availability in selected countries (in kilometers)

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Beef exports globally

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Dairy export globally

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Sustainability and international distribution systems

• International marketing channels contribute significantly to

problems associated with pollution, particularly in the area

of international distribution.

– Airplane emissions, including carbon dioxide and nitrogen

oxide, are significant contributors to global warming and

climate change.

• Shipping also poses environmental problems.

– One recent study revealed that the world’s fleet of ocean-

going ships generates as much air pollution as half of the

world’s automobiles.

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Sustainability and international distribution systems

• Though most marketers are limited in their ability to improve

efforts, they can select carriers that focus on sustainability of

transportation.

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Radio frequency identification development and international transportation

• Radio frequency identification development (RFID)

technology continues to grow in importance in the

international transportation of products as well as in

warehousing systems.

• RFID allows for real-time identification and tracking of

products over long distances, which offers advantages to

international marketers.

• Unfortunately, many challenges currently exist with the

technology.

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Radio frequency identification development and international transportation

– A lack of international standards for RFID operation,

environmental limitations (pertaining to the distribution of

liquids), information security, and RFID tag failures are

problems associated with the global adoption and use of

these technologies.

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International distribution and the bottom-of-the-pyramid

• Two challenges are associated with reaching bottom-of-the-

pyramid customers: cost and access.

• With regard to cost, transportation can be difficult given the

primitive infrastructures that exist, which adds to the

expense associated with distributing products to the poor.

– International distribution channels are adjusted to account

for these challenges.

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International distribution and the bottom-of-the-pyramid

• In terms of access, international marketers focus on

developing the simplest of product solutions for these

consumers at the lowest prices possible.

– Distribution channels are often relatively primitive, with

products having to be transported great distances through

sometimes highly challenging conditions.

– Issues such as refrigeration create additional

complexities.

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Terrorism and international marketing channels

• The increased occurrence of global terrorism has exhibited a significant impact on international distribution activities.

– Due to tighter security restrictions worldwide, delays in shipments of products to international destinations have become more common.

• In general, terrorism is considered an external risk that directly impacts product flow. It can affect all of the forms of transportation.

– A recent concern for the transportation of products has been the increase in piracy, particularly in the Gulf of Aden, the Indian Ocean, and the Arabian Sea near Somalia.

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Terrorism and international marketing channels

• The United States Customs Service adopted the Container Security Initiative (CSI) as a response to the terrorist events of September 11, 2001.

– The initiative addresses the need for greater scrutiny of containers that are shipped into the United States and works to, among other things, identify high-risk containers, and to prescreen and evaluate containers before they are shipped to final destinations.

– The U.S. Customs and Border Protection developed the Customs-Trade Partnership Against Terrorism (C-TPAT), which also focuses on securing supply chains from terrorist activity.

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International marketing channels and utility

62


• What factors influence the choice of retail outlets in host

countries?

63

International retailing

• The final destination for many distribution activities will be

the retail store or retail outlet.

• Retailing activities occur worldwide.

– From the smallest villages to the largest cities, retail

commerce plays a significant role in the everyday lives of

consumers.

• International retailing refers to all of the retail activities that

occur across national boundaries.

– The definition focuses specifically on large, international

retail firms that conduct operations in more than one

country.

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International retailing

• Another way of considering retailing, however, is to

approach it from the perspective of an international

marketing channel that utilizes small retail firms located in

targeted countries that are outside the producer’s home

country.

– Here, the foreign firm is simply a part of the international

marketing channel and plays the key role of offering the

product to the consumer.

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Types of international retail outlets

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