Chapter 15: Global Distribution and Logistics Flashcards
1
Q
Today’s topics
A
- International channel design
- International channel management
- International logistics management
- International inventory management
2
Q
Channel structure performs
A
- Physical movement of goods
- Transactional title flows
- Informational communications flows
3
Q
Channel design
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Length and width of the channel employed
- Determined by factors that can be summarized as the 11 Cs: customer, culture, competition, company objectives, character, capital, cost, coverage, control, continuity, and communication
4
Q
Channel Design: Customers
A
The demographic and psychographic characteristics of targeted customers will form the basis for channel-design decisions.
Focusing on customer needs by understanding:
- “What” commodities they buy
- “Why” they buy commodities
- “When” they buy commodities
- “How” they buy commodities
5
Q
Channel Design: Culture
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The marketer must analyze existing channel structures, or what might be called the distribution culture of a market.
- Distribution culture: Existing channel structures
- Marketers must think of flexible, and responsive solutions to offer
6
Q
Channel Design: Competition
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- Channels used by competitors may be the only product distribution system that is accepted by both the trade and consumers
- An international marketer’s task is either to use the structure more effectively and efficiently, or use a totally different distribution approach (e.g., Ikea’s supermarketing concepts in furniture retail)
7
Q
Channel Design: Company objectives
A
Sometimes, management goals may conflict with the best possible channel design.
- Management goals influence channel designs
- E.g., control vs. expansion (Fast-food chains have typically rushed into newly opened markets to capitalize on the development. The companies have attempted to establish mass sales as soon as possible by opening numerous restaurants in the busiest sections of several cities. Unfortunately, control has proven to be quite difficult because of the sheer number of openings over a relatively short period of time. Starbucks invests very little capital in international expansion (less than 5 percent of revenue), and local partners bear all business risk)
8
Q
Channel Design: Character
A
- The type or character of the good impacts the design of a channel
- E.g., perishable products
9
Q
Channel Design: Capital
A
- Capital: Used to describe the financial requirements in setting up a channel system
- The stronger the marketer’s finances, the more able the firm is to establish channels it either owns or controls
- Intermediaries’ requirements for beginning inventories, selling on a consignment basis, preferential loans, and need for training will all have an impact on the type of approach chosen by the international marketer.
10
Q
Channel Design: Cost
A
- Cost: Expenditure incurred in maintaining a channel once it is established
- Closely related to the capital dimension
- E.g., producers provide subsidies to distributors to maintain competitive prices
11
Q
Channel Design: Coverage
A
- Coverage: used to describe both the number of areas in which a product is represented and the quality of that representation
- Coverage is two-dimensional in that both horizontal and vertical coverage need to be considered in channel design
- Area to be covered depends on the dispersion of demand in the market and also the time elapsed since the product’s introduction to the market
12
Q
Channel Design: Control
A
- Use of intermediaries leads to loss of some control over the marketing of the firm’s products
- The longer the channel, the more difficult it becomes for the marketer to have a final say over pricing, promotion, and the types of outlets in which the product will be made available
- The looser the relationship is between the marketer and the intermediaries, the less control can be exerted.
13
Q
Channel Design: Continuity
A
- Nurturing continuity rests heavily on the marketer because foreign distributors may have a more short-term view of the relationship
- Foreign distributors have a more short-term view of the relationship
- Commitment is needed from both sides
14
Q
Channel Design: Communication
A
- Provides the exchange of information that is essential to the functioning of the channel
- Assists the international marketer in:
1. Conveying the firm’s goals to the distributors
2. Solving conflict situations
3. Aids in the overall marketing of the product - Is a two-way process that does not permit the marketer to dictate to intermediaries
15
Q
Selection of intermediaries
A
- Types of intermediaries
- Government agencies (e.g., Export Development Canada (EDC), https://www.edc.ca/en/Pages/default.aspx )
- Private sources (e.g., advertising, trade shows, websites)
16
Q
Two basic decisions are involved in choosing the type of intermediaries:
A
- First, the marketer must determine the type of relationship to have with intermediaries. The alternatives are distributorship and agency relationships.
- In addition to the business implications, the choice of type will have legal implications in terms of what the intermediary can commit its principal to and the ease of terminating of the agreement.
17
Q
Types of intermediaries
A
- Distributor
- Agent
18
Q
Distributor
A
- Purchases the product and will therefore exercise more independence than an agency
- Distributors are typically organized along product lines and provide the international marketer with complete marketing services
19
Q
Agent
A
- Have less freedom of movement than distributors because they operate on a commission basis and do not physically handle the goods.
- This, in turn, allows the marketer control to make sure, for example, that the customer gets the most recent and appropriate product version.
20
Q
The distributor agreement
A
When the international marketer has found a suitable intermediary, a sales agreement is drawn up.
Important terms to be included in the agreement
- Contract duration
- Geographic and customer boundaries
- Method of payment
- Products and conditions of sale
- Means of communication between parties
21
Q
Termination of channel relationship
A
- Many reasons exist for the termination of a channel relationship
- Time to think about termination issues is before the overseas distribution agreement is signed
22
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Reasons for termination of channel relationship
A
- Changes in the international marketer’s distribution approach (e.g. establishing a sales office)
- A (perceived) lack of performance by the intermediary
- Either party not honoring agreements (e.g. selling outside assigned territories and initiating price wars)
23
Q
International Logistics
A
The design and management of a system that controls the inflow and outflow of materials in an international corporation
- It encompasses the total movement concept by covering the entire range of operations concerned with goods movement, including both exports and imports
- Requires interaction with outside organizations (e.g., suppliers, distributors, and customers)
- By incorporating the interaction with outside organizations and individuals such as suppliers and customers, the firm integrates all partners in the areas of performance, quality, and timing
24
Q
Two phases in the movement of materials
A
- Materials management
- Physical distribution
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Materials management
Timely movement of raw materials, parts, and supplies into and through the firm
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Physical distribution
Involves the movement of the firm’s finished product to customers
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Concepts within logistics
- Systems concept
- Total cost concept
- Trade-off concept
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Systems concept
Materials-flow activities can be considered only in the context of their interaction because of their complexity
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Total cost concept
Minimizes the firm’s overall logistics cost within the entire system
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Trade-off concept
Recognizes the linkages within logistics systems that result from the interaction of their component
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Supply chain management
The integration of these three concepts has resulted in the new paradigm of supply chain management:
- Encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and logistics
- Also includes coordination and collaboration with all channel partners, which can be suppliers, intermediaries, third-party service providers, and customers.
- Integrates supply and demand management within and across companies.
- Also integrates the three concepts: systems concept, total cost concept, and trade-off concept
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International transportation issues
Can be divided into three components:
- Transportation infrastructure
- Availability of modes
- Choice between modes
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Why is international transportation of major concern?
Because transportation determines how and when goods will be received.
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Transportation infrastrcture
Firms encounter infrastructural variation
- Some countries may have excellent inbound and outbound transportation systems but weak transportation links within the country.
- Extreme variations also exist in the frequency of transportation services. For example, a particular port may not be visited by a ship for weeks or even months. Sometimes, only carriers with particular characteristics, such as small size, will serve a given location.
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Availability of modes
- Ocean
- Air
- Pipeline
- Highway
- Rail
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Modes of transportation
- Ocean shipping
- Air Shipping
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Three types of vessels operating in ocean shipping can be distinguished by their service:
- Liner service
- Bulk service
- Tramp or charter service
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Liner service
offers regularly scheduled passage on established routes
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Bulk service
Mainly provides contractual services for individual voyages or for prolonged periods of time
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Tram or charter service
is available for irregular routes and is scheduled only on demand
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Type of cargo a vessel can carry:
- Conventional (break-bulk) cargo vessels
- Container ships
- Roll-on-roll-off vessels
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Conventional (break-bulk) cargo vessels
are useful for oversized and unusual cargoes but may be less efficient in their port operations
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Eleanora Maersk
Among the largest cargo ships in the world is the Eleanora Maersk
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What has caused a decline in the use of general cargo vessels?
The premium assigned to speed and ease of handling
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What has increased due to the decline in the use of general cargo vessels?
Sharp increase in the growth of container ships
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Container ships
carry standardized containers that greatly facilitate the loading and unloading of cargo and intermodal transfers
47
Air Shipping
- Airfreight is available to and from most countries.
- Total volume of airfreight in relation to the total volume of shipping in international business remains quite small.
- 40 percent of the world’s manufactured exports by value travel by air.
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What kind of items are more likely to be shipped by air?
High-value items, particularly if they have a high density, that is, a high weight-to-volume ratio
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From the shipper's perspective in air shipping, the products involved must...
be amenable to air shipment in terms of their size
50
Airfreight may be needed if...
a product is perishable or if, for other reasons, it requires a short transit time
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Choices of transport modes depends on
- Transit time
- Predictability
- Cost
- Noneconomic factors
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Transit time
- The period between departure and arrival of the carrier varies significantly between ocean freight and airfreight.
- Rapid transportation prolongs shelf life in the foreign market.
- Inventories can be significantly reduced if they are replenished frequently. As a result, capital can be freed up and used to finance other corporate opportunities.
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How can transit time play a major role in emergency situations?
If the shipper is about to miss an important delivery date because of production delays, a shipment normally made by ocean freight can be made by air.
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Predictability
- Higher predictability of airfreight allows lower levels of inventory safety stock
- Greater predictability serves as a useful sales tool for distributors because it allows foreign distributors to make more precise delivery promises to their customers
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How does predictability impact reliability?
Providers of both ocean and airfreight service are subject to the vagaries of nature, which may impose delays. Yet because reliability is a relative measure, a delay of one day for airfreight tends to be seen as much more severe and “unreliable” than the same delay for ocean freight. But delays tend to be shorter in absolute time for air shipments.
56
When might airfreight be the better alternative?
If inadequate harbor facilities exist.
57
Why is merchandise more likely to be ready for immediate delivery if shipped via air?
Merchandise shipped via air is likely to suffer less loss and damage from exposure of the cargo to movement. Therefore, once the merchandise arrives, it is more likely to be ready for immediate delivery.
58
Cost
International transportation services are priced on the basis of cost of the service provided and the value of the service to the shipper.
- Because of the high value of the products shipped by air, airfreight is often priced according to the value of the service.
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Why is sending diamonds by airfreight easier to justify than sending coal by air?
High-priced items can absorb transportation costs more easily than low-priced goods because the cost of transportation as a percentage of total product cost will be lower.
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How can a shipper keep costs down?
A shipper can join groups such as shippers associations, which give the shipper more leverage in negotiations. Alternatively, a shipper can decide to mix modes of transportation in order to reduce overall cost and time delays.
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Noneconomic factors
- Carriers may be owned or heavily subsidized by governments. As a result, government pressure is exerted on shippers to use national carriers, even if more economical alternatives exist
- The transportation sector both benefits and suffers from heavy government involvement
62
For balance-of-payments reasons, what has been proposed?
International quota systems of transportation
63
40/40/20 treaty
40 percent of the traffic between two nations is allocated to vessels of the exporting country, 40 percent to vessels of the importing country, and 20 percent to third-country vessels
- Proposed by UNCTAD
64
International inventory issues
- Inventory carrying costs
- Order cycle time
- Customer service levels
65
In deciding the level of inventory to be maintained, the international marketer must consider three factors:
- The order cycle time
- Desired customer service levels
- Use of inventories as a strategic tool
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Inventory carrying costs
Expense of maintaining inventories
67
Order cycle time
Total time that passes between the placement of an order and the receipt of the merchandise.
- In international marketing, the order cycle is frequently longer than in domestic business
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Order cycle time: two dimensions are of major importance to inventory management
- The length of the total order cycle
- Its consistency
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The length of the total order cycle
It comprises the time involved in order transmission, order filling, packing and preparation for shipment, and transportation.
- Order transmission time varies greatly internationally depending on whether telephone, fax, mail, or electronic order placement is used in communicating.
- The order filling time may also be increased because lack of familiarity with a foreign market makes the anticipation of new orders more difficult.
- Larger inventories may have to be maintained both domestically and internationally to bridge these time gaps.
70
Consistency
The international marketer should attempt to reduce order cycle time and increase its consistency without an increase in total costs. This objective can be accomplished by altering methods of transportation, changing inventory locations, or improving any of the other components of the order cycle time, such as the way orders are transmitted.
71
Customer service levels
The level of customer service denotes the responsiveness that inventory policies permit for any given situation
72
A customer service level of 100% could be defined as...
the ability to fill all orders within a set time.
73
Service levels should not be oriented primarily around...
Cost or customary domestic standards. Rather, the level chosen for use internationally should be based on customer expectations encountered in each market.
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Inventory as a strategic tool
International inventories can be used by the international corporation as a strategic tool in dealing with currency valuation changes or in hedging against inflation.
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How may inventory be used as a strategic tool in dealing with currency validation?
By increasing inventories before an imminent devaluation of a currency instead of holding cash, the corporation may reduce its exposure to devaluation losses.
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How may inventory be used as a strategic tool in dealing with inflation?
arge inventories can provide an important inflation hedge. In such circumstances, the international inventory manager must balance the cost of maintaining high levels of inventories with the benefits accruing to the firm from hedging against inflation or devaluation.
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Channels can vary from...
direct, producer-to-consumer types to elaborate, multilevel channels employing many types of intermediaries, each serving a particular purpose.
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In order to help combat the growing complexity, businesses are employing techniques such as:
- Creating new bridges between producers and customers
- Harnessing customers' ideas, tastes, and productive powers
- Creating new forms of B2B commerce, including the emergence of specialists horizontal players
- Offering consumer-to-consumer (C2C) activity, where participants are sharing information in open, global online forums.
- Focusing on peer-to-peer (P2P), which offers a cooperative interaction among individuals rather than traditional sources of experience and trust.
- Engaging in cooperative consumption by groups of end consumers.
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11 Cs
- customer
- culture
- competition
- company
- character
- capital
- cost
- coverage
- control
- continuity
- communication
80
How can the international marketer use the 11 Cs?
as a checklist to determine the proper approach to reach target audiences before selecting channel members to fill the roles.
81
In the 11 Cs, what can be said about the first 3 Cs and the other 8 Cs?
The first three factors are given because the company must adjust its approach to the existing structures. The other eight are controllable to a certain extent by the marketers.
82
Dual channel
may be used in which both intermediaries and a direct contact with customers are used.
83
Hybrid channels
features sharing of marketing functions, with the manufacturer handling promotion and customer generation and the intermediaries handling sales and distribution.
84
What is the difference between hybrid and dual channels?
The hybrid strategy is based more on cooperation and partnership, while the dual channel may result in conflict if disagreements arise as to who is to handle a specific customer.
85
What can a channel relationship be compared to?
A channel relationship can be likened to a marriage in that it brings together two independent entities that have shared goals For the relationship to work, each party must be clear about its expectations and openly communicate changes perceived in the other’s behavior that might be contrary to the agreement. The closer the relationship is to a distribution partnership, the more likely marketing success will materialize.
86
How will conflict arise in a channel relationship?
Conflict will arise, ranging from small grievances (such as billing errors) to major ones (rivalry over channel duties), but it can be managed to enhance the overall channel relationship. In some cases, conflict may be caused by an outside entity, such as gray markets, in which unauthorized intermediaries compete for market share with legitimate importers and exclusive distributors.
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Harmonious channel relationships
Firms with harmonious relationships are typically those with more experience abroad and those that are proactive in managing the channel relationship. Harmonious relationships are also characterized by more trust, communication, and cooperation between the entities and, as a result, by less conflict and perceived uncertainty.
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As an exporter’s operations expand, the need for coordination across markets may grow. Therefore, the exporter may want to establish...
distributor advisory councils
89
Distributor advisory councils help in...
Reactive measures or proactive measures
90
Reactive measures
e.g., how to combat parallel importation
91
Proactive measures
e.g., how to transfer best practice from one distributor to another
92
Governmental Agencies
The U.S. Department of Commerce has various services that can assist firms in identifying suitable representatives abroad.
93
Export Development Canada (EDC)
They take on risk, so one can grow their business with confidence.
94
Private sources
- The marketer can take an even more direct approach to finding intermediaries by buying space in a source to solicit representation
95
Private sources: Advertisements
Advertisements typically indicate the type of support the marketer will be able to give to its distributor
96
Private sources: Trade fairs
Trade fairs are an important forum to meet potential distributors and to get data on intermediaries in the industry.
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Private sources: Websites
Increasingly, marketers are using their own websites to attract international distributors and agents.
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Private sources: Other options
The marketer may also deal directly with contacts from previous applications, launch new mail solicitations, use its own sales organization for the search, or communicate with existing customers to find prospective distributors. The latter may happen after a number of initial (unsolicited) sales to a market, causing the firm to want to enter the market on a more formal basis. If resources permit, the international marketer can use outside service agencies or consultants to generate a list of prospective representatives
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Contract duration
In general, distribution agreements should be for a specified, relatively short period (one or two years). The initial contract with a new distributor should stipulate a trial period of either three or six months, possibly with minimum purchase requirements. Duration should be determined with an eye on the local laws and their stipulations on distributor agreements.
100
Geographic and customer boundaries
- Future expansion of the product market might be complicated if a distributor claims rights to certain territories. The marketer should retain the right to distribute products independently, reserving the right to certain customers.
- Transshipments, or sales to customers outside the agreed-upon territory or customer type, have to be explicitly prohibited to prevent the occurrence of parallel importation.
101
Method of payment
- The payment section of the contract should stipulate the methods of payment as well as how the distributor or agent is to draw compensation.
- Given the volatility of currency markets, the agreement should also state the currency to be used.
- The international marketer also needs to make sure that none of the compensation forwarded to the distributor is in violation of the Foreign Corrupt Practices Act or the OECD guidelines.
102
When does a violation occur in regard to payment?
if a payment is made to influence a foreign official in exchange for business favors, depending on the nature of the action sought
103
Facilitating payments (grease payments)
Payments such as a small fee to expedite paperwork through customs, are not considered violations
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Products and conditions of sale
The products or product lines included should be stipulated, as well as the functions and respond sibilities of the intermediary in terms of carrying the goods in inventory, providing service in conjunction with them, and promoting them. Conditions of sale determine which party is to be responsible for some of the expenses involved, which will in turn have an effect on the price to the distributor. These conditions include credit and shipment terms.
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Means of communication between parties
The marketer should have access to all information concerning the marketing of his or her products in the distributor’s territory, including past records, present situation assessments, and marketing research concerning the future. Communication channels should be formal for the distributor to voice formal grievances. The contract should state the confidentiality of the information provided by either party and protect the intellectual property rights (such as patents) involved.
106
Gray Markets (or parallel importation)
Refer to authentic and legitimately manufactured trademark items that are produced and purchased abroad but imported or diverted to the market by bypassing designated channels.
107
Gray-marketed products vary from...
inexpensive consumer goods (such as chewing gum) to expensive capital goods (such as excavation equipment).
108
Various conditions allow unauthorized resellers to exist
The most important are price segmentation and exchange-rate fluctuations. Competitive conditions may require the international marketer to sell essentially the same product at different prices in different markets or to different customers. Because many products are priced higher in, for example, the United States, a gray marketer can purchase them in Europe or the Far East and offer discounts between 10 and 40 percent below list price when reselling them in the U.S. market. Exchange-rate fluctuations can cause price differentials and thus opportunities for gray marketers.
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In grey markets, opponents and supporters of the practice disagree on whether the central issue is price or trade rights. Detractors typically cite the following arguments:
1) the gray market unduly hurts the legitimate owners of trademarks
2) without protection, trademark owners will have little incentive to invest in product development
3) gray marketers will “free ride” or take unfair advantage of the trademark owners’ marketing and promotional activities
4) parallel imports can deceive consumers by not meeting product standards or their normal expectations of aftersale service
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The bottom line is that gray-market goods can...
severely undercut local marketing plans, erode long-term brand images, eat up costly promotion funds, and sour manufacturer–intermediary relations.
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Who are the main beneficiaries of gray markets?
The main beneficiaries are consumers, who benefit from lower prices, and discount distributors, with whom some of the manufacturers do not want to deal and who have now, because of gray markets, found a profitable market niche.
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Who do gray markets attract?
Consumers with high price sensitivities
113
What are concerns that gray markets bring to consumers?
given the price–quality inference, quality may become a concern for the consumers, especially if they do not have relevant information about the brand and the intermediary. In addition, risk aversion will have a negative influence on consumers’ propensity to buy gray-market goods. The likelihood of obtaining a counterfeit version, a deficient guarantee, or no service are the foremost concerns
114
What can a one-price policy do in gray markets?
A one-price policy can eliminate one of the main reasons for gray markets.
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One-price policy
This means choosing the most efficient of the distribution channels through which to market the product, but it may also mean selling at the lowest price to all customers regardless of location and size. A meaningful one-price strategy must also include a way to reward the providers of other services, such as warranty repair, in the channel.
116
What are other strategies that eliminate gray markets?
- Producing different versions of products for different markets.
- Some companies have introduced price incentives to consumers.
- Many manufacturers promote the benefits of dealing with authorized dealers (and, thereby, the dangers of dealing with gray-market dealers).
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International distribution life cycle
- Channel relationships go through a life cycle.
- Over time, the marketer’s capabilities increase while a distributor’s ability and willingness to grow the business in that market decreases.
- When a producer expands its market presence, it may expect more of a distributor’s effort than the distributor is willing to make available.
- WIth expansion, the marketer may want to expand its product line to items that the distributor is neither interested in nor able to support.
118
In some cases, intermediaries may not be interested in growing the business...
beyond a certain point (e.g., due to progressive taxation in the country) or as aggressively as the principal may expect (i.e., being more of an order-taker than an order-getter).
119
Why may intermediaries not be interested in growing the business?
As a marketer’s operations expand, it may want to start to coordinate operations across markets for efficiency and customer-service reasons or to cater to global accounts—thereby needing to control distribution to a degree that independent intermediaries are not willing to accept, or requiring a level of service that they may not be able to deliver.
120
Independent distributors do remain long-run representatives of originators under certain circumstances
Some markets may not be considered strategic (e.g., due to size) or they may be culturally challenging (e.g., Saudi Arabia). The distributors may carry product lines that are complementary, thus enhancing the originator’s efforts, and they may act more as partners by sharing information or undertaking originator-specific projects in their own or nearby markets to become “indispensable.”
121
Why are termination conditions one of the most important considerations in the distributor agreement?
Because the just causes for termination vary and the penalties for the international marketer may be substantial.
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What do just causes for termination include?
- fraud or deceit
- damage to the other party’s interest
- failure to comply with contract obligations concerning minimum inventory requirements or minimum sales levels
123
Why must termination conditions be spelled out carefully?
Because local courts are often favorably disposed toward local businesses. In some countries, termination may not even be possible.
124
What is typical for termination without justification?
One year's average commission
125
How far in advance must a notice of termination be given?
Three to six months in advance
126
E-commerce
the ability to offer goods and services over the web
127
What has the mobile market facilitated?
The growth of m-commerce
128
M-commerce
the exchange of goods and services via the use of smart mobile handheld devices that allow web browsing
129
To fully serve the needs of its customers via e-commerce, the company itself must...
be prepared to provide 24-hour order taking and customer service, have the regulatory and customs-handling expertise to deliver internationally, and have an in-depth understanding of marketing environments, as well as customer habits and preferences, for the further development of the business relationship.
130
The instantaneous interactivity users experience through e-commerce will also be translated into...
An expectation of expedient delivery of answers and products ordered.
131
The challenges faced in terms of response and delivery capabilities in e-commerce can be overcome through...
Outsourcing services or by building international distribution networks.
132
How can logistics centers help companies doing e-commerce?
If a company needs help in order fulfillment and customer support, logistics centers offer warehousing and inventory management services as well as same-day delivery from in-country stocks.
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What was perceived as the "lingua franca" of the web?
English was perceived as the lingua franca of the web
134
What has increased global Internet penetration made?
localization of web content and e-commerce a requirement
135
Web users are three times more likely to buy when...
the offering is made in their own language
136
What will smart marketers do in e-commerce?
Smart marketers will seek to customize commercial websites to meet customer convenience and ease-of-use needs in different countries, starting with language localization.
137
For industries such as music and motion pictures, the Internet has proven to be both an opportunity and a threat.
The web provides a new, efficient method of distribution and customization of products that has been enthusiastically embraced by music and film lovers. At the same time, it can be a channel for intellectual property violation through unauthorized distribution methods that threaten the revenue streams to artists and creative industries.
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Successful implementation of international logistics systems' considerations allows the firm to develop...
- just-in-time (JIT) delivery for lower inventory costs
- electronic data interchange (EDI) for more efficient order processing
- early supplier involvement (ESI) for better planning of goods development and movement.
All this will lead to the implementation of effective supply chain management
140
Efficient customer response (ECR) systems
By working closely with customers such as retailers, firms can also develop efficient customer response (ECR) systems, which can track sales activity.
- As a result, manufacturers can precisely coordinate production in response to actual shelf replenishment needs rather than basing production on forecasts
141
In both phases (materials management and physical distribution) movement includes...
stationary periods (storage and inventory)
142
The goal of logistics management is...
the effective coordination of both phases and their various components to result in maximum cost-effectiveness while maintaining service goals and requirements.
143
Logistics in increasingly concerned with...
Sustainability
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Three major concepts within logistics
- The systems concept
- Total cost concept
- Trade-off concept
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Systems concept
Based on the notion that materials-flow activities within and outside of the firm are so extensive and complex that they can be considered only in the context of their interaction.
146
What does the systems concept stipulate?
that some components may have to work suboptimally to maximize the benefits of the system as a whole.
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What is required in order for the systems concept to work?
In order for the systems concept to work, information flows and partnership trust are instrumental. Longterm partnership and trust are required in order to forge closer links between firms and managers.
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Total cost concept
- An outgrowth of the systems concept
- To evaluate and optimize logistical activities, the total cost concept is to minimize the firm’s overall logistics cost within the entire system.
- Its implementation requires that the members of the system understand the sources of costs.
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Activity-based costing
a technique designed to more accurately assign the indirect and direct resources of an organization to the activities performed based on consumption
150
The total cost concept must also incorporate...
The consideration of total after-tax profit by taking the impact of national tax policies on the logistics function into account. The objective is to maximize after-tax profits rather than to minimize total cost.
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Trade-off concept
recognizes the linkages within logistics systems that result from the interaction of their components.
152
What is an example of trade-off concept?
For example, locating a warehouse near the customer may reduce the cost of transportation. However, the new warehouse will lead to increased storage costs and more inventory. Managers can maximize performance of logistics systems only by formulating decisions based on the recognition and analysis of such trade-offs.
153
Often, it is not just the lack of technology that forms the key obstacle to modern logistics management but rather...
the entire business infrastructure, ranging from ways of doing business in fields such as accounting and inventory tracking to the willingness of businesses to collaborate with one another.
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Logistics decisions in domestic operations
are guided by the experience of the manager, possible industry comparison, an intimate knowledge of trends, and the development of heuristics, or rules of thumb.
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Logistics decisions in international firms
frequently has to depend on educated guesses to determine the steps required to obtain a desired service level
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International shipment
- May use multiple types of carriers
- The shipment must be routed to the port of export, where it is transferred to another mode of transportation—for example, from truck or rail to vessel.
- Documentation for international shipments is universally perceived as so complicated, that it can be a trade barrier.
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International shipment: Documentation
- In the simplest form of exporting, the only documents needed are a bill of lading and an export declaration. In most countries, these documents are available either from the government or from transportation firms.
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Documentation for most exports
- Most exports fit under a general license, which is a generalized authorization consisting simply of a number to be shown on the documents.
- Certain goods and data require a special validated license for export.
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Documentation for imports
the basic documents are a bill of lading and an invoice
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The bill of landing
Is the most important document to the shipper, the carrier, and the buyer. It acknowledges receipt of the goods, represents the basic contract between the shipper and the carrier, and serves as evidence of title to the goods for collection by the purchaser.
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Bills of landing may be...
- negotiable instruments in that they may be endorsed to other parties (order bill)
- or may be non-negotiable (straight).
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Other documents required for international shipments:
- the packing list
- a shipper’s declaration for dangerous goods
- a consular invoice or pro forma invoice
- a certificate of origin.
The bottom line is that the exporter has to provide the importer with the data needed to obtain the required licenses from governmental authorities. Also, governments now expect detailed information about cargo well in advance of its arrival in port.
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Assistance with international shipments
- Several intermediaries provide services in the physical movement of goods.
- International freight forwarder
- Customs broker
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International freight forwarder
Acts as an agent for the marketer in moving cargo to an overseas destination.
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What are some things that the forwarder does?
- Advises the marketer on shipping documentation and packing costs
- Will prepare and review the documents to ensure that they are in order.
- Will book the space aboard a carrier.
- Will make necessary arrangements to clear outbound goods with customs and, after clearance, forward the documents either to the customer or to the paying bank
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Customs broker
Serves as an agent for an importer with authority to clear inbound goods through customs and ship them on to their destination
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International storage issues
The international marketer must consider the trade-offs between service and cost to determine the appropriate levels of warehousing.
- Storage facilities
- Outsourcing
- Foreign trade zones
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International storage issues: Storage facilities
- The availability of facilities abroad will differ from the domestic situation.
- Also, the standards and quality of facilities abroad may often not be comparable to those offered at home.
- Once the decision is made to utilize storage facilities abroad, the warehouse conditions must be carefully analyzed.
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ABC analysis
- Classifies products that are most sensitive to delivery time as "A" products, "B" products, and "C" products
- Enables the international marketer to substantially reduce total international warehousing requirements and still maintain acceptable service levels
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"A" products
would be stocked in all distribution centers, and safety stock levels would be kept high
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"B" products
- Products for which immediate delivery is not urgent.
- Stored only at selected distribution centers around the world.
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"C" products
short delivery time is not important as there is little demand for them. They are stocked only at headquarters.
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Outsourcing
Refers to the shifting of traditional corporate activities to parties outside of the firm and often outside of the country
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Decisive factors for choosing to outsource:
- The desire to reduce and control operating costs
- To improve company focus
- To gain access to world-class capabilities
- To free internal resources for other purposes
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Onshoring
Firms bring their operations back home
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Foreign trade zones
- Trade zones are considered, for purposes of tariff treatment, to be outside the customs territory of the country within which they are located.
- They are special areas and can be used for warehousing, packaging, inspection, labeling, exhibition, assembly, fabrication, or transshipment of imports without burdening the firm with duties.
- Trade zones can be found at major ports of entry and also at inland locations near major production facilities.
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Foreign trade zones are designed to...
exclude the impact of duties from the location decision.
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Special economic zones
There are no tariffs, substantial tax incentives, and low prices for land and labor
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What is packaging instrumental for?
Packaging is instrumental in getting the merchandise to the ultimate destination in a safe, maintainable, and presentable condition.
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International packaging issues
- Packaging that is adequate for domestic shipping may be inadequate for international transportation because the shipment will be subject to the motions of the vessel on which it is carried.
- Packaging decisions must take into account differences in environmental conditions.
- The weight of packaging must be considered, particularly when airfreight is used, because the cost of shipping is often based on weight. The heavier the packaging the higher the duties will be.
- Packaging material must be sufficiently strong to permit stacking in international transportation.
- The shipper must pay sufficient attention to instructions provided by the customer for packaging.
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One solution to packaging issues in international logistics has been...
Intermodal containers
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Intermodal containers
Large metal boxes that fit on trucks, ships, railroad cars, and airplanes and ease the frequent transfer of goods in international shipments.
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Container traffic is heavily dependent on...
the existence of appropriate handling facilities, both domestically and internationally.
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Management of international logistics
- Centralized logistics management
- Decentralized logistics management
- Contract Logistics
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Centralized logistics management
If headquarters exerts control, it must also take the primary responsibility for its decisions. To avoid internal problems, both headquarters staff and local logistics management should report to one person. This person can then become the final arbiter to decide the firm’s priorities. Of course, this individual should also be in charge of determining appropriate rewards for managers, both at headquarters and abroad, so that corporate decisions that alter a manager’s performance level will not affect the manager’s appraisal and evaluation. Further, this individual can contribute an objective view when inevitable conflicts arise in international logistics coordination.
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Decentralized logistics management
If a firm serves many international markets that are diverse in nature, total centralization would leave the firm unresponsive to local adaptation needs. If each subsidiary is made a profit center in itself, each one carries the full responsibility for its performance, which can lead to greater local management satisfaction and to better adaptation to local market conditions. Yet often such decentralization deprives the logistics function of the benefits of coordination.
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Contract Logistics
A growing preference among international firms is to outsource, often referred to as contract or third-party logistics (3PL).
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3PL providers are experts at...
logistics, with the knowledge and means to perform efficient and innovative services for those companies in need. The goal is improved service at equal or lower cost.
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Logistics providers' services vary in scope
Some may use their own assets in physical transportation, while others subcontract out portions of the job.
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One of the greatest benefits of contracting out the logistics function in a foreign market is...
the ability to take advantage of an existing network complete with resources and experience.
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Security measures instigated by governments will affect the ability of firms to efficiently plan their international shipments
- There is now more uncertainty and less control over the timing of arrivals and departures.
- There is also a much greater need for internal control and supervision of shipments.
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Reverse logistics
- Require quality information and processes and the ability to track both at all times
- is also a complex customer service, inventory control, information management, cost accounting, and disposal process
- Is highly specialized
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Environmental and recycling concerns
- On the transportation side, logistics managers will need to expand their involvement in carrier and routing selection. Shippers of oil or other potentially hazardous materials are increasingly expected to ensure that the carriers used have excellent safety records and use only double hulled ships.
- In the packaging field, it is expected that the amount of packaging materials used is minimized and that the materials used are more environmentally friendly.
- Companies need to learn how to simultaneously achieve environmental and economic goals.
