Chapter 11
Managing International Distribution Operations and Logistics
LEARNING OBJECTIVES
After studying this chapter students should be able to:
• Describe the functions of home-country and host-country intermediaries involved
CHAPTER SPOTLIGHTS
• Issues Related to International Distribution: A company must choose between
using existing, established, channels, or building its own when entering a new
international market.
• Intermediaries Involved in International Distribution: The two major categories of
CHAPTER OVERVIEW
The functions of home-country and host-country intermediaries involved in international
distribution are discussed, along with examples of the different types of international
CHAPTER OUTLINE
11-1 Issues Related to International Distribution:
An important distribution decision for the company is whether to use established
channels or to build its own channels.
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11-1a Using Established Channels:
Entering a new market using established channels may be a difficult undertaking
11-1b Building Own Channels:
11-2 Intermediaries Involved in International Distribution:
11-2a Home-Country Intermediaries:
Located in the company’s home country, these intermediaries provide all the
marketing services for firms that do not wish to enter the foreign market or are not
capable of doing so. Examples of home-country intermediaries follow.
1) Export Management Companies: Highly specialized in certain industries, they
typically represent smaller companies in a region of the country. They
typically work as a company’s export department.
2) Trading Companies: Large companies that specialize in providing
exports.
3) Home-Country Brokers and Agents: Intermediaries that bring international
buyers and sellers together in the company’s home country, and do not carry
title to the product. If they represent a manufacturer, they are known as
manufacturer’s export agents. If they are buyers located in the firm’s home
country and represent different international firms, they are known as buying
offices.
4) Cooperative Export Arrangements: Also known and piggybacking and
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6) Tax Incentive-Based Structures for Internationalization: For years, setting up
a Foreign Sales Corporation (FSC) has been a popular approach to allowing a
7) Export Merchants: Intermediaries who take title to and possession of the
products they carry, while having the responsibility for shipping and
11-2b Foreign-Country Intermediaries:
Intermediaries located in a foreign country, distributing the product to the
respective market.
1) Merchant Middlemen: Carry the manufacturer’s product line in a particular
11-2c Alternative International Distribution Structures:
One such structure is network marketing – a mode of distributing goods using
acquaintance networks. It serves both a distribution function and a retailing
function.
11-3 International Logistics
11-3a International Transportation:
The choice of transportation determines whether products arrive at the
11-3b Logistics Facilitators:
11-3c Warehousing and Inventory Control:
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11-4 Challenges to International Distribution and Logistics
11-4a Challenges to Distribution in Developing Countries:
11-4b Parallel Imports:
Involve an unauthorized distribution system (also known as a gray market)
whereby products purchased in a low-price market are diverted to other markets.
Brokers and Agents: Intermediaries who bring international buyers and sellers together;
they do not carry title to the product.
Building Channels: Creating new distribution channels, especially necessary in
countries where there are no channels at all, or where there are no channels that conform
to the needs of the company.
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Cooperative Export Arrangements: Agreements that involve the use of a distribution
system of exporters with established systems of selling abroad who agree to handle the
export function of a noncompeting (but not necessarily unrelated) company on a
contractual basis; also called mother henning or piggybacking.
Established Channels: Distribution channels that already exist in a particular market
Import Jobber: A merchant middleman who purchases commodity goods from the
manufacturer to sell to the trade (wholesaler, retailer, business-to-business client) in the
target market.
Keiretsu: A Japanese trading firm that consists of families of firms with interlocking
stakes in one another.
Logistics Alliances: Distribution alliances between two firms involving product
transportation and warehousing.
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Network Marketing: Using acquaintance networks through an alternative distribution
structure for the purpose of distribution; also called multilevel marketing.
Norazi Agent: An export agent dealing in illegal and/or gray market products.
Parallel Imports: A distribution system not authorized by the manufacturer whereby the
products purchased in a low-price market are diverted to other markets; also called gray
market.
DISCUSSION QUESTIONS
1) Companies either can build new channels or use existing channels in new markets
they plan to serve. What are the determinants of this choice? Explain.
When a firm enters an international market, it must decide on what distribution
channels to use. Using established channels is much less expensive; however, established
2) Who are the different distributors available in your home country? Who can
distribute your products abroad?
Home-country intermediaries include such intermediaries as export management
companies, which specialize in the export function for client companies in a particular
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3) Who are the different distributors in your target market (host country)? Who
can manage a company’s distribution in the host country?
Merchant middlemen are one example of host country distributors. They are
4) How does the U.S. government help companies in the process of distributing their
goods internationally?
The United States Department of Commerce is the government agency that helps
firms in international distribution and logistics through several affiliated agencies. One of
5) What types of distribution and logistics challenges do firms face in the process of
going international?
The two challenges that are most often reported by international firms are
distribution in low-income countries and parallel imports. Distribution in low-income
REVIEW QUESTIONS
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True/False
1. True
Multiple Choice
1. D
CASE 11-1
Kraft’s Distribution Challenges in China
1. What types of products – in Kraft’s product mix – can the company
transport by truck? What are the advantages and disadvantages of truck
transportation for Kraft’s China operations?
Kraft can transport all of its products by truck. However, it should focus on
transporting lighter and more expensive goods. Lighter goods will not overload a truck as
easily, so fewer trucks will be succumbing to Chinese regulation regarding weight limits.
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2. What types of products – in Kraft’s product mix – can the company
transport by rail? What are the advantages and disadvantages of rail
transportation for Kraft’s China operations?
Kraft can also transport all of its goods by rail. However, it should focus primarily on
transporting its heavier and cheaper goods by rail. These goods can overload trucks and
will cause them to be delayed. Product weight is generally not nearly as important a
Case 11-2
Shipping Doo Kingue
1. Weigh the advantages and disadvantages of using Animal Port Houston and
FedEx Express to transport Doo Kingue to Washington, DC.
Both companies provide quick reliable service for transporting animals. Animal
Port Houston has extensive expertise in the relocation of pets and animals, offering
services that include housing, transporting, and preparing relevant health certificates and
2. Arrange for intermodal transportation for Doo Kingue from Ruhengeri,
Rwanda, to Kigali, the capital city of Rwanda, and to the United States. Note that
none of these companies, nor any U.S. airlines, fly to Rwanda. Attempt a few routes
by looking at airlines’ websites, at the Animal Port Houston site and the FedEx site
to find out what markets they serve. Find out how animals can be transported
downtown to the National Zoo from Dulles Airport, outside of Washington, D.C.
One option would be to have him taken by truck from Ruhengeri, Rwanda to Kigali.
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