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CHAPTER 15
GLOBAL DISTRIBUTION AND LOGISTICS
Chapter Outline
A. Channel Structure
B. Channel Design
1. Customers
2. Culture
3. Competition
C. Channel Management
1. Selection of Intermediaries
2. The Distributor Agreement
E. E-Commerce
F. International Logistics
1. Supply Chain Management
2. The Impact of International Logistics
3. The New Dimensions of International Logistics
G. International Transportation Issues
1. Transportation Infrastructure
H. The International Shipment
1. Documentation
2. Assistance with International Shipments
I. International Inventory Issues
1. Order Cycle Time
J. International Storage Issues
1. Storage Facilities
2. Outsourcing
3. Foreign Trade Zones
K. International Packaging Issues
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3. Contract Logistics
M. Logistics and Security
N. Recycling and Reverse Logistics
Chapter Objectives
The chapter first discusses the decisions involved in the structuring and management of the
channel of distribution, including an evaluation of a distribution challenge presented by
Suggestions for Teaching
Depending on the degree of channels exposure students have had (for example, is a channels
of distribution class required of marketing majors), the attention to the basics of channel
structure can vary. The best introduction to the session is to go over a number of firm’s
distribution structures along the lines of those in Exhibit 13.1. Asking students to construct a
particular company’s international channel of distribution is an excellent presentation/paper
Chapter Summary
Producers often rely on intermediaries to facilitate the location of companies interested in
distributing products.
A. Channel Structure
A generalization of channel configurations for consumer and industrial products as well as
services is provided in Exhibit 15.1. Channels can vary from direct, producer-to-consumer
types to elaborate, multilevel channels employing many types of intermediaries, each
serving a particular purpose.
The channel system in which businesses have traditionally operated has enlarged and
become more complex, with more customers, more stakeholders, and more competition
The connections made by marketing institutions are not solely for the physical movement
of goods. They also serve as transactional title flows and informational communications
flows. Rather than being unidirectional, downward from the producer, the flows are usually
multidirectional, both vertical and horizontal.
B. Channel Design
The term channel design refers to the length and width of the channel employed. Channel
design is determined by factors that can be summarized as the 11 Cs: customer, culture,
competition, company, character, capital, cost, coverage, control, continuity, and
communication.
1. Customers
The demographic and psychographic characteristics of targeted customers will form
2. Culture
3. Competition
Channels used by competitors may make up the only distribution system that is
4. Company Objectives
Sometimes, management goals may conflict with the best possible channel design.
5. Character
The type or character of the good will have an impact on the design of the channel. A
company may use a dual channel in which both intermediaries and a direct contact
6. Capital
The term capital is used to describe the financial requirements in setting up a channel
7. Cost
8. Coverage
The term coverage is used to describe both the number of areas in which the
9. Control
The use of intermediaries will lead to loss of some control over the marketing of the
10. Continuity
Nurturing continuity rests heavily on the marketer because foreign distributors may
have a more short-term view of the relationship.
11. Communication
Proper communication performs important roles for the international marketer. It
C. Channel Management
A channel relationship 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
As an exporter’s operations expand, the need for coordination across markets may grow.
Therefore, the exporter may want to establish distributor advisory councils to help in
reactive measures or proactive measures. Exhibit 15.3 shows a framework for managing
channel relationships.
1. Selection of Intermediaries
Once the basic design of the channel has been determined, the international marketer
must begin a search to fill the defined roles with the best available candidates, and
must secure their cooperation.
Types of Intermediaries
product version. 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.
• Governmental Agencies: The U.S. Department of Commerce has various services
that can assist firms in identifying suitable representatives abroad.
2. The Distributor Agreement
When the international marketer has found a suitable intermediary, a sales agreement
is drawn up. Contract duration is important, especially when an agreement is signed
with a new distributor. In general, distribution agreements should be for a specified,
relatively short period. Geographic boundaries for the distributor should be
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3. Gray Markets
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. Gray-marketed products vary from
inexpensive consumer goods to expensive capital goods.
Various conditions allow unauthorized resellers to exist (Exhibit 15.5). The most
important are:
Opponents and supporters of the practice disagree on whether the central issue is price
or trade rights. Detractors typically cite the following arguments:
• The gray market unduly hurts the legitimate owners of trademarks.
The bottom line is that gray-market goods can:
• Severely undercut local marketing plans
4. Termination of the Channel Relationship
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The most typical reasons for the termination of a channel relationship are:
• Changes in the international marketer’s distribution approach
• A (perceived) lack of performance by the intermediary
On occasion, termination may result from either party not honoring agreements.
Channel relationships go through a life cycle. The concept of an international
In some cases, intermediaries may not be interested in growing the business beyond a
certain point or as aggressively as the principal may expect. 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.
D. E-Commerce
E-commerce, the ability to offer goods and services over the web, continues to experience
rapid growth around the globe as Internet penetration has increased. Global Internet
penetration grew at a rate of 40.9 percent from 2000 to 2011 with further penetration
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Many companies entering e-commerce choose to use marketplace sites which bring
together buyers, sellers, distributors, and transaction payment processors in one single
marketplace, making convenience the key attraction. 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
in regard to local regulations and taxation implications. Although some countries require
businesses to have a permanent establishment or taxable entity established before they will
hold the company responsible for taxes, there are often exceptions and requirements for
payments from customers to be withheld from taxes.
Privacy issues have grown exponentially as a result of e-business as businesses collect and
E. International Logistics
International logistics is the design and management of a system that controls the flow of
materials into, through, and out of the international corporation. It encompasses the total
movement concept by covering the entire range of operations concerned with goods
movement, including both exports and imports. A systems approach ensures that the firm
reflects the linkages among the traditionally separate logistics components within and
outside of the corporation. 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. Successful implementation of these systems’
consideration allows the firm to develop:
Two phases in the movement of materials are of major logistical importance:
• First is materials management, or the timely movement of raw materials, parts, and
supplies into and through the firm.
• The second phase is physical distribution, which involves the movement of the
firm’s finished product to its customers.
In both phases, movement includes stationary periods (storage and inventory). 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.
There are three major concepts within logistics:
An outgrowth of the systems concept is the total cost 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. Activity-based costing is a technique designed to more
1. Supply Chain Management
The integration of these three concepts has resulted in the new paradigm of supply
2. The Impact of International Logistics
Logistics costs comprise between 10 and 30 percent of the total landed cost of an
international order. International firms are experiencing ongoing increases in their
logistics cost due to:
• Surging fuel costs
3. The New Dimensions of International Logistics
In domestic operations, logistics decisions are guided by:
• The experience of the manager
• The possible industry comparison
F. International Transportation Issues
1. Transportation Infrastructure
In industrialized nations, firms can count on an established transportation network.
Internationally, however, major infrastructural variations may be encountered.
The international marketer must therefore learn about existing and planned
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2. Availability of Modes
Goods are shipped abroad by rail or truck, but international transportation frequently
requires ocean or airfreight modes, which many corporations only rarely use
domestically. In addition, combinations such as land bridges or sea bridges frequently
permit the transfer of freight among various modes of transportation, resulting in
intermodal movements.
• Ocean Shipping: Water transportation is a key mode for international freight
movements. Three types of vessels operating in ocean shipping can be
distinguished by their service:
o Liner service: This offers regularly scheduled passage on established routes.
• 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. Yet 40 percent of the world’s manufactured exports by value
travel by air.
3. Choice of Transport Modes
The international marketer must make the appropriate selection from the available
modes of transportation. The manager must consider the performance of each mode on
four dimensions: