Marketing Chapter 15 One The Main Arguments Leveled Against Contract

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replenished frequently. As a result, capital can be freed up and used to finance

other corporate opportunities. Transit time can also play a major role in emergency

situations. Rapid transportation prolongs the shelf life in the foreign market.

• Predictability: Providers of both ocean and airfreight service are subject to the

• Cost: A major consideration in choosing international transportation modes is the

cost factor. International transportation services are usually priced on the basis of

• Noneconomic Factors: The transportation sector both benefits and suffers from

heavy government involvement. Carriers may be owned or heavily subsidized by

G. The International Shipment

1. Documentation

In the simplest form of exporting, the only documents needed are:

• A bill of lading

• An export declaration

In most countries, these documents are available either from the government or from

transportation firms.

The bill of lading 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

governmental data-collection efforts.

There are many other documents required, such as:

• The packing list

The bottom line is that the exporter has to provide the importer with the data needed to

obtain the required licenses from governmental authorities.

2. Assistance with International Shipments

Several intermediaries provide services in the physical movement of goods. One very

important distribution decision an exporter makes is the selection of an international

H. International Inventory Issues

Inventories tie up a major portion of corporate funds. As a result, capital used for inventory

is not available for other corporate opportunities. Because annual inventory carrying costs

In deciding the level of inventory to be maintained, the international marketer must

consider three factors: the order cycle time, desired customer service levels, and the use of

inventories as a strategic tool.

1. Order Cycle Time

The total time that passes between the placement of an order and the receipt of the

merchandise is the order cycle time. Two dimensions are of major importance to

inventory management:

In international marketing, the order cycle is frequently longer than in domestic

business. It comprises the time involved in:

• Order transmission: This varies greatly internationally depending on whether

Consistency, the second dimension of order cycle time, is difficult to maintain in

international marketing. Depending on the choice of transportation mode, delivery

times may vary considerably from shipment to shipment. This variation requires the

maintenance of larger safety stocks in order to be able to fill demand in periods when

delays occur.

The international marketer should attempt to reduce order cycle time and increase its

2. Customer Service Levels

The level of customer service denotes the responsiveness that inventory policies

permit for any given situation. Customer service is therefore a management–

determined constraint within the logistics system. The choice of customer service

level for the firm has a major impact on the inventories needed.

3. Inventory as a Strategic Tool

International inventories can be used by the international corporation as a strategic

I. International Storage Issues

1. 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. As a result, the storage decision of the firm is often accompanied by the need

2. Outsourcing

For many global firms, the practice of outsourcing—which refers to the shifting of

traditional corporate activities to parties outside of the firm and often outside of the

3. Foreign Trade Zones

Foreign trade zones can have a major effect on the international logistician because

production-cost advantages may require a reconfiguration of storage, processing, and

distribution strategies. 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

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.

J. International Packaging Issues

Packaging is instrumental in getting the merchandise to the ultimate destination in a safe,

maintainable, and presentable condition. 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. Added stress in international shipping also

arises from the transfer of goods among different modes of transportation. The

responsibility for appropriate packaging rests with the shipper of goods.

K. Management of International Logistics

1. 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

2. Decentralized Logistics Management

If a firm serves many international markets that are diverse in nature, total

3. Contract Logistics

A growing preference among international firms is to outsource, often referred to as

contract or third-party logistics (3PL). The main thrust behind the idea is that

individual firms are experts in their industry and should therefore concentrate only on

loss of the firm’s control in the supply chain.

L. Logistics and Security

Firms worldwide have been exposed to the vicissitudes of terrorism, which often aims to

disrupt the flow of supply and demand in order to damage economic systems. Logistics

systems, the true soft spots of vulnerability for both nations and firms, are often the targets

of attacks.

timing of arrivals and departures.

Security measures for international shipments affect the ability of firms to efficiently plan

their distributions. Increased inspections of containers, new security programs to protect

ports, and other new protective policies are decreasing the efficiency and effectiveness of

international shipping and logistics. Consequently, the costs of value chain and supply

chain activities have increased substantially. There is now more uncertainty and less

control over the timing of arrivals and departures.

transportation. One key security problem for logistics is piracy.

M. Recycling and Reverse Logistics

Environmental laws, social expectations, and self–imposed goals set by firms are difficult

to adhere to without a logistics orientation that systematically takes these concerns into

account. Because laws and regulations differ across the world, the firm’s efforts need to be

responsive to a wide variety of requirements. One logistics orientation that has grown in

importance due to environmental concerns is the development of reverse distribution

systems. Such systems are instrumental in ensuring that the firm not only delivers the

product to the market but also can retrieve it from the market for subsequent use, recycling,

or disposal.

In the packaging field, environmental concerns are also growing on the part of individuals

and governments. Increasingly, it is expected that the amount of packaging materials used

is minimized and that the materials used are more environmentally friendly.

fewer shipments, less handling, and more direct movement.

Key Terms

Intermediaries: Often the de facto marketing arms of the producer or originator

Distribution culture: Existing channel structures of a market

Distributor: An intermediary that purchases the product from the marketer; it exercises more

independence than an agency

Agent: An intermediary for serving a particular market who operates on a commission basis and

does not usually physically handle the goods

Facilitating payments: Small fees paid to expedite paperwork through customs; it is not

considered a violation of Foreign Corrupt Practices Act or OECD guidelines

Supply chain management: A result of the systems concept, total cost concept, and the trade-off

concept; encompasses the planning and management of all activities involved in sourcing and

procurement, conversion, and logistics; includes coordination and collaboration with channel

partners, which can be suppliers, intermediaries, third party service providers, and customers.

Modes of transportation: Choices among air-freight and ocean-freight, pipeline, rail, and

trucking for movement of products and services

Inventory carrying costs: The expense of maintaining inventories; comprise up to 25 percent or

more of the value of the inventories

Questions for Discussion

1. The international marketer and the distributor will have different expectations concerning the

relationship. Why should these expectations be spelled out and clarified in the contract?

Spelling out and clarifying the expectations of both parties in the contract should help avoid

2. Channels of distribution tend to vary according to the level of economic development of a

market. The more developed the economy, the shorter the channels tend to be. Why?

Channels of distribution tend to be shorter in a greater developed the economy because each

channel member is able to cover a larger geographical area for the following reasons:

A. Infrastructure: With a well developed infrastructure, the physical movement of goods is

3. One method of screening candidates is to ask distributors for a sample marketing plan. What

items would you want to be included in the plan?

Items to be included in the marketing plan are analysis of existing channel structures,

The following is a shortened version of a basic marketing plan outline:

A. Situation Analysis

(a) Business environment

(b) Market segments

For an exporter looking at such a plan, however well it is compiled, the key is the resources,

monetary aspect, manpower, and intellectual that are committed for the particular product(s).

At the same time, the exporter has to realize that few intermediaries are in business for one

company, and have to, therefore, balance their commitments.

4. The internet has had a dynamic effect on the supply chain, specifically in terms of speed.

Discuss the benefits of the Internet’s effect on supply chains. Are there any drawbacks?

Explain them.

The web provides a new, efficient method of distribution and customization of products.

However, the web can also be a channel for intellectual property violation through

5. As a consumer, what logistics attribute is most important to you: speed, predictability, cost,

or quality? Discuss which are relatively more important to you and why?

Answers will vary.

Pointers:

Speed: The length of transit time has a major impact on the overall operations of the firm.

6. Track the live number of pirate attacks at http://www.icc-ccs.org/piracy-reporting–

centre/live-piracy-map. Should governments intervene? Why or why not?

Internet Exercises

1. Using the website of the U.S. Commercial Service (http://trade.gov/cs), assess the types of

help available to an exporter in establishing distribution channels and finding partners in this

endeavor.

logistical obstacles and management issues addressed in this chapter and the implications

these government regulations have on them.

The students can read through the pages 9 to 33 of the following link and then consider the

various logistical obstacles and management issues addressed in this chapter and the