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Chapter 18
INTERNATIONAL CHANNEL PERSPECTIVES
Teaching Notes
This chapter deals with channel management and the selection of channels from an
international perspective. The chapter discussions are limited to highlighting some of the
Chapter Objectives
In today’s world of global markets and global competition, more U.S. firms will need to
consider prospects in international marketing.
An understanding of how to avoid channel conflicts, how power operates, and how to
promote effective channel communications processes is crucial for successful overseas
distribution.
For a manufacturer, the challenge of motivating foreign distributors to do an effective job
of selling its products in foreign environments is even more difficult because of the
greater separation between manufacturer and foreign channel members. Exercising
leadership should be based upon an understanding of the customs and traditions under
which foreign channel members operate.
Learning Objectives
1) Recognize the need to consider marketing channels from an international
perspective.
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7) Be aware of the major facets in motivating channel members from an
international viewpoint.
8) Realize that exercising leadership in international marketing channels is often
more difficult than with domestic channel members.
Chapter Topics
1) Environment of International Channel Management
Chapter Outline
Environment of International Channel Management
In Chapter 3 we described the environment as consisting of all external uncontrollable
factors within which the marketing channel exists. The channel was viewed as an open
system that interacts with and adapts to its environment by changing the structure and
A) Economic Factors and International Channels
All of the economic conditions occurring in the domestic environment can occur in
foreign environments as well. These include high inflation, recessions, and fluctuations
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B) Competitive Environment and International Channels
Competitive structure in foreign countries can be quite different from that in the United
States. The free market system of the U.S. is less evident in other highly developed
C) Sociocultural Environment and International Channels
Differences in sociocultural factors across different countries are an important fact of life
in international marketing. Cultural values, norms of behavior, attitudes, and perceptions
D) Technological Environment and International Channels
The level of technology and the rate of technological change in foreign environments can
E) Legal/Political Environment and International Channels
A U.S. firm can face a wide array of complex and burdensome government regulations,
policies, and political pressures that can make securing of distribution very difficult and
complicated.
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Behavioral Processes in International Channels
The behavioral side can be even more important in foreign channels than in domestic
Designing International Channels
The design of distribution channels in terms of the seven-phase channel design paradigm
applies to the international scene as well.
▪ The first phase, recognizing that a channel design decision must be made, can be
viewed from both a national or international perspective.
▪ Setting and coordinating distribution objectives, applies to both national and
Figure 18.1 portrays the alternative approaches for foreign market entry.
A) Indirect Exporting
Key Term and Definition
▪ Indirect exporting: This term means that a firm sells products in foreign markets but
does not have any special division within its organization or make any significant
effort at international marketing.
Four common approaches for indirect exporting are discussed briefly.
1) Casual Exporting
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2) Trading Companies
Foreign trading companies are typically large, powerful international organizations for
3) Trade Intermediaries
These firms, sometimes referred to as export management companies are essentially
domestically based wholesalers or manufacturers’ representatives who specialize in
4) Cooperative or Piggybacking Arrangements
Key Term and Definition
▪ Piggybacking: Describes a special type of cooperative arrangement between two
B) Direct Exporting
Key Term and Definition
▪ Direct exporting: Means that the manufacturer itself gets directly involved in
exporting rather than delegating all of the tasks to others.
Such tasks as making market contacts, performing market research, handling physical
distribution, preparing export documentation, pricing and others are undertaken by the
manufacturer’s own export department.
Table 18.2 outlines elements in the export marketing mix.
1) Foreign Distributors
Foreign distributors are independently owned businesses that usually take title to the
2) Foreign Agents
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3) Overseas Marketing Subsidiary
When the manufacturer establishes its own foreign sales branch overseas and it can
C) Choosing the Appropriate Structure
In deciding which alternative is best for distribution in foreign markets, the firm must
evaluate all of the relevant variables (Phase 5) and then use some procedure to make the
actual choice (Phase 6).
Motivating International Channel Members
We defined motivation as the actions taken by the manufacturer to foster strong channel
member cooperation in implementing the manufacturer’s distribution objectives. There
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A) Finding Out Needs and Problems of Foreign Channel Members
Depending upon the country, the needs and problems of foreign channel members can be
significantly different from those of domestic channel members the manufacturer is
accustomed to dealing with.
▪ One of the most common differences is in the size of foreign channel members.
Many foreign wholesalers and retailers are quite small by U.S. standards.
B) Supporting Foreign Channel Members
Close relationships at the distribution programming level with foreign channel members
are less common than in the United States. Much more common is the cooperative
approach, with some relationships at the partnership (or strategic alliance) stage.
Although, the specific support program provided by the manufacturer to foreign channel
members should be based on a careful analysis of the foreign distributors’ or dealers’
needs and problems, leading authorities stress the following factors as crucial in many
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C) Leading Foreign Marketing Channels
Leadership in the sense of providing direction and gaining at least some degree of control
over channel members is much more difficult to exercise in the international arena than in
the domestic one.
Foreign distributors and dealers are operating in their country based on their business
traditions, customs, cultural norms, and legal systems. Thus, exercising control over the
actions of foreign channel members can be fraught with difficulties.
Answers to Review Questions
1. Among the most important factors that have increased the pressure on U.S. firms to
develop international markets are: slower growth in domestic markets, excess
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3. Rather than knowing all the answers, they can be expected to know the questions. No
individual can be expected to have a detailed knowledge of all the foreign
4. This question is best handled as an outside research assignment for which students
will need several days advance notice. While each student can pick his/her own
country and variables, it also is possible to focus the students’ efforts on this question.
5. The typical American view that business and social relationships do not mix well in
channel relationships may be much less widely accepted in foreign cultures. Indeed,
6. The speed with which U.S. firms want to “get to the point” is greater than for most
other countries in the world. In Asia, Western Europe, Latin America, and even the
7. Phase 1, recognizing that a channel design decision is being faced is the same in
domestic or foreign environments. Phase 2, setting and coordinating distribution
objectives, and Phase 3, the specification of distribution tasks, are also the same.
Phase 4, the development of alternative channel structures, however, is different
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8. In indirect exporting, a firm’s products are sold in foreign markets, but it does not
have any special division in its organizations or make any serious effort at
9. The needs and problems of foreign channel members can be considerably different
from those of domestic channel members. Hence, the U.S. firm operating in foreign
markets needs to be especially careful in assessing the needs and problems of foreign
channel members and avoid the temptation to simply project domestic views into a
10. Foreign distributors and dealers are independent businesses just as are U.S.
distributors and dealers. But foreign distributors and dealers are operating in their
Commentaries on Issues for Discussion
1. Differences in sociocultural factors across different countries are an important facet of
life in international marketing. Hence, the firm has to be especially careful to pay
attention to sociocultural differences in the development of international channel
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efficiency and results orientation were not characteristic of the Russian culture, which
was just emerging from decades of Soviet Communism, an environment that had
stifled initiative and did not reward efficiency. This was also the experience of
2. For American exporters today, China is the new frontier. With the second largest
economy in the world, China represents enormous potential for companies wanting to
expand it sales via foreign sales. The vast majority of American companies exporting
to China have found that having trusted and competent channel partners in China can
3. A debate has gone on for years about whether Japanese markets are largely closed to
U.S. manufacturers or whether it is the U.S. firms’ own lack of serious commitment,
low investment, and short-term outlook that accounts for low penetration levels of
U.S. products in Japan.
International Channel Perspectives
4. Coca-Cola Co. could stumble so badly in establishing a strong distribution channel
for Coke® in India by not fully understanding the environment of international
channel management. The importation of raw material showed a misunderstanding of
economic, legal and political factors of the market. The outdated bottling plants are
5. The president of the American brewery is expressing the typical trepidation of U.S.
firms when it comes to entering international markets: The company feels
comfortable in the United States – it feels it knows its customers and is familiar and
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6. If students imagine tariffs to be the main legal issue in international business, this
situation should point out the far greater complexity of the legal environment. Local
laws in foreign countries can inhibit U.S. firms on myriad fronts from business