Factors of channel structure

8/10/2019 Factors of channel structure

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Hazel Berrard Amuah

The factors that influence choice of channel structures and strategies available to globalmarketers and their impact on organisational growth

DBA student

May 2013


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Abstract

Channel management is a critical area that global marketers cannot afford to ignore to

remain competitive and viable. It is a complicated and complex aspect of business and can lead

to the collapse of any business when not properly managed. Channel management is a critical

aspect that has a huge impact of the final cost of making a product available to the consumer

through pricing. For international markets, pricing is one of the most important elements of

marketing product mix as it generates cash and determines a companys survival (Yaprak, 2001).


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Table of contents Page

Introduction/History 4

Presentation and discussion of facts 4

Factors that influence the channel structures and strategies available

to global marketers 6

Marketing channels

Distribution channel management 7

Importance of Wholesalers 9

The terminology issue with wholesaling 10

Wholesalers and their role in global marketing channels 12

Functional performance and global scope 16

Flows in distribution channels 19

The disintermediation philosophy 29

Conclusions 31

Areas for further research 32

References 33


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Introduction/History

Amuah (2013) proffers that globalization is a term in heavy current usage but one whose

meaning remains obscure. Over the past few decades companies moved from purely domestic

operations to exporting and then to overseas manufacturing and marketing and consequently,

they had to transform their pricing and channel structures. Those structures originally set up to

function in asingle-market setting, had to be adapted to the muchgreater heterogeneity of the

international environment (Cavusgil, 1990, Amuah 2013).

Presentation of facts

There are many channel management objectives that lead to different strategies and

businesses have to develop and apply the best strategy in various situations. Common objectives

include survival, current profit maximization, market share leadership, and product quality

leadership and product availability at the right time and right place to the consumer.

Decisions with regards to product, price, and distribution for international markets are

unique to each country (Jain, 1989) and differ from those in the domestic market (Diller and

Bukhari, 1994). Deciding on which channel structures to put in place for both domestic and

international markets is not an easy task. The environment in which multinational

organisations operate today is replete with complexities, including an increasing number of

global players, competition, rapid technological change, and high-speed communication among

markets (Cavusgil, 1990). There are a number of key considerations that executives of


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internationally oriented firms need to take into account when developing marketing strategies

that will catapult them to leadership positions and make them always win with consumers

globally. These critical issues have posed huge challenges to organisations and no simple and

precise solutions have been found. Some of these challenges are the following

The best approach for availing the product to consumers domestically or worldwide

The variables to be considered in choosing appropriate distribution channels to reach foreign

customers

The level of importance that should be attached to each variable

Where in the global company channel structures decisions should be made

The role channel structures play in a company's international competitive strategy - active or

passive role

Channel structures decisions cannot be made in isolation because they interact with and

affect all other marketing policy variables. Channel structures play a critical role in the success

or failure of any product as it has a huge impact on all the key stakeholders being the

organisation, the customers, the consumers, the employees, the shareholders and the society as a

whole. Channel structures becomes, in part, trial and error and partly hard calculations by

management. Yet, managers have developed a set of decision rules and successful approaches to

channel structures for international customers and subsidiaries.


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Marketing Channels

Marketing channels that provide the institutional structure that connects firms to the

markets they serve have not escaped this global environment. In todays world, marketing

channel structure and strategy must be formulated in the context of globalization (Rosenbloom

2010). On the contrary, in todays world, marketing channel structure and strategy must be

formulated in the context of globalization (Rosenbloom and Larsen 2008). Thus, managers

responsible for developing and managing the distribution channels that make products and

services available to literally billions of customers around the world face a more complex

challenge than the previous generation of channel managers. Not only do todays channel

managers need to think globally, but they must also act locally in terms of providing the

appropriate array of channels desired by heterogeneous markets all over the world (Rosenbloom

2004).

While discussing the pricing strategy that a company must adopt to ensure the highest

level of profitability and the factors to be considered in the pricing decision, another critical area

that marketing managers need pay attention to is the channel structures available and which

strategies marketing managers can opt for and implement.

The importance of marketing channels

A marketing channel usually consists of individuals and firms involved in the process of

making a product or service available for use or consumption by consumers or industrial users.


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Marketing channels exist to bridge the gap between the producers and the consumers

(individuals and firms) and bring the right products to the right consumers at the right price to

the right place. This often requires the use of intermediaries who add value by enhancing

efficiency via reducing the number of sales contacts necessary to reach the target market. These

intermediaries have several functions which all need to be performed to add value to the

business. These functions are: transactional, logistical and facilitating functions. The key

objective for any organization is that products should be available when the consumers want it

(time), where consumers want it (place), presented in an attractive way (product enhancement)

and intermediaries must help buyers take possession of the products they desire.

Distribution channel management

Distribution channel management is the priority of the marketer of a profitable operation of

physical distribution along with sustainable relationship management with channel partners is the

need of the hour (Mandai and Roy, 2012). This can be either direct channel: when a producer

and ultimate consumer deal directly with each other or indirect channel: when intermediaries are

inserted between the producer and consumers and perform numerous channel functions.

Distribution management is one of the priorities in this era of competition. Efficient

channel management is becoming a compulsion among the marketer for the right placement of

product and service to customers (Mandai et al 2012). Distribution of products constitutes an

important element of marketing mix of any firm. After development of the product, the

organization has to decide channels or routes through which the product will flow from the


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factory to the potential customers (Rosenbloom and Andras, 2008). It has a number of

alternatives available to it. The organization may choose to distribute the product directly to

customers without using any intermediaries. Alternatively, it may use one or more middlemen

including wholesalers, selling agents, and retailers. Big firms have their zonal or regional

authorized agents or dealers spread over the entire country. The dealers, in turn, work with

distributors and retailers. On the other hand, small firms cannot afford to have zonal offices, but

are devising their own ways of doing business. They also receive regular orders for goods. Entry

may be difficult for the small firms. It has been observed that many authorized dealers of known

brands also stock other unknown or new brands of goods. They also insist on the customer

buying the lesser-known brand because of higher margin of profit. The small organization, with

fewer overheads and low labour costs along with better planning and management, may be able

to earn good profits (Rosenbloom et al, 2008).

A channel of distribution or trade channel is the path or route along which goods move

from producers to ultimate consumers. It is a distribution network through which a producer puts

his products in the hands of actual users. A trade or marketing channel consists of the producer,

consumers or users and the various middlemen who intervene between the two. The channel

serves as a connecting link between the producer and consumers. According to Rosenbloom et al

(2008), by bridging the gap between the point of production and the point of consumption, a

channel creates time, place and possession utilities. A channel of distribution represents three

types of flows:

a. Goods flow from producer to consumers;

b. Cash flow from consumers to producer as payment for goods; and


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c. Marketing information flows in both directions, from producers to consumers in the form

of information on new products, new uses of existing products, etc. The flow of

information from consumers to producers is the feedback of the wants, suggestions,

complaints, etc.

Every organization requires a channel that can distribute its product to the right customers at

the right time and at the right cost. It consists of all the middlemen which participate in the

distribution of goods and which serve as a link between the manufacturer and the consumer.

Wholesalers who are they and what is their role?

According to Rosenbloom et al (2008) wholesalers as an institutional type have for

thousands of years been involved in what today is referred to as global marketing (Rosenbloom

et al, 2008). Wholesalers of many types have performed numerous activities or functions that

have always been necessary for connecting distant buyers and sellers so that transactions can be

consummated across international boundaries. In fact, by performing many distribution tasks or

functions, wholesaling intermediaries of all types create the channel flows that link buyers and

sellers together on a global scale (Rosenbloom et al, 2008).These flows, of which there are eight

(product, ownership, promotion, negotiation, financing, risking, ordering, and payment), do not

automatically appear out of thin air. Rather, the eight flows are created and sustained by many

types of organizations that perform all of the myriad distribution tasks needed to connect sellers

and buyers. Wholesale distributive institutions of all kinds from the traditional so-called full-


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function merchant wholesaler to the more narrowly focused wholesaling intermediaries such as

freight forwarders and export desk jobbers, all make a contribution by creating and sustaining

channel flows (Rosenbloom et al, 2008).In recent years, as these flows increasingly extend to an

international or global level, wholesaling intermediaries will likely play an even larger role in

global marketing.

Wholesalers have existed for thousands of years. References were made to wholesalers

in the Far East as long as 5,000 years ago (Beckman, Engle, & Buzzell, 1959). A wholesaler

being thought of as an "international marketer" or "global marketer" is, to say the least, not a

widely held perception of the wholesaler. Far more common is the wholesaler being viewed as a

domestic "middleman" that serves little purpose in modern distribution channels and is therefore

rapidly disappearing from the channel structure (Mills & Camek, 2004). There really is an

important global dimension to wholesaling institutions in modern channels of distribution.

Wholesalers as intermediaries standing between the producers of goods and services and other

resellers as well as organizational buyers have a continuing role to play in enhancing the

effectiveness and efficiency of international channels of distribution (Rosenbloom et al, 2008).

The terminology issue with wholesaling

Wholesaling, which in the broadest sense consists of all sales flowing through

distribution channels with the exception of sales to final consumers for personal consumption,

has always been plagued by confusing terminology (Rosenbloom et al, 2008). Differences in

terminology used to describe institutions primarily engaged in wholesaling transactions are often


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the result of usage associated with different trades or industries (Rosenbloom et al, 2008).

Wholesalers selling aftermarket automobile products are typically referred to as jobbers, while

wholesalers of magazines are simply called wholesalers. Wholesalers that specialize in importing

and exporting products are not usually described as import wholesalers and export wholesalers

but just importers or exporters or import/export companies. The fact that these firms are in

actuality wholesalers seems to be lost in the shuffle so to speak. The same can also be said for

industrial distributors (Hutt & Speh, 1998; Ames & HIavacek, 1984; Anderson & Narus, 2004).

The fact that they are really wholesalers is not apparent from the term used to label them

(Beckman et al., 1959). Indeed, many institutions in channels of distribution across a wide

variety of industries and trades are in actuality wholesalers in disguise. But this disguise involves

more than historical or trade-related appellations that obscure the underlying institutional type. A

more important dimension associated with many wholesalers may be hidden under this panoply

of different names given to wholesalersthe global dimension of wholesalers (Rosenbloom et

al, 2008).

The global dimension of wholesalers

Global marketing typically refers to marketing activities coordinated and integrated

across international boundaries with targetmarkets and customers based on opportunities rather

than national affiliation (Johansson, 2003; Keegan & Green, 2005). Thus, theglobal marketer

does not operate in terms of a "home" market from which its products are sold to "foreign"

markets. Rather, the global marketer virtually ignores national boundaries as distinct political


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entities in favor of focusing on customers in different countries around the world as sets of

market segments to be targeted. The core determinant of which markets around the globe are

targeted is purelya matter of economic opportunity. The global marketer is essentiallyanational

and apolitical in selecting markets in which to operate.

The marketing channels that connect the global marketer to its customers around the

world are comprised of networks of distributive institutions that perform all of the marketing

functions needed to make products and services available to customers around the world

(Koreliussen & Grohaug, 2003; Mattsson, 2003; Andersson, 2002; Porter, 1985). Wholesalers

that participate in these global marketing channels are part of the global distributive

infrastructure and as such can be viewed as global (Andersson, 2002). Indeed, wholesalers as an

institutional type may be an integral or even an indispensable participant in the emerging global

marketing scene.

Wholesalers and their role in global marketing channels

Over the past several decades a global shift in manufacturing has occurred, moving away

from developed markets and toward developing markets such as China and India. One effect of

this development has been the increasing importance of distribution for global marketers seeking

to satisfy customers located around the globe, a great distance from point of manufacture

(Andersson, 2002; Mattsson, 2003). A variety of different types of institutions exist to fulfill the

distributive functions required by such global marketers (e.g., Albaum, Duerr, & Strandskov,

2005; Cateora & Graham, 2007). According to Rosenbloom et al (2008) the most obvious type


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of global marketing channel participant is the traditional domestic merchant wholesaler that has

established global operations. These channel participants take title, buy and sell on their own

behalf, and usually receive their compensation in the form of trade margins. Next, are traditional

foreign agents and foreign distributors. Of course, agents do not take title to merchandise while

operating on behalf of the global marketer, and they typically receive payment in the form of

commissions. Because distribution systems and the linkages among channel members vary

significantly across nations, an advantage of using local foreign distributors is their local market

knowledge and expertise, as well as their existing business relationships with other local

organizations and governments (Rosenbloom et al, 2008). There are downsides to using local

foreign distributors as well. These include the time, energy, and difficulty involved in finding,

selecting, and managing the relationships with the foreign distributors across a number of

countries, as well as the potential legal complexities of ending a relationship with a foreign

distributor in some legal systems. Consider, for example, the so-called export merchant.

Another example of what is effectively a global wholesaler is the export management

company. These firms facilitate international distribution for international marketers by acting as

the exclusive export department for a firm. These firms are international sales specialists who

typically represent several noncompeting firms, and are especially useful for small and medium-

sized firms engaged in global marketing activities. A similar type of intermediary is the

manufacturer's export agent that performs many of the same functions as an export management

company (Rosenbloom et al, 2008). However, it does not usually provide services such as

financing and advertising, and it retains its own identity, operating in its own name rather than

that of the manufacturer. Additionally, there are a variety of other intermediaries, operating


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under different names, such as, export commission houses, resident buyers, confirming houses,

and export desk jobbers (Albaum et al., 2005).

Export commission houses provide an exporter with a very low-risk method of serving the

international market. Basically, the export commission house represents the buyer, and the buyer

pays the export commission house's commission. The export commission house acts as a

purchasing agent for foreign buyers in the exporter's home country (Rosenbloom et al, 2008).

Thus, the exporter is typically paid promptly and does not have to deal with the international

transportation and physical distribution issues because it is "selling" to another organization

within its home country. Resident buyers are essentially export commission houses. However

they are long-term representatives of the foreign buyer. They provide long-term, continuous

contact for foreign buyers with their international sources of supply. This cuts down on cultural

and language difficulties that may arise. Confirming houses perform a limited set of functions for

an exporter, primarily related to financing. Typically, they confirm placed orders so that the

exporter may receive payment. As such, some feel that they should be classified as financial

institutions rather than marketing organizations (Rosenbloom et al, 2008). However, a

confirming house does perform some marketing-related functions. It may, for example, make

transportation arrangements and be involved in all contact between a buyer and an exporter. So,

this type of institution is useful for small and medium-sized firms in parts of the world where

there is poor communication infrastructure and uncertainty related to receiving payment

(Rosenbloom et al, 2008).

Export desk jobbers are also known as export drop shippers or cable merchants.

These organizations typically buy and sell raw materials, taking title to goods, yet they never


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physically take possession of the product. They are experts in the demand and supply of

specialized product areas, usually raw materials, bridging buyers and sellers in typically quick

transactions and are not conducive to establishing long-term relationships among buyers and

sellers (Rosenbloom et al, 2008).

Facilitating organizations, freight forwarders, are increasingly taking on additional

distribution functions. Although they are known primarily for arranging transportation and

documentation for international sales, they may perform all distribution functions from

placement of an order to delivery. They are increasingly moving into the performance of

distribution functions, including production planning, inventory management, parts assembly,

distribution management, real-time-tracking, inventory management, and the like. For example,

Duncan International provides integrated transportation services, including consultative services,

logistics support, cargo insurance, documentation, and billing services (Rosenbloom et al, 2008).

Yet another type of intermediary that has become very popular over the last decade, but

is not traditionally considered a wholesale intermediary, are the third-party logistics providers.

These organizations now perform many distributive functions for global manufacturers. In fact,

third-party logistics companies are increasingly viewed as viable alternatives to traditional

wholesale distributors and they increasingly are offering services that were once considered to be

the sole purview of wholesale distributors (Fein & Pembroke Consulting, 2004). For example,

many third-party logistics providers now provide "end-to-end" solutions for their customers,

including "product design, sourcing, order management, manufacturing, packaging, distribution,

freight forwarding, customs brokerage, financial settlement, customer service, and aftermarket

services" (ARC Advisory Group, 2005, p. 4).


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Functional Performance and Global Scope

The various types of wholesale intermediaries described above are summarized in

Table 1. The unifying thread running through all of the different wholesaler institutional types

shown in Table 1 is the performance of distribution tasks or functions. In fact, the earliest

analyses by marketing scholars of wholesaling institutions was totally focused on their role as

performers of functions needed to connect producers with consumers (Copeland, 1928; Bartels,

1962). Wholesalers appeared in marketing channels and remained viable participants as long as

they could perform marketing functions more efficiently or effectively than other institutions in

the channel.


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TABLE 1. Common Types of Wholesale Intermediaries

Type of Wholesaler Primary Role/Description in Channel

Traditional Merchant

Wholesaler with Global

Operations

Full service, wholesale distributors who followed

clients to foreign markets and established

global operations

Foreign Agents Operate on behalf of the global marketing, do not take title, and receive a

commission

Foreign Distributors

Buy and sell on their own behalf and take title and ownership risk

Export Merchant Buy and sell on their own account, but typically export as well as import,

thus, with facilities across many national markets

Export Management

Company

Act as an export department for a firm, representing multiple

noncompeting firms

Manufacturer's Export Agent Similar to an export management company, but often offering more

limited functions and operating in its own name rather than that the

manufacturer

Export Commission House Low-risk alternative for exporter, with the export commission house

representing the buyer, and the buyer pays the commission

Resident Buyer Basically, an export commission house with long-term continuous contact

Confirming House Provides limited functions for an exporter, primarily related to financing

Export Desk Jobber Buy and sell, typically raw materials, never taking physical possession

Freight Forwarder Primarily arrange transportation and documentation, and Increasingly

moving into additional distribution channel functions

Third-Party Logistic

Provider

Logistics provider, increasingly providing extensive distribution functions

for global companies

Although the context of the early marketing scholars' discussion of wholesalers was at a

local, regional, or sometimes national level, and was focused almost entirely on traditional


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merchant wholesalers, their depiction of the wholesaler's role in the marketing channel is not

vitiated when the scope of the wholesaler's activity moves beyond national boundaries

(Rosenbloom et al, 2008). Furthermore, the fact that the seminal writings on wholesalers by

pioneering marketing scholars focused mainly on so-called full-function merchant wholesalers

does not disqualify more limited function wholesaling intermediaries from playing an important

role in marketing channels not only at the local, regional, and national levels, but at the

international or global levels as well. Indeed, the traditional analysis of the wholesaler's role that

happened to focus on full-function merchant wholesalers operating within limited geographical

boundaries is really a matter of historical accident rather than a conceptually sound and logical

basis for defining the role of wholesale intermediaries (Rosenbloom et al, 2008).In short, when a

wholesaler ventures beyond national boundaries, does not take title to goods, or performs only a

subset of the functions typically associated with a "full-function" wholesaler, does that

wholesaler cease to be a wholesaler. If so, what kind of distributive institution has it become?

Perhaps it could be called a "global marketing intermediary." Or perhaps, it might be referred to

as a "limited-function global marketing intermediary". But it is much simpler and more logical to

refer to it simply as a wholesaler that just happens to be operating in global markets and may

focus on a more limited set of functions to perform.


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Flows in Distribution Channels

Channels of distribution, whether local or international in scope, consist of a set of

flows that link producers of goods and services to final users. Eight such flows have been

identified (Vaile, Grether, & Cox, 1952):

1. Physical possession (product) flow

2. Ownership flow

3. Promotion flow

4. Negotiation flow

5. Financing flow

6. Risking flow

7. Ordering flow

8. Payment flow

According Rosenbloom et al (2008) all of the distribution tasks or functions performed by

marketing institutions are associated with several or all of these flows. For example, in the case

of a manufacturer of a consumer product attempting to reach consumer markets located all over

the globe, it may be necessary to operate in all eight flows to make its products conveniently

available to distant target markets. That is, the distribution tasks performed to create a physical

product flow between producer and final consumer would likely need to be preceded by the

flows of promotion, negotiation, and ordering, while the flows of ownership, financing, and

risking would likely unfold simultaneously with the product flow. Finally, the payment flow


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between buyers and sellers in the channel, depending on the terms of the trade agreed upon in the

negotiation flow, could precede, occur concurrent with, or follow after the product flow.

Although the concept of flows in distribution channels has existed in the marketing

literature for more than half a century, the link between intermediary marketing institutions and

flows has not been examined (Rosenbloom et al, 2008). What apparently has never been

addressed adequately is how flows in distribution channels come into existence. Do they

suddenly appear out of thin air? Have they always existed? (Rosenbloom et al, 2008).They are

not naturally existing phenomena. The creation of flows in distribution channels is a product of

human effort. More specifically, channel flows result from the actions taken by marketing

institutions, especially intermediary marketing institutions including wholesaling intermediaries

(Rosenbloom et al, 2008). Thus, the marketing functions or distribution tasks performed by

intermediary distributive institutions and other marketing institutions do not follow from

distribution channel flows. Rather, it is the work performed by marketing institutions in the form

of distributions tasks or functions that creates the flows. Among the most important distributive

institutions performing the tasks that create channel flows are wholesale intermediaries of all

kinds (Rosenbloom et al, 2008). In short, wholesaling intermediaries are integral players in the

creation of channel flows, including flows that extend beyond national borders into markets all

over the globe (Rosenbloom et al, 2008).

Flows and Wholesaling Intermediaries

Table 2 created by Rosenbloom et al, 2008 shows a matrix that links the eight channel


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flows discussedpreviously with the wholesaling intermediaries that were presented inTable 1.

Marketing on a global scale requiresthat buyers and sellers from all over the world be connected

by a series of flows that enable the parties to complete transactions across international

boundaries. As noted, these flows that collectively comprise the marketing channels that link

buyers and sellers must be created or built by various marketing channel participants through the

performance of distribution tasks or functions. Traditional merchant wholesalers, the first

category of wholesaling intermediary shown in Table 2, are often instrumental in building and

participating in all of the eight flows. In considering for example, the physical flow of goods in

the first column of Table 2. Clearly, traditional merchant wholesalers, by actually stocking and

shipping the merchandise they sell, play a major role in creating the physical flow of goods

between sellers and buyers. With regard to the ownership flow in the second column of Table 2,

merchant wholesalers by definition take title to the products they handle and hence when they

resell these products to other parties, the transfer of ownership that occurs establishes an

ownership flow. Turning now to promotion, which in the context of flows in distribution

channels usually refers to persuasive communication as well as special deals and merchandising

campaigns, merchant wholesalers typically are very active in this regard. Through catalogs,

promotional brochures, websites, and especially the field sales forces that many merchant

wholesalers use, promotional messages and deals constantly move through the channel, creating

a promotional flow that reaches most or all of the channel participants. As shown in the fourth

column of Table 2, merchant wholesalers in the course of performing the functions of buying and

selling establish the negotiation flow. In effect, a channel of communication is developed as

wholesalers negotiate prices and terms of sale with other channel participants. Whether such


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negotiations take place face-to-face or at arms' length via electronic means such as over the

Internet and the use of e-mail, wholesalers play an integral role in setting up networks that enable

negotiation to occur efficiently among channel participants from all over the globe.

Historically, merchant wholesalers played a very important role in creating the fifth flow

shown in Table 2, finance, by granting credit to their customers and also providing their

suppliers with indirect financing by allowing them to shift the burden of carrying inventories to

the wholesaler. Merchant wholesalers still perform these functions today. The flow of risk shown

in the sixth column comes into existence as soon as any given channel member agrees to accept

any of the risks inherent in holding an inventory from lost damaged, or stolen goods, as well as

market risks such as deterioration or obsolescence of products (Rosenbloom et al, 2008).

Merchant wholesalers have for centuries accepted this risk in the channel and consequently the

flow of risk in the channel often passes through wholesalers and for a significant number of

unsuccessful products stops there. When conducted on an international scale, the flow of

ordering or order processing (the seventh flow in Table 2), can involve complex challenges to

ensuring that thousands or even millions of products are sorted out correctly to arrive at their

final destinations in a timely fashion (Alderson, 1949).


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#$Source: Rosenbloom, B., & Andras, L. T. (2008). Wholesalers as

Global Marketers. Journal of Marketing Channels,


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Wholesalers always have and continue to help create effective and efficient order

processing flows. Finally, the last flow of payment, though seemingly a simple matter of

transferring funds from one party to the next in distribution channels can actually be quite

complex when operating at a global level involving different currencies as well as different

cultural expectations concerning terms of payment (Rosenbloom & Larsen, 2003; Larsen,

Rosenbloom, & Smith, 2002). For centuries, merchant wholesalers have been dealing with these

problems and continue to do so today.

The second type of global wholesaler presented in Table 2 is the foreign agent. There are

some fundamental differences in the types of activities the foreign agent participates in when

compared with the traditional wholesale distributor. A primary difference is that agents do not

take title to the products they represent. Rather, the foreign agent participates in the promotional

flow, as well as the negotiation, order, and payment flows, yet they do not physically handle the

products, provide financing to customers, or face the risk of loss (Rosenbloom et al, 2008).

The third type of global wholesaler presented in Table 2 is the foreign distributor. On the

surface, the foreign distributor may seem very similar to the traditional merchant wholesaler in

that the foreign distributor may act as a full-service wholesaler for the exporter or manufacturer.

That is, the foreign distributor may participate in all of the eight flows as described above. There

may be differences, however, because of external environmental differences and the existence of

historical relationships among manufacturers, wholesalers, and retailers (Rosenbloom et al,

2008).For example, especially in developing countries, the typical foreign distributor may be a

small family-owned operation without the skills or resources to participate in the promotional

and financing flows. So, in China, for example, wholesalers view their job as simply storing


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products and waiting for customers to come and buy (Cateora & Graham, 2007). Also, in much

of the developing world the vast majority of products may flow to final customers through small

"mom and pop" stores, and these retailers may have very different needs and capabilities than the

retailers in developed and urban markets, requiring changes in the ways that wholesalers do

business, the functions they perform, and the flows in which they participate (Mahajan & Banga,

2006).

The fourth type of wholesaler presented in Table 2 is the export merchant. This

intermediary resembles a traditional domestic wholesaler, participating in all of the marketing

flows while buying and selling on its own account. Basically, it will perform the marketing

functions that need to take place in foreign markets, typically both exporting and importing.

However, export merchants may not be available in all marketplaces and they tend to avoid

handling complex and specialty products that require a great deal of specialized marketing

knowledge and effort (Albaum et al., 2005).

In contrast to the export merchant that is buying and selling on its own account, the

export management company does business in the name of the companies (typically related, but

noncompeting companies) that it represents. Essentially, it acts as the export department for a

number of different manufacturers. Some export management companies may still work on

commission, but most do all of their own financing, while they handle the promotion, selling,

order, and payment-related flows.

The manufacturer's export agent does not perform the same number of functions, nor

does it participate in as many of the eight marketing flows as do the export management

companies. The substantive differences are that the manufacturer's export agent operates in its


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own name, with its own identity, and only rarely gets involved in the promotional, finance, or

risk flows. The export commission house participates in a number of the eight marketing flows,

but it acts on the behalf of the international purchasing firm rather than the manufacturer or

exporter. Thus, the purchasing firm pays its commission. The export commission house takes

care of the physical flow, the negotiation flow, and the order and payment flows. Confirming

houses are intermediaries common in Europe, especially the United Kingdom. Their primary role

is to facilitate the payment flow by confirming existing orders and interposing their credit

between the buyer and seller (Albaum et al, 2005). In addition some confirming houses may

make shipping and transportation arrangements that facilitate the physical product flow. Resident

buyers are permanent institutions in an exporter's country that represent multiple foreign buyers.

The resident buyer sets up long-term relationships with exporters and facilitates a number of the

marketing flows. It places orders, pays cash, or provides financing to the exporter; negotiates

terms; and arrange for the physical flow of the products. These institutions often work for global

retail clients that want to establish long-term relationships with their foreign sources of supply

(Albaum et al., 2005).

Export desk jobbers are experts in the sources of supply and demand in particular

product categories, usually raw materials. The export desk jobber will negotiate sales, place and

order, facilitate payment, and take title to the product. However it will never see the product and

the exporter must arrange for physical distribution to the buyer.

Freight forwarders traditionally were not considered wholesaling institutions. Rather

they were positioned as ancillary institutions providing specific transportation and

documentation services to exporters. However, as the marketplace has become more global and


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the lines of competition among logistics and distribution firms have blurred as firms adapt to the

changing requirements of global customers, freight forwarders have increasingly taken on a more

direct wholesaling role. So, although in the past the typical freight forwarder would have

provided quotes for many transportation-related services and made arrangements for the booking

of carrier space and documentation, today many freight forwarders are directly involved in the

physical flow of products, actually providing warehousing and even minor repairs (Albaum et

al., 2005). When involved in inventory management and warehousing, these intermediaries

assume risk of loss and damage, thus participating in the risk flow.

Finally, third-party logistics providers, which were also previously considered ancillary

institutions to the typical wholesaler, are also expanding into the provision of more distribution-

related services and thus are directly participating in more marketing flows than they did in the

past. Globalization has led third-party logistics providers to redefine their role, capabilities, and

value propositions (ARC Advisory Group, 2005). Many third-party logistics providers are now

providing end-to-end solutions for clients, which may include product design, sourcing, order

management, manufacturing, packaging, distribution, freight forwarding, customs brokerage,

financial settlement, customer service, and aftermarket services (ARC Advisory Group. 2005).

Thus, third-party logistics providers may now participate in negotiation, financial, risk, and order

flows in addition to the physical product flow.

The concept of wholesalers as global marketers would appear to be far-fetched in terms

of typical marketing thought. Yet, wholesalers as an institutional type have for thousands of

years been involved in what today we refer to as global marketing. Wholesalers of many types


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have performed numerous activities or functions that have always been necessary for connecting

distant buyers and sellers so that relationships could be pursued across international boundaries.

Some of the misperceptions concerning the role of wholesalers may be attributable to

terminology and perceptions associated with that terminology.

Factors affecting channel choice and management

The choice of which channel to use and how to manage it is dependent on some factors.

These factors are namely environmental, consumer, product and company factors which play

different roles in influencing the decision making process in the choice of channels of

distribution which will enable organizations ensure a prompt delivery of their goods to the final

consumers.

Source: Berkowitz, Kerin, Hartley and Rudelius (2000)


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The disintermediation philosophy

Although the term disintermediation is of relatively recent vintage, the concept itself has

been around for literally thousands of years dating back to ancient Greece and Rome (Beckman

et al. 1959). This concept is, of course, that of eliminating middlemen from channels of

distribution. Either explicitly or implicitly, middlemen are viewed as superfluous institutions,

even parasites, that do nothing but increase the costs of products as they move from producers

to consumers. Thus, the argument goes, middlemen should be gotten rid of or, to use the more

modern term, disintermediated from the channel. The arrival of the Internet as the technological

base for online electronic commerce at the close of the twentieth century reinvigorated the

disintermediation paradigm (Rosenbloom 2002). With the Internet providing the capability to

create a giant, global electronic marketplace where vast numbers of producers and consumers

could be linked directly to each other, who would need middlemen?

But even in the age of high-tech electronic commerce, the disintermediation paradigm did

not unfold at anywhere near the pace or scope predicted. Middlemen at the retail and wholesale

levels as well as a myriad of agents and brokers continue to operate across a vast spectrum of

distribution channels. Why do so many middlemen continue to exist even in the face of the

awesome power of Internet- based electronic commerce? The answer can be found in basic

economics. Specifically, middlemen or intermediaries emerge in distribution channels because

they are able to perform distribution tasks necessary to make products and services available to

final customers more efficiently then producers or consumers. In effect, intermediaries are often

the low cost producers of distribution services because as specialists in the performance of such


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services they enjoy the benefits of economies of scale and economies of scope (Stigler 1951).

Over the long run, if intermediaries are not able to fulfill this role, they will disappear from the

marketing channel. However, in most cases, the distribution tasks they perform will not be taken

over by producers and consumers but by other types of intermediaries that emerge in the channel

that are able to provide distribution services more efficiently (Anderson and Anderson 2002).

The corner grocery store being replaced by the supermarket, the hardware stores by home

centers, and bookstores by online retailer Amazon.com are typical examples. In recent years, this

type of metamorphosis in distribution channels has been referred to as reintermediation a

reconfiguration of middlemen in distribution channels rather than their elimination of

intermediaries from distribution channels.

From the standpoint of global marketing channel strategy, the disintermediation paradigm

should not be ignored but neither should it be taken at face value. That is, the wide array of

intermediaries or middlemen from traditional merchant wholesalers and retailers as well as

export merchants, manufacturers export agents, resident buyers, export commission houses and

numerous others are not likely to be disintermediated anytime soon. Rather, a reconfiguration

or reintermediation based on the laws of economics is the more likely outcome for global

marketing channel structures. Consequently, channel managers operating in the global arena,

rather than focusing on eliminating intermediaries, should instead attempt to design marketing

channels that incorporate an optimum mix of intermediaries capable of enhancing channel

efficiency.


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Internationalization of businesses

During the last decades, business in general has become increasingly internationalized.

Daniels and Radebaugh (2001) believe that this rapid growth is a result of technological

expansion, liberalization of trade policies and intensified global competition. Companies expand

into international markets driven by possibilities to grow and expand, but also they are driven by

the need to survive. Many companies are forced to market their products globally since they are

facing global competition, and there is a global demand for their products. The increasing level

of world trade has led to an environment where basically all countries are economically

interdependent (Mlbacher, Dahringer & Leihs, 1999). As the globalization of trade continues to

escalate, companies need to view marketing from an international perspective (Mlbacher et al,

1999; Czinkota & Ronkainen, 2001). As further argued by Terpstra and Sarathy (2000), the

importance of international marketing has increased due to three basic reasons: foreign markets

comprise an increasing portion of the total world market, foreign competitors are increasing their

market share in one anothers markets, and foreign markets can represent great sources of low-

cost products, technology and capital.

Conclusions

In the era of globalization, critical aspects of the marketing strategy and process such as

channel structures should be considered in the global context as well as critically assessing

factors that impact them. Marketing managers need to continuously stay ahead of competition


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and remain profitable through employing appropriate strategies after considering critical factors

which could affect their market share and customer base.

Areas for further research

Intermediaries in the distribution channel systems add an extra cost to the final cost of

products to consumers. With recent technological advancements, more research needs to be

conducted into how organizations can leverage on these technological trends in their distribution

channel systems to increase efficiency, reduce all forms of waste (such as unnecessary processes

and costs) and to increase profitability.


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Documents

Factors of channel structure