International Distribution Channels Research Paper

Introduction

Using an efficient international distribution channel has become an essential element of strategic management and a key component in supply chain development since it ensures unimpeded and safe provision of products in the markets. Scholars on logistics science point out that there are diverse supply channels in today’s economy, which move products from industries into the global market.

Zagorskas and Turskis (2006), point out that a distribution channel adopted by businesses must be effective in ensuring that products are moved from sites of productions to where they are consumed. This paper has analyzed quite a number of theories in understanding the concept of international distribution channels.

These are the general trade theory, organizational supply management theory, as well as congruency theory. The aforementioned theories have been used to demonstrate that an efficient international distribution channel maintains intensity, low costs, demand flexibility, process capability, strategic risk and competitive advantage. In addition, the impacts of international distribution channels on operations of business have been analyzed.

Background information

In their publication, Ustinovichius, Zavadskas and Podvezko (2007) point out that the globalization of markets has today become an important phenomenon; it has put pressure on most businesses with strategies to supply products in the international market in order to devise and adopt proper distribution channels for their products.

The distribution of services or products internationally or within the consumer market has become a globalization process that requires an effective distribution channel. It is imperative to point out that reorganization of distribution and the globalization of markets are processes which are mutually dependent and are therefore guided by changes in the market structure.

Today, the expansion of international markets has created fresh opportunities for businesses to satisfy the demands consumers have. Porter, in his model on competitive advantage, states that such opportunities call for greater specialization in the distribution of both goods and services by businesses that intend to compete favorably in the international market (Bivainis & Zinkeviciute, 2006)

On the same note, due to the massive expansion of the global marketplace, multinational firms have embarked on developing worldwide networks of information, distribution and communication to aid them in facilitating free and smooth flow of goods and information locally and across national boundaries.

Gull, Ashraf, and Rizvi (2011) point out that developing an excellent international distribution channel ensures free flow of products and services while minimizing costs.

This is an important and a very powerful tool that a business can use to attain competitive differentiation. In agreement, appropriate international distribution channels are sources of gaining competitive edges, which many companies have used since the 1980’s to serve offerings and enhance product provision in their supply chain processes.

Gull, Ashraf and Rizvi (2011) conclude by indicating that in international marketing, knowledge and strategy are elements that aid businesses in expanding their distribution and meeting the needs in the market.

International distribution channels

Antucheviciene, Zavadskas, and Zakarevicius (2010) point out that a distribution channel is a strategic measure that businesses use to move their products from the sources of manufacture to a site where consumers are. Products from the manufacture are supplied to consumers via wholesalers, agents or retailers in a supply chain, which can either be extensive or short.

International distribution channels are designed in such forms that they integrate economic activities and sustain growth and development of the global marketplace; however, extensive or elaborate distribution channels can cause a business in the global market to incur high distribution costs. This, therefore, calls for businesses to select international distribution channels that are cost-effective and efficient.

Structuring a supply chain that is flexible and responsive enough to meet diverse demands of customers and still maintain manufacturing benefits is a major challenge facing the global distribution management. Barratt (2004) points out that this is majorly due to the number of intermediaries, which a business opts to employ in its distribution process and the choice of a distribution channel that efficiently meets the demands in the market.

It is worth noting that internationally, there are wide ranges of distribution channels that multinational businesses can choose from. In addition, these distribution channels are fundamental for the future growth and success of a business.

There is need for the leadership in a distributing business to make a wise choice of adopting a distributing channel that is efficient. Daniel Kahneman points out in his prospects theory that proper choices for choosing appropriate supply channel alternatives should be made wisely as they involve risks and are expensive and complex processes (Barratt, 2004).

According to Koplin, Seuring and Mesterharm (2007), all forms of products and services, whether targeting industries or consumers, require an efficient channel of distribution. International channels of distribution are diverse and vary from multi-level distribution channels that have numerous intermediaries to direct and elaborate producer-to-consumer types.

Each of these channels has been designed to achieve a particular goal or objective. The channels of distribution can either be direct from producer to consumer or indirect by involving intermediaries (Gull, Ashraf & Rizvi, 2011).

It is important to note from the perspective of economic theory of supply that the structure involving distribution of products from a producer to consumers becomes costly when it is detailed. As such, the channel should be direct as simple as possible.

On the same note, an indirect channel is one in which a consumer receives products from the retailer who has been supplied by a wholesaler who then depends on an agent to distribute from the producer. Bivainis and Zinkeviciute (2006) point out that an indirect channel is a complicated and expensive process which limits the ability of a business to maximize its profits due to the need to pay intermediaries.

It is on this front that many international firms prefer to use their own sales force and greatly rely on the direct channel. However, there are several business organizations that have attempted to improve their distribution channels by making use of intermediaries although there are myriads of barriers such as high start-up costs and low sales volume.

Types of channels and what flows through them

In the international market arena, there are about five different consumer channels that include producer to consumer, producer to retailer to consumer, and the one which involves producer to a wholesaler to a retailer to a consumer (Holweg and Miemczyk, 2003).

Others that are elaborate include one which involves a producer who distributes to a retailer via an intermediary such as an agent or a distributor and then the products reach the consumer (Antucheviciene, Zavadskas & Zakarevicius, 2010). Additionally, another channel begins from a producer to an intermediary to a wholesaler then a retailer and finally a consumer (Antucheviciene, Zavadskas & Zakarevicius, 2010).

In the international distribution channel, goods transfer titles and are either bought or sold to consumers. Liu (2009) indicates that in addition to selling and buying of products, ownership, and physical possession of goods also occur in the distribution channel. These happen through negotiation and promotion flows among others which include payment, ordering, assuming risk and financing flows.

It is imperative to note that this flow can be in multiple directions or in a single direction such as from a producer to a consumer. Single direction flows in a distribution channel occur in promotion, ownership and physical possession flows.

Others like assumption of risks, financing and negotiations flow between a producer and a consumer in a two-way manner. Payment and ordering are flows that are one way and come from a consumer to a producer (Vasilis-Vasiliauskas & Jakubauskas, 2007).

Producer to consumer channel

A producer to consumer channel has been lauded by scholars of chain management studies like Kabadayi, Eyuboglu and Thomas as a channel which enhances a distributor’s profit margin (Kabadayi, Eyuboglu & Thomas, 2007).

In agreement, Jakimavicius and Burinskiene, (2009) posit that the option to adopt a producer-consumer channel has been considered to be attractive by many producers whose objectives have been to maximize profits.

Indeed, as Mary Jo Hatch posits in her model of business dynamics, direct selling is a key business concept that enables a producer to manage favorably in sales and enjoy all the profits without having to share with distributors or other intermediaries (Kabadayi, Eyuboglu &Thomas, 2007).

Indeed, direct selling has become a favorite choice of most businesses such as Tupperware plastic containers and Avon Cosmetics, which sell their products directly to consumers. Additionally, in Europe, direct selling is a common practice and involves aspects such as telephone selling, direct mail and direct response advertising.

Producer to retailer to consumer channel

Today, the number of retailers in the global market has immensely grown making it an important component in the distribution channel that can be easily accessed by consumers.

Turskis, Zavadskas and Peldschus (2009) argue that due to the massive growth of the number of retailers, producers do not only find distributing their products to diverse consumers all over the world an easy task, but they also find it to be fast and economically viable.

In agreement with Turskis, Zavadskas and Peldschus (2009), Ustinovichius, Zavadskas and Podvezko (2007) indicate that supplying directly to retailers without having to go through wholesalers saves them cost and time. Indeed, apart from saving cost and time, it also is a convenient method that allows consumers to visit the numerous retail outlets to test and view products from producers.

The channel from producer to wholesaler to retailer then consumer

The vast number of retailers who have limited order quantities presents a major problem to producers who make their supplies in bulk. Neoclassical macroeconomists argue that there is need for producers to use wholesalers who can buy in bulks (Liu, 2009).

In agreement with the macroeconomists, Liaudanskiene, Ustinovicius and Bogdanovicius (2009) point out that this indeed makes a lot of economic sense as wholesalers have the ability to make bulky purchases from producers and distribute them in smaller quantities to retailers who make limited orders.

However, regardless of the argument, Liaudanskiene, Ustinovicius and Bogdanovicius (2009) provide a solution to the problem of retailers buying in low quantities, it fails to note that there are large retailers in the international market who are able to buy in very large quantities, and as such pose as a danger to wholesalers who may in the end be eliminated from the chain.

On the same note, Vasilis-Vasiliauskas and Jakubauskas (2007) strongly agree with the above argument and exemplify that when large retailers have a strong buying power, it is possible for them to obtain products from producers and sell them to consumers at a cheaper cost than of which retailers who receive goods from wholesalers.

However, a longer channel which involves products moving from a producer to consumer via wholesaler and retailer occurs when oligopolies in retailing fail to dominate within the distribution system.

In Europe, with emphasis on Italy and France, the use of wholesalers is a practice that has made the supply chain to be longer (Vasilis-Vasiliauskas & Jakubauskas, 2007). For instance, the number of small independent wholesalers of vehicle spare parts is high, enabling them to dominate the distribution channel.

The channel of producer to an agent to a wholesaler, retailer and to a consumer

Companies that enter the international market adopt a type of channel which moves products and services from a producer to a distributor who then supplies them to a wholesaler.

Products from the wholesaler are then distributed to retailers where consumers finally access them. Zavadskas, Turskis and Tamosaitiene (2010a) point out that this is an efficient distribution channel in the international market as it saves time and allows for investments in terms of money.

This is because the task of selling products is delegated to distributors or agents by an exporting company. As such, retailers or wholesalers are contacted by an agent representing a company who then sells products and receives a commission.

It is imperative to point out that a distributor in this channel can be an independent company which buys a manufacturer’s products then uses the exporters or its own brand name to sell the products.

In agreement with Zavadskas, Turskis and Tamosaitiene (2010a), Zvirblis and Zinkeviciute (2008) point out that most of the responsibilities in this distribution channel lie on the distributor. Such responsibilities include marketing, storage and choosing other intermediaries depending on the arrangements the distributor has made with the producer.

Most companies today use multiple diverse distribution channels to supply their products in the global market. For instance, companies dealing with grocery products supply supermarkets using producer retailer channels while small grocers using producer to wholesaler to retailer channels (Zavadskas, Turskis & Tamosaitiene, & 2010a).

It is imperative to note that the choice of a distribution channel mainly depends on how much the producer needs to regulate the whole process of production.

The intensity of an international distribution channel

According to the neoclassical distribution theory, a distribution channel that suitably meets the demands of consumers in the market must adopt a strategy which is intense (Liu, 2009). In their publication, Kabadayi, Eyuboglu and Thomas (2007) point out that due to the intense competition in the global market arena, most companies have resolved to embrace a distribution channel which is intensive, selective and exclusive.

Intensive distribution involves implementing a policy, which ensures that products are distributed effectively and efficiently to as many consumers and retail outlets as possible. On the other hand, exclusive distribution is whereby a business devises a policy that limits its distribution to a single intermediary in a particular geographic area (Kabadayi et al., 2007).

An intensive distribution channel

Intensive distribution of products is a key source of gaining a competitive edge, which most companies in the international market adopt as it ensures that goods and services are distributed in numerous outlets.

Kaplinski and Janusz (2006) posit that most companies producing everyday products such as soap, tobacco, milk and bread products prefer this approach since a great deal of consumers find it convenient when these products reach them where they are located. Indeed, it is imperative to point out that intensive distribution is an important element that aids in enhancing a business sales and increasing coverage.

Kamath et al.(2011), in their publication “MODISC: Teaching Distribution Fundamentals Through an Experiential Model of Distribution Channel Choice”, point out that intensive distribution is effective in short-term performances of maximizing sales since consumer contacts are made possible by the increased number of outlets.

However, it is imperative to point out that this method requires that an elaborate marketing operation be carried out.

Selective distribution channel

Selective distribution, as Chen and Paulraj (2004) explain it in their groundbreaking article “Understanding Supply Chain Management: Critical Research and a Theoretical Framework”, is a situation where a company opts to use one or two intermediaries to effectively distribute a particular product. This is a new strategy which is being used by business originations that are not well established since they are still new in the market.

On the same note, it may be used by companies that understand the markets well as one way of cutting down operation costs (Barratt, 2004).

Therefore, selective distribution ensures that the distribution efforts by a company are not dissipated over many outlets. Indeed, this has numerous advantages, which include the fact that through selective distribution, a producer is presented with the ability to gain adequate and ample market coverage.

Unlike intensive distribution, this is less costly and provides a producer with more distribution control. Many companies such as Hewlett Packard (HP), Hi-fi and others that deal with rarely bought goods such as cameras, computers and DVD’s, apply selective distribution (Barratt, 2004).

Exclusive distribution

Scholars of supply chain and logistics argue that practicing constraint is an important aspect in international distribution channels, which ensure greater availability and limited losses during a distribution process (Kaplinski & Janusz, 2006).

Borrowing from the theory of constraints developed by Eliyahu Goldratt, it is worth noting that by severely limiting intermediaries in a distribution channel, a company can maintain service outputs and control service levels that resellers offer.

Ginevicius and Podvezko (2005) point out exclusive distribution minimizes costs and maximizes channel control and goodwill. In agreement, Kaplinski and Janusz (2006) point out that a satisfactory and complete relationship between a producer and an intermediary in an international distribution channel is made easier when intermediaries are few in a given area than when there are many.

Exclusive distribution involves dealing with arrangements that are limited and restricted in which an agreement is made by resellers and not competing brands. As such, through exclusive distribution, producers obtain knowledgeable and dedicated selling of products such as cars and other capital goods.

Selection of an international distribution channel and its impact on business

In his theory of distribution channels, Neil Borden points out that in a market, the mechanism through which a manufacturer distributes products or services to a consumer is an important aspect, that if not well implemented, negatively impacts on business performance and consumers (Goetschalckx & Fleischmann, 2002).

The selection of a channel of distribution as Jakimavicius and Burinskiene (2007) argues, rests on a number of decisions that include whether to employ indirect or direct channels, use multiple or single channels, and the number of intermediaries to use at each level. An appropriate selection will enhance smooth flow of products to consumers and minimize costs.

Besides choosing a channel, it is imperative for a manufacturer to decide upon which distributor to consider to effectively enhance the distribution processes. Neil Borden further exemplifies in his model on marketing mix that in considering a distributor, factors such as a market segment, product life cycle, qualification support and training should be analyzed (Antucheviciene, Zavadskas & Zakarevicius, 2010).

In agreement, Jakimavicius and Burinskiene (2009) posit that in a market segment, a manufacturer should seek a distributor who is well conversant with the market segment as well as the targeted customers. This will not only enhance performance, but will also ensure that products reach retailers and consumers in time.

Intermediaries and their benefits

After selecting the best distribution channel, it is imperative to decide on an intermediary size and type to employ in the distribution channel. In the international distribution channels, there are several intermediaries that include wholesalers, agents, retailers, direct marketing, overseas distributors and the internet (Zavadskas et al., 2008).

In their publication, Vasilis-Vasiliauskas and Jakubauskas (2007) point out that in choosing an intermediary to use in the channel, a number of factors should be considered which include product, marketing capacities, commitment and facilitating factors.

Wholesalers and agents

In the international distribution channel, wholesalers and agents play important pivotal roles, which ensure that products reach the targeted consumers. For instance, wholesalers buy products in from producers and break them down into smaller quantities that retailers can resell.

Besides, they also provide storage facilities and reduce the cost of physical contact such as sales force cost and customer service cost between a producer and a consumer.

On the other hand, Selih et al. (2008) point out that agents are crucial intermediaries in the international market in the sense that they secure orders for a producer while some are able to hold consignment stock; however, agents are also very difficult to control, train and motivate.

Retailers and the internet

Retailers are essential individuals in the channel as they are easily accessible by the consumers. They maintain relationship with customers and expose them to different products and brands. Besides, they merchandise, promote products, and can offer credit services to customers.

Some retailers like Wal-Mart in the USA and Jumbo, Modelo and Alisuper in Portugal, have strong brands and can determine the selling price of a product (Kaplinski & Janusz, 2006).

Liu (2009) indicates that the internet is an important tool in the international market that is geographically dispersed. Its benefits include the fact that through it niche products can reach a large group of customers, it has low set up costs as well as few barriers that may hinder it from entering a new market.

Besides, due to technological advancements, many businesses prefer e-commerce technology for shopping and payment, which is beneficial for online distribution.

Importance of an effective international distribution channel

In the global business environment, adopting a strategic distribution channel has become one of the key supply chain management practices that companies have assumed to favor them against intense global competition, short product life cycles, and increasingly demanding customers (Kaplinski & Janusz, 2006).

As market for services and products is increasingly becoming global, many businesses are strategically choosing effective and efficient distribution channels in order to improve their overall performance and successes.

As this paper analyzes using general trade theory, organizational supply management theory and congruency theory, efficient international distribution channels are vital for lowering costs, demand flexibility, process capability, and strategic risk as well as for gaining a competitive advantage.

High cost effectiveness

Ginevicius, Podvezko and Raslanas (2008) point out that increased effectiveness and efficiency of international distribution channels are factors that have close relationship with cost. Selective and exclusive distributions have been identified as important key drivers of a long-term approach to saving current distribution cost challenges on supply functions facing businesses in the global arena.

Research indicates that cost effectiveness in adopting an appropriate international distribution channel has been demonstrated through lean thinking by companies, and has seen most of them re-engineer their services with an aim of increasing productivity. As such, they have been able to maintain service quality and reduced distribution expenditure.

Studies indicate that a business with complex products and high changing demands must ensure that it adopts an international distribution channel, which does not interfere with its total throughput time (Brauers et al., 2008). Additionally, studies further point out that any interference with the normal supply chain may easily affect the reliability and reputation a business has towards its customers.

As such, businesses with an understanding of the difference between low cost and low prices of operations as well as the costs of total life cycles may either choose to adopt a long distribution channel or a short one.

In his publication, Ginevicius and Podvezko (2009) point out that this has become important in the sense that an efficient international distribution channel will not only effect lower cost of distribution of products, but also improve performance criteria by taking into account quality, flexibility, reliability and speed.

From a theoretical perspective, the success in carrying out supply operations in the international market and gaining competitive advantage rely on effective distribution strategies and choice of a distribution channel that a business adopts (Goetschalckx & Fleischmann, 2002).

International management textbooks illustrating general trade theories clearly exemplifies that a distribution strategy, with particular emphasis on international distribution channels, is critical to a supply business’ competitive advantage in terms of innovativeness, labor cost and price.

Gaining a competitive advantage requires identifying strategic sourcing methods that are appropriate, and comprehensive planning.

According to transaction cost theory, being able to distribute high quality products at a low cost and still maintain a competitive advantage requires that companies restructure their distribution strategies and capabilities in such a way that supply functions are done at the lowest cost possible (Goetschalckx & Fleischmann, 2002).

Increased flexibility and sustainability

Flexibility and increased sustainability have become some of the key components of appropriate selection of a distribution channel.

Goetschalckx and Fleischmann (2002) point out that understanding of factors such as company strength, commitment, marketing capacities and product factors have offered many businesses the ability to use international distribution channels, which are flexible and can sustain their distribution and supply functions.

In the rapidly changing business environment, good international distribution channels have aided companies to respond faster to circumstances and policies which keep changing, without being tied to procedures that can be expensive to alter. Basing the argument on congruency theory, businesses adopt a distribution channel depending on the complexity of their products and the environment they are in.

Using an appropriate and consistent distribution structure is, therefore, an important component that aids businesses in building and sustaining stable competitive advantages.

Kaplinski and Janusz (2006) point out that this is due to the fact that most international marketing channels have elaborate and long-run characters which require a consistent structure. An international distribution channel, which a company in the global business environment seeks to use, must be well structured to enhance its flexibility and sustainability with the changes in the environment.

Effective and efficient service improvement to deliver added value

Using value creation concept, Liaudanskiene, Ustinovicius and Bogdanovicius (2009) point out that in supply functions, competitive distribution strategies centering on creation of effective and excellent services, and innovation and customer focus are all ways of ensuring service quality.

An effective international distribution channel selection that a supply business adopts together with other variants will aid it in gaining a competitive edge.

Research indicates that an efficient international distribution channel that ensures the intended clients can easily access products from producers, envisages opportunities for producers to expand sales and envision cooperation opportunities (Zavadskas, Turskis & Tamosaitiene, 2010a). Additionally, such a channel ensures that costs to be incurred when moving products are minimized and ensures sufficient feedbacks.

The theory of chain management indicates that the aim of management of a supply chain should be towards creation of added value as well as ensuring that clients’ needs are satisfied (Zvirblis & Zinkeviciute, 2008).

A company that intends to add value to its distribution processes must ensure that its supply chains are well managed and structured with an aim of balancing production costs, haulage and stock, harmonizing demand and supply in such a way that distribution of products is carried out adequately.

Selection of an efficient international distribution channel adds value to service and products distributed as it considers company resources, competition, channel, products and market characteristics (Zavadskas et al., 2010b).

Maintaining customer satisfaction through ensuring that their demands are adequately met has become one of the greatest requirements of most businesses intending to attain high levels of success in the global market.

Jakimavicius and Burinskiene (2009) argue that offering value in terms of quality distribution services becomes a key ingredient in attracting a massive number of customers and sustaining flow of products in the market.

Conclusion

To sum up, the discussion in this paper was based on the thesis statement: Using an efficient international distribution channel has become an essential element of strategic management and a key component in supply chain development which ensures unimpeded and safe provision of products in the markets.

The discussion has clearly indicated that international distribution channels comprise of numerous institutions, which perform diverse activities but with the same objective of ensuring that products or services are moved from production sites to the consumers.

From the analysis, it is evident that companies or businesses that want to enhance their performances, save costs, and boost their profits must make effective and proper selection of distribution channels.

The companies should also select efficient intermediaries that may include the internet, retailers, agents and wholesalers. The paper has concluded by indicating the importance of an efficient international distribution channel and how it enhances business performance and meets the demands in the market.

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