Distribution channels in markets around the world are among the most highly differentiated aspects of marketing systems. If marketing goals are to be achieved, a product must be made accessible to the target market at an affordable price. As in many markets, the biggest constraint to successful marketing is distribution, channel strategy has become one of the most challenging and difficult components of international marketing program. Smaller companies are often blocked by their inability to establish effective channel arrangements. In larger multinational companies, operating via country subsidiaries, channel strategy is the element of the marketing mix that headquarters understands the least. To a large extent, channels are an aspect of the marketing program that is locally led through the discretion of the in-country marketing management group. Nevertheless, it is important for managers responsible for world marketing programs to understand the nature of international distribution channels.
Distribution is an integral part of the total marketing program and must be appropriate to the product design, price, and communications aspects of the total marketing program. Another important reason for placing channel decisions on the agenda of international marketing managers is the number and nature of relationships that must be managed. Channel decisions typically involve long-term legal commitments and obligations to other firms and individuals. Such commitments are often extremely expensive to terminate or change. Even in cases where there is no legal obligation, commitments may be backed by good faith and feelings of obligation, which are equally difficult to manage and painful to adjust.
In every country and in every market, urban or rural, rich or poor, all consumer and industrial products eventually go through a distribution process. The distribution process includes the physical handling and distribution of goods, the passage of ownership and, most important from the point of marketing strategy, the buying and selling negotiations between producers and middlemen and between middlemen and customers.
When a company begins producing and selling in more than one country and becomes a global player, then comes the time to consider the concept of logistics management. According to Tom Andel, “It is a system approach to management of the distribution process that includes all activities involved in physically moving raw material, in process inventory, and finished goods inventory from the point of origin to the point of use or consumption”.
The international company must take a whole-channel view of the problem of distributing its products to final users. The figure below shows the three major links between the seller and ultimate user.
The first link, seller’s international marketing headquarters, consists of its export department or international division making decisions on channels and other marketing mix elements. The second link channels between nations, gets the products to the borders of the foreign nation. It consists of decisions on the type of intermediaries, the type of transportation and the financing and risk arrangements. The third link, channels within foreign nations, gets the products from their foreign entry point to the final buyers and users.