Promotion & Distribution Strategies for International Markets

UNIT – 4
PROMOTION AND
DISTRIBUTION STRATEGIES
MR.T.SOMASUNDARAM
ASSISTANT PROFESSOR
DEPARTMENT OF MANAGEMENT STUIDES
KRISTU JAYANTI COLLEGE (AUTONOMOUS)
BENGALURU
Unit 4– Promotion & Distribution Strategies 1

UNIT 4: PROMOTION &
DISTRIBUTION STRATEGIES
Promotions, International advertising,
Sales promotion in international markets,
Direct mailing, Personal selling,
Exhibition, Generic promotions in
international marketing. Global
distribution, Distribution as competitive
advantage, rationalizing local channels,
Wholesaling, Retailing, Global logistics,
Parallel Distribution, Global Channel
design, Entry modes – Licensing, Strategic
Alliances, Manufacturing Subsidiaries,
Optimal entry strategies.

PROMOTION
Meaning:
Promotion is the process of marketing
communication involving information, persuasion
and influence.
Promotion has three specific purposes –
a) it communicates marketing information to
consumers, users and resellers.
b) it persuades and convinces buyer and enters into
this consumer behaviour.
c) it act as powerful tools of competition providing
the cutting edge of its entire marketing programme.

Definition:
Promotion is defined as the coordinated self –
initiated efforts to establish channels of information
and persuasion to facilitate or acceptance of ideas or
point of view”.
 it refers to any type of marketing communication used
to inform or persuade target audiences of the relative
merits of a product, service, brand or issue.
 The aim of promotion is to increase awareness, create
interest, generate sales or create brand loyalty.
 It is one of the basic elements of the market mix, which
includes the four P's: price, product, promotion, and
place.

Importance of Promotion:
 It attracts more customers to product. The incentive like
price off, premium etc., offered by manufacturers attracts
people to product.
 It encourages middlemen to buy and store more: offer
incentives more to people to go shops where product are
available. If sufficient quantity is not stocked customers
may shift to some other brands.
 It encourages the sales force by offering incentives to
salesmen. It will influence salesmen to participate in the
campaigns.
 It boosts sales in the short and long term.
 It reinforces the brand image with the customers.

Promotion Strategy:
 Strategy lays down the principles by company to secure
advantage over competitors, exhibit attractiveness to buyers.
 It has four importance – a) product described in marketing,
b) prospect to be converted into a customer through
persuasion and influenced by promotion, c) seller or
sponsor who undertakes promotion, d) channel or route
along which product will move from marketer to buyer.
 Promotion strategy depends on four sides – a) blend of
promotional activities, b) amount allocated for various
forms of promotion particularly to advertising media like
TV, radio, etc, c) kind of promotion to be used.
 Mode of promotion depends on nature of products,
characteristics, stage of market development and stage of
buyer decision making.

An integrated promotion or marketing communication strategy
are -
1. Product:
 It is one factors determining form of promotion and
effectively shown on TV and mass selling goods easily
promoted through radio and television advertising.
2. The Buyer:
 Marketers should know about needs and desires, attitudes
and values, expectations of customers if they want to
provide realistic solutions to buyers problem.
3. The Company:
 Firm’s image must be closely associated with promotional
strategy so that goodwill is exploited.
 It emphasize more on characters, reputation and
responsibility of firm.

4. The Channel Choice:
 It depends on channel or route through which products of
firm flow to customers.
 Firms well known brand that can control over channels
through pull promotion strategies.
 Extensive and heavy use of advertising and sales promotion
is necessary to generate consumer demand.
 Industrial marketing strategies rely on personal selling.
 Push strategy successfully used when – a) we have high
quality product with unique selling points, b) we have high
priced product and c) we can offer adequate incentives to
middlemen.
 Ratio of pull strategy to push strategy may differ according
to requirements of market situation.

INTERNATIONAL ADVERTISING
Meaning:
 International advertising can, be viewed as a
communication process that takes place in multiple cultures
that differ in terms of values, communication styles, and
consumption patterns.
 International advertising is also a business activity
involving advertisers and the advertising agencies that
create ads and buy media in different countries.
 It is to interpret or translate the qualities of products and
services in terms of consumer needs, wants, desires and
aspirations, symbols and other characteristics of
advertisement must coincide to be more effective.

The basic framework and concepts of international
advertising are essentially the same wherever
employed. Seven steps are involved –
Step 1: Perform marketing research.
Step 2: Specify the goals of the communication.
Step 3: Develop the most effective message (s) for the
market segments selected.
Step 4: Select effective media.
Step 5: Compose and secure a budget.
Step 6: Execute the campaign.
Step 7: Evaluate the campaign relative to the goals
specified.
Unit 4– Promotion & Distribution Strategies 1 0

Advertising Strategy and Goals:
The goals of advertising around the world vary
substantially.
(E.g.) Unilever is introducing a new product line extension,
Dove Shampoo in East Asian markets & Russia’s airline
Aeroflot is seeking to upgrade its quality image.
These marketing problems require careful marketing
research and creative advertising campaigns in country,
regional and global markets.
Intense competition for world markets and increasing
sophistication of foreign consumers led to need for more
sophisticated advertising strategies.
MNCs seen to be managing the balance between
standardization of advertising themes and customization.

Global Advertising and the Communications process:
International communications may fail for a variety of
reasons.
Effectiveness of promotions strategy can be exposed by so
many factors.
Communication process are better equipped to manage the
diversity they face in developing an international
promotional program.
Seven identifiable process consists of following –
a) Information source – international marketing executive
with a product message to communicate.
b) Encoding – message from source converted into effective
symbolism for transmission to a receiver.
c) Message channel – sales force or advertising media that
convey the encoded message to intended receiver.

d) Decoding – interpretation by the receiver of the
symbolism transmitted from the information source.
e) Receiver – consumer action by those who receive
the message and are the target for the thought
transmitted.
f) Feedback – Information about effectiveness of
message that flows from the receiver back to
information source for evaluation of effectiveness of
process.
g) Noise – Uncontrollable and unpredictable
influences such as competitive activities and
confusion that detract from the process and affect any
or all other six steps.

Global Marketing and Advertising advantages:
Economies of scale in production & distribution.
Lower costs with less in planning and control.
Lower advertising and production costs.
Ability to exploit good ideas worldwide.
Ability to introduce products quickly, worldwide.
Consistent international brand, company identity.
Simplification of coordination and control.

“Sales promotion is referred to activities other than
personal salesmanship, advertising and publicity which
stimulate consumer purchasing and dealer effectiveness.”
(E.g.) Displays, exhibitions and showrooms, free samples,
coupons, etc.
- sale of product has to be promoted through a no. of
influences at place where retailers and buyers meet face-to-
face (i.e.) point of purchase.
- it is a vital link between advertising and field – setting.
- it aims at stimulating consumer purchasing at point of sale
and dealers effectiveness.
1 5
SALES PROMOTION IN
INTERNATIONAL MARKETS
Unit 4– Promotion & Distribution Strategies

Why use sales promotion?
- it is something extra that creates buying interest or spark an
immediate reaction from customer.
- it involve incentives which is something value added to
encourage some response from customers.
- point of purchase displays real off, sales rising by 25% to
50%.
Sales Promotion Objectives:
 To increase buying response by ultimate consumers.
 To increase selling efforts and intensity by dealers as well as
sales personnel.
The following reasons for sales promotion –
 Calling attention to new products and product improvements.
 Informing buyers of new brand and new package.
1 6Unit 4– Promotion & Distribution Strategies

 Improving market share.
 Increasing usage rate by present customers.
 Maintaining customer patronage and brand loyalty.
 Obtaining dealer outlets.
 Securing additional shelf – space and added display.
 Creating talking points for sales persons.
Strengths of Sales Promotion:
1. It stimulates positive attitude towards product.
2. It gives extra incentive to consumer to make purchase.
3. It gives direct inducement to take immediate action.
4. It has flexibility and it can be used at any stage of a new product
introduction.
Sales promotion are effective – when new brand is introduced, when
communicate, want to simplify results of advertising and want to
increase no. of retail stores.

Limitations of Sales promotion:
 Temporary and short life not exceeding three months.
 It is supplementary devices for other promotion tools.
 They are non – recurring in their use.
 Too many sales promotions affect brand image and
suggest its lack of overstocking.
 Advertising agencies has low status to sales
promotions.
Sales promotion are ineffective –
 When established brands have a declining market.
 There are no product improvements.
 When there is intensive competition on consumer sales
promotion. 1 8Unit 4– Promotion & Distribution Strategies

Kinds of Sales Promotion:
1. Consumer Sales Promotion:
The devices are –
i) consumer sampling (i.e.) free samples given to customer to
introduce new product.
ii) demonstrations or instructions educating the customers.
iii) coupon is a certificate that reduce price.
iv) money refund orders (i.e) full purchase price is refunded.
v) premium offers.
vi) price – off.
vii) fashion shows and parades are good promotion.
viii) contests and
ix) trading stamps.

2. Dealer’s Sales Promotion:
The devices are –
i) There is a provision of free display material at point of purchase.
ii) Retail demonstrators supplied by manufacturers for distributing
product as a retail sample.
iii) Trade deals are offered to encourage retailers to give additional
selling support to product.
iv) Seller gives buying allowances of certain amount of money.
v) Buyback allowances.
vi) Seller gives free goods.
vii) Advertising and display allowances.
viii) Sales contests for salesmen are held.
ix) Dealer loader is premium given to retailer.
x) Dealer and distributor training for salesmen.

Reasons for Sales Promotion:
Some of the reasons are –
 Introduction of new product.
 Stimulus for a new use of a product.
 Encouragement for increasing frequency of purchase.
 Appeal to a special area of market.
 Combination offer to encourage use of other products.
 Creation of dealer interest and inducing them to stock articles.
 Securing shelf space in retail window.
 Counter balancing price competition.
 Special training of salesmen.
 Seasonal and grand reduction sales.
 Capturing bargain hunting and non brand conscious buyers.
 Acceleration to slow selling lines.

“Direct mail is a form of advertising that allows businesses
to communicate straight to the customer.”
“Direct marketing by sending an offer, announcement,
remind or other item to a person at a particular physical or
virtual address.”
 It is essential which creates and exploits a direct relationship
between marketer and prospect or customer.
Why Direct Mail?
 6,400 online shoppers receiving print catalogs buy more often
& spend more meaningful time at retail websites.
 The result held regardless of age, income, region and
education, etc.
 On average, those who receive a catalog spend 20% more and
buy 28% more items than those who do not receive a catalog. 2 2
DIRECT MAILING

Role of Marketing Mix:
 This is most suitable medium for one to one
communication.
 Ability to give something to the recipient on the spot.
 Able to reach to a person at a particular physical or
virtual address.
 One gets updated with a specific offer of service or
product.
Benefits of Direct mail:
 Highly targeted.
 Personalize.
 Tangible.
 Cost efficiency. 2 3Unit 4– Promotion & Distribution Strategies

Methods of Direct Marketing:
a) In – home selling:
 Marketer use door-to-door selling through trained sales force.
(E.g.) Eureka Forbes.
 This method is costly but effective.
b) Tele buying / Tele selling:
 Telephone buying and direct phone contact with buyers and
secure orders on phone.
 It provides free home delivery which is very convenient and
also cheaper method for families.
 With the help of computer automatically dial a phone no. and
record a response from customer.
c) Mail Order Sale:
 Standardization, grading, branding and packaging brought
about growth of mail order sale

 Seller approaches the prospects by mail publicity (i.e.) sending
circulars, price list, catalogue, pamphlets, samples, etc.
 All selling is done invariably through regular advertisements
and direct mail publicity.
 (E.g.) Goods suitable for mail order – durable and branded
goods, goods having regular demand, goods with sufficient
margin of products, etc.
 (i.e.) books, toys, watches, clothes, footwear and small
appliances.
d) Direct response marketing:
 Magazines, newspapers, radio and television are used as direct
response offers to customers.
 Customer is requested to secure further information and place an
order directly using toll-free number.
 It is growing medium through network and cable channels.

e) Automatic Vending machine:
 Well known pre sold brands with good turnover are sold by
vending machines.
 Usually kept at work places and public places. (E.g.) cold
drinks, coffee, candy, snacks, etc.
f) Kiosk Shopping:
 It is order placing machines, kept in stores, air ports, stations,
etc.
 Electronic kiosks sell goods through video catalogue.
Advantages of Direct marketing:
 Focus marketing efforts effectively in terms of selling to
selected target markets.
 Marketer can contact prospects directly rather than wait for them
to appear in store.
 It gives convenience to consumer for make purchases.

 It is a lower cost way of doing business than retail store.
 It needs less capital to be invested in business.
 It can be a side activity.
Disadvantages of Direct marketing:
 Conventional retailers are not looked with suspicion by buyers.
 Marketer must be well known and established to remove this
fear.
 Direct marketing (i.e.) home selling, telemarketing affects
consumer privacy.
 Except for direct to home marketing, goods can’t inspected
prior to purchase.
 In absence of personal inspection, marketer has to offer liberal
return facilities.
 In – home selling through sales force is costly.

Meaning:
 It may involve personally contacting, for promotion, the
prospective final consumers or members of channels of
distribution.
 Personal selling is where businesses use people (‘Sales
force’) to sell the product after meeting face-to-face with
the customer.
 Personal selling is the personal communication of
information to persuade prospective customer to buy
something – a product, service, idea or something else.
 It is in contract to the mass, impersonal communication of
advertising, sales promotion and other promotional tools.
2 8
PERSONAL SELLING

Importance of Personal Selling:
 It is one of the most effective methods of marketing
communication.
 The goal of all marketing efforts is to increase profitable
sales by offering want satisfaction to the market over long
run.
 It is effective method to overcome certain marketing
barriers.
 It has contributed to export success of some Indian
products.
Efforts of sales people have direct impact on following
activities like –
 Success of new products.
 Keeping existing products in strong market positions.

 Constructing manufacturing facilities.
 Opening new business and keeping them open.
 Generating sales orders that result in shipping products to
consumers all over the world.
Advantages (Merits):
Effective promotional method, as it directly deals with
customers.
It gets better feedback about product and company’s
marketing efforts.
Marketing intelligence.
Handling customer grievance easily.
Alternative method for company which can’t use
advertising methods.
It is flexible and suitable to each customers. 3 0Unit 4– Promotion & Distribution Strategies

It is most effective method in explaining product features
and clarifying customer doubts.
High customer attention.
Persuasive impact.
Potential for development of relationship.
Demerits / Limitation:
High cost.
Can only reach a limited number of customer.
Success depends on ability and sincerity of sales personnel.
It may cause dislocations and related problems if sales
person quits suddenly.
Personal Selling Philosophy:
Adopt the marketing concept.
Aim at doing consultative selling. 3 1
Interactivity.
Adaptable
Labour intensive. Expensive.
Be a problem solver.

Personal Selling Process:
 Effective Personal selling involves a logical sequence of
steps or actions that described as 5 Ps of personal selling.
They are:
1. Pre – sale Preparation:
• It is equally important that sales person is well acquainted
with the selling environment like – nature of market and
competitors.
2. Prospecting:
• It involves drawing up a profile of prospects (i.e.)
prospective customers, using relevant sources of
information.
• It involves identifying potential customers for personal
selling.

3. Pre-approach:
• It refers to collection of all relevant information about the
customer whom the sales person intends to call on.
• This is necessary for formulating a suitable approach for
dealing with customer.
4. Presentation:
• Presentation should attract the attention of prospects,
arouse interest, create a desire and finally result in desired
in action (i.e.) sale.
5. Post – Sale activities:
• Customer should be visited again and if they have any
complaints they should be attended to.
• It is also necessary to minimize the customer’s dissonance,
if any.

Meaning:
 Commercial exhibitions, generally called trade fairs, trade shows
or expos, are usually organized so that organizations in a specific
interest or industry can showcase and demonstrate their latest
products, service, study activities of rivals and examine recent
trends and opportunities.
Advantages:
a) Exposure to a wider set of audience –only consumers interested
in your product category will visit the show and subsequently
your exhibition booth.
b) Creates brand awareness – exhibitions create awareness in the
market about the brand. It not only increases brand awareness but
also makes it popular in the crowd.
c) Increases credibility – People begin to trust your brand when they
see it alongside major brands which increase credibility of the brand
in the market. 3 4
EXHIBITION

d) Promotes brand loyalty – When people begin to trust you, it
ensures repeated sales and that brings brand loyalty among its
customers.
e) Helps in Networking –It is a good chance to network with
other people and increase your client base and promote your
business.
Disadvantages:
a) Exhibitions are hectic and stressful – Participating in
exhibitions requires a lot of work (i.e.) selecting exhibition
stand contractors, booking the perfect spot for exhibition, etc.
b) It can be overwhelming – With so many tasks and
preparations at hand, exhibitors often get overwhelmed with the
chores and responsibilities that come with exhibitions.
c) Exhibitions can sometimes go downhill – While focusing on
major aspects you tend to ignore small things at exhibitions.

Meaning:
 It is an initiative undertaken by an organization to promote
an increase in sales, usage or trail of a product or service.
(i.e.) it includes several communication activities that
attempt to provide added value or incentives or other
organizational customers to stimulate immediate sales.
 It can be i) Consumer sales promotion and ii) Trade sales
promotion.
 It can be varied –
 Free gifts and Free sample.
 Discounted price.
 Point – of – purchase (POP) displays, etc.
3 6
GENERIC PROMOTIONS IN
INTERNATIONAL MARKETING

The techniques of generic promotion are varied and
numerous. The common ones are coupons, sweepstakes,
games, contests, demonstrations, samples etc.
It is temporary in nature.
It is not restricted at the customer level. It may be used to
gain middlemen's support.
It is effective when a product is first introduced to a
market. It also works well with existing products that are
highly competitive and standardized.
The effectiveness of generic promotions can be tempered by
psychological barriers to middlemen and customers.
International marketers need to confirm the validity of a
statement concerning the effectiveness of a generic
promotion technique.

Factor to consider in developing generic
promotion programs for foreign markets:
Economic development.
Market maturity.
Consumer perceptions.
Trade structure.
Regulations.

GLOBAL DISTRIBUTION
Definition:
“Distribution process is defined as the set of interdependent
marketing institutions (middlemen) participating in the
marketing activities involved in the movement or
distribution or flow of goods or services from the primary
producer to the ultimate consumer.”
Components of distribution:
1. All kinds of merchant middlemen like wholesalers and
retailers.
2. All kinds of agent middlemen like commission, agents,
brokers, warehouse – keepers, etc.
3. All other facilitating agencies like bankers, advertising
agencies, etc. 3 9Unit 4– Promotion & Distribution Strategies

Distribution as Competitive Advantage:
It is a major component of the marketing mix, (i.e.) a
necessary part of the so-called four Ps. If the product is
not available, it is difficult to buy it.
It is not simply a necessary component of marketing
strategy, but it might be a decisive advantage for a firm.
(E.g.) Coca-Cola in soft drinks attributes a large part of
its success to intensive distribution coverage, including a
variety of stores and vending machines and contractual
arrangements to be the only vendor in colleges, schools,
etc.
The role of distribution in a firm’s success needs to be
evaluated very carefully by the global marketer.

Distribution as Competitive Advantage:
The fact is that if distribution is a key success factor in a
product category, global expansion can be difficult and
expensive and also distribution system might be hard to
reproduce abroad, which makes global coordination and
control more difficult.
The increased distance between manufacturing and point-
of-sale that goes with global marketing makes the logistics
part of distribution also more important than at home (i.e.)
when distribution is not a major success factor at home, it
might be a major disadvantage abroad.
(E.g.) problems with lack of supplies, delivery delays, lost
shipments, and access to spare parts can be magnified when
shipping is across borders.

Rationalizing Local Channels:
1. Changing Distributors:
 The distribution channel configuration created for entry into
a foreign market is rarely optimal once the product is
established on the market.
 Typically, the channel changes initiated by the manufacturer
involve the termination of independent distributors’ or
dealers’ that leads to conflict.
2. Dual Distribution:
 The channel changes doesn’t involve termination of
contracts, sometimes multiple channels emerge or are
created.
 Often the manufacturer tries to differentiate the offerings in
different channels.

Changing to direct sales might solve the overseas
distribution problem for the industrial goods
multinational. The global marketer of consumer
goods, however, also has to deal with the
wholesalers and retailers that provide the link to the
ultimate consumer.
(E.g.) Lucky Goldstar’s entry from Korea into the
U.S. television market by original equipment
manufacturing (OEM) agreements with retailers such
as Sears and later a dual distribution system was
initiated with sales under its own brand name,
Goldstar and recently its new brand name is LG.

Meaning:
Wholesalers sell to retailers or industrial users.
The functions of wholesalers are making contact,
negotiating, buying, selling, and warehousing.
Sometimes, it is involved in shipping, financing,
and packaging as well as other middleman
functions.
Wholesaling is a major component of a country’s
infrastructure, and its structure reveals important
clues as to the country’s stage of development.
4 4
WHOLESALING

Importance of Wholesaling:
a) Vertical Integration:
 Power and Competition.
 The size distribution of wholesalers in many countries
approximates the well-known “80–20” rule: (i.e.) 80
percent of the transactions are handled by 20 percent of the
firms.
 The financial power of large wholesalers coupled with a
good infrastructure and lack of government regulation has
meant that in some countries they operate on a nationwide
basis.
 In some cases, wholesalers have organized retail chains
and also cases in which wholesalers have integrated
backward into manufacturing.

b) Efficiency:
 Integration is based on technological development that have
made large – scale economies and technical coordination
feasible.
 Wholesalers in the field of freezing equipment, automatic
material handling, large quantity reordering, etc. has made
growth of individual and economically desirable.
 The functions carried out by the wholesalers still remain
necessary for the movement of the product from producer
to consumer.
 In many countries the wholesalers have, in fact, been too
slow to innovate and have been pushed aside by aggressive
retailers integrating backward and manufacturers eager to
simplify their distribution channels.

Types of Wholesalers:
There are three board categories of wholesalers:
1. Regular merchant wholesalers independently owned,
buying outright, offering full service and have general –
line or engage in speciality goods.
2. Wholesale commission agents with independent
ownership, but taking no title to goods and only actively
negotiating sale / purchase of goods.
3. Manufacturer’s own branches or branch offices, owned by
manufactured performing selling functions. They maintain
stock and have attractive showrooms.
4. Full Service Wholesalers - wholesaler from returning a
product that does not sell well in expectation of a full
refund.

Typical Wholesale services:
Wholesalers offers typical services as middlemen between
producers and retailers in central market:
1. Maintenance of sales force.
2. Storage.
3. Delivery to retailers.
4. Financial help to both manufacturer and retailer.
5. Merchandising (i.e.) preparations for sale (packing,
grading, branding, etc.)
6. Sales promotional work.
7. Product servicing.
8. Marketing information.
9. Risk – bearing.

Retailing:
 The sale of goods in small quantities to ultimate
consumers.
 It link in the chain of distribution between the
manufacturer and the ultimate consumer.
 Retail shop is one of the oldest and most widely used
business establishments in any country.
Definition:
“Retailing is defined as any business that directs its
marketing efforts towards satisfying the final customer,
based on the organization of selling goods and services as a
means of distribution”. - David Gilbert
4 9
GLOBAL RETAILING

RETAILING FUNCTIONS IN
DISTRIBUTION
50

Functions of Retailing:
 The physical movement and storage of goods.
 The transfer of title to goods.
 The provision of information concerning the nature and use
of goods.
 The standardization, grading and final processing of goods.
 The provision of ready availability.
 The financing of inventory and credit to consumer.
 Keeps stock of different varieties of goods.
 Demand creation – display of goods, providing information.
 Effective distribution of goods.
 Credit facilities.
 Personal services – home delivery, after-sales service.
5151Unit 4– Promotion & Distribution Strategies

Concept of Global retailing:
 Due to rapid deployment of point-of-purchase information
technology—including bar coding, scanner data, and inventory
controls— it has shifted the power in the channel toward large
retailers.
(E.g.) Leading stores such as Wal-Mart, Tesco has introduced
point-of-purchase(p-o-p) technology, and created data banks on
product and brand turnover that gave them power over both
wholesalers and manufacturers.
 Global expansion has become the large retailer’s avenue to
growth.
 Global expansion by retailers tends to follow a gradual
“waterfall” kind of process because of the variety of retail
regulations encountered in different countries and the economic,
cultural, and lifestyle differences among consumers.

Global retailers would seem to offer global
manufacturers a chance for central coordination of
worldwide channel activities, which makes retailers
to be powerful channel captains.
(i.e.) they are the most powerful units in the
distribution channel between manufacturers and the
ultimate customers.
Selling through retailers will involve “relationship
marketing”— offering special services, discounts,
emergency supplies and so on.
Giant retailers need them as much as they need the
retailers.

Meaning:
It is a subset of global distribution, which also involves the
management of the channels within a country.
It is a useful distinction for the global marketer, since the
management of channels within a country requires a lot of
interactions with local subsidiaries, distributors, and agents.
Definition:
“Global logistics can be defined as the transportation and
storage activities necessary to transfer the physical product
from manufacturing plants and warehouses in different
countries to the various local market countries.”
5 4
GLOBAL LOGISTICS

Concept of Global Logistics:
 Supply chain management is one thing that coordinating
and rationalizing the global logistics function of the firm in
global markets.
 Competition and Technology - many firms facing
difficulties to try reengineering process in their global
logistics.
 Decentralized solution for this competitive problems have
gradually emerged during the global expansion.
 Global competition requires more efficient operations,
greater flexibility, and quicker response time.
 Global transportation is an area where considerable savings
are often possible.

Concept of Global Logistics:
 Consolidating shipments, eliminating duplication in cross-
border procedures, shipping documents and customs
declarations are only a few of the areas in which
reengineering can help.
 Inventory management can often be improved through
rationalized global logistics that creating savings and adding
value to customer.
 Global communication possibilities and computerized
operations will be more efficient logistics operations.
 Technology has spawned a number of new global
distribution options available for the global marketer.
(E.g.) Freight forwarders, ship lines, air express outfits, and
airlines now offer more reliable and faster services.

Meaning:
Developments in logistics coupled with floating exchange
rates and widely different prices in different countries have
led to the emergence of gray trade through parallel
distribution channels.
Gray trade is parallel distribution of genuine goods by
intermediaries other than authorized channel members.
Gray marketers are typically brokers who buy goods
overseas either from the manufacturer or from authorized
dealers at relatively low prices and import them into a
country where prevailing prices are higher.
Gray marketers sell the merchandise at discounted prices in
direct competition with authorized local distributors.
5 7
PARALLEL DISTRIBUTION

Concept of Gray Trade:
 Gray trade tends to serve as an arbitrage mechanism,
equalizing prices between markets in different countries.
Some of the main factors motivate entrepreneurs to engage in
gray trade:
i) Wide price discrepancies. ii) Limited availability.
iii) Inexpensive logistics.
Effects of Gray Trade:
 Affects brand equity.
 Strain relationships with authorized channel members.
 Lead to legal liabilities.
 Complicate global marketing strategies.

Channel Actions against Gray Trade:
What can global marketers do in the distribution
channels about gray trade?
Supply Interference
Dealer Interference
Demand Interference
Strategic Attack

Introduction:
 The important functions in the channel network are -
identification of what the key success factors are as they
relate to channel choice and then ensuring that the chosen
intermediaries in each country measure up on those criteria.
 To identify the channel requirements, the natural first step
is to decide whether any of the firm-specific advantages are
uniquely lodged in the distribution channels to be used.
 Availability of channel through market analyzed will
provide the necessary service based on the following
questions -
a) Are there financially strong franchisees available if they
are needed?
6 0
GLOBAL CHANNEL DESIGN

b) Can dealers provide after-sales service? Are there
boutiques where designer apparel is sold to an upscale market
niche?
c) Are there middlemen that can store frozen juice in
sufficient quantities?
 Channel tie-up - Where channel members are available to
provide the functions necessary, they still might be
unwilling to sign on with the new product unless special
trade allowances bigger than those offered by the
competition are made.
 Coordination and Control - With a good distribution
network established, coordination and control from a
centralized headquarters location might now be feasible.

Introduction:
 Several strategic questions arise about how to reach foreign
markets and conduct an orderly global expansion?
 What should the mode of entry be? How fast should new
country markets and new products be added to existing ones?
 What is the best expansion path, considering the learning and
experience already accumulated?
 Will similar countries be preferable or should one strike out into
new ground completely?
 What added advantages would a product and country
diversification strategy entail?
 How should new entries be chosen so as to maximize total
benefits?
6 2
ENTRY MODES

a) Licensing:
 It refers to offering a firm’s know-how or other
intangible asset to a foreign company
Advantage - over exporting is its avoidance of tariffs.
b) Franchising:
 In franchising, the entering firm (the franchisor) offers
to help a local entrepreneur (the franchisee) to establish
a local business that is allowed to sell the franchisor’s
well-known branded product in the new market.
 Franchisee will raise the necessary capital and agree to
pay the franchisor a royalty on sales and usually an up-
front fee.

c) Original Equipment Manufacturing (OEM):
 A company enters a foreign market by selling its unbranded
product or component to another company in the market
country.
 The buyer then sells the final product under its own brand
name.
 The supplier has to give up its own effort to market the product
overseas, but often tries to change its strategy later if the
overseas market for its product is strong.
d) Strategic Alliances:
 Strategic alliances (SAs) are collaborations between
companies, sometimes competitors, to exchange or share some
value activities.
 It is form of joint ventures also involve capital investments and
the creation of a new corporate unit jointly with a foreign
partner. 6 4Unit 4– Promotion & Distribution Strategies

e) Wholly owned Manufacturing Subsidiaries:
 A wholly owned subsidiary in manufacturing can
involve investment in a new manufacturing or
assembly plant or the acquisition of an existing
plant.
 When production takes place in the host country
through a wholly owned manufacturing subsidiary,
the company commits investment capital in plant
and machinery that will be at risk in the country.
This is traditional foreign direct investment (FDI).

Introduction:
 Which mode of entry into the foreign market should be
chosen?
 Can an optimal entry strategy be found?
 With all the factors internal and external to the firm to be
taken into account, it’s impossible to give a single answer
to this question.
 A mode that offers protection from political risk (such as
licensing) may offer little help with control of product
quality.
 A mode that maximizes control over company-specific
advantages (such as FDI in manufacturing) involves the
maximum political risk, and so on. 6 6
OPTIMAL ENTRY STRATEGIES

Entry Mode Matrix:
 One can distinguish several strategic situations and
the preferred mode of entry in each.
 The entry strategy is affected both by company
factors (the FSAs in particular) and by market
factors (opportunities and threats).
 The company factors can be grouped into an entry
mode matrix with three strategic postures.
 The market factors are different in emerging
economies as compared to high-growth and mature
markets.

Strategic Posture for Optimal Entry:
a) Incremental strategy - One company posture is when few
resources can be dedicated to entry, and this is the usual case
when entry is the first step in the internationalization
process.
b) Protected strategy - A second strategic posture is when the
firm possesses a well-protected trade secret or patentable
know-how whose potential abroad is clear, but needs to learn
about the market and develop more local familiarity.
c) Control Posture - the company has well-established firm-
specific advantages and it is large enough to encounter
relatively few resource obstacles to expansion, and offers a
product with definite potential abroad.

70Unit 4– Promotion & Distribution Strategies

Promotion & Distribution Strategies for International Markets

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