Channel of Distribution Structures

In every country and in every market, urban or rural rich or poor all consumers and industrial products eventually go through a distribution process. The distribution process includes the physical handling and distribution of goods, the passage of ownership (title), and most important from the stand point of marketing strategy the buying and selling negotiations between producers and middlemen and between middlemen and customers.

A host of policy and strategic channel selection issues confronts the international marketing manager. These issues are not in themselves very different from those encountered in domestic distribution, but the resolution of the issues differs because of different channel alternatives and market patterns.

Each country market has a distribution structure through which goods pass from producer to user. Within this structure are variety of middlemen whose customary functions, activities and services reflect existing competition market characteristics tradition and economic development.

In short the behavior of channel members is the result of the interactions between the cultural environment and the marketing process. Channel structures range from those with little developed marketing infrastructure such as those found in many emerging markets to the highly complex multilayered system found in Japan.

Import-Oriented distribution Structure

Traditional channels in developing countries evolved from economies with a strong dependence on imported manufactured goods. In an import oriented or traditional distribution structure an importer controls a fixed supply of goods and the marketing system develops around the philosophy of selling a limited supply of goods at high prices to a small number of affluent customers. In the resulting seller’s market, market penetration and mass distribution are not necessary because demand exceeds supply and in most cases the customer seeks the supply from a limited number of middlemen.

This configuration affects the development of intermediaries and their functions. Distribution systems are local rather than national in scope, and the relationship between the importer and any middleman in the market place is considerably different from that found in a mass marketing systems. The idea of a channel as a chain of intermediaries performing specific activities and each selling to a smaller unit beneath it until the chain reaches the ultimate consumer is not common in an import oriented system.

Because the importer – wholesaler traditionally performs most marketing functions, independent agencies that provide advertising marketing research, warehousing and storage transportation financing and other facilitating functions found in a developed mature marketing infrastructure are nonexistent or underdeveloped. Thus, few independent agencies to support a fully integrated distribution system develop.

Contrast this with the distribution philosophy of mass consumption that prevails in the United States and other industrialized nations. In these markets, one supplier does not dominate supply, supply can be increased or decreased within a given range and profit maximization occurs at or near production capacity. Generally a buyer’s market exists and the producer strives to penetrate the market an push goods out to the consumer, resulting in a highly developed channel structure that includes a variety of intermediaries many of which are unknown in developing markets.

Obviously, few countries fit he import oriented model today, although the channel structure for chewing gum illustrated in the Global Perspective comes closest to describing a traditional import oriented structure. As China develops economically its market system and distributing structure will evolve as well. As already discussed, economic development is uneven, and various parts of an economy may be at different stages of development. Channel structures in countries that have historically evolved from an import oriented base will usually have vestiges of their beginnings reflected in a less than fully integrated system. At the other extreme is the Japanese distribution system with multiple layers of specialized middlemen.