A marketer’s options range from assuming the entire distribution activity (by establishing it own subsidiaries and marketing directly to the end user) to depending on intermediaries for distribution of the product. Channel selection must be given considerable thought because once initiated it is difficult to change and if it proves inappropriate future growth of market share may be affected.
The channel process includes all activities beginning with the manufacturer and ending with the final consumer. This means the seller must extent influence over two sets of channels: one in the home country and one in foreign market country. Exhibit shows some of the possible channel of distribution alternatives. The arrows show those to whom the producer and each of the middlemen might sell. In the home country the seller must have an organization (generally the international marketing division of the company) to deal with channel, members needed to move goods between countries. In the foreign market, the seller must supervise the channels that supply the product to the end user. Ideally, the company wants to control or be directly involved in the process through the various channel members to the final user. To do less may result in unsatisfactory distribution and failure of marketing objectives. In practice, however such involvement throughout the channel process is not always practical or cost effective. Consequently selection of channel members and effective controls are high priorities in establishing he distribution process.
Once the marketer has clarified company objectives and policies, his next step is the selection of specific intermediaries needed to develop channel. External middlemen are differentiated on whether or not they take to the goods: agent middlemen represent the principal rather than themselves whereas merchant middlemen take title to the goods and buy and sell on their own account. The distinction between agent and merchant middlemen is important because a manufacturer’s control of the distribution process is affected by who has title to the goods in the channel.
Agent middlemen work on commission and arrange for sales in the foreign country but do not take title to the merchandise. By using agents, the manufacturer assumes trading risk but maintains the right to establish policy guidelines and prices and to require its agent to provide sales records and customer information.
Merchant middlemen actually take title to manufacturer’s goods and assume the trading risks, so they tend to be less controllable than agent middlemen. Merchant middlemen provide a variety of import and export wholesaling functions involved in purchasing for their own account and selling in other countries. Because merchant middlemen primarily are concerned with sales and profit margins on their merchandise, they are frequently criticized for not representing the best interests of a manufacturer. Unless they have a franchise or a strong and profitable brand, merchant middlemen seek goods from any source and are likely to have low brand loyalty. Ease of contact minimized credit risk and elimination of all merchandise handling outside the United States are some of the advantages of using merchant middlemen.
Middlemen are not clear cut precise, easily defined entities. A firm that represents one of the pure types identified here is rare. Thus intimate knowledge of middlemen functions is especially important in international activity because misleading titles can fool a marketer unable to look beyond mere names. What are the functions of British middlemen called a stockist or one called an exporter or importer? One exporter may, in fact be an agent middlemen whereas another is a merchant. Many of not most international middlemen wear several hats and can be clearly identified only in the context of their relationship with a specific firm.
Only by analyzing middlemen functions in skeletal simplicity can the nature of the channels be determined. There alternatives are presented: first middlemen physically located on the manufacturer’s home country: next middlemen located in foreign countries and finally government affiliated middlemen.