One of things companies discover about international channel of distribution patterns is that in many countries adequate market coverage through a simple channel of distribution is nearly impossible. In many instances, appropriate channels do not exist, in others pats of a channel system are available but other parts are not. In Peru, for example the informal distribution network accounts for almost a quarter of all retail cash sales. The ubiquitous street markets and ambulatory sellers offer far wider market penetration than formal distribution companies. Further, their prices are generally lower than traditional retailers partly because of lower overhead costs compared with the higher costs generated by the overextended formal distribution chain of the traditional retailer. Thus, several distinct distribution channel are necessary to reach different segments of a market channels suitable for distribution in urban areas seldom provide adequate rural coverage.
International marketers may be blocked from using the channel of their choice. Blockage can result from competitors already established lines in the various channels or from trade associations or cartels having closed certain channels. The classic example of blocked channels is Japan, as discussed earlier, but it is by no means the only example. In China FedEx and DHL initially ran into the Chinese government’s own mal services as a blocking competitor
Associations of middlemen sometimes restrict the number of distribution alternatives available in a producer. Druggists in many countries have inhibited distribution of a wide range of goods through any retail outlets except drugstores in turn have been supplied by a relatively small number of wholesalers that have long established relationships with their suppliers. This, through a combination of competition and association a producer may be kept out of the market completely. In the United Kingdom simple magnifying reading glasses that can be purchased in a dozen different types of stores in the United States can be purchased only by prescription through registered optical stores, which are controlled by a few large companies.
The high cost of credit the danger of loss through inflation, a lack of capital and other concerns cause foreign middlemen in many countries to limit inventories. This often results in out of stock conditions and sales lost to competitors. Physical distribution lags intensify the problem so that in many cases the manufacturer must provide local warehousing or extend long credit to encourage middlemen to carry large inventories. Often large inventories are out of the question for small stores with limited floor space. Considerable ingenuity assistance and perhaps pressure are required to induce middlemen in most countries to carry adequate or even minimal inventories BMW has taken a unique step to alleviate this problem in Germany. It encourages its customers to pick up their cars at the factory by providing an amusement park for the kids adjacent to the patent.
Power and Competition
Distribution power tends to concentrate in countries where a few large wholesalers distribute to a mass of small middlemen. Large wholesalers generally finance middlemen downstream. The strong allegiance they command from their customers enables them to effectively block existing channels and force an outsider to rely effective and more costly distribution.
Retailing shows even greater diversity in its structure than does wholesaling. In Italy and Morocco retailing is composed largely of specialty houses that carry narrow lines, whereas in Finland most retailers carry a more general line of merchandise. Retail size is represented at one end by Japan’s giant department store Mitsukoshi, which reportedly enjoys the patronage of more than 100,000 customers every day, and at the other extreme by the market of Ibadan, Nigeria where some 3,000 one or two person stalls serve not many customers. Some manufacturers sell directly to consumers through company owned stores such as Cartier and Disney and some sell through a half dozen layers of middlemen.