Elements of distribution Policy for Exports

Regarding exports it can be classified that all policy decisions regarding distribution into three categories:

1. Selection of the level of distribution at which to sell.
2. Selection of the number of distribution organizations to which to sell
3. Selection of the type of distribution organization to which to sell.

Level of Distribution:

The exporter may decide to sell either to an importer/importer wholesaler – distributor, super markets, chain stores or specialty stores. Out of these various outlets the exporter should choose which one will depend on the nature of his product, the size of the market and his financial resources. Many smaller companies may sell only to an importer, the domestic distribution being taken care of by the latter. Recently, a new type of distribution operators has emerged in certain markets. They are designated as manufacturer importers. For example number of units which are manufacturing and selling leather garments. These units essentially because of economies of scale, subcontract part of their business in small lots to manufacturer exporters in developing countries. Selling to the manufacturer importers solves the problem of internal distribution so far as the exporter is concerned as is handled by the former.

Direct Vs Indirect Distribution:

Medium and big exporters are more likely appoint agents or distributors in the target markets. In this case, the exporting company must evolve a monitoring and control system for evaluating the performance of the agents and distributors. Further, if the company is selling machinery and equipment or durable consumer goods, it must decide whether it should exclusively be dependent on the distributor for after sales service or it must supplement the efforts of the distributor or establish its own sale office.

Whether to sell directly to the customers or indirectly through agent or distributor will depend on the relative strengths of the various factors involved. The factors in favor of selling directly are:

1. Control: The exporting company will have direct control over the marketing operations and therefore can devise and implement the proper marketing strategy in tune with the changing marketing conditions.
2. Customer satisfaction: Buyers of highly specialized equipment prefer to deal directly with the manufacturers as they expect to be completely assured of the service and backup system. Distributors may not have highly qualified technical people on their payroll for conducting sales negotiation for such equipment.
3. Profit: By selling directly the exporting company can save the commission that becomes payable to the agent or distributors. If the volume of sales is fairly high, it may become more economical to establish its own sales office than paying commission calculated on a percentage basis of sales turnover.

Factors which operate against direct selling are:

(a) Standing in the market: A new exporter’s name will be an unknown element and therefore, even though the price and quality of the product may match those of known companies, the new entrant will be at a disadvantageous position. In such a situation, it would be easier to gain credibility in the market if a known distributor can be persuaded to handle the product because the standing of the distributor will help in assuring the customers about the quality of the new merchandise.

(b) Economies of Scale: customers of certain range of products generally purchase set of complementary products rather than one. Therefore a distributor handling a complete line can effectively economize on selling costs. A manufacturer-exporter, selling directly, may not enjoy this economic advantage, unless it is very large company manufacturing a complete line of complementary products.