Success Strategies in Channel Management

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Feb 17, 2014 (3 years and 3 months ago)

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1

Success Strategies in Channel
Management

Global Challenges and Opportunities

2

Reasons for
International Exchange
Relationships

Types of International
Exchange
Relationships

Multinational Exchange
Relationships

Global Exchange
Relationships

Transnational Exchange
Relationships

Indirect Marketing
Channels

International Marketing
Channels and the
Environment

Sociocultural Factors
Technological Factors

Selecting International
Exchange Partners

the Five Cs

Develop Flexible
Transaction
Structures

Success and Failure
Factors

Global Partner
Selection Factors

3

Reasons for International Exchange
Relationships

International exchange relationships
can help channel partners:



Address shortfalls in how a market's
needs and wants are being satisfied
by current entrants.


Optimize their manufacturing and
distribution capabilities.


Share the risks associated with
entering new markets.


Facilitate new product innovation.

Gain and then exploit economies of
scale.

Extend the market scope of their
existing operations.

As always, issues of products,
targeting, and positioning remain
critical to success in any market.

There are other reasons for pursuing
international channel relationships.
For instance, channel members can
also seek new technologies,
,
more
stable currencies, or greater sales
volume through their entry into
international exchange relationships.

4

Types of International Exchange
Relationships


The term
international

merely suggests something is occurring between
nations. Thus, as a term, international fails to fully capture the diversity
actually present within international exchange relationships.


The term
multinational corporation

(MNC)
is usually used to describe
organisations operating in different countries, yet there is no agreement as
to what a multinational corporation really is. Three criteria have been
proposed in the identification and characterization of MNCs.


5

Multinational Exchange Relationships

The first category of international
channel activity may be referred to as
multinational exchange relationships.
In
multinational exchange
relationships (MERs),
channel
members view the global market as
segments and employ distinctive
strategies for each segment.


MERs occur between trading partners
who operate in foreign markets as if
they were local concerns.

MERs offer international marketers
the opportunity to engage in
domestic
-
like strategies executed in
foreign markets. As exchange
relationships, MERs are based on the
ability of the exchange partner
located in the target market to
effectively adapt and then respond to
the environmental circumstances and
opportunities prevailing in that
market.


6

Global Exchange Relationships


GERs require the highest levels of integration
-

involving a pursuit of
consolidation and synthesis
-

among exchange partners. By definition,
synthesized channel strategies do not come from any individual member.
Channel strategies are instead borne from the collective goals associated
with the exchange relationship itself. In GERs, issues of centralization and
control are immaterial.


7

Transnational Exchange Relationships

Transnational exchange relationships
(TERs) essentially fall between the
MERs and GERs. Rather than
engaging in country
-
by
-
country
adaptation, TERs approach
international relationships from a
regional perspective. TERs employ
channel strategies that have been
tailored to the requirements of entire
market regions. In comparison to
MERs, TERs are characterized by
greater centralization and fewer
exchange partners.

TERs are unique in several ways. While
TERs involve fewer exchange partners
than MERs, these partners are larger in
scope. TER exchange relationships tend
to be fairly consistent within a region.


Direct and Indirect International
Marketing Channels


In broad terms, we can classify these
entry modes into direct and indirect
methods.

8

Transnational Exchange Relationships

There are several types of direct
entry modes:



Local Facility.

The local facility method
involves the development of a
organisation
-
based management team
operating in the host country. The level of
centre corporate involvement tends to
vary greatly based on the industry,
channel function, and market. This
involvement may range from having a
local manufacturing facility to simply
having a domestic salesforce. The host
-
country facility is usually controlled from
a home
-
country location.


Marketing Subsidiary
. In this mode, the
channel member establishes a subsidiary
organisation in the host country or region.
The subsidiary then behaves as an
essentially autonomous unit and tries to
develop a strong local presence..


Foreign Sales Agents (FSAs
).
Foreign sales agents are organisation
designates that, for the most part,
function as a sales and support staff for
goods produced in home
-
country
locations. FSAs do not take title to goods;
instead, they operate fairly autonomously,
arranging for the consummation of
orders.

9

Indirect Marketing Channels

When indirect entry is used, the
domestic channel member manages
the distribution of products and/or
services in a foreign target country or
region through foreign designates. A
foreign designate

is any intermediary
that contributes to the distribution of
domestically produced goods through
some foreign target market. The most
prevalent types of indirect entry
modes are:


Export Management Organisations

(EMC). Export management
organisations offer the services of a
manufacturer's representative who
specializes in cultivating international
exchange relationships in particular
locales.
Piggybacks.

Piggybacks involve
a joint effort at international market entry
generally shared among several channel
members. Piggybacking is a coordinated
effort in which different exchange
partners perform their own specialized
channel functions in a foreign market.

10

Indirect Marketing Channels

Foreign Distributors. Foreign distributors
are the most common way for
organisations to indirectly enter a foreign
market. Here, an established domestically
based distributor operating at the
wholesale or retail level is contracted to
develop and cultivate ex
-
change
relationships within the entry market.
These distributors take title to goods,
usually stock inventories, and provide
local marketing activities.

Foreign distributors are valuable because
they provide an immediate market
presence. Foreign distributors generally
also have pre
-
existing customer contacts.



Trading Organisations
. Trading
organisations are large, international
channel members that have a
worldwide presence. What separates
trading organisations from other
types of indirect marketing channels
is the expanse of their market
coverage.

Channel members may actually use
several direct and indirect entry
modes simultaneously in a single
international market, depending on
the level of market presence they
wish to establish.

11

International Marketing Channels and the
Environment


International environmental conditions can be classified into five
categories: economic, political/legal, sociocultural,
technological, and physical/geographical factors.


12

Sociocultural Factors

The beliefs, values, and lifestyles that
prevail within a target nation should
be evaluated before an international
marketing channel is developed.

All exchange activity occurs within
the boundaries of a social system.
That social system reflects the norms
and values native to the marketplace.

Thus, all marketing channels are
affected by the social system in
which they do business.


Too often, channel members treat an
international market as a single entity
to be conquered. The fact is that
virtually all countries' populations are
made up of several different
homogeneous consumer segments
that jointly define the social system
of that country.

These consumer segments often
differ from one another. International
marketers must, therefore, deal with
the norms and values associated with
the different market segments within
the countries they pursue.


13

Culture

Culture is the shared meaning
assigned to individuals' beliefs,
values, and customs that results from
those individuals
'

interactions with
their social system.




Culture has four basic functions:


Culture provides a way to classify
exchange partners' behaviours and events.

It provides appropriate codes or standards
of behaviour among exchange partners.

It prioritizes codes or standards of
conduct in exchange relationships.

Lastly, culture legitimizes the use of
certain proactive and reactive exchange
behaviours, while condemning the use of
other exchange behaviours.

14

Technological Factors


Technological advances can lead to a more efficient use of raw materials,
improved manufacturing productivity, and improved product quality. Such
advances force international exchange partners to monitor competitive
technologies. Naturally, the rate at which new technology is introduced and
adopted will differ across markets.


Innovations diffuse more rapidly through the relevant social system in some
nations and regions than in others.


15

Selecting International Exchange Partners

Selecting the wrong channel partner
invariably proves costly.

Each organisation taking part in an
exchange relationship wields
substantial power because of the need
for someone to have local market
expertise. So even the less powerful
partner
-

usually operating in the
target country
-

is still influential.



Several basic criteria need to be evaluated
when international partnerships are being
initiated.

We call these factors the
Five Cs
:
Costs,
Coordination, Coverage, Control, and
Cooperation
.

The Five Cs are useful for several
reasons. First, they are easily identifiable
-

most exchange partners have access to
this information in some form. Second,
these factors are applicable across all
countries or regions. Finally,
organisations can make quantitative
assessments of each "C" prior to entering
any international exchange relationship.

16

Costs

What costs are associated with the
selection of a particular exchange
partner? Three types are especially
germane. The first is
initial costs,
which
involve those outlays needed to set up the
marketing channel.

Preservation costs
are the expenses of
maintaining an exchange relationship.
They include the disbursements necessary
to provide salespeople, promotional
materials, and accounting systems, as
well as to cover travel expenses.
Preservation costs also include the
allocation of profit margins between the
exchange partners.

Preservation costs are often difficult to
estimate.


The third major consideration is
logistics
costs.
Logistics costs reflect the expenses
related to transporting goods and
managing inventories.

Several questions must be answered to
calculate logistics costs. These include:
Who will be responsible for stocking
inventories? Who receives returned
goods? Who is responsible for making
transportation arrangements?



17

Co
-
ordination

This factor requires that prospective partners estimate how each of the
necessary marketing functions (i.e., pricing, promoting, distributing,
negotiating, etc.) will be allocated among the channel participants.

A preliminary description of which partner will perform what channel
function(s) should be derived for each potential exchange partner. This
preliminary description draws heavily on the expected competencies that
each organisation brings to the international marketing channel.

While a organisation's distinctive competencies are usually easily identifiable,
each partner's competencies
relative
to the other partners can prove difficult
to assess without prior experience. It is not unusual for prospective
exchange partners to provide evidence of their role performance in previous
or ongoing exchange activities.


18

Coverage


The territorial coverage that a
prospective exchange partner can
comfortably handle should be
determined and agreed upon. Will a
single exchange partner provide
sufficient coverage for the targeted
market? Or, are several exchange
partners required? This criteria is not
as easily evaluated as it might seem.

Control


Exchange partners must negotiate
with one another to determine who
will control key channel resources.
When an exchange partner demands
an inappropriately high level of
control in certain areas, the chances
for cultivating a long
-
term
relationship are dampened. The
exchange partner targeted by such
control efforts is likely to feel less
secure and optimistic.

19

Cooperation

Finally, issues of cooperation are an
important concern in the selection
process, although they may likewise
prove difficult to assess. From the early
stages of negotiation, potential exchange
partners receive cues from one another.
These cues can help indicate the degree to
which a prospect will be flexible and
cooperative in the pursuit of mutually
satisfying transaction terms.

One such cue may be reflected in a sixth
"C," namely, the level of
Commitment
the prospective channel partner has
toward the proposed relationship.

Establish a "Walk
-
Away"
Rationale.


Because profit margins are allocated
among channel members, some pre
-
specified criteria should be in place for
deciding when to maintain or forsake an
international exchange relationship. If
profit margins fall below a pre
-
specified
standard, the channel member should
withdraw from the channel relationship.
The impact of negative fiscal policies can
often even be detrimental to channel
relationships transpiring in other
countries.

20

Develop Flexible Transaction Structures.

Select Experienced Exchange
Partners.


Prospective exchange partners should
demonstrate knowledge of or
experience with the relevant
economic environment. Why would
anyone initiate a relationship with an
exchange partner that possessed no
specialized knowledge of the market
area


Many countries view
foreign investment
as a necessity

for their economic
advancement. These nations encourage
foreign investment through tax incentives
or providing breaks on infrastructure
investment costs. Channel members
operating in such nations usually find it
easier to coordinate their exchange
relationships.


In nations that have
a historical basis for
distrusting foreign corporations
,
attempts to restrict or curtail their
involvement through regulations, punitive
taxes, or outright expropriation are often
initiated.

21

Success and Failure Factors

There is one overriding concern at
all channel levels
-

the ability of the
channel member to manage
dynamic environmental factors.


Failures in international
relationships usually result from
one or more of the following
factors:


Differing expectations among
exchange partners.


Slow reactions to changing market
conditions.


Clashes in exchange partners'
corporate cultures.


Prematurely developed
international exchange
relationships.


22

Global Partner Selection Factors


Local Experience


Strong local brand names


Established distribution channels


Links with major buyers


Knowledge of local market


Knowledge of local culture


Production Capacity


Access to advanced technology


An outstanding product


Knowledge of the production
process


Skilled labour


Experience in related technologies


Natural resources


Managerial competence


A high quality management team


A compatible senior management
team


A good reputation


Funding availability


Ability to finance operations


Capital

23

Global Partner Selection Factors


A
strong financial standing


Political Networks


Ability to deal with government


Linkages with government


International experience


Compatibility


Shared objectives allow us to
minimise the intensity of conflicts


Our individual objectives are likely
to achieved by cooperating


Our partner and ourselves place a
similar value on this alliance


We have a common view on most
business issues



Goal Congruence


The interests of our firm and our
partner are the same


The long term aims of our firm and
partner are the same


Resource Complementarity


Market knowledge


Customer knowledge


Competitor knowledge


24

Global Partner Selection Factors


Industry knowledge


Reputation


Reputation with suppliers


Reputation with customers


Networks


Established customer base


Established channels to market


Location


Innovative culture


Innovative culture


Leaning
-
orientated culture




Reputation for innovation


Financial resources


Availability of working capital


Access to finance


Manufacturing resources


Raw materials


Plant and equipment


Patents, trademarks, Licences etc



25

Global Partner Selection Factors


Capability Complementarity


Managerial capabilities


Financial management skills


Risk management capabilities


Ability to deal with complex legal
issues


Ability to implement strategies


Relationship management
capabilities


Managing stakeholders



Managing industry relationships


Managing government
relationships


Operating capabilities


Product extension capabilities


New product development
capabilities


Time
-
to
-
market proficiency


Production capabilities


26

Global Partner Selection Factors


Resource allocation efficiency


Ability to perform market research


Marketing capabilities


Managing customer relationships


Distribution capabilities


Serving customer needs


Communication capabilities


Ability to gather useful
information


Ability to share useful information


Ability to communicate


Governance


Operating and Managerial control


Assigning highly experienced
managers to the alliance


Appointing critical personnel


Frequent interaction with partner


Detailed operating procedures


Capital budgeting and Resource
allocation


External auditing


Limiting authorised spending


Controlling access to technology


Majority shareholding


Policy and Procedures


Periodical management reports


Capital budgeting and expenditure