Domestic merchants are independent businesses that are in business to make a profit rather than to receive a fee. There are several types of domestic merchants. Because they all take title, they are distinguished by other features, such as physical possession of goods and services rendered. One kind of domestic merchant is the export merchant. An export merchant seeks out needs in foreign markets and makes purchases from manufacturers in its own country to fill those needs.
- Usually the merchant handles staple goods, undifferentiated products, or those in which brands are unimportant. After having the merchandise packed and marked to specification, the export merchant resells the goods in its own name through contacts in foreign markets.
- The merchant assumes all risks associated with ownership.
- An export drop shipper, also known as a desk jobber or cable merchant, is a special kind of export merchant. The mode of operation requires the drop shipper to request a manufacture to “drop ship” a product directly to the overseas customer.
- Upon receipt of an order from overseas, the export drop shipper in turn places an order with a manufacturer, directing the manufacturer to deliver the product directly to the foreign buyer.
- The manufacturer collects payment from the drop shipper, who in turn is paid by the foreign buyer.
- Use of a drop shipper is common in the international marketing of bulky products of low unit value (e.g., coal, lumber, construction materials).
- The high freight volume relative to the low unit value makes it prohibitively expensive to handle such products physically several times.
- Whereas export merchants and drop shippers purchase from a manufacturer whenever they receive orders from overseas, an export distributor deals with the manufacturer on a continuous basis.
- This distributor is authorized and granted an exclusive right to represent the manufacturer and to sell in some or all foreign markets.
- The ED pays for goods in its domestic transaction with the manufacturer and handles all financial risks in foreign trade.
- An export distributor differs from a foreign distributor simply in location.
- The export distributor, in comparison, is located in the manufacturer’s country and is authorized to sell in one or more markets abroad.
- Those that want to sell and those that want to buy often have no knowledge of each other or no knowledge of how to contact each other. Trading companies thus fill this void. In international marketing activities for many countries, this type of intermediary may be the most dominant form in volume of business and in influence. Many trading companies are large and have branches wherever they do business.
- They operate in developing countries, developed countries, and their own home markets.
- Half of Taiwan’s exports are controlled by trading companies. In Japan, general trading houses are known as sogo shosha, and the largest traders include such well-known MNCs as Mitsubishi, Mitsui, and C. Itoh.The nine largest trading firms handle about half of Japan’s imports and exports. Even large Japanese domestic companies buy through trading companies.
Functions of a trading company
- A trading company may buy and sell as a merchant.
- It may handle goods on consignment, or it may act as a commission house for some buyers.
- By representing several clients, it resembles an EMC
- As the name implies the trading company trades on its own account for profit
- The trading company gathers market information; does market planning, finds buyers; packages and warehouses merchandise; arranges and prepares documents for transportation, insurance, and customs; provides financing for suppliers and/or buyers; accepts business risks; and serves foreign customers after sales
Distribution Channel Choice Decisions
As in any domestic market, the international market requires a marketer to make at least three channel decisions: length, width, and number of channels of distribution.
Factors to consider when selecting type of channels
Factors that must be taken into account include legal regulations, product image, product characteristics, middlemen’s loyalty and conflict, and local customs.
Legal regulations – A country may have specific laws that rule out the use of particular channels or middlemen. France, for example, prohibits the use of door-to-door selling.
Saudi Arabia requires every foreign company with work there to have a local sponsor who receives about 5 percent of any contract. Not surprisingly, many Saudis, acting as agents, have become millionaires almost overnight. Because of government regulations, a foreign company may find it necessary to go through a local agent/distributor. In China, foreign firms cannot wholly own retail outlets, and they cannot engage in wholesaling activities.
Product image – The product image desired by a manufacturer can dictate the manner in which the product is distributed. A product with a low-price image requires intensive distribution. On the other hand, it is not necessary nor even desirable for a prestigious product to have wide distribution. Clinique’s products are sold in only sixty-four department stores in Japan. Waterford Glass has always carefully nurtured its posh image by limiting its distribution to topflight department and specialty stores.
Product characteristics – The type of product determines how the product should be distributed. For low-priced, high turnover convenience products, the requirement is for an intensive distribution network. The intensive distribution of ice cream is an example. Walls’ (formerly Foremost’s) success in Thailand may be attributed in part to its intensive distribution and channel adaptation. For high-unit-value, low-turnover specialty goods, a manufacturer can shorten and narrow its distribution channel. Consumers are likely to do some comparison shopping and will more or less actively seek information about all brands under consideration. In such cases, limited product exposure is not an impediment to market success.
Middlemen’s loyalty and conflict – One ingredient for an effective channel is satisfied channel members. As the channel widens and as the number of channels increases, more direct competition among channel members is inevitable. Some members will perceive major competing members and self-service members as being unfair. Some members will blame the manufacturer for being motivated by greed when setting up a more intensive network. Intensive distribution reduces channel members’ cooperation and loyalty as well as increasing channel conflict.
Local customs – Local business practices, whether outmoded or not, can interfere with efficiency and productivity and may force a manufacturer to employ a channel of distribution that is longer and wider than desired. Because of Japan’s multitiered distribution system, which relies on numerous layers of middlemen, companies often find it necessary to form a joint venture with a Japanese firm, such as Pillsbury with Snow Brand, Xerox with Fuji, and KFC with Mitsubishi. In Hong Kong there should be no more than two layers between a US exporter of finished goods and Hong Kong consumers, usually consisting of an importer, agent retailer, or distributor.
