Your first decision – market entry
In preparing your export plan, one key concern you will face will be how to get your export product(s) to your prospective buyers as well as your ultimate customer located in target market(s) half-way across the globe. In this regard, there are three issues that you need to consider. The first is how you plan to enter the market. ‘Market-entry’ is commonly discussed under the heading of export distribution and deals with the options available to you in gaining entry to and establishing yourself in these foreign markets. Market-entry, however, is much broader than just the physical distribution of goods and will impact on your other marketing elements as well (namely, product, promotion and price). Examples of market-entry include indirect exporting, direct exporting, licensing, franchising, joint ventures, manufacture abroad, foreign assembly and management contracts. It is easy to see that manufacture abroad, for example, while one of several market-entry options available to you as an exporter, will also impact on your firm’s export promotion effort, export price and even on the product (your producty may need to be adapted in some way in order to be manufactured abroad). Click here to learn more about the various market-entry options available to you.
Your next decision – in-market distribution
The second issue you need to consider is the movement of goods within the foreign market, referred to as in-market distribution. Once you have decided to use a foreign distributor, for example, you need to be aware of how the product reaches the eventual consumer even though it may not always be under your direct control or your responsibility. Depending in which market-entry option you use, your control and responsibility over the in-market movement of goods will vary. With some market-entry options such as franchising or licensing, you will have some control (perhaps evn a lot of control). Other market-entry methods, such as working through a foreign distributor, will mean that you have little or no control over in-market distribution. Nevertheless, you still need to be aware of what happens after you sell your products to the distributor (even though you probably won’t know all the details), as this knowledge will help you formulate your pricing, product and distribution strategies better. Click here to learn more about in-market distribution.
Payment terms and Incoterms impact upon your distribution responsibilities
The third issue you need to address is the payment term (or Incoterm) you plan to use. Bear in mind that when negotiating with the overseas buyer, you will inevitably agree to your payment terms based on a particular Incoterm (such as Ex Works, C&F or DDP). This Incoterm will dictate where your responsibility as the seller starts and ends and, consequently, the Incoterm also has a direct bearing on your distribution strategy. We discuss Incoterms from a distribution poin-of-view in a later section. Click here to learn more about payment and Incoterms.
The physical distribution of your goods
The fourth issue that you need to concern yourself with is the physical distribution of the products you are exporting to your target market. Although physical distribution is clearly a component of your market-entry strategy and the in-market movement of goods within the target market (which we mentioned above), it is important enough to discuss separately. The physical distribution of your goods involves ensuring that your goods move from you factory to the end user. As far as the physical movement of goods is concerned, you also need to decide on how your the goods will be transported from your factory to the end user and who will take care of this physical movement of goods. Click here to learn more about the physical distribution of your goods abroad.
Managing the distribution process
Ideally, you, as the exporter, should control or at least be involved in the distribution process through the various channels to the final buyer, whether this is an industrial end-user or a consumer. Such involvement, however, is not always practical or cost-effective. Consequently, your choice of intermediary and subsequent management of the channels must be sound. The channels you select will ultimately affect every other marketing decision you make.
For example, if the marketing channel is a long one, the various mark-ups enjoyed by the intermediaries involved will ultimately affect the consumer price and this will have an impact on sales volume. Similarly, the size of a sales force will depend on whether goods are sold directly to retailers or only to wholesalers. The channel decision will also involve the company in long-term commitments from which it may be difficult to extract itself should company policy change at a later stage.
Sight should not be lost of the fact that, by using intermediaries, effective control over the market is lost, and therefore the selection of the channel constituents must be carried out with particular care. Before embarking on this task, the exporter needs to ensure that company policy has been clarified and communicated to each channel member in respect of the following:
- The company’s specific export marketing goals, expressed in terms of sales volume, market share and profit margin requirements
- The financial and human resources that are to be allocated to the development of international distribution
- How the channels of distribution will be controlled, the length of channels, terms of sale, etc.
Preparing a distribution strategy statement for your export plan
These distribution issues we discuss in detail in subsequent sections. Once you have worked through these various issues, you should be able to prepare a statement outlining your export distribution strategy. This strategy should outline the following;
- Your choice of market-entry channel
- Your choice of in-market channel
- Whether you plan to market and distribute your goods directly or indirectly
- Whether you plan to use intermediaries or not
- How you plan to manage the distribution channel
- You can market, sell and/or distribute the goods directly to the end-user, as is often the case with industrial goods or when selling over the Internet.
- You can market, sell and/or distribute your goods to foreign customers, using local and foreign intermediaries who perform a variety of functions associated moving the goods from the product, as is often the case with consumer products.
- You can market, sell
Should the second alternative be chosen, your involvement will normally be with more than one intermediary and each individual link in the ‘distribution chain’ will interface with the others. This marketing network is known as a marketing channel or a distribution channel. A typical example of which is the manufacturer-wholesaler-retailer distribution channel used for many consumer goods