Concept of International Distribution Channels, Types of International Distribution Channels

24th November 2021 0 By indiafreenotes

The sole objective of production of any commodity is to help the goods reach the ultimate consumers. In the era of modem large scale production and specialization it is not possible for the producer to fulfil this work in all circumstances. The size of market has become quite large. Therefore, the producer has to face numerous difficulties if he undertakes the distribution works himself.

Besides, in the age of specialization it is not justified on the part of a single person or organisation to entertain both production as well as distribution work. Thus, the producer has to take help of many distribution channels to transfer the goods to the ultimate consumers. In other words, many different distribution channels are needed between producers and consumers for effective distribution of products.

“A distribution channel, in other words, is a set of fhs and individuals that take title, or assist in transferring title to a particular good or service as it moves from the producer to the consumers. Channels of distribution consist of two categories of intermediaries or middlemen, namely:

i) Merchants who take title to the goods.

ii) Agents who do not take title to the goods but assist in the transferring of the title.

The economic development of a country may influence the channels of distribution in the following way,

i) The more developed countries have more levels of distribution, more specially stores and supermarkets, more department stores and more stores in the rural areas.

ii) The influence’ of foreign agents declines with economic development.

iii) The manufacturer, wholesaler, retailer functions become separated with increasing economic development.

iv) Financing function of wholesalers decline and wholesale markets increase with increasing development.

v) The number of small stores declines and the size of the average store increases with increasing development.

vi) RetaiI margins improve with increasing economic development.

According to Philip Kotler, “Every producer seeks to link together the set of marketing intermediaries that best fulfil the firm’s objectives. This set of marketing intermediaries is called the marketing channel.”

According to Richard Buskirk, “Distribution channels are the systems of economic institutions through which a producer of goods delivers them into the hands of their users.”

According to William J. Stanton, “A channel of distribution for a product is the route taken by the title to the goods as they move from the producer to the ultimate consumers or industrial user.”

According to McCarthy, “Any sequence of institutions from the producer to the consumer, including none or any number of middlemen is called a channel of distribution.”

Types of International Distribution Channels

Distribution Channel of Consumer Goods:

The channels of distribution for consumer products may be as follows:

  1. Manufacturer → Agent → Wholesaler → Retailer → Consumer:

In this method of distribution channel, product reaches the agent from the manufacturers and from the agent to wholesaler and then to consumers through retailers. In India, most of the textile manufacturers adopt this method of distribution.

  1. Manufacturer → Agent → Retailer → Consumer:

In this method of distribution, the wholesaler is eliminated and goods reach from manufacturer to agent and then consumers through retailers only. Manufacturers who want to reduce cost of distribution adopt this method.

  1. Manufacturer → Agent → Consumer:

As per this method of distribution channel, there is only one middleman that is the agent. In India, for the distribution of medicines and cosmetics, this channel of distribution is commonly adopted.

  1. Manufacturer → Wholesaler → Retailer → Consumer:

A manufacturer may choose to distribute his goods with the help of two middlemen. These two middlemen may be wholesalers and retailers.

  1. Manufacturers → Retailer → Consumer:

In this method of distribution channel, manufacturers sell their goods to retailers and retailers to consumers. In India, Gwalior Cloth Mills and Bombay Dyeing adopt this channel of distribution to sell textiles.

  1. Manufacturers → Consumers:

A producer of consumer goods may distribute his products directly to consumers. The goods may be sold directly to consumers through vending machines, mail order business or from mill’s own shops.

Distribution Channel of Industrial Products:

The channels for industrial products are generally short as retailers are not needed.

However, following methods may be adopted:

  1. Manufacturer → Agent → Wholesaler → Industrial Consumer:

Under this method, product reaches from manufacturer to agent and then to industrial consumer through the wholesaler.

  1. Manufacturer → Agent → Industrial Consumer:

Under this system, goods reach industrial consumer through the agent. Thus, there is only one middleman.

  1. Manufacturer → Wholesaler → Industrial Consumer:

This distribution channel is the same as above, the only difference is that in place of agent, there is wholesaler.

  1. Manufacturer → Industrial Consumer:

Under this channel there is no middleman and goods are directly sold to industrial consumer. Railway engines, electric production equipment are sold by this system.

Direct channel is popular for selling industrial products since industrial users place orders with the manufacturers of industrial products directly.

To plan about an export distribution, knowledge on two different aspects are a must:

(i) The marketing channel that is available in the Foreign Market.

(ii) The most appropriate channel is to link the domestic operations to the overseas channels.

The principal forms of penetrating exports markets are selling to local export houses or buying organisations for indirect exporting and appointing agents or distributors for direct exporting.

If these forms are combined with the domestic channel of distribution in the importing country, the export distribution channel can be identified as follows:

Direct Distribution Channel:

This figure is illustrative of distribution of channel of consumer goods. In case of industrial products, the channel will be shorter because there is no need of retailers. In fact, in many cases, there may not be any wholesaler.

Producer → Agent → Industrial buyer

Indirect Distribution Channel:

In indirect exporting, the firm delegates the task of selling products in a foreign country to an agent or export house.

This figure is illustrative of distribution channel of goods. In case of industrial products, the channel will be shorter because there is no need of retailers. In fact, in many cases, there may not be any wholesaler.