International channel management strategies and practices

International Channel Management

The Japanese Distribution System has been under a lot of scrutiny and assessment and analyses by foreigners, and these analyses have attempted to find out the reason behind the absolute 'no go' principle that they find when they attempt to export any product to Japan. In a basic comparison between Japan and the United States of America, for example, while there is one single retail store for every 68 persons in Japan, in America, there is one retail store for every 120 persons. (Japanese Business Environment) The Japanese Distribution is virtually in the midst of a big controversy today, wherein the distributive structure and the various trade practices followed by the Japanese are under question. (A new perspective on the Japanese distribution system: structure and trade practices) The fact is that the Japanese Distribution System came into being during the early years of the seventeenth century, when several cottage industries in combination with the growing urban population gave rise to the phenomenon of a brand new class of people, known as the 'merchant class'. Another important fact to remember is the truth that almost all Japanese companies generally operate on the principle of very little equity, and a large amount of debts, wherein the manufacturers are ready to supply their goods to wholesalers in return for what are known as 'promissory notes' with terms that range from six months to more.

How can the manufacturer give away his goods on the basis of a mere promissory note? This is possible because of the extremely strong personal relationships between all the members of the entire channel. These members routinely share and distribute any vital information that may be pertinent to their work, and it is often said that this type of sharing information wherever and whenever necessary has its roots in the traditional village life of the people of yester years, when planting, irrigating, and the harvesting of crops had to be a shared activity rather than an individual activity if it was to actually succeed. Therefore, it can be stated that sharing is an important component of the Japanese Distribution System. In addition, the system exists in order to serve the social and the economic purposes that are required, and, more often than not, the social goals end up overshadowing the economic goals, and this means that the channel members in the distribution system are very much like the various members of one single family, whose members are tied together with the tight bonds of tradition as well as of emotion. If, as it dose tend to happen, one particular channel member had to be dropped from the system due to some reason or another that particular member would have to suffer a loss of face and pride, and this would have the tendency of leading the member into an unwonted tragic situation. (Future of Japanese Distribution Systems)

Therefore, the other members, and the entire system functions well despite the inefficiency or the incapabilities of a single member or a few members in the entire Japanese Distribution System, who's numerous members generally tolerate any inefficient members within the system. While in the United States of America, there is a well placed social welfare system that looks after the unemployed on a temporary basis, and even offers unemployment compensation, there is no similar system in Japan. In this country, the Japanese Product Distribution System acts as a provider of numerous jobs and also acts as a virtual buffer against unemployment. Most Japanese retire at the age of fifty-five, and at that age, they can avail of a lump sum pension that would actually amount to up to three years' salary, but since it is a fact that most Japanese also live up to long past the age of seventy and more, they utilize this lump sum amount and invest it in a small business of their own, and this serves the purpose of providing these individuals with a regular source of income for the rest of their lives. (Future of Japanese Distribution Systems)

Some people do attempt to find part time jobs with their previous employers or their subsidiaries or in their suppliers, and some try to invest the amount in certain small retailers or in wholesalers so that they have some sort of income during their retirement years, and most Japanese tend to opt for the latter. The distribution system therefore is seen as having the required social aims that would help maintain the retirees of the community to live a full life, and the system also ensures employment for them, as well as maintains the income flows from one point to another, and this structure serves as a guarantee of welfare for the retirees of Japan, as a result of which the Japanese Government feels little or even no need to provide welfare for these people. The system is an extremely flexible and workable device, and not only does it absorb excess workers, but it also does its bit for social service by providing retirees with a regular and steady source of income in the last days of their lives.

However, it is often felt that the Japanese Distribution System is inefficient, because of the fact that it has more than three tiers or levels, and this is not similar in any ay to the system that exists in the United States of America. For example, when a product has been manufactured, in Japan, it goes from the manufacturer to the general distributor, and from him to the special distributor, and from him to the special sub-distributor, form whom it goes on to the retailer, and then finally to the consumer. At times, it is noticed that he actual product does not change hands; everything is done on paper alone. The products are often taken from warehouse to another, and though this does create more jobs for more people, the entire cost for the exercise has to be inevitably borne by the consumer. However, the Japanese seldom complain, and this system is accepted by everyone involved as the best way in which to keep everyone working and earning a living. (Future of Japanese Distribution Systems)

What exactly is Channel Management, and how is it useful in international marketing procedures and processes? People form the major part of this system, and the fact is that they are not passive consumers but active players in the chain, they have individual needs and wants, and they apply these different needs and wants in no regular pattern; rather, they apply them however they see fit. They, in fact, allow themselves to be extremely inconsistent in their behavior, and they make individual and different choices depending on the occasion, or on the event, or even on the particular mood that they are in at that particular time. Consumers are today under more pressure, however, than they were in the previous years. They are under pressure from the paucity of time, of resources, and also from the rapid changes that are taking place everywhere today, and the unbelievable number of choices that the individual enjoys today. (Channel Management: Customer Power)

Those companies and organizations that would help the consumer of today cope with the excesses of change and choices would quite naturally thrive better than those that do not. The so-called 'pivotal players' in the game, that is, the retailers, are capable of satisfying the all powerful consumer by attempting to fully satisfy these needs, and thus doing well for themselves. The fact is that retailing in itself is in the midst of a number of dramatic changes, and these have been caused by the increasing phenomenon of globalization that has in turn been caused by E-Commerce. All these changes together affect the entire retail supply chain, wherein the manufacturer and the retailer and the consumer all play pivotal roles. Foreseeing these changes and addressing them is the most important part of any type of marketing operation anywhere. (Channel Management: Customer Power)

In the arena of channel management, the channel managers are also important players. It is these people who are often termed the 'eyes' of the organization, the eyes that the firm uses in order to look at the outside world. These people are often pitched against certain powerful internal forces within the organization, which would sometimes actually prefer not to have to hear what the other partners within the firm are thinking. These various forms of internal struggles are never talked about, and therefore there is no one way with which to deal with them. In a test that was conducted by the 'Routes to Market Association', channel managers were interviewed, and the various problems that they face were discovered. Some of them are: the organization and the culture in a firm that has no proper idea of the way in which the outside world works seemed to be a major handicap for most of them. (The Beefs of Channel Managers)

One individual states that when he was working in an American firm, he had to face a very difficult time, because of the fact hat Americans generally assume that the channel management in any foreign firm would be the same as those within America, and this proved to be a major handicap to some of the managers. Most Americans do not realize that the physical channels could be very different from the firms within America, and this phenomenon of misunderstandings and underestimations and also overestimations continues right down the line. Another major issue is that of a conflict with direct, at both field and at the management levels. This means that there is a certain amount of distrust in the idea of partners, and this holds true especially for those people who have never been in a channel relationship ever before. (The Beefs of Channel Managers)

One Company or organization that has used the method of Channel Management is Northern, a company that is the leading manufacturer of innovative types of storage management software for Windows NT/2000/XP environments. Lee Griffin was named the International Channel Manager of the company, and a part of his duties included the overseeing and the management of the various activities of the company across Europe, Asia, and North America, and this meant that he would be working in close contact with VARs and other OEMs that generally serve the enterprise IT marketplace. Lee Griffin stated that he was indeed happy and excited about joining this company, and one of the reasons for this happiness was the fact that the company showed an extremely innovative approach to storage resource management, and that the company was also showing a lot of interest in developing conducive relationships in the future with channel partners who would be able to effectively and efficiently deliver the company's high performance and low costing solutions to their numerous customers. (Northern names Lee Griffin International Channel Manager)

The important fact to remember is that channels are the pathways to customer success. The very real benefits of operating through the system of channel distribution is that there would be more number of contacts, more customers, and therefore, automatically, more success. When all the activities of an organization are integrated internally, then the company would see nothing but success. For example, 'demand channel management' are made up of those tasks that aid in identifying, generating, and also set in motion profitable demands, while 'sales channel management' comprise all the various activities that would inevitably lead to qualified leads and then to profitable contracts. 'Supply channel management' deals with those several tasks that are involved in order processing, logistics and customer service. (Integrated Channel management, More Sales and Lower Costs)

The York Group of Companies is another organization that has demonstrated the proper and the optimum usage of the Channel management System in order to generate more profits. The objective, as stated by the management, is that of identifying, and then recruiting, and then managing the various business partners in the markets of the group named Client, where the target markets show willingness to committing towards marketing Client. Through a series of well planned and well executed steps, that include a kick off, and then a search and qualification, and an introduction, and then a negotiation of the binding contract, and finally the entering into the business partner relationship, the contract is signed and the various channels are explored. (The York Group, Building International Channel) An International Channel manager has the major responsibility of being an integral part of the organization's International Sales Team wherein he would have, among other responsibilities, the primary one of the creation of a new business within a certain specified geographic territory, and also take up the charge and the responsibility for the total revenue growth that would be attained by the several different channel partners, that would include Distributors, Resellers, and Consultants. (International Channel Manager)

When an international player attempts to gain access and penetrate the Japanese environment for the purpose of conducting legitimate trade with that country, what are the strategies and the approaches that it has used in order to gain a foothold into that country, and how has it been achieve success in a foreign country? At the very outset, one important fact must be understood, and this is the fact that although trade generally benefits the entire country, there are several powerful interests within the foreign country that put up several barriers so that the conduct of free trade does not go on as planned. This is usually done by the method of putting up tariff barriers, and this means that a tax is imposed on the goods that are being imported. A second method is that of imposing quotas, which means that a particular country can only export a certain specified amount of goods to that importing country. There are non-tariff barriers too, and these are the passing of certain arbitrary laws that make the entry of a foreign company into another market quite difficult, and also make laws that would favor domestic products. There are also certain specific laws that any entry into foreign territory must learn before attempting entry, and these are Anti-Trust Laws, Foreign Corrupt Influences, and several Anti-Boycott Laws. Once all this is clear, only then must an attempt be made at entry. (National Trade Policy)

There are several different methods of entry, and these differ with the levels of risk, the amount of aggressiveness, and also the levels of control that the firm would be able to maintain in that foreign country. If, however, the strategy must be that of the formation of an international strategic alliance, then the advantage would be that the entry would be relatively easy and quick. In addition, the risk would be a shared one, whereby one or more companies join together to form an alliance and work together for one common goal. One example of this is demonstrated by the partnership of Kentucky Fried Chicken with Mitsubishi Keirishi that KFC formed when it entered Japan. When this was done, there were advantages for both the companies, and this was that KFC was assured of local managerial talents, and these locals would be able to deal more effectively with the local rules and regulations and the logistics involved, and Mitsubishi in turn, could make full use of the advantage of having gained a Brand Name. The shared risk in such cases makes the risk smaller for both the sides, and in addition, the shared knowledge and expertise of both the sides makes it an advantageous situation for both.

In addition, there would be the phenomenon of 'synergy', which means that the combined resources of both firms would make up for a larger than normal sum of the products. Everything is not filled with advantages, however, and the fact is, there are also quite a few disadvantages that an organization would have to face when entering a foreign market, in this case, Japan. One of the major disadvantages would be that of legal obstacles, wherein both the companies would have their own legal interests, and this would mean that the legal documents that would have to be made up would be extremely long winded and complicated. The costs of coordinating the efforts on both sides would also be prohibitive, and more effort inevitably means more costs. In International Marketing, the fact that it is often taken for granted that a product would generally be made to satisfy a particular need, and this may not be true in the international arena. For example, cars are used for the main purpose of transportation in the United States of America, while in Japan, they are very impractical to drive, and are therefore mainly used as a status symbol. (National Trade Policy)

Quite a few companies in the U.S.A. have been making concreted attempts to penetrate the Japanese markets, and the general belief is that there is a virtual network of both formal as well as informal trade barriers that prevent this basic entry, so that a fair chance at selling their products in Japan is denied to them. The Japanese market is often characterized as being multi-layered and with many middlemen, and that this is the main reason for the starting up of a number of small retail stores. In addition, the Japanese Distribution Channel is completely non-conventional, and this is the fact that makes ti difficult for any Westerner to understand. Therefore, an entry into Japan is not as easy as it seems, and one would have to attempt to understand the basic working of the organizational system in Japan to hope to even glimpse a small sliver of understanding into the complexities of the relationship between the various channels and their workings. (Distribution Channels in Japan, Challenges and Opportunities for Japanese Market Entry)