Consumer and business markets in the United States are well developed and growing slowly. However, the opportunities for growth abound in other countries. Coca-Cola, in fact, earns most of its income abroad—not in the United States. The company’s latest push is into China, where the per-person consumption of ready-to-drink beverages is only about a third of the global average. 1
The question is how to enter these markets? Via what marketing channels? Some third-world countries lack good intermediary systems. In these countries, firms are on their own in terms of selling and distributing products downstream to users. Other countries have elaborate marketing channels that must be navigated. Consider Japan, for example. Japan has an extensive, complicated system of intermediaries, each of which demands a cut of a company’s profits. Carrefour, a global chain of hypermarkets, tried to expand there but eventually left the country because its marketing channel system was so complicated.
Walmart managed to develop a presence in Japan, but only after acquiring the Japanese supermarket operator Seiyu. 2 As you learned in Chapter 2 "Strategic Planning" and Chapter 5 "Market Segmenting, Targeting, and Positioning", acquiring part or all of a foreign company is a common strategy for companies. It is referred to as making a direct foreign investment. However, as you learned some nations don’t allow foreign companies to do business within their borders or buy local companies. The Chinese government blocked Coca-Cola from buying Huiyuan Juice, that country’s largest beverage maker.
Corruption and unstable governments also make it difficult to do business in some countries. The banana company Chiquita found itself in the bad position of having to pay off rebels in Colombia to prevent them from seizing the banana plantations of one of its subsidiaries.
One of the easier ways of utilizing intermediaries to expand abroad is a joint venture. You first learned about joint ventures in Chapter 2 "Strategic Planning". A joint venture is an entity created when two parties agree to share their profits, losses, and control with one another in an economic activity they jointly undertake. The German automaker Volkswagen has struggled to penetrate Asian markets. It recently signed an agreement with Suzuki, the Japanese company, in an effort to challenge Toyota’s dominance in Asia. Will it work? Time will tell. Many joint ventures fail, particularly when they involve companies from different countries. Daimler-Chrysler, the union between the German car company and U.S. automaker Chrysler, is one of many joint ventures that fell by the wayside. 3However, in some countries, such as India, it is the only way companies are allowed to do business within their borders.
An even easier way to enter markets is to simply export your products. Microsoft hasn’t done well with its Zune MP3 player in the United States. It subsequently redesigned the product and launched it in other countries. 4Companies can sell their products directly to other firms abroad, or they can hire intermediaries such as brokers and agents that specialize in international exporting to help them find potential buyers for their products.
Recall that many companies, particularly those in the United States, have expanded their operations via franchising. Franchising grants an independent operator the right to use a company’s business model, name, techniques, and trademarks for a fee. McDonald’s is the classic example of a franchise. Unlike Walmart, McDonald’s has had no trouble making headway in Japan. It has done so by selling thousands of franchises there. In fact, Japan is McDonald’s second-largest market next to the United States. The company also has thousands of franchises in Europe and other countries. There is even a McDonald’s franchise in the Louvre, the prestigious museum in Paris that houses the Mona Lisa. Licensing is similar to franchising. For a fee, a firm can buy the right to use another firm’s manufacturing processes, trade secrets, patents, and trademarks for a certain period of time.
A direct marketing channel consists of just two parties—a producer and a consumer. By contrast, a channel that includes one or more intermediaries (wholesaler, distributor, or broker or agent) is an indirect channel. Firms often utilize multiple channels to reach more customers and increase their effectiveness. Some companies find ways to increase their sales by forming strategic channel alliances with one another. Other companies look for ways to cut out the middlemen from the channel, a process known as disintermediation. Direct foreign investment, joint ventures, exporting, franchising, and licensing are some of the channels by which firms attempt to enter foreign markets.
- Why are direct marketing channels possible for some products and not others?
- Explain the value middlemen can add to products.
- Name some companies that have multiple marketing channels for their products. What are those channels?
- How do marketing channels differ around the world? Why is it sometimes hard for firms to penetrate foreign markets?