Global Vs Domestic Distribution - Assignment Example

GLOBAL DISTRIBUTION VS DOMESTIC DISTRIBUTION Why is global distribution more difficult than domestic distribution Introduction. In today's world, it is not difficult to see a number of multi-national companies competing with each other for the available market share, especially in developing economies. Most of these companies have been big domestic players for a number of years before branching out in other countries. A lot of background work goes in before a company decides to expand in other countries. Once decided and implemented, this penetration process is very difficult to change. Issue of how to reach buyers effectively and efficiently and thereby maintain profitability of the organisation is the prime concern of distribution process which has some severe limitations for global players across the world. Aim. This paper intends to bring out the reasons as to why global distribution is more difficult than domestic distribution of a product. Comparison of Domestic and Global Market. There are unique similarities and differences between domestic and global markets. While the similarities or potentialities are the raison d'etre for a planned expansion into global domain, the differences lead to challenges to be overcome while entering into an unknown foreign domain. Some of the difficulties which are sure to be overcome in a multi-national market distribution are appended in succeeding paragraphs. National Policies. A main hindrance in global distribution is often the national policies which in many developing countries discourage foreign players and support domestic ones. Further, changes in successive democratic governments can lead to frequently changing priorities/policies, unreasonable tax structure against foreign players thereby making penetration and distribution difficult. There have been many instances where huge investments have been made by certain global players in anticipation of growth in a particular field and with a change in the government, the whole process received a setback to an extent that the global player had to actually wind up and leave. Further, pioneers and domestic players also make all possible moves to deter entry by being on the right side of governmental public policies (First-mover advantages: Retrospective and Link with the Resource-based View MB Lieberman, DB Montgomery - Strategic Management Journal, 1998) Individualised Goods. While distributing a product in own country, the marketing manager is aware of prevailing situation, needs, growth pattern and other variables persisting in the market as well as the customer. This allows him to market the product to meet specific individual needs of the customer to a large extent. Any product meeting specific requirements of a customer will lead to better customer satisfaction, reputation and thereby automatic favourable advertisement of the product. However, in case of a foreign market, this adaptability is not available. The conditions prevailing in each and every country are different and products need to be manufactured in a country specific manner to suit requirements of customers as well as infrastructure, likely development pattern and economy of that country. A good research before huge investments are made will ensure requisite success when marketing a product in a new country. Getting the product or service to the customer. Buyer behaviour and characteristics directly affect overall objectives of a business. This aspect is critical to successful distribution in a global market. If the product needs to be made available to a large section of population of developing countries living in non-urban areas with limited resources, the task becomes even more difficult due to limited communication networks, distribution channels, lower advertising potential due to limited reach of media and lack of awareness of people about new products from a different country. Further, reaching out to individual customers and assuring him of product's worth is a near impossible task in countries where people have a very conservative or traditional mindset. This is an important reason why most products from global players are distributed in urban and developed cities first and distributed to other parts only after establishing well in that country. Furthermore, for convenience goods, a pioneer can erect many barriers to entry by making it difficult for potential rivals to gain access to distribution. (Sequential Location among Firms with Foresight Edward C. Prescott & Michael Visscher, 1977). Existing Competition. This is another aspect which makes distribution more difficult. Any threat from outside by domestic players can be easily countered by simply introducing better offers. Matching and penetrating a domestic competition which already has an established infrastructure and network requires huge investments, sustainability and thorough knowledge of geo-political situation of that market to ensure success. First movers or pioneers enjoy the luxury of finding a market for their products and establishing a hold of the market, without having to deal with the complexities that come with the presence of competition. This situation is then exploited by pioneering firms to obtain the highest possible returns. Empirical research shows that successful market pioneers generally achieve higher market shares and better business performances than market followers (Lambkin, Mary 1988"Order of Entry and Performance in New Markets' 1988). This aspect makes distribution process into such a market even more difficult. Reluctance. There is inertia and even reluctance among the customers to switch to a newer product unless the quality offered is proved better beyond doubt and so advertised than the existing ones. This reluctance is often the biggest threat to product distribution which needs to be overcome through proper penetration plan, advertising and investments in market research. Pricing. A global player has to match local prices to achieve success. Product distributed at a price beyond acceptable levels by local populace or where cheaper options are available to them cannot sustain for long time unless it is made affordable to average middle class population. Thus, a global player has to make an effort not just to match the prices in local market but also keep them more attractive and competitive such that people turn away from existing products to a new player. Communication with the customer This is one major limitation for an outsider in global market penetration and distribution. If the distributor doesn't have access to local customers up to expected degree, he will not be able to know the market expectations adequately which is essential to stay ahead or even afloat in the market. Further, good communication would permit different geographical regions to be provided with appropriate products specific to their needs and also upgrade them periodically. It is important to communicate effectively with its customers to satisfy customer expectations. There have been instances at various levels when products have been introduced inappropriately in incorrect market regions resulting in heavy losses and even closure of business. Good communication with customers would prevent this situation. Feedback. This essential aspect of good customer relations is often difficult to develop in a global scenario. And without a reliable feedback, it is impossible to pinpoint the error leading to direct loss in the market share. While a negative feedback is always blown out of proportions by domestic players, a positive feedback doesn't always get that much popularity. Domestic players have a clear upper hand in this aspect and exploited through their access to media. Internet penetration has resolved this aspect to a reasonable degree in the past decade or so leading to better quality products gaining tremendous popularity, and thereby better market penetration Finding Good Dealers. Any new entrant has to make do with existing dealers who always tend to exploit the new entrants through artificial means like complains of margins, threaten to put less effort in promoting your products, increased dealer's switching cost. Again, direct marketing through internet is gaining tremendous popularity in developed nations but in developing/undeveloped countries this is only limited to areas where sufficient internet penetration has taken place. Situation is improving each passing year and direct marketing through internet provides a definite advantage in international distribution process. Designing Distribution Channels. In a global situation, designing distribution channels is difficult due to existing competition. Existing players resist new entrants with all their energy and exploit local conditions to their optimum advantage. Pioneers achieve a distribution advantage by covering every available 'space' or market opportunity ahead of future entries (Sequential Location among Firms with Foresight Edward C. Prescott & Michael Visscher, 1977;, "Entry deterrence in the ready-to-eat breakfast cereal industry, Schmalensee, Richard 1978). A market pioneer follows a product proliferation strategy in which it preemptively fills in all profitable market segments and niches that later entrants may be attracted to, offering each of these segments a differentiated product (Product differenciation advantages of pioneering brands Schmalensee, R. (1982).., and Sources of Market Pioneer Advantages in Consumer Goods Industries, Robinson, William T., and Claes Fornell (1985). In addition, such a strategy also allows a pioneering firm to exploit its brand equity and to benefit from cost reductions that result from the economies of scope . Preemptive strategies of pioneers. Certain preemptive strategies implemented by the domestic or pioneer players lead to more difficult environments for late entrants. Exclusive controls of distribution channels lead to lack of viable options for a new global player for entering the market with ease. Bias. There is almost always a definite bias in all economies against an outsider. This bias is normally not justified but artificially created through inappropriate sensitisation of public by domestic players and sometimes even by governments. At times, global players are also blameworthy in this respect due to profit, and not benevolence of the target country or its population, being their only motive. Hence, distributors must display their concern of benevolence to the new target countries. Conclusion. Global distribution process is always more challenging than domestic distribution due to differences in culture, requirements, geo-political environment, country's policies and other such reasons. Further, local and pioneer players make all possible attempts to defer a new entrant by blocking distribution channels, attempt in manipulating national policies against any competition etc. Many instances have been seen in history where market penetration has been rendered impossible on various such accounts for a new entrant by pioneers, domestic players and even governments. Hence, when entering a global market, the player must invest sufficiently to research on the target market, its sustainability, economic dimensions and long term profitability. Once wrong markets are distributed into, the process becomes irreversible and result in insurmountable losses of investments. Read More