Since markets are nationally regulated and dominated by networks of local intermediaries, corporations need to partner with local distributors to benefit from their unique expertise and knowledge of their own markets. The multinationals know that on their own, they cannot master local business practices, meet regulatory requirements, hire and manage local personnel, or gain introductions to potential customers.
At the same time, the multinationals want to minimize risk. They do this by hiring local distributors and investing very little in the undertaking.
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Thus, the companies cede control of strategic marketing decisions to the local partners, much more control than they would cede in home markets. In the eyes of many corporations, the independent distributor is an endangered species. Virtually all executives of multinationals I interviewed bemoaned the lack of strategic marketing by distributor organizations, and many predicted that the gradual globalization of competition would lead to the disappearance of many such distributors.
The track record of distributors in new markets seems to support this bleak view: in the great majority of cases, multinationals bought or fired their distributors at some point during the partnerships or created their own direct-sales subsidiaries. A few distributors have managed to continue as representatives of multinationals over the long run in some cases, for more than ten years. But the surviving distributors shared two other characteristics.
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But, at the very least, a distributor whose leaders participate actively in strategic marketing will be valuable to the multinational and will be able to command a high price if the corporation seeks to buy back its sales and distribution business. More generally speaking, though, the future of independent distributors will be influenced by the growing regionalization of marketing management. Many companies are developing international marketing organizations structured around product groups or market sectors, and regional management of marketing strategy flows naturally out of that reorganization.
This happens for two reasons. First, networks of directly owned national distributors are inefficient; they duplicate managerial resources at the country level and lead to missed opportunities in areas such as information systems and promotional expenditures. Second, regionalization gives multinationals greater strategic control. For now, the effect that regionalization of marketing control has on national distributors is unclear.
But it seems probable that some national distributors will become part of a mixed distribution system, in which the multinational corporation will manage major customers directly, while other, independent, distributors will focus on discrete segments of national markets or smaller accounts. The emergence of global accounts, served directly by multinationals, highlights an economic truth of which many multinationals lose sight in their battles for control: independent local distributors often provide the best means of serving local small and medium accounts.
Instead, they find fault with the ways local distributors run their businesses. In addition, corporations and local distributors sometimes negotiate contracts stipulating minimum levels of marketing investment by the distributors. The mutual finger-pointing overlooks a point that seems obvious as the same themes repeatedly emerge: neither party—the multinational nor the distributor—invests sufficiently in strategic marketing or in aggressive business development in these less-developed markets.
It may be smart for corporations to minimize risk when entering the markets, but a subsequent lack of investment and managerial attention can seriously hamper performance. Neither the multinational nor the distributor invests sufficiently in strategic marketing or in aggressive business development in these less-developed markets. As a business grows in an international market, marketing strategy evolves, and each sequential phase requires management resources specific to the task, different skills, and financial investment.
Requirements at the outset are very different from those three to five years later. As time passes, the fit deteriorates. The distributor may be less able to deliver growth as the business moves away from its core customer base. Nevertheless, I think there are ways in which local distributors can continue to contribute after market entry; the economic reasons for the existence of distributors do not disappear after subsidiaries are established.
The key to solving the problems of international distribution in developing countries is to recognize that the phases are predictable and that multinationals can plan for them from the start in a way that is less disruptive and costly than the doomed beachhead strategy.
Global Business Advantages & Disadvantages
The key to solving the problems of international distribution in developing countries is to recognize that the phases are predictable and that multinationals can plan for them. Managing The Multinational—Distributor Partnership We follow two hypothetical multinational corporations MNCs as they enter new markets in developing countries.
The markets and countries are comparable, but MNC1 follows a beachhead strategy, reacting to problems as they come up. This strategy culminates in a serious disruption of business. In contrast, MNC2 retains control of marketing strategy from the outset and anticipates changes. These are all good objectives, but finding the correct balance among them at any particular time is tricky. In the beginning of market entry, partnerships with local distributors make good sense: distributors know the distinctive characteristics of their markets, and most customers prefer to do business with local partners.
Changes during later phases of market entry, including a possible switch to directly controlled distribution, are usually corrective moves to redress imbalances that emerged during the initial phases, and many of these changes lead to new imbalances. The following guidelines can help executives of multinationals anticipate and correct potential problems.
Also, companies need to know the regulations and tax laws in foreign countries, which takes time and money, and they may need to hire professionals in those countries to help with legal and financial issues. While it might be a boom to a business to go global, the effects it has on its employees can also be viewed as advantages or disadvantages. Some employees like the ability to travel around the world and see new places and experience different cultures.
Others do not like to be away from their families for extended periods of time or complain about having to learn a new language and adhere to the new countries' local customs and ways of doing business. Consumers who are able to get their favorite products from multi-national firms, such as Wal-Mart or McDonald's, are very happy when businesses go global. They are able to buy items in their own towns, without the extra costs of international shipping involved. Yet, the disadvantage is felt by those consumers who buy a product online and then are not satisfied with the product, as they are left either keeping the product or paying for shipping costs to return the product to the country of origin.
However, according to U. President Donald Trump, the countries have reached a tentative deal that would prevent the tariffs from going into effect. On June 5, the U. Public hearings on the newly proposed U.
Chinese officials expressed trepidation toward continued escalation of the yearlong trade war, but also a willingness to counter any additional U. The last time any face-to-face talks were held between representatives of the world's two leading economies was May Naturally, international tariffs are seismic events that will have massive consequences, but they will also impact small businesses in ways you might not anticipate.
In the U. In other words, their economic value is highly significant.
Importance of knowledge to a growing business
Even something as seemingly focused as an import tax on steel and aluminum can have a ripple effect, impacting businesses in other industries. For entrepreneurs, it is important to deftly manage your company as the market adjusts. It means more time thinking about pricing, renegotiating and managing cash flow.
While bakeries are far from other businesses in the steel or aluminum industry, products like these are essential to their operations.
Odds are that companies that make pie tins or whipped cream which comes in metal canisters will adjust their prices to reflect the new costs or lay off their employees. The small bakery that was already operating on razor-thin margins ends up absorbing a good portion of these new costs from its suppliers and will likely have to renegotiate standing arrangements. If you are in that bakery's position, you can't afford to eat those new expenses.
So, what can you do? According to Richardson, small businesses should keep a few things in mind as the supply chain adjusts to these new tariffs:.
Any sort of regulation or tax or tariff that looks like it's going to add a cost, no matter what business you run, slows you. You spend less, you conserve, you watch and wait, you hold on to your cash. Due to the nature of the specific tariffs, small businesses looking to expand or build new locations should consider doing so now, before lumber and steel tariffs impact prices significantly. Rather than build, you could also consider looking for existing real estate. Need new office furniture , like desks? It might be the time to buy them now, before lumber prices drive up costs.