Culture and Distribution

Culture and Distribution

Introduction

According to Ekeledo & Sivakumar (2004) a company takes between three to five years to completely enter a foreign market. The mode of entry is the strategy the company uses to market its products in a foreign country (Ekeledo &Sivakumar, 2004). The mode of entry chosen is very important as it determines the overall performance of the company. An inappropriate entry mode can threaten the future survival of a company (Ekeledo &Sivakumar, 2004). The resource based theory indicates that the choice of entry mode is depended on organizations resource capabilities and is viewed by many scholars as the richest theory on entry mode strategies (Ekeledo &Sivakumar, 2004).

 Types of foreign market entry modes

            According to Hollensen, Boyd & Ulrich (2011) entry mode strategies are categorized into high control strategies, intermediate control strategies and low control strategies.  High control entry modes occur when a company invests in wholly owned subsidiaries or in original equipment manufacturing in a foreign country. These strategies are very risky but the returns are normally high. They involve heavy commitment of resources. Intermediate control strategies include strategic alliances and joint venture partnerships (Hollensen, Boyd & Ulrich 2011). Hollensen, Boyd & Ulrich (2011) wrote that these entry modes enable sharing of resources, technology, profits, losses and available job opportunities.  Joint venture partnerships involve forming new companies whereas strategic alliances involve partnering with suitable existing local companies (Hollensen, Boyd & Ulrich 2011). The local companies provide market information and networks that enable the foreign company to position its brand well. They involve moderate commitment of resources as compared to the high control strategies (Hollensen, Boyd & Ulrich 2011).

Low entry modes involve indirect and direct export into the foreign market. Indirect export occurs when a company contracts another company in its parent country to market its products in a foreign market (Hollensen, Boyd & Ulrich 2011). Indirect export is the entry with the lowest level of control.  Direct export is a strategy used to sell directly to an agent, distributor or importer located in the foreign country. It also involves franchising. Direct export is considered as low control mode due to the fact that the parent company deals with a foreign independent entity. The local agent carries out promotional activities but the planning of these activities is often done in consultation with the parent company. The level of resource commitment by the parent company is low. Franchising on the other hand is an entry strategy in which an owner of a protected trademark gives to another company the right and authority to trade using this trademark for the purpose of producing or distributing a product for some predetermined fee (Evans, 1997).

Distribution strategy and culture influences

Hollensen, Boyd & Ulrich (2011) noted that distributorship is one of the low control entry mode strategy in which the parent company appoints the distributor or distributors in the host/foreign country. The distributor carries out promotional activities once the promotional plan strategy which is done with the parent company’s involvement is passed on to him (Hollensen, Boyd & Ulrich 2011). Hollensen, Boyd & Ulrich (2011) also noted that distributorship  provides a lot of important information to the parent company and this includes;  social, legal, economic, political and financial information pertaining to the foreign market    and also maintains contact with local customers, suppliers and governmental institutions.

Even though distributorship is one of the low control modes of entry into foreign markets, it is faced with enormous challenges especially in developing countries in Africa and also in emerging economies such as in India (Tuang & Stringer, 2008).  Most of these countries are governed by oppressive regimes which are highly corrupt and this culture permeates into distributorship arrangements and affects their ability to deliver on the agreed targets signed with their suppliers (Tuang & Stringer, 2008). The distributors are faced with the culture of endemic corruption, infrastructural challenges and rampant impunity which increases their operating costs exponentially and impede their ability to function efficiently (Tuang & Stringer, 2008).

The ability to inculcate good supplier/distributor relationship to ensure the distributor only sells the suppliers products is another challenge. Rathore (2006) wrote that a majority of distributors especially in India have the culture of selling many different items in their shops. This has been a challenge to suppliers such as Nestle and Pepsi Cola. This is due to the fact that they are unable to determine the distributors’ commitment to selling their products.

According to Rathore (2006) in India, the main drink is water and that the ‘man in the street’ prefers water to juice, and fresh fruits to fruit juice. This culture has reduced the growth rates for Nestle and Pepsi cola before they introduced new products to meet these needs.  In India yet again Pepsi met a lot of challenges due to their inability to understand local sensitivities which is an aspect of culture in any country in the world. In Indian water management is a big issue and Pepsi cola simply did not get it (Strategic Direction, 2008). Pepsi cola was accused of drawing ground water excessively and also using pesticide contaminated water to bottle their sodas. In fact local pressure groups managed to reduce consumption of Pepsi cola products significantly (Strategic Direction, 2008). Pepsi had to use a lot of money in media communications to refute these claims (Strategic Direction, 2008). The media campaigns however did not help much because they were viewed as bullying and arrogant in nature. The company had not mastered the communications aspects of culture in India i.e. how to communicate without offending the audience (Strategic Direction, 2008)

Nestle according to Mukherjee &Basu (2010) suffered low sales in India for quite a while because of the high turnover of its distributors’ salesmen.  The challenge was also compounded by competing shelf space due to the fact that distributors sold other companies products and even products from competitors (Mukherjee &Basu, 2010). In order to improve performance of the distributor salesmen and reduce the high turnover rates,  Nestle   started  applying newer technologies, more efficient deployment of specialized skill sets and continuous improvement  of sales men  skills through training (Sundarajan, 2010).

The company also reviewed the entire product market and the selling tasks matrix (Sundarajan, 2010).  Nestle put in place better information systems at the distributors’ level and also started to closely monitor and offer assistance to the sales force (Sundarajan, 2010). Nestle emphasized on  giving greater autonomy to salesmen  to concentrate on key elements of market level value additions like targeted selling, sales  promotion and  merchandising (Sundarajan, 2010).  The distributors’ personnel were also reorganized in such a way that salesmen were assigned duties according to their abilities (Sundarajan, 2010). The older ones were assigned to more traditional roles of servicing the market while the new salesmen who were much younger were deployed to undertake the key initiatives of key market development strategies (Sundarajan, 2010).

 

 

 

 

 

 

References

Ekeledo, I., &Sivakumar, K. (2004). International market entry mode strategies of manufacturing

firms and service firms: A resource-based perspective. International Marketing Review, 21(1), 68-101. Retrieved from http://search.proquest.com/docview/224343140?accountid=45049

Evans, J (1997), “Choice Hotels to Split into Two Companies; Franchising, Real Estate Units to be

Created,” Washington Post, (April 30), C5.

 

Hollensen, S., Boyd, B., & Ulrich, A. M. D. (2011). The choice of foreign entry modes in a control

perspective. IUP Journal of Business Strategy, 8(4), 7-31. Retrieved from http://search.proquest.com/docview/1009904044?accountid=45049

 

Mukherjee, J., &Basu, A. (2010). Distributor sales force performance management. Vision, 14(4), 309-321. Retrieved from http://search.proquest.com/docview/859009522?accountid=45049

 

Rathore, B. (2006). The indian drinks industry 2006: Management briefing: The fruit juice market in india. (). Bromsgrove, United Kingdom, Bromsgrove: Aroq Limited. Retrieved from http://search.proquest.com/docview/212461915?accountid=45049

Pepsi versus coke: An unhealthy obsession? (2008). Strategic Direction, 24(1), 6-8. doi: http://dx.doi.org/10.1108/02580540810839269

Sundarajan, M. (2010). Distributor sales force performance management. Vision, 14(4), 323-326. Retrieved from http://search.proquest.com/docview/859009531?accountid=45049

 

Tuang, A., & Stringer, C. (2008). Trust and commitment in vietnam: The industrial distributor’s perspective. International Journal of Emerging Markets, 3(4), 390-406.doi: http://dx.doi.org/10.1108/17468800810906093

 

 

 

 

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