Importance of marketing channels and intermediaries in foreign markets
Just like in local markets, business organizations expanding their operations to foreign markets also require marketing channels and intermediaries. His is because these two entities play a vital role when it comes to foreign operations. Without these channels and intermediaries, an organization can not be able to distribute its products to consumers. Hence, no sales can be made. Marketing channels and intermediaries determine the final price of a product. As a result, the two entities determine the competitive advantage of any business in foreign markets. Based on the distribution channel used, the price of a product goes high (Brooke 1986, p. 132). This in return determines the turnover rate of such a product hence the sales volume of any business operating in foreign markets. Marketing channels have direct contact with customers, how they offer their services determines the relationship customers will build with the business.
At times it becomes difficult for a business to effectively run its operations in foreign markets despite it having a competitive advantage. The major role of intermediaries is to facilitate in such instances. The management of the operations is passed on to the intermediary who controls all the activities of the business in foreign markets (Brooke 1986, pp. 145-153). Generally, the intermediary hails from the domestic market. With its staff having good knowledge of the local market and consumer behavior, they help an organization in running its operations in foreign markets.
As product lifecycle changes, its price change. This requires the modification of the marketing channel. Organizations need to use a channel that will result in the product not being offered at a price that may lead to it not being purchased. The purchasing behavior of consumers also may lead to an organization modifying its marketing channel to adapt one that will be able to attract more customers.
Forces that determine the entry mode for a certain product or target market
When deciding on the mode to use when introducing a new product into the market or when entering a new market, there are various factors that an organization ought to consider. These include the market size, industry barrier and firm advantage, cultural distance, and experience in the international market. Organizations with limited knowledge in the international market may opt to use intermediaries in running their operations in foreign markets (Brouthers 2002, pp. 203-214). On the other hand, organizations may use a joint venture when entering a new market if they realize that there is a wide cultural distance between the parent company and the foreign market.
Considering the size of the target market helps in determining the sales volume for an organization. The bigger the target market, the bigger the sales volume for an organization. Consequently, determining the size of the target market helps an organization come up with an idea of the number of products to manufacture. Industry barrier helps an organization come up with measures to counter them. Understanding the barriers an organization expects to encounter in its operations helps it look for the most suitable mode of entry to mitigate the barriers. The cultural difference may hamper the ability of an organization to make substantial sales. Consequently, business operators identify the cultural practices of the target market through identifying their sales behavior, tastes and preferences as well as their spending behavior to determine the mode of entry to use (Brouthers 2002, pp. 215-221). This is to ensure that it will be in a position to offer its products at a competitive price.
Selecting the most appropriate marketing channel helps in increasing the sales volume of an organization in foreign markets. This is because different marketing channels have the capacity of reaching a varied range of customers. It is upon understanding this that organizations wishing to extend their operations to foreign markets have embarked on looking for the right marketing channel to use. To facilitate sorting, distributing, and having close contact with customers in foreign markets, organizations have embarked on using intermediaries in running their operations in foreign markets. Understanding the numerous factors that affect an organization’s operations in foreign markets has led to business operators using varied market entry modes (Chen & Hu 2002, pp. 193-210). For instance, most of the foreign pharmaceutical companies operating in China have decided to engage in joint ventures with domestic pharmaceutical companies. This is because of various government regulations they deserve to follow as well as the cultural distance between China and the home countries for these companies.
Marketing channels and intermediaries play a significant role in foreign markets. Without a proper marketing channel, an organization can not be able to attain its sales target. As intermediaries have a direct relationship with consumers, they help an organization improve its competitive advantage in the foreign market. To determine the appropriate mode to use when venturing into a new market or introducing a new product, organizations have to put into considerations factors such as cultural distance, market size, experience in international operations, and industry barriers. All these factors help an organization come up with an informed decision when deciding the entry mode to use.
- Brooke, M. Z., 1986. International Management: A Review of Strategies and Operations. London: Hutchinson.
- Brouthers, K. D., 2002. Institutional Culture and Transaction Cost Influences on Entry Mode Choice and Performance. Journal of International Business Studies, 33 (2), pp. 203 – 221.
- Chen, H. & Hu, M. Y., 2002. An Analysis of Determinants of Entry Mode and Its Impact on Performance. International Business Review, 11, pp.193 – 210.