A Supplemental Distribution Channel?: The Case of U.S. Parallel Export Channels

By Michael, James | Multinational Business Review, Spring 1998 | Go to article overview

A Supplemental Distribution Channel?: The Case of U.S. Parallel Export Channels


Michael, James, Multinational Business Review


Much has been written on gray marketing or parallel marketing channels in the U.S. but little has been done on parallel channels of U.S. exports. An exploratory survey was done of international marketing executives to learn of their experiences with the formation of parallel channels of their products. This study identified how parallel traders sourced their products and what factors led to the formation of parallel channels. Comparisons were made between U.S. parallel export channels from U.S. parallel import channels. While grave problems occur with parallel channels, evidence was presented that suggested that parallel channels can provide export marketers with benefits not found in authorized channels. In this respect, parallel channels can be viewed as a supplemental distribution channel. Policy considerations for U.S. exporters were provided as well as areas for future research.

Since the mid-1980s there has been a growing interest in the international business literature in so-called "gray markets" or what is referred to by some as parallel markets. Gray market goods are products that enter a market in ways not intended by the original manufacturer (Czinkota, Rivoli, and Ronkainen, 1992). Gray market goods are differentiated from black market products because the former often enter the market legally but outside the control of the regular, authorized distribution channels (Czinkota et al., 1992). In effect, a second, or parallel distribution channel, is formed that exists alongside the authorized one set up by the manufacturer, resulting in intra-brand competition. The bulk of attention to gray marketing has been directed at the U.S. market, where gray market sales have been estimated as high as $10 billion annually (A red-letter date, 1988). There is a growing literature on parallel import activities in the American market (see Weigand,1991; Cavusgil and Sikora, 1988), but virtually nothing from the perspective of American exporters who find their goods being exported through unauthorized channels (notable exceptions are Weigand, 1989 and Kalfayan, 1978). This is an unfortunate gap in the literature because U.S. exporters face various foreign legal systems and environments that impact their distribution policies in ways not found in the parallel trade in the U.S. By focusing mostly on the U.S. market, unique problems, opportunities, and distribution policy concerns of the U.S. exporter related to parallel channels have been ignored.

RESEARCH METHOD

A convenience sample was drawn consisting of executives who had participated in an executive development seminar on international marketing. Interviews of 27 middle- and seniorlevel executives were conducted from consumer nondurable ( 14 firms), consumer-durable (6 firms), and industrial-goods companies (7 firms). Industries included: tobacco, pharmaceuticals, food, garment, household appliances such washing machines and refrigerators, medical supplies, hand tools, electrical, publishing, and liquor. Nearly 50 percent of the executives interviewed were from divisions of Fortune-SOO organizations, and every company had export sales of at least one million dollars. Export sales as a percentage of total sales averaged over ten percent. In most cases, the interviews were conducted by telephone, while a few were done face-to-face. Mostly open-ended questions were used to facilitate data collection for this exploratory study. No interview was terminated prematurely and the average length was nearly 45 minutes. Respondents found the subject quite interesting and often provided elaborate answers to the questions. Questions focused around five general areas:

1 ) Executive attitudes toward parallel exports of their products.

2) How their products were sourced for

parallel export channel.

3) Factors causing parallel export channels to form.

4) Problems and opportunities created by parallel export channels.

5) Commonly used strategies to reduce the occurrence of parallel exports.

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