Aug 9, 2007

Distribution Key to Capturing Overseas Growth

The Wall Street Journal has confirmed what everyone has known for some time - U.S. brand leaders are getting the bulk of their growth from overseas markets. In fact, in the article, Joseph Quinlan, chief market strategist at Banc of America Capital Management, estimates that U.S. companies' international earnings will grow an additional 15% in the second quarter, compared with a year ago, while domestic earnings will grow in the range of 3% to 5%".

And Robert Barbera, chief economist at brokerage firm ITG Inc. in New York, goes on top say that ..."we do seem to be at an inflection point in terms of domestic economic performance, and it's visible in corporate profits...if you're selling earthmovers or cellphones in Asia, your profits have been growing gangbusters," while companies more reliant on U.S. business face hurdles."

But continuing to realize such rapid growth in the overseas markets, especially in developing and emerging ones, will require significant attention to channels of distribution. Local country mannufacturing operations and warehouse logistics infrastrucuture ventures have been the primary focus of wave one activity by large multinationals expanding into new geographies. But long-term winnersare making pre-emptive moves to lock in critical go-to-market distribution relationships with the best players.

Case Study

Industrial powerhouse Parker-Hanafin has seen exploding sales overseas make up for lackluster results here in the company's traditional U.S. market. Consider the company's moves in Thailand, where revenue increased by 33% in the past year.

Parker put significant emphasis on launching new distribution relationships, and has opened eight locations near major industrial complexes, supplying mainly hydraulic equipment, filters, hoses and fittings, fluid control equipment, seals and pneumatic equipment to the cement, automobile and other heavy industries. They now boast four hubs and four satellite outlets. Prospective hub franchisees are screened to ensure they have warehouses and extensive regional distribution networks and systems to support surrounding satellite outlets.

The hub-satellite model has already been successfully implemented by Parker Hannifin in other Asian markets such as China, Singapore and Malaysia. The model means that a satellite store only requires a modest set-up cost for a four-by-eight-metre shop versus the more subtantial amounts required for a hub, including stock and other costs.

Bottom line? The new distribution outlets are able to dramatically shorten lead times so that customers no longer have to suffer through as long as 24 hours of operations interruption as they wait for critical replacement and repair components.

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