Intermediaries stake their economic claim by serving a vital role in between the producers and consumers of a product. Although at first impression they may appear as simple transmittors who make profits on the interchange between consumer and producers, they often bring notable added value to the supply chain. For example, intermediatries provide post sales services and make it possible for products to be available locally when there is great physical distance between producers and consumers, which is often the case in international trade.
Many studies have focused on the subject with each author characterizing the complex supply chain in a unique way. The “international supply chain” is important in the assessment of each new project of internationalization. It is essential to understand that the supply chain is often influenced by product category as well as the distribution structure and consumption habits of one country. GruppoBPC International, which has taken the roles and functions of the various actors in the international supply chain over the years, provides a classification below.
The players of the chain
GruppoBPC International has identified and classified the actors around a typical international chain as follows:
The actors are described variously along a supply chain, and their presence or role depends on the configuration of the production and distribution sector, as well as the choices of the company in terms of market strategy.
Long chain or short chain?
The company, in the definition of one internationalization strategy, selects which channels / actors to involve in its own competitive action. Depending on the availability of viable alternatives (based on the distribution context, the competitors positioning, the available resources, and the features of its offer), it is possible to opt for a more or less intermediated distribution strategy that determines the proximity of the seller to the end user. Let us now analyze some typical advantages and disadvantages of an elongated chain (intermediated) in contrast to a narrow chain (disintermediated).
Case of intermediated chain: the company sells to a foreign buyer who sends their trucks to load in front of the factory. In this case, the selling company has little knowledge of the buyer, as it has to deal with a logistics operator sent by the buyer and with references of a foreign company to bill while it receives the payments. It’s an extreme case of mediation, where the customer performs a mere production activity and has no control over the commercial chain. While this situation takes pressure off the seller, it has the potential to create a very unstable export solution (the buyer can cease at any moment to place orders) and does not allow the company to know the positioning of its product at the end customer (problem that occurs with products that are marketed on the basis of a clear brand strategy).
Case of disintermediated chain: e-commerce. The company that sells online in the international markets. End customers place orders, and the products are sent by international courier. Benefits: direct contact with customers, increase profit margins and control the positioning of the brand. Disadvantages: greater management complexity, inefficient and more costly logistics chain, and the need to allocate resources to the creation and management of after-sales service.
These two examples show how the adoption of a supply chain strategy for the marketing of products abroad must be carefully considered both in their positive and negative aspects in order to find a balanced combination of the alternatives on the basis of available resources and the configuration of the target market. These aspects are exemplified in the following scheme:
| Long Chain (intermediated) | Short Chain (unitermediated) | |
| Advantages* | Greater operational simplicity Disengagement from commercial activities, marketing and after-sales Efficient supply chain phases managed by specialized actors Increased operational flexibility | Increased contact with clientele and consumer market Increase profit margins and product competitiveness More control over the supply chain Possibility to create a competitive, advantageous position |
| Disadvantages* | Reduced bargaining power and market presence Filters in the acquisition of information on market trends and the customers needs Lower profit margins (lower retained added value) | Higher management complexity Increased commercial resources and marketing Greater rigidity in the ability to change the commercial side |
In general terms, an internationalization strategy that utilizes an abbreviated supply chain brings more benefits than costs, and therefore it’s preferable for a company to strive to “jump” some actors and market products directly to the target market. This is the result of a variety of reasons, highlighted in the Table under “Advantages”, with the strategy implemented in due regard to minimizing the corresponding downsides (“Disadvantages”). But how? The solution is to analyze the industry from the economic point of view and from the strategic point of view, as discussed below.
International Supply Chain versus International Value Chain
The company, after analyzing various channels and operators for the commercial coverage of the international market, will briefly assess two factors:
– The strategic importance of the various stages in order to decide what to control and what to outsource. In practice, analyzing which operators / steps allow better control of the market and stability of its export (increased defense of commercial positions acquired)
– The dispersion of the added value and competitiveness of their products downstream, ie at the consumer market. We know that from Producer to Retailer, generally the price can increase dramatically, up to 8 times the “ex works” price (this verification is critical to ensure that the adoption of an elongated chain does not make the product unmarketable as the result of a marked up final price, a situation that the company may face through a reduction in its prices or by shortening the supply chain, making it possible to internalize several stages of the added value).
Wherever possible, namely within the limits imposed by these constraints, the company will also build a path of multi-stage internationalization, starting from a longer chain (lower investments and possibility to introduce their own product by checking the degree of success) and then gradually implementing a shortened action of the various steps (increasinging its direct presence on the market).
GruppoBPC International, the partner that allows you to extend your supply chain while maintaining flexibility and contend investments
GruppoBPC International is able to assist in the analysis of the international chain for your industry in the target market and recommend your best internationalization strategy, both in the short and long term. In fact, the outsourcing of the sales export function within our structure allows you to use our commercial and operating infrastructure to get the benefit of shortening the supply chain (our team in the foreign market which makes contact directly with downstream operators such as retailers, bypassing the action of the Importer and Distributor) while also maintaining a flexible management structure. We provide a solution that simultanesouly minimizes investment (thanks to the cost of internationalization and content tied to an external professional contract, mostly through a variable compensation, without increasing fixed costs) and increases the competitiveness of the company proposal in the target market.
