Building a textile distribution network in Korea and lessons learned for Vietnam

Product adaptation and improvement function: This function involves activities that increase the efficiency of the exchange process, helping to overcome the difference between production and consumption. These activities include: classification, packaging, standardization, and providing warranty, repair, and assembly services.

Market information function: This function involves collecting and analyzing information about current and potential customers and competitors. The information is communicated to all members of the network to create strong links and stimulate the exchange of goods.

Consumption stimulation function: These are activities that disseminate information about goods and other promotional programs to customers.

Negotiation function: Through agreements and negotiations to divide responsibilities and benefits among members in the network such as prices and terms of sale.

Goods circulation function: This function is related to the activities of transporting, preserving and storing goods. This function is performed to regulate supply and demand between market areas and between different consumption times.

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Finance function: Providing cash and credit needed for production, transportation, storage, promotion and sale of products.

Risk sharing function: In the process of distributing products, members must accept the risks that may be encountered. These risks may be due to changes in customer tastes, product damage during transportation, storage, or economic risks.

The above are the main functions of intermediaries in the distribution network. However, whether intermediaries participate in the network or not, these functions must still be performed. The problem is to decide how to distribute

who will perform the work and to what extent to achieve the highest efficiency. For example, in 1991, PepsiCo terminated the distribution and marketing activities of its distributor in France because of poor business results. However, Pepsi could only eliminate this intermediary, but the functions it was responsible for continued to be performed. Therefore, PepsiCo then had to find and establish another intermediary system to replace it. 6

1.4. Members of the distribution network

Members participating in the distribution network are those who participate in negotiating the division of work, transferring ownership and taking risks during the operation . In addition to these members, there are also supporting organizations such as transportation, warehousing... However, these organizations only provide specialized services under contract, do not own the goods and are not responsible for the final business results, so they are not members.

1.4.1. Manufacturer

The manufacturer is the first to create a product and supply it to the market. Manufacturers, although in many different scales and fields, all have the same goal of satisfying market demand and improving competitiveness. To do so, manufacturers not only need to have a reasonable product and price policy but also ensure that their goods are ready for the market. However, most manufacturers do not have favorable geographical and specialized conditions to carry out direct distribution. Therefore, they have to transfer the distribution of their goods to other members.

1.4.2. Wholesalers

6 Eric N. Berkowitz, Roger A. Kerin, Marketing , 3rd rd , Irwin: Homewood, Boston, 1992.

Wholesalers are those who sell goods in large quantities to other intermediaries or industrial users. In business relations, wholesalers often have little access to end customers and often have exclusive purchasing rights. Wholesalers play an important role in establishing a wide distribution network of goods. With the prestige of capital, business means and the ability to dominate retailers, wholesalers have a great power to push goods to the market.

Wholesalers are divided into many types, but generally include three main types. This division is based on differences in ownership of goods, independent business methods or dependent on manufacturers.

Merchant wholesalers are independent wholesalers who own and perform all or part of the distribution activities at the wholesale level in the network. They perform the function of buying, taking title to the goods, being responsible for storing and managing the products in large quantities and reselling to other business units in smaller quantities. Merchant wholesalers are shown by many names, such as wholesale centers, importers, exporters, distributors, etc. These wholesalers are facing many great challenges because they will be replaced by retailers if they do not perform their functions well, or do not cut costs and increase distribution efficiency.

Commission wholesalers, such as agents and middlemen, are independent business entities that perform certain wholesale distribution functions. They do not own the goods but receive a commission or fee on sales. These wholesalers are more common in foreign trade. However, the role of commission wholesalers is being rapidly replaced by the Internet. As a result, these wholesalers are becoming less effective.

Those who fail to keep up with this rapid change will not survive long in the market.

Manufacturers' sales branches are the manufacturer's sales units located in specific market areas. Their operations are under the control and management of the manufacturer but are organizationally and physically separate from the manufacturing plants. Some perform additional storage functions, while others are pure sales representatives. Others may offer products from other manufacturers. In general, it is easier for the manufacturer to share information and perform logistical functions with the distribution intermediaries it owns. Therefore, the operating costs per sales revenue of this type are usually smaller than those of other forms of wholesaling. 7

1.4.3. Retailers

Retailers are businesses and individuals who sell products directly to consumers. After retailing, the goods usually end up in circulation. Retailers come in all shapes and sizes, from large chain stores such as Wal-Mart in the US, Toys “R” Us, Tesco in the UK, to small street stalls. Retailers may organize their sales activities through stores or may not conduct sales through stores such as online, TV, vending machines or even in consumers’ homes. Retailers have more direct contact with consumers than other members of the network, so they are especially interested in customer service.

Retail formats are extremely diverse and constantly changing. The distribution functions performed by retailers can be coordinated in many ways.

7 William D. Perreault, Jr., Ph.D, Basic marketing, Hard cover (McGraw-Hill,2008)

different ways to create new forms of retail. But in general, retail forms are divided into the following main types:

Department stores are large-scale stores that include many separate departments and sell a wide range of products. The products sold in these stores are usually clothing, footwear, cosmetics, jewelry, household items and interior decoration... Department stores appear a lot in big cities. For example, some famous department stores in the world include Harvey Nicholls in the UK, Sogo, Takashimaya, Isetan in Japan, Galeries Lafayette in France, Saks Fifth Avenue and Bloomingdale in the US. 8 The characteristics of department stores are providing high customer service such as luxurious space, amenities, services related to credit, returns, distribution... Therefore, this type of store often targets customers who are upper and middle class in society.

Specialty stores specialize in selling a particular type of product but in large quantities and with a wide variety. Examples include clothing stores, furniture stores, bookstores, home improvement stores, etc. These stores typically target consumers with a specific need for a particular type of product, and also offer good customer service, with salespeople who have in-depth product knowledge.

Discount stores sell products at low prices in order to sell them in larger quantities. They are usually located in areas with high consumer density and low costs. Independent discount stores are the foundation for the emergence of large-scale, mass-merchandisers.

8 Philip Kotler, Gary Armstrong, Principle of marketing , 2nd nd , Prentice Hall Europe, 1999.

Supermarket is a self-service store, relatively large in scale and designed to serve the needs of consumers for a variety of product types. This form appeared in Europe since the 1960s and is currently very developed, especially in the Asian market.

Large-scale and diversified supermarket (hypermarket) is a type of retail with an extremely large scale, about 10,000m2 . This type provides all kinds of products for the daily needs of consumers such as food, clothing, medicine, household appliances, furniture... This type of retail is developing strongly in the world, typically Wal-Mart. Or another example is Carrefour, a large French retailer that has succeeded in designing

established thousands of large stores in France, South America and in Asia.

A discount store is a store, usually owned and operated by a manufacturer, that sells surplus or mismatched products or discontinued items.

Catalog stores are stores that display catalogs for buyers to view and choose from. Items that apply this form are often branded, fast-moving, high-value products such as jewelry, electrical appliances, sports equipment, etc.

Non-store sales such as online sales, postal sales and vending machines. With the development of information technology, this form is becoming more and more popular. We can see successful e-commerce models in the world such as Amazon.com, Dell, Ebay, Alibaba ...

1.4.4. Final consumers

These are the direct users of the manufacturer's products. The group of final consumers forms the target market of the business. The distribution process is completed only when the goods reach the final consumers. Consumers play an important role in the network because

It has a direct impact on sales and the decisions of other members. Just a change in consumer buying behavior can lead to changes in the distribution network.

2. Content of activities to build a goods distribution network

2.1. Identify the needs and goals of building a distribution network

Building a distribution network is an activity related to establishing a new distribution network where there is no existing one or developing an existing one . In many cases, a distribution network may have developed over many years, and members have had long-term relationships but are ineffective and outdated due to constantly changing factors. Therefore, building a distribution network is a long-term development process and is always changing and new forms appear. To build a distribution network, members first need to determine when to build a new one or improve an existing one. The need can be identified in the following cases:

+ Developing new products or new product lines: The emergence of new products gives rise to new relationships and forms of distribution. Therefore, it is necessary to redesign or build a new network if the old network is not suitable.

+ Bringing existing products to new target markets: The difference between new and old markets also gives rise to the need to build a distribution network.

+ Changes in trade intermediaries. When trade intermediaries change their behavior or withdraw from the network, it affects the network structure and distribution goals of the business.

+ Consumer needs change. When consumers change their tastes or shopping habits, the distribution network also needs to change accordingly.

After identifying the need to build a network, members need to define and coordinate distribution goals. Although distribution goals have been set in advance, at the time of network change, these goals can be improved or new goals can be formed accordingly. In addition, distribution goals and other common strategic goals of each member need to be closely coordinated because it has a great and long-term impact on the development of other members and the entire network.

2.2. Analysis of factors affecting network building

When building a distribution network, businesses want to minimize the cost of building a distribution channel but at the same time must achieve the goal of satisfying customer needs. To achieve this goal, businesses need to analyze and evaluate the impact of factors affecting the construction of the network. This will also be the basis for selecting target markets, determining the structure, form of association and selecting members in the network. These factors include:

Target customer factor: This is an important factor in choosing a distribution model. The customer characteristics that need attention include quantity, size, structure, density and shopping behavior. For example, if customers are more geographically dispersed or consume frequently in small quantities, the length of the network should increase. However, if the customer size is large and geographically concentrated, a direct distribution network should be used.

Product factors: include the value, features and standard level of the goods, the accompanying warranty services. Branded and high-value products are often produced by the company's direct sales force rather than through intermediaries. Or perishable, bulky goods, complex technical details need a short distribution network to minimize the transportation distance and the number of loading and unloading times.

Building a textile distribution network in Korea and lessons learned for Vietnam - 2

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