How do you characterize the need for and the problems of Fike Europe shifting from indirect distribution through distributors to direct distribution through the company sales force?
What will be an ideal response?
The shift from indirect to direct distribution in international marketing operations is a part of the internationalization process. As companies establish themselves in foreign markets and begin realizing the growing market opportunities in each foreign market, they begin realizing the inadequacies and deficiencies of the indirect distribution system of depending on foreign agents and distributors. Companies often feel that their agents and distributors are not adequately marketing their products by providing competitive levels of customer services. This is particularly true in the case of Fike Company’s technically complex products, which require extensive pre-sale advice and diagnosis and post-sale servicing. Hence, as Fike solidified its market position in various European markets, it simultaneously felt the need to replace the distributor-based indirect distribution system with the company-sales-force-based direct distribution system. In the nature of things, direct distribution with the company sales force would give Fike better control over its marketing operations, resulting in better sales performance. Such improved performance resulting from the replacement of the indirect distribution system to the direct system was reported in the U.K. market by Mr. Gronlund.
While in some European countries such a shift has been amicably achieved without any friction with the existing distributors, in other countries, such as France, it proved to be a major problem for Fike, resulting in a legal dispute between Fike and the French distributors (which is still in the courts). In spite of such difficulties, Fike is currently establishing a company sales force in Spain and the Netherlands. In Spain and the Netherlands, the shift to the direct distribution system was precipitated by different reasons. In Spain, sluggish sales growth was attributed to the old-fashioned ways of marketing the company product line by the distributor. Besides, in Spain the company felt that its product line was not getting the proper sales attention by the distributor and its sales staff. Hence, the decision to establish the company sales force. In the Netherlands, although the relations between the company and the distributor had been long established and cordial, a change in management precipitated the need for the company direct sales force. It is evident that different reasons can cause the shift from indirect distribution to direct distribution. Usually, such a shift is a management decision and could cause potential dislocation in the business, at least in the short run. Although the data provided in the case do not provide direct evidence that such dislocation in the business may have occurred, it is interesting to note that the market share achievements for rupture discs in countries with a company sales force are smaller than in countries with distributors (see Exhibit 1 in the case). There are no significant market share differences for vents between the countries with a company direct sales force and the countries with distributorship arrangements.
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