The Channel Integration Decision: Factors Influencing New Zealand Small to Medium Sized Manufacturing Exporters

Abstract

Small to medium sized manufacturers are playing a significantly increasing role in the profile of New Zealand's export markets. One of the most important decisions these exporters face is the mode of entry strategy in foreign markets. This decision can be seen as a ‘make’ or 'buy' decision- whether to fully integrate the channel in the foreign market or whether to use outside third party intermediaries. The Internationalisation Theory states that companies start exporting by using agents or third parties in the foreign market and move down or buy the channel in a progressive step-wise fashion until eventually wholly owned sales subsidiaries are utilised. This movement is said to occur as commitment and dependence on the export market increases. On the other hand, the Transaction Cost Analysis theory offers an alternate view for channel integration - it states that ownership or equity in the foreign channel is efficiency and contingency based. This study examines and critiques both theories which have largely been grounded in the multinational corporate environment and looks at the issue of channel integration in the New Zealand context. The research question this study addresses is: What are the key factors that determine the degree and nature of channel integration in export markets for the NZ Small to Medium sized Exporter? In this exploratory study, twenty small to medium manufacturers are interviewed and a new model of channel integration is proposed. The results of this study show that in addition to some efficiency based factors, channel integration is dependent on product, market and behavioural factors. Further work is now required to develop the new model to the point where it can be subjected to a rigorous empirical assessment.