Loctite Hbr Case - Executive Summary

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Loctite Corporation – International Distribution
Fifty years of business has been good to Loctite, a manufacturer and marketer of adhesives, sealants, and other related products. Most recently, the company has started thinking about its international distribution strategy in Hong Kong; Loctite has turned to its already-established and successful ventures in other foreign countries to explore its potential strategies and find a model for success in Hong Kong and ultimately greater China.

Currently, Loctite’s distribution strategy is composed of different levels, all building up to the eventual acquisition of equity in the international distributor in order to set its core brand and marketing mix. The first stage of expanding its distribution is research into which markets would be profitable for Loctite. Once a potential market has been identified, distributor selection begins. Selection is very stringent, and Loctite hand-selects a distributor that it feels it will work well with. Often the selection is based on recommendations from other distributors in neighboring geographic regions, other product lines carried by the distributor that may complement Loctite products (as opposed to compete with Loctite products), and the willingness and availability of the new distributor to adopt a Loctite brand identity. After selection, Loctite works to support its new distributor by sending sale representatives and engineers to jump start new market growth and internal knowledge of Loctite products within the new distributor. After finding success with a distributor through Loctite brand establishment as a main industrial adhesive, Loctite generally begins acquiring equity in its distributor until it owns the distributor outright. By owning its distribution channels, Loctite can ensure that its products and its brands continue to grow and gain market share, and it can also ensure that Loctite’s marketing and business plans are executed. In all new markets, Loctite introduces its industrial product lines and competes in industrial sales, and only after it is successful in that arena does it expand to offering its consumer products. When Loctite acquires a new distributor, it starts off by offering just a few core products and then eventually moving to direct sales of all Loctite products (depending on the market potential), and some distributors are limited to the amount of products sold in a given distribution area. Loctite has followed this strategy throughout its international ventures, and it currently holds 100% equity in all countries except Norway, Indonesia, Peoples’ Republic of China, Taiwan, Thailand, and Venezuela (all countries that are not allowed to have privately held companies).

Loctite’s different distribution strategies are: direct sales, independent distribution, captive distribution, and agents. The “Direct sales” strategy is used when a manufacturer sells product directly to consumers. An example of this would be if Loctite sold directly to Airbus for its adhesive needs without going through a French distributor. Loctite sells 40% of its products this way, but even when it sells directly to its customers, Loctite gives 10% of its sales profits to the distributor in that region in order to keep a good relationship for future endeavors or other products. “Independent distribution” uses a distributor separate from then manufacturer/supplier, with that manufacturer/supplier having no equity in the distributor. In those cases, the distributor is free to set its own business plan and market growth strategies apart from what the manufacturer thinks should be done. Of course, it is in the independent distributor’s best interest to comply with its manufacturers’ business strategies in order to continue selling that manufacturer’s product. “Captive distribution” is the name of the distribution model when a supplying manufacturer owns parts of or the entire distributor. In those cases, the manufacturer dictates...
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