Channeldesign decisions according to the degree of control over a distribution network

Some channels decisions are dictated by the bargaining power of the company. Actually some distributors are "open" and willingly share their customer and price lists as well as any other information about customer. But others are so independent that they are unmanageable. They are secretive about not sharing any information and carry out their sales policy as they think best. This has been the case recently in China on the PC market [10]. Many western PC makers have found that most of the local distributors were not able to provide technical support, customer service or maintenance services, contrary to what they claimed. The most capable distributors have quickly been taken over by leading Chinese PC manufacturers, such as Legend, which had cultural advantages. Furthermore, when a distributor is successful, it has a financial interest in being secretive and in handling its own marketing policy.

However, it is potentially dangerous for a manufacturer to see a growing barrier between itself and its market because it would miss out on customer feedback. Furthermore, its technology can be copied by or through the distributor, which the manufacturer could fail to realize until the distributor cancels an agreement. For instance, Legend, the leading PC maker in China, started in 1994 as a distributor of foreign PCs. Six years later, it moved to making and selling its own technology and quickly took control of the booming Chinese market. By 2003 Legend had more than 27% market share, $3 billion revenues, and more than 3,500 sales points.

Ultimately a strong distributor may become a direct competitor. For this reason, in July 2002 HP and then Cisco in October 2002 ended their distribution agreement with Dell. Besides being a distributor for their digital projectors and communication switches, Dell had developed its own line of low end products in the two previous years. Some of those products were competing head to head with high end (and profitable) HP or Cisco equipment, especially in the large business, corporate customers segment.

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