Export Channel Design: The Use of Foreign Distributors and Agents Daniel C. Bello Ritu Lohtia Georgia State University Because many manufacturers are unable to integrate ver- tically into global distribution, the nonintegrated market entry modes o f foreign distributor and agent arefrequently used. Unfortunately, little is known about choosing effi- ciently between distributor and agent because research has only partially examined the importance of transaction and production costs in determining institutional arrange- ments, To specify efficient channel design, this article develops and tests hypotheses linking the characteristics of export exchange to the cost-minimizing mode of export channel governance. Based on a sample of 269 manufac- turers, results suggest that market diversi~ type of transaction- specific asset, and production cost economies all affect the choice between foreign-based agents and distributors. The article concludes with the implications of these results for export management and future export research. In contrast to integrated corporate channels (foreign sales office or subsidiary), nonintegrated channels (inde- pendent agents or distributors) provide a relatively easy form of foreign-market entry (Root 1994). Experts note that the majority of world trade is handled through inde- pendent middlemen and that these export intermediaries possess strong local-market knowledge, crucial contacts with foreign buyers, and the ability to provide sophisti- cated marketing services (Clasen 1991). Despite the im- portance of middlemen, most theoretical studies using transaction cost analysis (TCA) merely address the ques- Journal of the Academy of Marketing Science. Volume 23, No. 2, pages 83-93. Copyright 9 1995 by Academy of Marketing Science. tion of whether a firm will adopt an integrated or noninte- grated international channel (Anderson and Coughlan 1987). The research shows that firms subject to strong transaction cost pressures choose vertical integration, but the decision of which nonintegrated mode to use is typi- cally not addressed. This leaves unanswered the important question of how best to choose between the nonintegrated modes (agent or distributor). In this article, the choice between foreign distributor or agent is framed as a question of efficient governance for the direct export channel. Distributor and agent are viewed as alternative institutional arrangements or governance modes for conducting the marketing-distribution functions that are necessary for export exchange (Root 1994). In determining the most cost-effective mode, international writers traditionally rely on the analysis of production costs (the costs of producing the export functions) (Clasen 1991; Cateora 1994). The major economic criterion is a mode's ability to exploit economies of scale and perform export tasks such as foreign-market promotion, pricing, delivery, and after-sale service at the lowest possible cost (Terpstra 1984). Williamson (1979, 1985) criticized sole reliance on the production cost criterion and suggested that the key efficiency criterion in channel design is the mini- mization of transaction costs (the costs of running or managing the channel). According to TCA, the object is to match governance structures to the attributes of transac- tions in a discriminating (i.e., transaction cost economiz- ing) way (Williamson 1981). Although he acknowledges the need to minimize the sum of transaction and production costs, his thesis retains the primacy of transaction costs. However, TCA theorists recognize that the situational con- text in question will affect the relative importance that the attributes of an exchange play "in crafting an appropriate governance structure" (Noordewier, John, and Nevin 1990, p. 82).