A combination of unique market characteristics (see previous post), heavy reliance on distributors, and a distinctive two-tiered distribution structure lead to four major issues in managing channel partners in the Philippines. These challenges—limited customer and operational insight, low levels of brand building and demand generation, conservative expansion plans, and bargaining power that favors distributors—create an extremely opaque channel in the Philippines, making effective distribution management especially critical.
Major challenges to effective channel management:
1. Limited customer and operational insight: Most multinationals rely on their channel partners exclusively for customer and market insight in the Philippines. This increases risk and dependency, as not only are distributors often hesitant to give up their competitive advantage by sharing this information, but distribution networks in the Philippines also generally lack the communication infrastructure required to effectively collect this data (see below)
2. Low levels of demand generation and brand building: A tiered distribution structure in the Philippines can reduce alignment between multinationals and the distributors’ sales force on critical issues such as strategy and investment; this misalignment tends to undermine demand generation and brand equity
3. Ineffective expansion plans: Philippine distributors tend to be more short-term goal-oriented and less focused on developing effective long-term expansion strategies. Insufficient aggression, complacency, and lack of experience in strategic planning are some of the challenges multinationals face when attempting to expand in the Philippines market
4. Bargaining power in favor of the distributors: The pyramid structure, heavy reliance on the indirect channel, along with a limited number of capable alternative distributors tilt bargaining power in favor of distributors in the Philippines. These unfavorable power dynamics combined with an opaque channel lead to a loss of control for multinationals in their distributor relationships
These four issues make effectively managing channel partners challenging and especially critical in the Philippines. Multinationals should use the tactics identified by FSG, specifically suited to the Philippine market, to overcome these challenges and improve channel performance in the market.