Supply Chain Management: An International Journal

Emerald Article: Determinants of manufacturers' selection of distributors

Jiun-Sheng Chris Lin, Ching-Rung Chen

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Research paper

Determinants of manufacturers selection of

distributors
Jiun-Sheng Chris Lin and Ching-Rung Chen
Department of International Business, National Taiwan University, Taipei, Taiwan
Abstract
Purpose How manufacturers select distributors who can contribute to distribution efficiency has become an important issue for channel
management. While the last decade has seen large shifts in manufacturing and distribution practices, there has been very little empirical research
investigating manufacturers selection of distributors. This study attempts to fill this research gap by proposing and empirically evaluating factors
important to manufacturers when selecting distributors.
Design/methodology/approach The study developed a research framework for manufacturers selection of distributors. Four key constructs were
derived from marketing, supply chain, and logistics literature to investigate their influences on distributor selection: firm infrastructure, marketing
capabilities, relationship intensity, and logistics capabilities. Four hypotheses were developed and tested with a sample of Taiwanese information
technology (IT) manufacturers.
Findings Multi-item scales were developed and validated through standard psychometric procedures. Hypotheses were tested with ordinary least
squares regression analysis. The four constructs were found to have positive influences on manufacturers selection of distributors.
Originality/value The paper represents the first study to propose and empirically test a research model examining factors affecting manufacturers
selection of distributors. Distributors can strengthen their competitive advantage by improving their competence in the four dimensions.
Keywords Distributors, Relationship marketing, Distribution management, Taiwan
Paper type Research paper

increasingly rely on distributors for distribution and

marketing activities (Merritt and Newell, 2001) in order to
leverage resources and focus on core competence (Sink and
Langley, 1997). In this role, distributors also function as the
manufacturers marketing arm, transferring knowledge of
customer needs and market trends back to manufacturers
(Paun, 1997) while enhancing customer satisfaction
(Mudambi and Aggarwal, 2003).
While distributors enjoy increased power in marketing
channels, they face increasing challenges in a competitive
environment where gains from cooperating with
manufacturers are obvious (Kalafatis, 2000; Mudambi and
Aggarwal, 2003). Increased demands from manufacturers and
end customers pressure distributors for better services that fit
channel needs. Distributors can benefit from a long-term,
collaborative and reciprocal relationship with manufacturers,
resulting in better channel performance (Cavusgil et al., 2004;
Kalafatis, 2000). Such manufacturers reliance on distributors
and distributors willingness to collaborate suggest the
significance of recruiting capable distributors for effective
channel management (Merritt and Newell, 2001).
When manufacturers make changes to the channel
structure, increase coverage in territories, add additional
outlets, or replace distributors that have left, distributor
selection decisions are frequently necessary (Rosenbloom,
2004). Selecting appropriate distributors as channel partners
has been an important prerequisite of effective channel
performance (Kalafatis, 2000). Except for those with
extraordinary reputation and prestige, manufactures cannot
expect numerous quality distributors to vie for their business.
Manufacturers normally have to seek and recruit distributors

Introduction
Channel management is often regarded as a key strategic asset
of a manufacturer because decisions about the delivery of
goods and services to target markets are critical, affecting all
other marketing decisions. Channel activities, like
distribution, frequently require the involvement and
cooperation of external partners, such as channel members.
Manufacturers are increasingly leveraging the capabilities of
channel members in recognition of the value that accrues
when partnership magnifies strengths and benefits (Sink and
Langley, 1997). Marketing channel success is often
dependent on strong channel members who can efficiently
perform the distribution tasks necessary to reach the channel
target (Rosenbloom, 2004).
Todays distributors, standing between production and
consumption (Merritt and Newell, 2001; Shipley and Jobber,
1994), are increasingly maintaining both interpersonal and
technological/electronic links with manufacturers, customers,
and other third-party or intermediary partners (Mudambi and
Aggarwal, 2003). Such distributors often achieve a high
quality-to-cost ratio in various functions, creating value for
manufacturers (Cavusgil et al., 2004). Manufacturers
The current issue and full text archive of this journal is available at
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Supply Chain Management: An International Journal

13/5 (2008) 356 365
q Emerald Group Publishing Limited [ISSN 1359-8546]
[DOI 10.1108/13598540810894942]

356

Determinants of manufacturers selection of distributors

Supply Chain Management: An International Journal

Jiun-Sheng Chris Lin and Ching-Rung Chen

Volume 13 Number 5 2008 356 365

by evaluating potential candidates, with an emphasis on

performance (Cavusgil et al., 1995; Rosenbloom, 2004). In
other words, no matter how much control manufacturers have
in the selection process, they yet must consider the criteria of
distributor selection to ensure the chosen partners can create
a positive synergy (Merritt and Newell, 2001; Rosenbloom,
2004).
Until now, there are relatively few empirical studies
exploring manufacturers selection of distributors. This lack
of research is especially apparent when compared to the vast
amount of literature on vendor/supplier selection, which has
long been a central focus of industrial marketing and supply
chain research. The little existing work there is, provides only
conceptual, descriptive, and simulation results, focused
mainly on firm resources and general marketing/selling
factors (e.g. Abratt and Pitt, 1989; Cavusgil et al., 1995;
Shipley et al., 1989; Yoeh and Calantone, 1995). The
objective of this paper is to fill this research gap by proposing,
and empirically testing, a framework that will contribute to
understanding manufacturers selection of distributors.
In the current research, four key constructs were derived
from marketing, supply chain, and logistics literature to
investigate their influences on distributor selection: firm
infrastructure, marketing capabilities, relationship intensity,
and logistics capabilities. Four hypotheses were developed and
tested with a sample of Taiwanese information technology
(IT) manufacturers. The four constructs were empirically
found to have positive influences on manufacturers selection
of distributors. We conclude this paper with a discussion of
the studys results, implications, limitations, and future
research directions.

selection of distributors have not been examined empirically.

We next review relevant marketing, supply chain, and logistics
literature to derive four major factors that affect
manufacturers selection of distributors, from which, we
develop our hypotheses.
Firm infrastructure
A channel/supply chain members existing business situation
can serve as an indicator of a potential match with a
manufacturers needs (Braglia and Petroni, 2000;
Mummalaneni et al., 1996). Manufacturers often take time
to inquire about a distributors standing with current and past
customers, suppliers, the local business community, and even
competitors (Cavusgil et al., 1995). Therefore, a distributors
firm infrastructure, comprising assets of the firm that indicate
the companys basic business profile or enhance its primary
and support activities, should be seriously considered by
manufacturers when selecting distributors. Derived from
previous channel and supply chain member selection
literature, the firm infrastructure variables included in this
research are: management ability, financial strength,
experiences, and physical facilities.
The management ability of a distributor is considered
critical for channel member selection (Cavusgil et al., 1995;
Rosenbloom, 2004). Management ability relates to
management quality and operational competency. Many
manufacturers feel that a channel/supply chain member
should only be considered if its management capabilities are
good (Braglia and Petroni, 2000; Rosenbloom, 2004).
Scholars also suggest that the financial strength of a
prospective partner is important when selecting channel/
supply chain members (Braglia and Petroni, 2000; Sink and
Langley, 1997; Yeoh and Calantone, 1995). Financial
strength provides evidence of the prospective channel
members overall abilities, in addition to information
concerning specific channel functions (Rosenbloom, 2004).
Distributors in good financial positions are likely to be well
established and capable of selling many products for their
manufacturing clients. Manufacturers need to verify these
aspects of financial performance through visits or reliable
third party opinions in addition to the published figures
(Cavusgil et al., 1995).
The market experience of a firm influences its competitive
position (Kaleka, 2002), with experience helping the firm
obtain better information, decrease uncertainty, and better
handle managerial resources (Shankar, 1999). Therefore, a
distributors experience in business also influence a
manufacturers selection decision (Abratt and Pitt, 1989;
Braglia and Petroni, 2000; Fram, 1992). Scholars also suggest
that physical facilities strongly affect manufacturers channel/
supply chain member selection (Abratt and Pitt, 1989; Braglia
and Petroni, 2000; Cavusgil et al., 1995). Adequate physical
facilities, including modern technology and equipment, may
indicate a firms capacity to carry out channel/supply chain
tasks (Braglia and Petroni, 2000; Kaleka, 2002). Empirical
evidence shows that manufacturers across Europe, North
American, and South Africa value physical facilities when
selecting distributors (Abratt and Pitt, 1989). Based on the
above discussion, it is expected that manufacturers will prefer
distributors with better firm infrastructure. We thus
hypothesize:

Conceptual background
Distributors, acting on behalf of others to distribute goods in
marketing channels (OConnell et al., 1997), serve as a
conduit between manufacturers and channel customers
(Mudambi and Aggarwal, 2003). Distributors often
undertake their functions with higher levels of efficiency
than manufacturers (Cavusgil et al., 2004). Distributors can
also add value for manufacturers through customer
relationship management (e.g. account consolidation,
customer relationship building, customer base growth),
production and operations management (e.g. order
processing activities, working capital and inventory
reduction, lead time reduction, and trade credit and
financing activities), and knowledge management (e.g.
technical product/process knowledge, market knowledge)
(Mudambi and Aggarwal, 2003). On the other hand,
intensified competition among thriving distributors,
combined with increasing demands from both
manufacturers and consumers, encourages distributors to
collaborate with manufacturers for better performance
(Kalafatis, 2000; Mudambi and Aggarwal, 2003). The
manufacturers dependence on distributors and distributors
eagerness to cooperate in competitive marketplaces (Merritt
and Newell, 2001) dictates the importance of employing
competent distributors for increased channel performance.
Distributor selection involves evaluation and choice
(Cavusgil et al., 1995). The evaluation task typically consists
of identifying the attributes, criteria or factors relevant to the
decision and then measuring or rating eligible distributors on
each factor (Patton, 1996). The manufacturers evaluation
reflects an assessment of the value/rewards and risks inherent
in the selection. However, until this study, factors affecting

H1.

357

Candidate distributors firm infrastructure is positively

related to manufacturers selection decisions.

Determinants of manufacturers selection of distributors

Supply Chain Management: An International Journal

Jiun-Sheng Chris Lin and Ching-Rung Chen

Volume 13 Number 5 2008 356 365

Marketing capabilities
Literature on channel member selection frequently addresses
the importance of marketing capabilities. Marketing
capabilities have been defined as the integrative ability to
apply collective knowledge, skills, and resources of the firm to
the market-related needs of the business (Weerawardena and
OCass, 2004). This enables a business to add value to its
goods and services while meeting competitive challenges
(Day, 1994). Distinctive marketing capabilities enable a firm
to outperform competitors by reaching target markets
effectively (Vorhies and Harker, 2000). This criterion
reflects a distributors expertise and understanding of key
customer segments, behaviors, and trends (Shipley et al.,
1989; Weerawardena and OCass, 2004). According to
channel member selection literature, marketing capabilities
generally include sales strength, market coverage, and product
compatibility.
Most firms interpret the sales ability/strength of a
prospective distributor as a critically important criterion
(Cavusgil et al., 1995; Yoeh and Calantone, 1995). The main
consideration is whether the prospective distributor can
capture as much market share as the manufacturer expects. A
manufacturer will often seek detailed sales performance
information from a prospective channel member to get a
firsthand view of its effectiveness (Mummalaneni et al., 1996;
Rosenbloom, 2004).
Market coverage, the adequacy of the distributor in serving
the geographical territory that the manufacturer would like to
reach, is also considered an important indicator of marketing
competence (Braglia and Petroni, 2000; Stern et al., 1996).
Adequate market coverage has been found necessary to gain
an optimum volume of sales in each market, secure a
reasonable market share and attain satisfactory market
penetration, and therefore is important for manufacturers
distributor/channel member selection (Cavusgil et al., 1995;
Rosenbloom, 2004; Yeoh and Calantone, 1995).
The product lines carried by a distributor are also
considered important when assessing marketing capabilities
(Cavusgil et al., 1995). Manufacturers typically prefer
distributors who handle compatible and complementary
products, rather than substitute products, especially
avoiding distributors carrying directly competitive products
(Fram, 1992; Rosenbloom, 2004; Yeoh and Calantone,
1995). Thus, product line compatibility is also considered
important in distributor evaluation and selection. In
summary, manufacturers would favor distributors with
better marketing competence (Berman, 1999). Thus it is
hypothesized:

Golicic et al., 2003; Rindfleisch and Moorman, 2001). A

positive link between relationship intensity and channel
outcomes has also been supported (Santoro, 2000).
Following on these findings, we propose that the construct
relationship intensity is an important factor for a
manufacturers selection of distributors. Derived from
Golicic et al. (2003) and Rindfleisch and Moorman (2001),
relationship intensity is defined as the degree of perceived
reciprocity, closeness and friendliness in the relationship
between the manufacturer and prospective distributor. This
construct includes the distributors enthusiasm to build a
relationship, commitment, and willingness to share
information as well as the manufacturers familiarity with
the distributor.
Scholars suggested that firms should seek distributors who
show enthusiasm for the contract and who are hungry for
success (Anderson and Weitz, 1991; Yeoh and Calantone,
1995). Rosenbloom (2004) and Coughlan et al. (2001) also
emphasize the value of a prospective channel members
enthusiasm and aggressiveness, which is believed to be closely
related to long-term success in handling the manufacturers
products. Therefore, manufacturers would prefer distributors
who are enthusiastic to cooperate.
Commitment is considered crucial to the long-term success
of a business relationship, providing the basis for a
cooperative spirit in marketing channel relationships, leading
to an overall stronger partnership (Andaleeb, 1996). A
committed distributor is more likely to provide market
intelligence to the manufacturer, invest in the relationship,
and make sacrifices that maintain and grow with the
relationship (Anderson and Weitz, 1992; Cavusgil et al.,
1995; Goodman and Dion, 2001; Yeoh and Calantone,
1995). Furthermore, a distributor is also more likely to
establish a reciprocal cooperative relationship if they are
willing to share information with manufacturers (Coughlan
et al., 2001; Stern et al., 1996).
A manufacturers acquaintance/familiarity with the
prospective distributor is considered important, as such
familiarity can be positively related to its expectation of future
coordination with the distributor in a channel relationship
(Celly and Frazier, 1996). Manufacturers are more likely to
choose distributors with whom they are familiar or who are
recommended by channel customers (Shipley et al., 1991).
Likelihood of a successful partnership increases as the
above qualities enhance mutual communication and
relationship maintenance. Based on the discussion above,
the following hypothesis is proposed:

H2.

H3.

Candidate distributors marketing capabilities are

positively related to manufacturers selection decisions.

Candidate distributors relationship intensity is

positively related to manufacturers selection decisions.

Logistics capabilities
Logistics has been emphasized as a source of a firms
competitive advantage (Novack et al., 1994; Fawcett et al.,
1997; Zhao et al., 2001). Capabilities in logistics provide an
opportunity to achieve substantial cost savings while
enhancing operational flexibility and creating value for
customers (Fuller et al., 1993). A well-managed channel
requires that its members be equipped with good logistics
capabilities. The connection between logistics capabilities and
firm performance has been recognized in marketing, strategy,
and supply chain/logistics literature (e.g. Bowersox et al.,
1999; Day, 1994; Desarbo et al., 2005; Lynch et al., 2000).
Manufacturers need distributors to perform many logistics
functions well to improve efficiency, reduce costs and

Relationship intensity
The development of a manufacturers relationship with its
channel members greatly affects channel cooperation, channel
efficiency and the manufacturers competitive advantage
(Kaleka, 2002). Therefore, manufacturers will evaluate
relationship factors carefully when selecting channel/supply
chain members (Mummalaneni et al., 1996; Min, 1993).
However, these relationship-related factors, within the
context of channel member selection, are not sufficiently
discussed in the current literature. Extant research has used
terms such as relationship strength, relationship quality,
relationship intensity, and relationship magnitude when
describing interfirm relationships (Bove and Johnson, 2001;
358

Determinants of manufacturers selection of distributors

Supply Chain Management: An International Journal

Jiun-Sheng Chris Lin and Ching-Rung Chen

Volume 13 Number 5 2008 356 365

Figure 1 The Conceptual Framework

maintain a competitive advantage. Academic research

investigating the content and construct of logistics
capabilities is varied. Derived from Fawcett et al. (1997),
Morash et al. (1996) and Zhao et al. (2001), inventory
management, delivery efficiency, flexibility, innovation,
logistics cost, and customer service are included in this
research.
Inventory management, which involves balancing the level
of inventory held to achieve high service levels with the cost of
holding inventory (Lambert et al., 1998), is often considered
the fundamental index of a distributors logistics ability
(Looman et al., 2002; Svensson, 2003). Scholars also suggest
delivery efficiency is an important indicator of logistics
capabilities (Daugherty et al., 1998; Fawcett et al., 1997;
Morash et al., 1996). Delivery efficiency includes the ability to
reduce the time between order taking and customer delivery
and to meet anticipated delivery quantities (Morash et al.,
1996), which plays an important role in channel/supply chain
member selection (Cavusgil et al., 1995; Da Silva et al.,
2002). In addition, flexibility, a logistics systems ability to
accommodate special or non-routine requests and provide
rapid response to customer requests, indicates a firms
competence to respond to the needs of markets, and is
regarded as an important sign of logistics performance
(Fawcett et al., 1997; Vickery et al., 1999). Manufacturers
value flexibility when selecting channel/supply chain members
(Da Silva et al., 2002; Sink and Langley, 1997).
Innovation is often considered a key determinant of firm
success (Calantone et al., 2002; Mone et al., 1998) as well as
logistics performance (Chapman et al., 2003; Fawcett et al.,
1997; Flint et al., 2005). A distributors innovativeness in
increasing value-added content of logistics services can
enhance performance and competitive advantage for
manufacturers and customers (Fawcett et al., 1997; Flint
et al., 2005; Morash et al., 1996). This makes innovation
important for distributor selection (Fawcett et al., 1997). In
addition, a distributors ability to control or minimize the total
cost of distribution is also considered an important factor of
logistics ability (Morash et al., 1996; Fawcett et al., 1997),
since it effectively reduces the overall cost of selling.
Manufacturers prefer distributors with good ability to
minimize logistics cost (Mummalaneni et al., 1996; Shipley
et al., 1989). Moreover, customer service is also critical to
logistics excellence (Fawcett et al., 1997; Mentzer et al., 2001;
Morash et al., 1996) and channel member selection (Min,
1993), given the tendency to view customer service
orientation as a principal determinant of channel activities
and the heightened attention to the importance of service
quality in many supply chain practices (Katsikeas et al.,
2004). Since logistics service quality has a positive impact on
customers satisfaction and re-purchase intentions (Mentzer
et al., 1999), manufacturers prefer distributors with better
customer service (Cavusgil et al., 1995).
In summary, channel members with better efficiency in
logistics have differential competence and better performance
(Rosenbloom, 2004). Thus, manufacturers will prefer
distributors with better logistics capabilities, leading us to
propose:
H4.

Research methodology
Questionnaire development
Multi-item scales were used to operationalize each of the
variables in our model. Due to the lack of existing scales for
distributor evaluation or selection, we followed the procedures
recommended by Churchill (1979) and Gerbing and
Anderson (1988) in developing measures. When available,
existing concepts or items were utilized; otherwise, potential
items were developed following a deductive and inductive
approach (Hinkin, 1998), based on the literature and on
insights drawn from our expert interviews. The constructs
and related items discussed in the literature review were
examined and served as the basis for item generation.
Simultaneously, we carried out eight interviews with IT
manufacturing senior managers and business experts to
capture a wide variety of viewpoints, increasing the probability
of producing valid measures (Churchill, 1979). Items were
next reviewed by seven subject matter experts (SMEs) to
continue the deductive and inductive work. Four of the SMEs
had doctoral degrees in areas related to marketing channels,
supply chain and distribution, and three other SMEs are
business colleagues who were familiar with the research topic
in IT industry. Items were revised in an iterative process based
on feedback from the SMEs.
Pretests were carried out with executives from four IT
manufacturers to improve and enrich the questionnaires.
Respondents preferred and suggested a 0 to 10 scale over the
common 1 to 7 response scale, which is most likely related to
the common use of 0 to 10 scales in Taiwan from childhood
on. This accords with Krosnick (1999) and Wengs (2004)
suggestion that researchers must take into account the
cognitive discrimination ability of the target population for
the optimal number of scale points, as well as Netemeyer
et al.s (2003) indication that a scale can use as many as 11
scale points. Therefore, a 0 to 10 scale was used in this study
(see Appendix).
Data collection
The sampling frame consisted of Taiwan-based
manufacturers that sell their own IT products or parts in
the retailing market. Lists of manufacturers were obtained
from TOP 1,000 Taiwanese Corporations Database, with
an overall sample size comprising 356 manufacturers. In order
for the survey to capture actual attitudes from distributor
selection situations, we encouraged each respondent to recall
their most recent distributor selection experience. Because
Taiwans IT product distribution market contains a limited

Candidate distributors logistics capabilities are

positively related to manufacturers selection decisions.

Figure 1 presents the research framework delineating the four

determinant constructs that influence manufacturers
distributor selection.
359

Determinants of manufacturers selection of distributors

Supply Chain Management: An International Journal

Jiun-Sheng Chris Lin and Ching-Rung Chen

Volume 13 Number 5 2008 356 365

number of distributors holding the majority of market share,

our survey was able to focus on these key distributor
candidates across all respondents. IT manufacturers tend to
select at least one of these distributors, and in many cases they
select more than one. Therefore, according to industry
experts suggestions, we listed a total of five major IT product
distributors (including large and medium firms) in Taiwan as
the common candidates for each manufacturer to evaluate in
the survey. Smaller distributors that vary from manufacturer
to manufacturer were excluded to make the survey easier to
complete.
Each manufacturer was asked to evaluate all five
distributors individually regarding the most recent
distributor-selection experience. This also precluded
respondents from evaluating only their most or least favored
distributors. To track actual results, we also asked the
respondents to provide sales information related to the
distributor (percentage of monthly sales volume handled by
the distributor) (Tuten and Urban, 2001; Mohr and
Spekman, 1994), which reflects both the consequence
(selected or not) and magnitude (dyadic sales volume
percentage) of the selection.
Phone calls were made to all manufacturers in advance of
survey administration to ascertain the names and positions of
suitable executives and willingness to respond. Respondents
were decision makers heavily involved in distributor selection.
Questionnaires were mailed (and faxed, according to
informants request) to the 356 manufacturers. A
personalized cover letter, highlighting the importance of the
study and promising an executive summary of the study
results, was also included with the survey. One to two
reminder phone calls were made two weeks after the initial
mailing. Finally, a replacement questionnaire was mailed/
faxed to non-respondents at the end of the fourth week. As a
result, 105 manufacturers responded to the questionnaires
with a response rate of 29.5 percent. Eleven responses were
discarded due to incomplete data. The remaining 94
manufacturers were made up of 41 foreign-invested and 53
local firms. All the manufacturers used at least one of the five
major distributors, and most manufacturers used multiple
distributors. Since each informant was asked to evaluate the
five distributors separately, each respondents evaluation of a
single distributor represents one unit of analysis, totaling 470
units of analysis. Non-response bias was assessed by
comparing early (the first 75 percent of respondents) and
late respondents, as recommended by Armstrong and
Overton (1977). A comparison of the two groups revealed
no significant differences on demographic variables nor the
substantive variables included in our models. Thus, nonresponse bias does not appear to be a significant issue in this
research.

were extracted with each eigenvalue exceeding 1.0, matching

the number of proposed constructs and explaining 83 percent
of the variance. Reliability assessment resulted in a
Cronbachs coefficient a exceeding 0.7 for each measure,
satisfactory for exploratory research (Nunnally and Bernstein,
1994).
We next estimated a 16-item, four-dimension CFA model
using LISREL XIII. The CFA resulted in SRMR, NFI, CFI
and IFI values of 0.077, 0.89, 0.90 and 0.90, respectively,
indicating acceptable fit (Bentler, 1990). Convergent validity
was assessed by first reviewing the t-tests for the factor
loadings in the CFA (Anderson and Gerbing, 1988). All
factor loadings surpassed twice their standard error and at a
p , 0.0001 significance level. Next, we examined the squared
multiple correlations (SMCs) for all observed variables, and
found all SMCs over 0.40, also offering strong support for
convergent validity. In addition, the average extracted
variances (AVE) for each factor were all above 0.50 (ranging
from 0.67 to 0.95), further supporting the convergent validity
of the scale (Fornell and Larcker, 1981).
We confirmed discriminant validity using the procedure
Anderson and Gerbing (1988) recommend, comparing each
pair of constructs using a chi-square test between allowing phi
(F) to vary and constraining F correlation to unity. The
difference between the chi-square values for the models is
asymptotically distributed as chi-square. With degrees of chisquare difference related to degrees of freedom difference for
the two models, we conducted a chi-square difference test of
our dimensions for the scale. In this case, we found the chisquare for the unconstrained model to be significantly lower
than the constrained model, supporting discriminant validity.
Next, we tested whether the correlation for each pair of the
four dimensions was significantly less than one (Bagozzi and
Heatherton, 1994) by examining the confidence interval of
each correlation estimate. The exclusion of the value one in
the confidence interval for each pairwise correlation estimate
(^ 2 standard errors) indicates support for discriminant
validity. The highest correlation between dimensions for the
4-factor model was 0.65 (between relationship intensity and
logistics capabilities), with an associated confidence interval
of 0.59 to 0.71, further supporting discriminant validity for all
pairs of dimensions. In addition, we also compared the AVEs
with the squared phi correlations between the four dimensions
(Fornell and Larcker, 1981). Since the highest phi square
correlation (0.42) was smaller than the lowest AVE (0.67), the
discriminant validity was reinforced.
Tests of hypotheses
Hypotheses were tested with ordinary least squares regression.
The manufacturers selection decision (SELDEC), measured
by percentage of a manufacturers monthly sales volume
handled by the distributor (0 if the distributor is not selected),
was held as the dependent variable which reflects the
consequence and magnitude of the decision (Tuten and
Urban, 2001; Mohr and Spekman, 1994). The four major
factors obtained from the factor analysis were set as
independent variables: distributors firm infrastructure
(INF), marketing capabilities (MKT), relationship intensity
(REL) and logistics capabilities (LOG), while, manufacturers
firm size (MSIZE, manufacturers annual sales) and
nationality (MNATN, a dummy variable with 1 for foreign
invested manufacturers, 0 for domestic manufacturers) were
used as control variables. All hypotheses were tested by
estimating the regression equation:

Results
Measure validation
Scale validation was assessed via exploratory factor analysis
(EFA), confirmatory factor analysis (CFA), initial assessment
of scale reliability, as well as convergent and discriminant
validity analyses (Hinkin, 1998). We first performed principal
components factor analysis with varimax rotation on the
initial items, employing a factor weight of 0.50 as the
minimum cutoff value. We also dropped any item exhibiting
cross-loading (the highest loading required to surpass the
second highest by .30, Hair et al., 1998). Table I shows the
rotated factor matrix. A total of four factors (with 16 items)
360

Determinants of manufacturers selection of distributors

Supply Chain Management: An International Journal

Jiun-Sheng Chris Lin and Ching-Rung Chen

Volume 13 Number 5 2008 356 365

Table I Rotated factor loadings for the final 16-item instrument

Items

Logistics capabilities

Firm infrastructure

0.876
0.853
0.840
0.837
0.830
0.711
0.110
0.101
0.170
0.226
0.271
0.325
0.370
0.282
0.282
0.101
7.265
45.407
45.407

0.103
0.079
0.070
0.116
0.094
0.193
0.986
0.983
0.949
0.009
0.028
0.050
20.032
0.105
0.314
20.005
2.963
18.519
63.925

LOG1
LOG2
LOG3
LOG4
LOG5
LOG6
INF1
INF2
INF3
REL1
REL2
REL4
REL5
MKT1
MKT2
MKT3
Eigen value
% of Variance
Cumulative %

Factors
Relationship intensity
0.235
0.245
0.317
0.316
0.252
0.256
0.010
0.011
0.030
0.871
0.808
0.771
0.733
0.084
0.080
0.019
1.855
11.594
75.519

b5 MSIZE b6 MNATN
Variance inflation factors (VIF) were examined for each
independent variable in order to determine the existence of
multicolinearity. The VIFs of independent variables ranged
between 1.0 and 2.0 in the regression, well below the
acceptable value of 10 suggested by Neter et al. (1989). This
indicates that multicolinearity was not a concern.
Regression results indicated the model was a good fit for
our data set (see Table II). The coefficient for firm
infrastructure was positive b1 0:191 and significant
t 4:997. H1 was supported, indicating that distributors
firm infrastructure has a positive effect on manufacturers
selection decisions. Distributors marketing capabilities were
also found to be positively related to the manufacturers
selection decisions b2 0:347; t 9:014, supporting H2.
This implies that manufacturers prefer distributors with better

Constant
Firm infrastructure
Marketing capabilities
Relationship intensity
Logistics capabilities
Manufacturers size
Manufacturers nationality
R2
F value

0.191
0.347
0.310
0.263
20.012
20.033
0.321
36.410 *

20.678 *
4.997 *
9.014 *
8.025 *
6.832 *
20.300
20.790

0.95

0.96

0.87

0.88

Discussion
The multi-criteria decision to select distributors is one of the
most important issues in channel management for
manufacturers. Our empirical findings are quite supportive
of the conceptual framework to explore dimensions of
distributor selection. The four key factors in our model all
have positive and significant effects on manufacturers
selection of distributors, with all four hypotheses fully
supported. This indicates that manufacturers, when
selecting distributors, pay attention to not only distributors
firm infrastructure and marketing capabilities emphasized by
most previous research, but also distributors relationship
intensity and logistics capabilities.
There is evidence that marketing capabilities and
relationship intensity may be more important predictors of
manufacturers distributor selection. A distributors
competency in marketing and earnest devotion to a
reciprocal and close relationship seem to have more
influence on the manufacturers decision. In terms of

Table II Regression analysis

Standardized
t-value
Coefficient

0.160
0.157
0.140
0.196
0.160
0.204
0.081
0.023
0.237
0.101
0.126
0.051
20.100
0.906
0.866
0.843
1.195
7.466
82.985

Cronbachs a

marketing competence. Moreover, the coefficient for

distributors relationship intensity was positive and
significant b3 0:310; t 8:025. H3 was supported.
Distributors relationship intensity with a manufacturer
positively influences the manufacturers selection decisions.
Distributors logistics capabilities were also found to be
positively associated with manufacturers selection
b4 0:263; t 6:832, supporting H4. Higher level of
logistics capabilities increase the likelihood of a distributor
being selected by manufacturers. In addition, a
manufacturers firm size and nationality (foreign-invested or
domestic) were found to have no significant impact on
distributor selection. This may indicate that there is no
difference between manufacturers of different sizes and
nationalities for the distributor selection, reinforcing the
cross-national comparative results of Shipley (1984) and
Abratt and Pitt (1989).

SELDEC b0 b1 INF b2 MKT b3 REL b4 LOG

Predictor variables

Marketing capabilities

Conclusion

H1 Supported
H2 Supported
H3 Supported
H4 Supported

Note: * p , 0.01

361

Determinants of manufacturers selection of distributors

Supply Chain Management: An International Journal

Jiun-Sheng Chris Lin and Ching-Rung Chen

Volume 13 Number 5 2008 356 365

control variables, there exists no significant difference

between large and small or domestic and foreign-invested
firms in the distributor selection, indicating that the four key
factors may be applied to firms of different sizes and
nationalities.
This study fills an important research gap and improves our
knowledge of distributor selection by proposing and
empirically testing a framework to serve as a foundation for
examining manufacturers distributor selection. Distributors
performing well with respect to the four factors will build their
competitive advantage.

distributor selection, and should be strongly underscored by

both manufacturers and distributors. The intangible
relationship intensity, such as the reciprocity and closeness
and friendliness in the relationship, should be emphasized
because it significantly affects the prospective channel
cooperation and efficiency. Distributors should always
enthusiastically seek to build a relationship with
manufacturers, maintain a strong connection by committing
to orders and payments, show a willingness to share
information, and maintain social visibility through a good
reputation in relevant industries. Distributors who do this will
have a greater likelihood of being selected by manufacturers,
gaining competitive advantage.
Logistics performance is also critical in terms of
manufacturers needs and distributors competitiveness.
Even the most elaborately designed and managed channel
must depend on logistics to make products available to
customers, increase efficiency, and add value to maintain
competitive advantage. To meet manufacturers needs,
distributors must have good competence to manage
inventory, deliver goods reliably, handle non-routine
requests and accidents, increase the innovation and valueadded content of logistics services, minimize logistics costs,
and provide good customer service, increasing overall
distribution efficiency and quality.
It is interesting to note that marketing capabilities and
relationship intensity appear to be more important than other
determinants of distributor selection for manufacturers in our
sample. This may signify that manufactures value distributors
marketing competence and seek cooperative relationships
with distributors. In summary, the four determinants
discussed above are all important ingredients for
manufacturers distributor selection. Distributors with
outstanding performance in the four dimensions have
improved opportunities to grow strong and gain a
sustainable competitive advantage.
The distributor selection process continues as long as
channel distribution is in effect. Manufacturers will evaluate
current distributors, keeping them if performance is high, or
replacing them if low. Manufacturers may also have to recruit
new distributors to replace distributors that leave, or add new
distributors to existing lists due to new channel design,
expansion or growth. Continuous evaluation by
manufacturers and improvement by the distributors should
be practiced to ensure continued competitive performance.
Manufacturers must realize that superior distribution support
can help differentiate products and services in the
marketplace, add value and amplify profitability. Since
distributors can be used to enhance a manufacturers
competitive position in the marketing channel, distributor
selection will continue to be an important issue for the
foreseeable future.

Implications
The findings of this paper provide implications for both
manufacturers and distributors. In an era of low margins,
manufacturers must not only maximize their manufacturing
and internal operation, but also cope with the growing
importance of distributors in marketing/distribution
efficiency, customer satisfaction, and cost savings.
Recruiting good distributors in marketing channels can
improve a manufacturers performance, and even increase
its competitive advantage. Selection of distributors is a multicriteria assessment of both tangible and intangible factors,
and is as critical to the success of a firm as the selection of
good employees. From candidate distributors, manufacturers
must select those that are most able to sell the products and
serve the needs of target markets in order to achieve better
firm performance (e.g. profitability). Therefore, finding
competent distributors is an important issue for
manufacturers, especially for many medium and small-sized
firms that might lack sufficient knowledge and information to
select distributors. Our empirical observations have shown
that four factors are important to manufacturers when
selecting distributors: firm infrastructure, marketing
capabilities, relationship intensity and logistics capabilities.
Distributors can strengthen their competitive advantage by
improving their competence in these four dimensions.
A distributors existing business conditions signal a possible
match with a manufacturers distribution needs.
Manufacturers must investigate candidate distributors in
order to accurately read those signals. A distributors firm
infrastructure is essential, allowing continued competition
within the industry. Distributors should continuously improve
their firm infrastructure factors to gain competitive advantage
and win manufacturers confidence that the distributor should
have enough fundamental resources to perform the
distribution task and accommodate future operations or
expansion. A distributors management ability and financial
performance are vital because of the signals they send about
management quality, operational efficiency, and channel
function capabilities (Rosenbloom, 2004). A distributors
experience in product distribution is also important due to the
positive benefits it brings to know-how and reputation.
Experienced distributors often have better market knowledge
and information as well as better skill in handling managerial
resources. In terms of marketing capabilities, manufacturers
favor distributors with better marketing skills, resources, and
expertise to reach the target markets and seize market share,
creating value while meeting competitive challenges for
manufacturers. Consequently, distributors that have better
sales competence and wider market territory, while avoiding
substitute or competing products have a competitive
advantage favored by manufacturers.
Distributors relationship intensity as well as logistics
capabilities also play critical roles in manufacturers

Limitations and future research

A few limitations and future directions of this research should
be noted. First, manufacturers selection of distributors is a
dynamic process involving evaluation, communication, and
interaction between both manufacturers and distributors.
This study contains a one-sided evaluation, collecting data
from only one party of the dyad relationship the
manufacturer. As prospective distributors will also weigh
their own channel situations and evaluate manufacturers
appropriately, future research should explore the two-way
evaluation and communication to better understand this
issue. Second, the sample of IT manufacturers in Taiwan may
362

Determinants of manufacturers selection of distributors

Supply Chain Management: An International Journal

Jiun-Sheng Chris Lin and Ching-Rung Chen

Volume 13 Number 5 2008 356 365

limit variation of some dimensions and may reflect market

particularities of that sector. This issues is decreased,
somewhat, as these Taiwanese IT manufacturers actually
produce a large portion of the IT-related products destined for
the global markets and thus well represent a single world-class
industry. Further cross-national and cross-industry studies are
encouraged to enrich the model theoretically and empirically
while increasing generalizability. Third, many manufacturers
choose more than one distributor. This research did not
investigate reasons affecting manufacturers adoption of
multiple distributors. Future research can take this into
consideration.
Finally, this article presents an effort to comprehensively
capture the relevant elements of manufacturers distributor
selection using data collected from IT industry. The model
proposed in this study is a beginning for channel member
selection research. Future research can investigate and
compare the determinants of channel member selection
across various channel levels and member types to enrich this
research stream. In addition, after the selection decision,
manufacturers should make efforts to retain good distributors
in order to maintain channel operation and efficiency.
Therefore, the next important research topic should center
on how to motivate distributors to keep them loyal and
maintain good performance through various ongoing
evaluation and maintenance activities.

Reality, Council of Logistics Management (CLM), Oak

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INF4

Marketing capabilities (scaling from strongly disagree

to strongly agree on a 0 to 10 scale)
MKT1
MKT2
MKT3

The distributor has good sales competence.

The distributor covers the markets that your
company would like to reach.
The distributor carries products that do not directly
compete with your products.

Relationship intensity (scaling from strongly disagree to

strongly agree on a 0 to 10 scale)
REL1
REL2
REL3
REL4
REL5

The distributor is enthusiastic to build a

relationship with your company.
The distributor is committed to the ordering and
payment procedure.
The distributor is committed to the minimum sales
quota.
The distributor is willing to share information with
your company.
Your company is familiar with the distributor.

Logistics capabilities (scaling from strongly disagree to

strongly agree on a 0 to 10 scale)
LOG1
LOG2
LOG3
LOG4
LOG5
LOG6

The distributor manages inventory well.

The distributor delivers goods efficiently.
The distributor is able to accommodate special or
non-routine requests.
The distributor is aggressive in increasing the value
added content of logistics service.
The distributor is able to minimize logistics costs.
The distributor provides good customer service.

Selection decision

Appendix. The measures

The distributor handles ____% of your companys

monthly sales volume (at the start of your
relationship).

Firm infrastructure (scaling from strongly disagree to

strongly agree on a 0 to 10 scale)
INF1
INF2

The distributor is experienced in distributing ITrelated products.

The distributor is equipped with good physical
facilities.

Corresponding author

The distributor has good management capabilities.

The distributor is in a good financial position.

Jiun-Sheng Chris Lin

management.ntu.edu.tw

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