In today’s age, globalization has forced companies, regardless of their geographical location or industry, to take into consideration the rest of the expanding world in their competitive strategy. Companies today cannot ignore or isolate themselves from the changing dynamics which include economic trends, expanding markets and technological innovation, among others. Also, new markets come with strong competitors; therefore, an effective global strategy is required through effective supply chain management. Right now, companies are going truly “global”, for instance, with the ability to develop a product in any location, manufacture it in Asia and sell it in Europe, Africa and around the world. Companies are beginning to change the way they manage their operations due to the changes in the trading environment, increased opportunities, increase in a laissez faire environment, better transport and logistics services, and the increase in field competition (Wilding, 1986). With this evolution, manufacturers are exploiting this new import/export environment through strategic alliances and joint ventures to sell their products.
Global Trade Agreements
From the turn of the century, global trade agreements have divided countries into regional and mutual trading blocks that allow goods and services to be exchanged unhindered across borders that once protected their economies from exploitation using tariffs, fines and duty fees. For instance, the first free trade agreement was signed between Canada, America and Mexico in 1992, and this opened the door for increased regional trade. This bore the trade agreement between Canada and the European Union and the now developing eleven nation trans-pacific partnership. Currently, America is developing the EU transatlantic trade and investment partnership, as well as the regional comprehensive economic partnership that includes i6 major Asian economies including Japan, Korea and China. Once established these trade partnerships will harness the strengths of 49 countries and contribute a large chunk into the global economy.
Globalization, Logistics & Movement of Products
What is sure is that globalization is here to stay and multinational enterprises are the major beneficiaries of this, but what outcome does this have on global logistics and movement of product? As companies continue to expand their brand and operations across the globe and take advantage of lowered tariffs and less bureaucracy within these new trade environments, what kind of partnerships do they need to nurture with their logistics partners? Naturally, companies need better supply networks which they can gain from logistics providers who have local presence, expertise and knowledge of the market. They need to adapt their supply chains to those of their partners in order to exploit this new environment that holds possibilities for their brand.
Corporations in any industry including health, cosmetics, electronics, food and automotives, are working to consolidate their logistic providers down to a few key partners who have expert knowledge on the environment and ultimately know how to efficiently and effectively move the product. These partners also have expertise in all areas of supply and transportation from the manufacturing warehouse down to the retailer. Because of today’s current market, which is much more flexible and adaptable, companies enjoy more business across borders. Companies also have to be conscious as logistics consumers and know what is next for the business (Dablanc, 2009). While production prices often drove manufactures east to Asia, many of them are now moving back to the America’s because of increase in labor wages and restrictions.
Also, the market has now expanded to these very markets have developed a taste for high end consumer goods that can now be easily manufactured in the US, Europe and anywhere else that has the capacity. This can be evidenced by the recent investment in the automobile industry in Mexico along with the increasing rate of employment in the United States. As it is, multinational logistics greatly depend on technology, not simply to track the movement of goods but also to manage the large amounts of data that it takes to move millions of dollars worth of product around the globe. This information has to be gathered, interpreted and manipulated to improve as well as design better trade routes and make the most out of the existing ones. In addition, maintaining a good global strategy and effective operations requires that a company take good consideration of its employees. Still, this is an area that receives very little attention, perhaps only as a discussion in organizational behavior.
Globalization and the resulting creation of a better trade environment not only influence the movement of products but also that of useful employees. A good number of managers fail to remember that their companies are only as good as their workforce and, therefore, suffer the consequences. Recruitment and hiring is vital to a successful multinational company especially where emerging markets bring different experiences, challenges, cultures and language. Managers require the ability to understand the different dynamics that come with expansion in a global environment (Lemoine, 2005). With this said, it is important to understand the concept of globalization and what it actually means to different parties and in different contexts.
The Concept of Globalization
Globalization can be referred to as the trend toward greater economic, cultural, political and technological independence amongst institutions and economies. Another source defines it as the production and distribution of products and services of a homogenous type and quality on a worldwide basis.
Still, many have attempted to define globalization and failed, while some have claimed that doing so would be constraining the meaning, while others have ignored this and managed to develop different definitions. Despite this, most of them have agreed that developing a definition is not easy. However, a stable definition would be that globalization is a process that brings together different cultures, causes and processes to integrate for an activity. Nonetheless, globalization is not a concept that can be defined or encompassed within a certain confine or expounded upon with certainty or even applicable to everyone within every context. It however involves socio-economic integration across national borders, the exchange of knowledge and capacities, diplomatic relations, reproduction of services and exchange of power. In other words, it is the establishment of a worldwide platform that is free from socio-political control. In addition, the attempt by scholars to define globalization over the years has seen words such as progress, development, exchange, cooperation and integration being used. Others have made us of terms like destabilization, colonialism, regression and unfairness to define it, still, globalization as a concept is understood as something with a number of hidden agendas (Levitt, 1983). This is because one who interprets globalization does so from a unique context in terms of political ideology, caste, culture, ethnicity, religion etc.
With globalization, the concept of supply chain management has changed as it brings new challenges and dynamics to the movement of products and services. Now, more complex supply chains have been developed through global logistics which can be grouped into geographical, physical, distributional and transactional categories. Still in discussing the concept of globalization, one cannot fail to consider the PESTEL factors, these include the; political, economic, socio-cultural, technological and environmental factors that affect the integration of a multinational enterprise within a specific market region. In conducting a PESTEL analysis, the process includes examining the nature of threats and opportunities in the macro-environment.
Political factors refer to the system of governance that exists in the trade region, those of which can influence the nature of business. Not only do they do this but they influence consumer activities, buying power and the freedom of trade. Government regulations and duties can vary from region to region and may overshadow trade treaties that may otherwise protect the trade. Current trade agreements tend to favor trading activities regardless of political environments but have harsh penalties on non member countries or regions. Economic factors refer to those that affect the revenue and profits of the company. These many include tariffs, interest rates, exchange rates and the strength of economies and inflation rates. Also, the lack of employment for a significant amount of the population means that there is less labor, hence a lesser amount of individuals with spending power. Socio-cultural factors include things like cultural beliefs, social norms, religion, demographics as well as attitudes. The above PESTEL factors are identified as the leading influencers of the successful integration of a multinational corporation or any other company for that matter, into a region but aren’t necessarily the determinants of its success.
In this context, the examination of logistics and supply chain management is the key component because the former is a key influencer of globalization. In order to fully integrate operations and ensure the product is reaching the end-consumer, a supply chain should be established using a viable and reliable logistics supplier (Coe et al, 2000). With globalization, the world has basically become a single unit, interconnecting businesses and their supply chains around the globe. This is done through use of effective logistics channels are ultimately manage the cost and manage competition. This generally means that costs are cut by partnering with the ideal providers who are centered on the core business and eliminate unprofitable activities. Therefore, outsourcing global logistics to established service providers preserves the value chain and ultimately organizes the business. With this trend, many multinational companies are transferring this portion of their value chain to these logistics providers who can efficiently move the product.
Efficient logistics operate by uninhibited cross-border movement while working collaboratively with agents of the supply chain. To further optimize these services, the supply chain ought to be monitored from the point of production to the point it is delivered to the customer. Success at a global level is achieved through good management of logistical costs as well as improving consumer satisfaction. This is a guiding principle for both the manufacturing companies together with the logistics providers in ensuring organizational success. Still, maintaining a good supply chain is a strategic priority of companies worldwide is crucial in being a viable competitor in the global economy. Statistics show that over half of the large multinational enterprises in Europe have outsourced their needs to a logistics provider who can not only deliver their product to the consumer but also monitor the market and track the needs of the same.
There are a wide variety of product goods that are transported to various destinations around the globe and this has been made increasingly faster due to the movement of perishable goods which have to be delivered within lesser time (Eyefortransport, 2006). A shorter life cycle for products demands that logistics services are faster and more efficient. For instance, with items such as dairy products, newspapers etc, the travel and response time has to be faster in order to reach all consumers within the required time. With this, an agile and more efficient logistics system is required to optimize both organizational and logistical services. Studies reveal that for MNE’s, an efficient supply chain provided by logistics partners is much more important than the price. This is because the transition towards global trade requires value where services are delivered to customers in a timely and efficient manner. Therefore, the pressure on logistic providers is high to ensure that they meet the demands of their clients.
Key Trends & Arising Factors from Providing Transportation to MNE’s
Market researchers have found that there are a number of key trends that reveal the importance and the different key factors that arise from providing transportation to MNE’s and meeting their supply chain needs. First and most important is customer trends and this shows the behavior of consumers, what products they favor, prices they are comfortable with and how they purchase the product. This provides a lot of vital information to both the companies and logistic providers who understand that satisfying the customer is the key to success. Second is exploiting a networked economy by exploiting all available resources that allow a company to optimize its services and operations. Previously, companies operated basically as a single entity and provided all its product development, marketing, retail and supply needs. With improved changes in the global business environment, companies are now able to exploit a wide variety of solution provided by other vendors.
The third is factor is costing. While it is previously mentioned that MNE’s will eat the cost provided that there is value, the said are finding it harder and harder to lower the cost of all their needs and operational expenses. Naturally, this in turn translates into increased prices for the consumers in order to ensure profits and revenue. However, price is the driving force behind consumer behavior and therefore overpricing products, despite their availability may significantly drive customers away from the brand (Bhatnagar, 2000). Therefore, balancing organizational expenses and maintaining steady prices is a key element in ensuring a product consumer based is preserved. Fourth is the increased risk that comes with broaching a new consumer market and further partnering with a new logistics service provider. With this, it is important to examine the market, assess its viability and create solutions that manage the detected and anticipated risks that come with such a move. Also, it is important to create a strategic framework that determines what the best move is. For instance, an important tool would be assessing which would be the most ideal mode of transport that would be efficient and cost effective.
Fig. 2: sample logistics costs
The fifth factor involves sustainability as part of the logistics strategy. Most companies nowadays are incorporating this into their operational work-plan as part of their corporate social responsibility and as a measure to see increased efficient operations and less pollution (Nordas et al, 2006). Also the development of technology is fast affecting the movement of goods and services across borders. The increase in communication channels ensures that a client is able to track their goods, liaise with their service providers and even receive feedback from stakeholders. Also, technology helps in managing all the “big data” generated from all the transactions that involve the transportation of goods. In addition, the very concept of globalizations affects the way goods move across borders. Different regions have different laws, costs and levels of infrastructure and this may greatly affect the efficiency of logistical services.
Fig. 3: Showing a total global strategy
Overall, in developing a global strategy, it is useful to distinguish where the company is at and where it seeks to go. A company could be solely focused on its home consumer market but opt to expand its services outside its borders and this would be termed as an international strategy or move. However, if a company, regardless of sector, sells a universal product, is established and would like to establish a universal brand by venturing into a number of different countries, this may be regarded as a multinational strategy (HSBC, 2007). However if a company would like to expand and treats the entire globe as one large market, this is referred to as a global strategy. Regardless, of the expansion strategy, managers have to understand the objectives of its company, its prospects, the state of its brand, its perception with consumers, resources and the capacity of its staff among others. They also have to know how to approach the market and what best practices will be effective at achieving success. With the above mentioned guiding points, some scholars still argue that a totally integrated global strategy cannot exists while others assert that it can. Scholar George Yip once identified four factors that influence an enterprise to become more global, these include; market drivers, competitive drivers, government drivers and cost globalization drivers. He argues that the above, if well understood create the most potential for a company to create a total global strategy for success.
However, while these factors are powerful and influence a great deal in the global trade environment, there simply is not established rubric for a total global strategy. This is because different dynamics exist for different industries. Not to mention, different regions present unique differences that all have to be dealt with using unique solutions. Secondly, global changes occur every day and therefore relying on a single driver to determine success would be disappointing (Hull, 2005). Also, organizations operate on budgets and therefore cannot direct resources towards constantly adjusting according to the changes of the above mentioned drivers.
Therefore, the attempt by an organization to go global brings with it different dynamics that have to be dealt with at different levels. However, any strategy involves understanding what is ideal for the company. For one, in selecting a logistics partner, it has to be one that is well integrated into all areas of transportation including road, rail, air, marine and even pipeline. Cargo planes, freight trucks and ships are established as the leading modes of logistics and a good provider should be able to provide the same and more. A logistics partner that provides the above is able to attract multinational investors to a region, simply because of the fact that there is a well established and integrated transport network. In this era of increasing globalization, companies have to find techniques of staying ahead of the curve. The current increase in trade partnerships, lowered tariffs, better infrastructure and increased communication channels provides countless possibilities for companies to trade and expand their brands
This paper examined the concept of globalization of logistics and supply chains by multinational companies looking to expand their operations. The competitive advantage that can be gained by exploiting the different resources of different regions can be useful in establishing a niche for a company.
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Lecture 10: Introduction & the development of physical distribution & logistics
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