Global Logistics Opportunities and Challenges

Global Logistics Opportunities and Ch eitherenges westbound Europe consists of United Kingdom, Netherlands, Belgium, Luxembourg, France, Ger galore(postnominal), Italy, Ireland, Denmark, Norway, Sweden, Finland, Austria, Switzerland, Portugal, Spain, Greece, Malta and microstates of Vati put forward City, San Marino, Monaco, Andorra and Liechtenstein. western sandwich Europe is guileed as study contri notwithstandingor of the European economy. Its determining characteristics ar common currency, valuate equalization, political homogenization and threadb ars homogenization. Logistic eachy speaking Western European trades offer a big(p) opportunity for exploiting economies of the surmount and size in travel goods passim the Europe opting from a number of tape transport modes. European transport meshings guard gr birth because of deregulation of transportation shipments, optimal r come ine and plan scheduling, and the ontogenesis of national assistants. The number of long- distance transports has gr aver significantly with the spectacularst sh ar of loading transports as way transports. The preferred modes of transportation in the bea be paths and kvetchs, closely fol meeked by sea committal. In addition, the Chunnel associate the UK with the rest of Europe reducing the transportation approach to a great extent. Source (DHL weaken Logistics, n.d.-a)The logistics systems in Western Europe argon characterized more(prenominal) by political change associated with EU enlargement than by geographical features. In Western Europe transport, storage, packaging and administrative jobs ar proper noticeably more economic receivable to changeless regulations. The transport interlockings argon very well developed but average shipping distances suffer grown princip eachy in the wake of the European Unions enlargement. Outsourcing activities are progressively impact logistics in Western Europe because companies no longer consider logistics t o be a nub business sector. Instead, larger diffusion networks are develop at a rapid pace. Global besotteds prefer vertical integration and go for direct foodstuffing and diffusion in order to trend muniment and total logistics follow. The changes in the logistics sector founder generated challenges of increased dynamism in shipping, packaging and labelling. Here, the reduction of custom processing plays a decisive region. In addition, technological improvements throughout Europe are almost uni act and not just clustered in individual countries. As a result, order processing, inventory restrainment, warehousing and IT engine room are being march on interchangeized. In nutshell, the war-ridden situation in Western Europe is uttermost(prenominal) as compared to the rest of Europe.Japan has evolved into an economic power augury of Asia and created a extremely developed logistics system in spite of challenging geographic conditions. On unity hand, much(prenominal ) a system is necessary to offset the Nipponese islands escape of raw materials. On the opposite hand, it is the foundation for expanding the positive developing of the export nation. The rural areas main manufacturing and therefore, logistics hub lies in a triangle around the cities of Tokyo, Nagoya and Osaka on the island of Honshu. Air transport, in dowericular, plays an definitive role here. The most important doer of freight transport in Japan are road transports and coastal shipping. Almost ninety percent of the transport is carried by trucks. The role of rail transports is almost non-existent. But this could change in the years ahead. A fraction of sea freight has been shifted to air transport in recent years. As a result of this shift, multinational air transports on trans-Pacific routes have climbed tremendously.Compared with different industrial countries, Japans distribution system is very complex and inefficient steer to high distribution damages. Most aspec ts of goods distribution Source (DHL Discover Logistics, n.d.-b) in Japan is tightly regulated by the establishment. interchangeable distribution is usual competitors who make deliveries to the same businesses tend to use spousal relationshipt delivery capacities and trucks. The logistics foodstuff in Japan is opening up to world-wideistic service give uprs which are already successfully competing against Japanese companies in areas such as storage, distribution and complex contract logistics. The major logistics challenge is concern congestion in metropolitan areas around the industrial hub. Just-in- snip systems require small and frequent shipments to bear upon client requirements. The distribution system in Japanese marketplace is characterised by non-store channels, carrying least inventory. It is helpful in introducing new intersection points through mail order, record sales, and tele-shopping. Shared distribution system is common among competitors. Uniform palleti zation is used to forfend complicacy in performances.ChinaChinas logistics market is opening up gradually to the orthogonal world. Logistics enterprises are reorganizing and integrating in the competitive environment. It is more and more distinct that state owned, private owned and impertinent funded enterprises are surviving and well-heeled in the competitive markets. With the increasing demand of logistics, the logistics service for enterprises is changing from crushed take account fundamental work to the high value added services. Logistics infrastructure, integrated logistics, traffic and transportation, and delivery services bear huge investment opportunities. However, the related risks moldiness be put into account, and impregnables should be cautious when choosing investment ciphers.Source (DHL Discover Logistics, n.d.-c)In round parts of China, due to advancement in technology, the road network now approaches Western standards. Modern freeways have been built in the Pearl River delta as well as in Shanghai and Beijing. split of this network extend far into the landed estates interior but the standards and quality of the road drops as we move past from the cities particularly in the areas located away from the metropolitan areas. As a result of the underdeveloped infrastructure outside the metropolitan areas, logistics comprises are high in an worldwide context. In comparison to other means of transport, the rail network is almost contrasted for logistics trading trading operations due to poorly built rail lines. For example, a container falls tail fin days to journey by train from Hong Kong to Shanghai (DHL Discover Logistics, n.d.-c). A transport by ship holds about the same amount of time, but is much cheaper. Rail transports play a major role moreover in the shipment of bulk cargo like coal or iron ore. As a result, rail transports are not particularly attractive to international companies for general logistics operations.The key challenges for the Chinese logistics industry arePoor infrastructure insufficient integration of transport networks, information technology (IT), warehousing and distribution facilities.Regulation exist at various tiers, enforce by national, regional and topical anaesthetic authorities and very much differ from metropolis to city, hindering the creation of national networks.Bureaucracy and Culture companies need to make up links with political agents at various levels. Moreover, it is heavy to repatriate lettuce back to home country.Poor training in logistics sector and the manufacturing and sell sectors, some(prenominal)(prenominal) at a practical level, i.e., IT, transportation and warehouse as well as at a higher strategic level. data and communications technology lack of IT standards and poor systems integration and equipment. At a very basic level, there is no consistent supply of energy. vestigial house servant industry logistics sector is fragmented and dominate d by commoditized and low quality transport and warehousing, unable to meet the growing supply scope demands for industrial and commercial enterprises.High transport costs almost 50% more than Japan, Europe and North America, mainly due to high tolls on roads. Logistics costs (including warehousing, distribution, inventory holding, order processing, etc.) are estimated to be two to trinity times the normal.Poor warehousing and storage high losses, damage and descent of stock, especially in the perishables sector.Regional imbalance of goods flows from the developed east of the country to the more undeveloped west booster cable to higher costs for haulage companies which are then passed on to their clients.Domestic trade barriers besides displace trade barriers such as tariffs and quotas for international shipments, there are close up problems such as unofficial border tolls from an inland manufacturing location to a port city or vice versa. super acidwealth of Independent Stat es (CIS) and easterly EuropeFour out of fifteen former Soviet Republics kick the bucket to CIS are in Europe Russia, Ukraine, Belarus, and Moldova. east Europe is do up of Poland, Czechoslovakia, Hungary, Romania, Bulgaria, Serbia, Croatia, Slovenia, Bosnia, Macedonia, Albania, and the Baltic states of Lithuania, Latvia, and Estonia. The countries of Eastern Europe occupy a strategically central rig on the continent and are located at Western Europes interface with Russia. As a result of the European Unions enlargement to the east, they are increasingly serving as a bridge. As a result, many manufacturing companies have moved their production facilities to Eastern Europe for cost reasonablenesss. Logistics service providers entered either following these companies or to exploit the new markets by carrying out mergers or acquisitions. The opportunities for the companies takeed in entering these markets vary significantly from country to country. Although, these countries have r elatively well developed transport networks but they do not meet western European standards. Despite the rapid branch of road transports, railroads remain the dominant means of transport.The Eastern European logistics market is characterized by wide regional differences. While the Czech Republic, Slovakia, Slovenia, Hungary and Poland have made major strides, Romania, Bulgaria and Croatia are trailing far behind. The infrastructure is in counterbalance worse shape farther to the east. The road- basebornd freight transports have modified capacity to meet the demands of European industry in a cost stiff manner. The causes of these limitations include traffic jams, the limited potential for expanding network capacity, rising energy costs and growing intermodal competition from railways. Eastern European harbours, particularly the major sea ports in Poland, perform a significant amount of trans-shipping and are being increasingly expanded. The European Unions enlargement and the in creasing transport volumes have resulted in intensified storage and distribution activities in the countries of Central and Eastern Europe. One of the major challenges is to overcome the barriers that exist between Eastern and Western Europe, including the transport infrastructure.Foreign Market Entry StrategiesForeign market presentation strategies are mainly categorized intoIndirect exportationDirect tradeManufacturing strategiesCooperative strategiesIndirect exportationingPiggybackingAn schematic international distribution network of one manufacturer whitethorn be used to carry the products of a blurb partnership without such a network. The second manufacturer is express to be piggybacking on the first in these cases. The first confederation has an established reputation and contacts in an international environment. It handles the logistics and administration costs of merchandise for the second manufacturer. Piggybacking can offer many advantages to degene grade such as cheaper and quick accession to new markets, an established knowledge base of the out-of-door markets and economies of scale with regards to administration, shipping, selling and distribution. Piggybacking whitethorn lead to unsatisfactory marketing arrangements such as lack of strategic fit, providing technical support, and after sales services for buyers potentially leading to dis arranging. This method acting of exporting too is not i know for building a semipermanent contrary market presence.Trading CompaniesA trading company trades on its own account. It performs many functions as buying and selling as a merchant, handling goods on consignment, or it whitethorn act as a commission house for some buyers. Trading companies match sellers with buyers and manage all the supportive functions such as export arrangements, paperwork, transportation, and legislative requirements. Firms initially choose this mode, because of TCs extensive contacts, experience, operations and long-te rm commercial relationships in many different trading regions in the world. After some experience in the international market, exporting firms want more jibe over last making, so TCs are not their long-term partners.Export Management CompaniesExport Management Companies are specialist companies that act as export incision for a number of companies. They provide companies with access to external buyers, take orders from those hostile buyers, purchase finished products, and handle the transporting and distribution of the goods in the foreign market. Their core competency is in export logistics and deals with the necessary backup and extensive knowledge of purchasing practices and government regulations in the foreign markets. This is a less angry and fast penetration strategy suitable for new entrants in the international market in the short-term. Disadvantages of EMCs include export strategy conflict among two parties, lack of manufacturers stamp down over foreign market de cisions and market knowledge. cod to expertise in exporting, the EMC has complete control over all foreign market decisions. In addition, EMC may even export products that are in direct competition with each other. therefore, manufacturers need to devote resources to monitoring the deed of an EMC and invest in managing the business relationship. As the manufacturers tax revenue from exporting increases, moving away from the EMC or eliminating EMCs from the business may prove harmful due to lack of foreign buyer contacts or market knowledge or because of contractual agreements.Domestic PurchasingDomestic purchasing is a method of market entry which involves the least company involvement. This export method often involves an unsolicited purchase request from a foreign commercial buyer. The company may not even have considered the export potential of their products until approached from the foreign buyer. In general, companies can use this method to sell off exorbitance stock with the least inconvenience. It generates a relatively low level of revenue and the company is completely dependent on the foreign buyer. The company gains limited knowledge of the international markets, as it has no direct contact with them. The foreign buyer often picks up the goods at the factory gates and counter to transport the goods, market them, and distribute them in one or more overseas market.Direct ExportingDistributorsExport distributors differ from agents in that they take ownership and responsibility for the goods. Distributors normally take limited ripe(p)s for the sales and serve of a particular territory where they represent the manufacturer in all respects. The capital investment can be particularly high for a firm exporting goods requiring specialist handling. Due to this large investment both parties undertake to maintain a long-term relationship.AgentsExport agents are commonly individuals or firms operating in a foreign market, contracted by the firm, and pa id a commission to take hold orders for the product. After entering into a contractual agreement, sales targets are ordinarily agreed with agents by the firms. Agents are usually contracted to carry non-direct competing products therefore providing a lower image to risk. Although agents are the cheapest and quickest form of market entry, the long-term profitability is harden to low with a short payback period. Agents can be secure to the company in that they have topical anaesthetic market knowledge, established relationships and provide adequate feedback regarding further product or market development strategies. Agents do not owner goods which limits their motivation to improve performance. They can take the form of brokers, manufacturers representatives, managing agents and compradors execute specific functions (Cateora Graham, 2002).Direct MarketingUsing database marketing tools such as mail order, telemarketing, media marketing, direct mail and the internet can be a use ful technique to expand a firms node base abroad. Usually, this market entry method is very useful when there are high barriers to entry exist in a foreign market or where markets have insufficient or underdeveloped distribution systems. mastery using direct marketing can only be obtained if the standard product/service is customized to meet the personal needs of the target market in different markets. Issues of product promotion and privacy needed to be addressed when engaging in telemarketing, direct mail or profits commerce.FranchisingIn franchising, the firm grants the legal effective to use branding, stigmatizes and products, and transfers the method of operation to a third party (the dealershipe) in return for a franchise fee. Franchising is less risky and less costly due to the nature of the agreement. The franchisee provides the topical anesthetic market knowledge, capital, time and resources needed to develop the franchise. The two types of franchise agreement used b y franchising firms are that of a master franchise and licensing. A master franchise often operates a multi-unit franchising agreement or it may take the form of a trading company whereas in licensing the franchiser uses the property, trademark and intellectual rights for a royalty or fee.Management ContractsManagement contracts usually involve selling the skills, expertise and knowledge of firms in an international context. The contracts undertaken are usually those for installing counsel operating and control systems and the training of local staff to take over when the contractors are finished (Doole Lowe, 2001).Manufacturing StrategiesOwn auxiliaryThis form of market entry requires the maximum commitment in hurt of solicitude and resources and offers the fullest means of participating in a market. Before commit huge capital, the firm must evaluate the pros and cons of the business as the cost of withdrawing from the market would be significant. Although sole ownership prov ides high level of control, the firm may not only incur the costs if withdrawal is in high spirits but too the companys reputation can be damaged both in the foreign and domestic market. The advantage is of avoiding communication and conflict of interest problems which may occur through other methods like acquisitions and spliff ventures.acquirementAcquisition occurs where an organization develops its resources and competences by taking over another organization. It is a faster entry strategy in new product or market areas. A firm may acquire cost efficiencies, spry access to a trained labour force, recognized brands, existing client and supplier contacts, an immediate source of revenue and an established distribution network or otherwise as a result of acquisition. In return, the getting company may have to make true sacrifices. fabricationAssembly involves establishing plants in foreign markets simply to assemble components manufactured in the domestic market by the firm. T his method of market entry is attractive for certain companies when they see that the importation of components is subject to lower tariff barriers than assembled goods which eventually lower their costs. Moreover, it can be more advantageous if the finished product is large and transportation costs are high. The domestic plant in addition, can focus on development and production skills and investment, hence, profiting from economies of scale. Assembly firms to a fault take advantage of lower wage costs and government incentives.Cooperative StrategiesJoint VenturesJoint venture (JV) is a market entry option in which the exporter and a domestic company in the target country join together to form a new incorporated company. Both parties provide equity and resources to the JV and per centum in the management, profits and losses. The JV should be limited to the bread and butter of a particular project. This option is popular in countries where there are restrictions on foreign owners hip, e.g. China. Its advantages include acquisition of competencies or skills not available in-house, risk sharing of a large project with other firms, faster market entry/penetration and payback, and avoiding technical trade barriers. Its disadvantages are divided management control, difficult to recover capital invested, disagreement on new export markets, and different views of partners on expected benefits. strategical Alliances strategical alliances are a wide range of cooperative partnerships and joint ventures which unite to follow a set of important, agreed goals while in some way remaining independent subsequent to the formation of an alliance. The partners share both the benefits of the alliance and control over the performance of assigned tasks during the life of the alliance. The partners contribute on a regular basis in one or more key strategic areas, for example, technology or products. Strategic alliances are usually formed in three areas technology, manufacturing and marketing. The main reason behind strategic alliances is competition. Other reasons include the reduction of risk, the attainment of economies of scale and complementary assets such as a brand name and government procurement. Firms, which employ strategic alliances, have the advantage of simultaneously penetrating some(prenominal) of their key markets.Specific RecommendationsThe decision of, which foreign market to enter, depends on firms external as well as internal factors and foreign countrys market conditions. The strategy to be adopted should be based on firms short and long-term corporate objectives. Initially, the firm should choose among direct or indirect exporting leading to cooperative and then manufacturing strategies. If exporting is a long-term goal of the firm, then indirect exporting methods may not prove to be the wisest strategic choice. In long-run, the firm has to trade off among costs and control over the decision making.Customer ServiceWhen a firm becomes extensively involved in international business, logistics is seen as a critical part of the strategic planning process and a deterministic factor of guest service level. The complexity of the international business environment, including different business customs, inadequate/in get hold of transportation infrastructure, restrictive regulatory frameworks, and different levels of logistics services, presents barriers that make operations in foreign countries far more complicated and less manageable than in domestic markets. Generally, existing or emerging barriers result in longer order cycle times, higher logistics costs, and greater customer dissatisfaction. The customer service level chosen for use internationally is based on expectations encountered in each market. These expectations are dependent on past performance, product desirability customer sophistication, and the competitive status of the firm and industry. Therefore, additional logistics costs are required to support operations which may be so important that, if not handled properly, they may offset any potential cost savings from using inexpensive labor and other resources in foreign countries. The need for cost-service trade-off analysis becomes inevitable for the managers in such an absent-minded situation. Under these circumstances, logistics barriers obviously make it difficult for firms to gain a competitive advantage from their international operations.Table 1 summarizes the firms major external factors affecting its logistic performance (and therefore, customer service) at domestic and global level. It also depicts how difficult it becomes for the firms to provide same level of customer service at international level. Another major external (and therefore, uncontrollable) factor which has made international logistics more vulnerable and complex is security risks after 9/11 terrorist attacks. As a result security clearance procedures have drawn-out and deportation times of shipments ha ve extended. Insurance rates for cross-border shipments have also climbed. Some factors internal (and therefore, controllable) to the firm, for example, centralized logistics activities, do not make the customer service work best, as it can be under local control in foreign market. Financial aspects such as working capital, inventory, capital investments in buildings and equipments, and accommodation of merchandise are also difficult to manage in the case of international operations. The managerial capability of logistics management in deciding optimal cost-service mix plays a major role in determining the customer level.In order to establish an efficient logistics system to support international operations, especially customer service, a firm should be able to evaluate when and where logistics barriers may disrupt materials flows in the distribution channel. The identification of barriers is important in designing an effective international operations network. A better understandi ng of those barriers enables a firm to take actions to crop or avoid them so that it can improve its competitive position in international markets. The firms entering in the international market should obtain as much as possible information about the business conditions and operating expenses of potential markets. As the customer service levels and hence the cost incurred, vary between countries, the firm must examine the service requirements of customers in each foreign market.A flexible and responsive global customer service strategy is based on inventory policy and control procedures, packaging and containerization, sourcing raw materials, managing export shipments and terms of trade. International logistics is characterized by inventory points at more levels between suppliers and customers making it much complicated than at domestic level, leading to longer transportation times. Depending on the length of transit time and more inventory volume needed to cover the nonessential delays, the firm can develop inventory policies and control procedures most appropriate for each market area. Another component of customer service is the products carnal condition (must be in right condition). Packaging and containerization are important for product handling, climate effects, potential pilferage, communication and language differences, freight rates, and customs duties when a product moves across the borders. The quality of a product is rigid by the quality of its raw materials. International sourcing may enable a firm to optimize products quality at lowest possible cost.The services of many facilitator organizations involved in international logistics activities are continuously utilized by almost all of the firms operating internationally. These organizations include export distributors, customs-house brokers, international freight forwarders, trading companies, and non-vessel-operating common carriers (NVOCC). These organizations are highly professionalized i n performing their functions and operate at economies of the scale. A firm involved in exporting for the first time would likely utilize the services of a facilitator organization. There are a number of shipment modes/terms, each one of them having its own pros and cons. These terms of trade/shipment used in international logistics are Ex-Works, FCA, FAS, FOB, CFR, CIF, CPT, CIP, DAF, DES, DEQ, DDU and DDP. Terms of shipment have a major impact on a firms logistics performance as each of them yields a different cost of shipment and value to the customer.Finally, integrated logistics management (ILM) is the ultimate strategy to deal with the international customers efficiently. ILM integrates all the logistics activities facility location and network design, information management, transportation management, inventory management, warehousing management, material handling, and packaging into a single activeness or process of logistics directed towards servicing the customer effective ly and at the lowest total cost of all the functional activities taken together. The methodological analysis of integrated logistics conforms to the logistics objectives getting the right item to the right customer, in the right quantity, in the right condition, at the right place, at the right time and at the right cost.Customer service level of a firm is the representation of managerial capability of its management team. A firms executive management is likely to use any or a combination of some or all of the above mentioned customer service strategies to deliver value to its customers. The combination may differ for different countries/markets at different times. solving the below given questions Explain the role each of the following exporting organizations has in global logistics (a) export distributor, (b) customs house broker, (c) international freight forwarder, (d) trading company, and (e) NVOCC.Export Distributor An export distributor deals with the manufacturer on a contin uous basis and is authorized and granted an exclusive right to represent the manufacturer and to sell in some or all foreign markets. It pays for goods in its domestic transaction with the manufacturer and handles all financial risks in the foreign sale. An export distributors functions include managing distribution channel and related marketing activities, handling customer clearance, managing inventories and warehousing facilities, collecting market information, jailbreak bulk, managing credit policies and providing after-sale services.Customs House Broker A customs house broker (CHB) is an agent who performs the clearing of goods through customs barriers for importers and exporters (usually businesses). Agent performs different functions/duties, for example, preparation of documents, the calculation (and usually the payment) of taxes, duties and excises on behalf of the client, and facilitating communication between the importer/exporter and political authorities etc. CBH also prepares and submits documentation to government agencies such as drug department, food safety department and many others to obtain the clearance. CBH is usually expected to be well familiar with the tariff schedules, duty rates for imported items, and the state regulations i.e. products country of origin.International Freight Forwarder An international freight forwarder is a person or company that organizes cross-border shipments for individuals or other companies and may also act as a carrier. A freight forwarder is usually acts as an agent instead of a carrier, in other words, as a third-party (non-asset-based) logistics provider that dispatches shipments via asset-based carriers. They have the expertise that allows them to prepare and process the documentation and perform related activities including commercial invoice, shippers export declaration, bill of lading and other documents required by the carrier or country of export, import, or transshipment pertaining to internation al shipments.Trading Company A trading company trades on its own account. It performs many functions. It may buy and sell as a merchant. It may handle goods on consignment, or it may act as a commission house for some buyers. Trading companies match sellers with buyers and manage all the supportive functions such as export arrangements, paperwork, transportation, and legislative requirements.NVOCC Non-vessel Operating Common Carrier (NVOCC) is a sh