Global Marketing Management, 5e Chapter 15Copyright (c) 2009 John Wiley & Sons, Inc. 1 Chapter 15 Global Logistics and Distribution

Global Marketing Management, 5e

Chapter 15Copyright (c) 2009 John Wiley & Sons, Inc.

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Chapter 15

Global Logistics and Distribution

Chapter Overview

1. Definition of Global Logistics2. Managing Physical Distribution3. Managing Sourcing Strategy4. Free Trade Zones5. International Distribution Channel6. International RetailingAppendix: Maquiladora Operation


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Introduction

Global logistics and distribution have played a critical role in the growth and development of world trade and in the integration of manufacturing on a worldwide scale.

The use of appropriate distribution channels in international markets increases the chances of success dramatically.

In the United States, the total logistics cost has amounted to nine to eleven percent of the country’s GDP every year in the last decade.


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Introduction

As firms start operating on a global basis, logistics managers need to manage shipping of raw materials, components, and supplies among various manufacturing sites at the most economical and reliable rates.

The development of intermodal transportation and electronic tracking technology has resulted in a quantum jump in the efficiency of the logistic methods employed by firms worldwide.


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1. Definition of Global Logistics

Global logistics is defined as the design and management of a system that directs and controls the flows of materials into, through and out of the firm across national boundaries to achieve its corporate objectives at a minimum total cost (Exhibit 15-1).


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Exhibit 15-1: Global Logistics


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1. Definition of Global Logistics


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Materials management refers to the inflow of raw material, parts, and supplies through the firm.

Physical distribution refers to the movement of the firm’s finished products to its customers, consisting of transportation, warehousing, inventory, customer service/order entry, and administration.

2. Managing Physical Distribution

The following factors contribute to the increased complexity and cost of global logistics: Distance Exchange rate fluctuations Foreign intermediaries Regulation Security


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Modes of Transportation—Issues Value-to Volume Ratio Perishability Cost of Transportation

Modes of Transportation—Methods Ocean Shipping

Liner ServiceBulk Shipping

Air Freight Intermodal Transportation


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Warehousing and Inventory Management Hedging Against Inflation and Exchange

Rate Fluctuations Benefiting from Tax Differences Logistic Integration and Rationalization E-Commerce and Logistics


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Third-Party Logistic (3PL) Management The largest 3PL sector is the value-added

warehousing and distribution industry. Logistical Revolution with the Internet

The trend toward third-party logistics is a result of the Internet and the intranet as well as concentrating on core competencies.


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3. Managing Sourcing Strategy

Companies adopt international sourcing for the following reasons:

• Intense international competition• Pressure to reduce costs• The need for manufacturing flexibility• Shorter product development cycles• Stringent quality standards• Continually changing technology


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3. Managing Sourcing Strategy

Procurement (Exhibit 15-2) Intra-firm sourcing

Domestic Off-shore

Outsourcing Also known as contract manufacturing

Outsourcing Services Intellectual outsourcing


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Exhibit 15-2: Types of Sourcing Strategy


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Exhibit 15-3: Major Reasons for Outsourcing

4. Free Trade Zones

A free trade zone (FTZ) is an area that is located within a nation (say, the United States), but is considered outside of the customs territory of the nation.

US FTZ’s are licensed by the Foreign Trade Zone Board and operated under the supervision of the US Customs Service. Presently, some 700 FTZ’s are in operation. Across the US, about 335,000 jobs are directly related to activity in FTZ’s.


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4. Free Trade Zones

FTZs provide many cash flow and operating benefits to zone users (Exhibit 15-4):1. Duty deferral and elimination2. Lower tariff rates3. Lower tariff incidence4. Exchange rate hedging5. Import quota not applicable6. “Made in U.S.A.” designation


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5. Exhibit 15-4: Benefits of Using a Foreign Trade Zone (FTZ) in the United States

5. International Distribution Channel

Firms may reach their customers through: Direct sales Agent intermediaries who do not take title

to goods Merchant intermediaries operating as

independent businesses


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Exhibit 15-5: International Distribution Channel Alternatives


Guidelines for choosing foreign intermediaries: Intermediary should be capable of

developing markets, not merely have good contacts

Intermediaries are long term partners MNC seeks the intermediary, not the other

way around Support your partner with necessary

resources


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Get essential information from your partner including market information and sales performance data

MNC controls marketing strategy as much as possible

Establish links with foreign intermediaries as soon as possible after entering the market


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6. International Retailing

In developed countries, retailing employs between 7 percent and 12 percent of the workforce.

Retailing involves very locally entrenched activities, including stocking of an assortment of products that local consumers prefer and seasonal promotion. Adaptation is a key success factor.


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In 2006, Wal-Mart was the largest retailer in the world with a total revenues of over $376 billion. Only 10 percent of its sales are generated outside its core NAFTA region, compared with Carrefour’s 20 percent of sales generated outside its core Europe region.

In general, European retailers tend to be more willing to customize their marketing and procurement strategies to various local market peculiarities than US or Japanese retailers.


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Exhibit 15-6: International Operations of the World’s Top 10 Retailers


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Exhibit 15-7: SWOT Analysis of Carrefour’s Operations in China and Worldwide


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Private Label Brands Appeal to price-conscious customers Attractive to MNCs facing strong local

competition “Push” versus “Pull”:

The traditional supply chain powered by the manufacturing push is becoming a demand chain driven by consumer pull, especially in the developed countries.


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On-Time Retail Information ManagementOn-Time Retail Information Management ReducedReduced Inventory Market Information at the Retail Level

Strong logistics capabilities can be used as an offensive weapon to help a firm gain competitive advantage in the marketplace.

Retailing Differences Across the World Industrialized countries tend to have a lower

distribution outlet density than the emerging markets.


The advanced facilities available in the developed world allow a much higher square footage of retail space per resident due to the large size of the retail outlets.

Large-Scale Retail Store Law (LSRSL) in Japan- this law helped to protect the small retail stores

Germany (store hours limited) and China (basket shopping behavior) support adaptation

approach.


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E-commerce and RetailingCountries such as Japan and Germany

are warming up to the same e-commerce revolution as the United States has experienced.

E-commerce is not limited to the developed countries.

China is already the fastest growing Internet market in Asia.


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Brazil is the most wired nation in Latin America. Along with the growth of internet access is expected a similar growth in entrepreneurial e-commerce operators.

Despite the rapid growth of the Internet, the need for local or regional distribution of products is likely to remain as important as it was before the Internet revolution.


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Appendix: Maquiladora Operation

The maquiladora industry, also known as the in-bond or twin-plant program, is a special Mexican version of a free trade zone started in 1965.

Mexico allows duty-free imports of machinery and equipment for manufacturing as well as components for further processing and assembly, as long as 80 percent of the plant’s output is exported.


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Appendix: Maquiladora Operation

Mexico permits 100% foreign ownership of the maquiladora plants in the designated zone.

Automobiles and electronics product assembly are most common.

Most maquiladora plants are located along the U.S.-Mexico border (Tijuana, Ciudad Juarez, Nuevo Laredo). Other cities include Monterrey, Mexico City, and Guadalajara.

Mexico has been an attractive location for labor-intensive assembly because of cheaper labor.


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Global Marketing Management, 5e Chapter 15Copyright (c) 2009 John Wiley & Sons, Inc. 1 Chapter 15 Global Logistics and Distribution