International Business To Business Marketing - Term Paper Example

Running Head: INTERNATIONAL BUSINESS TO BUSINESS MARKETING International Business To Business Marketing of the of the ] International Business To Business Marketing Introduction The term supply management is often referred to as “material management.” Materials management is described by Anakwe (2000) as “procurement activities; inventory management; receiving activities; stores and warehousing; in-plant materials handling; production planning scheduling and control; traffic and transportation; surplus and salvage.” (2000, p.40) recognised this and suggested that supply management is “the identification, acquisition, access, positioning, and management of resources the organisation needs or potentially needs in the attainment of its strategic objectives.” Although these descriptions are useful, it is important to realise that the practice of purchasing and supply management is changing rapidly (Chopra, 2003). Supply Chain Management Supply chain management appears in current dialogue as relatively new terminology, but definitions of what it encompasses are, at best, vague. Barkema (1997) suggested that the development of an idea of the supply chain owes much to the emergence from the 1950s onwards of systems theory and the associated notion of holism. This may be summarised by the observation that the behaviour of a complex system cannot be understood completely by the segregated analysis of its constituent parts. However, Beverland (2002) suggested the use of this idea in regard to supply chains is neither consistent nor straightforward. New also argued that the supply chain metaphor is used in many ways, but three meanings dominate discussion: “supply chain” from the perspective of an individual firm; “supply chain” related to a particular product or item (such as the supply chain for beef, or cocaine, or oil); and “supply chain” used as a handy synonym for purchasing, distribution, and materials management (Larson, 1998). Supply chain management can mean any one of these things, but one aspect is certain: Purchasing and/or outsourcing activity is being undertaken (Barkema, 1997). Beverland (2002) suggested that supply chain management is an integrative philosophy used to manage the total flow through a distribution channel from the supplier to the ultimate user. Another definition is the management of a chain or of operations and centres through which supplies move from the source of supply to the final customer or point of use (Chng, 2000). In essence, the supply chain starts with the extraction of raw material (or origination of raw concepts for services), and each link in the chain processes the material or the concept in some way or supports this processing. The supply chain thus extends from the raw material extraction or raw concept origination through many processes to the ultimate sale of the final product, whether goods or services, to the consumer. Internet and Supply Chain Management Many organizations, often too late, are now realizing that they should have paid as much attention to their internal business processes, their orderfulfilment resources and systems, and the integration of those processes and systems with those of their suppliers of goods and order-fulfilment services, as they did to their customer-facing Web site. The need is for a seamless end-toend ‘order to cash’ process incorporating the Web site, the business’ accounting systems and the delivery mechanism. The accounting needs should embrace, as a minimum, accounts payable, accounts receivable, inventory, purchase orders, invoicing and credit control. (Johnson, 2002) The delivery mechanisms in many organizations cannot cope, when Internet trading is added to the traditional market offering, with the requirement for a large number of small orders requiring, to all intents and purposes, instant shipping. They may have historically been shipping relatively large orders to a few intermediate supply chain points on a two to three day lead time basis. (Chopra, 2003)The business processes, and perhaps more importantly the business systems, that are required to manage a large number of small orders are different from those required to manage the traditional business. (Dellarocas, 2001) The potential for making mistakes is high when an organization attempts to manage Internet business in the same way as the traditional business. All of the effort and resources that went into winning the business could be wasted as a result of not retaining that business because of the inadequate processes and systems in place to support order fulfilment. Moving Away From Traditional Supply Chains and Distribution Networks Adds Complexity But Provides an Opportunity for Profit The situation is made even more complex by the fact that the rise in Internet trading has provided the potential to restructure traditional distribution networks, supply chains and product flows. Much of the thinking to date relates to the traditional ways of moving products from manufacturers to customers. In the B2C area this has reflected traditional mail ordering concepts as typified by those organizations selling products such as books and music CDs. In simple terms, rather than ordering from a catalogue received in the mail and posting their order back to their suppliers, customers are placing their order via the Internet. Their products are delivered to them in much the same way as they were in the traditional mail order manner. The key differences are that the ordering process has been shortened in terms of time, and the manufacturer’s order capture and processing costs have been reduced. (Barkema, 1997) The major food retailers in the United Kingdom offering home delivery services typically rely on the order that has been received via the Internet being printed in the branch nearest to the customer, picked from the fixtures in that branch and delivered by a branch-based vehicle to the home of the customer. Internet trading has enabled the introduction of improved supply chains Recent supply chain trends have reflected changes made possible by use of the Internet as a means of communicating between buyers and sellers. The simple scenario described above, relating to books, no longer requires a network or a supply chain involving the printer/publisher, an intermediate stockholding location and an organization to promote the offering, capture the order and execute the delivery. Potential customers can place their orders using either their own PC at home or a terminal in the branch of a high street book retailer specifically provided for browsing and order capture. The order is then transmitted to the relevant publisher, not an intermediate stockholding point, for picking, packing and shipping directly to the home of the customer. Beverland (2002) Books and CDs, it should be noted, lend themselves ideally to this type of trade, as apart from some minor exceptions they can easily be shipped across borders, and they do not require temperature-controlled shipping conditions. The situation for foodstuffs is very different. A single customer order may be relatively heavy, consist of a number of different-sized cartons and bottles, require a range of temperature regimes, and need to be delivered within a tightly defined time frame. (Dellarocas, 2001) Moves in the industry, as volumes increase, are beginning to result in the emergence of home-delivery picking and delivery depots located away from the prime retail sites. Such facilities enable the use of sophisticated warehouse techniques to be deployed as a result of the automatic entry of customers’ orders into the warehouse system. Beverland (2002) The advantages created as a result of customers ordering over the Internet are more effective picking operations in a depot than a branch, improved product availability through monitoring the particular purchasing patterns of Internet shoppers, lower delivery costs as the increased volumes allow sophisticated routing and scheduling techniques to be deployed, and less congestion in the branches. (Chopra, 2003) The monitoring of individuals’ consumption patterns and the retailers’ Web sites, both prompting and reminding their regular customers of those patterns as they go through the ordering process, could further extend the concept. Culture and Supply chain management It is a universal characteristic of humans, and the organizations in which they work, that they resist change. Regardless of the advantages that new methods or technologies can promise, there develops a reluctance to accept these changes. Some cultures may face change very differently than others. National culture influences the way people work, the way they are managed, and the way tasks are designed and even performed. Resistance to change will depend upon how these work practices challenge culturally based work behavior. Barkema (1997) defines culture as a set of mental programs that control an individuals responses in a given context. Callahan (2000) define it as a shared characteristic of a high-level social systems, while Beverland (2002) defined it as the shared values of a particular group of people. Classifying cultures and identifying those dimensions that differentiate cultural behavior is difficult and controversial. One major study, undertaken with the support of IBM provides a very useful framework. Utilizing data from 116,000 questionnaires administered in 40 countries he found that national culture could be defined by four dimensions. He identified these dimensions as; power distance, uncertainty avoidance, individualism-collectivism, and masculinity-femininity. (Gonzalez, 2000) How does culture affect supply chain management? The study cited earlier by Barkema provide some answers. It concludes that the customer or focal firm needs to segment its suppliers according to the type of working relationship required. Cultural differences, however, suggest that it may be difficult to expect suppliers from some countries to modify the way they relate to their customers. Can a company in a country characterized as high in individualism find it as easy to engage collaboratively in the partner relationship as it can with the arms-length relationship? Can a company from a country characterized as high in collectivism (low individualism) find it as easy to engage in an arms-length relationship as it can with a partnership relationship? Can a company in a culture characterized by high uncertainty avoidance adopt new technology? If the answer to these questions is no, what can be done to help initiate change and facilitate these relationships? Consider the difference in supply chain relationships for American, Japanese and Korean automakers described by Gurhan-Canli & Maheswaran. American manufactures primarily follow the arms-length model. The cultural characteristics that describe Americans are high individualism and low uncertainty avoidance (they ranked first in individualism and 43rd in uncertainty avoidance). It would therefore be expected that relationship distances between these focal firms and its suppliers would be high (high individualism) and that frequent bidding and supplier changes would be expected (low uncertainty avoidance). This is exactly what the Gurhan-Canli & Maheswaran, study found. The opposite would be expected for Korean manufacturers. (Chopra, 2003)They ranked 43rd in individualism and 17th in uncertainty avoidance. It would therefore be expected that they would have few suppliers, that these suppliers would be integrated into their planning processes (low individualism), and that they would maintain a reliable and long-term relationship with them (high uncertainty avoidance). Again, this is what the study found. While the focal firm may wish to develop an integrated IT supply chain system with its suppliers, the cultural context may make it difficult to achieve. Cultural Differences Working internationally shows the range of cultural differences – even between closely related countries. It is generally felt that German workers are highly skilled and responsible, and do not necessarily need a manager to motivate them; they expect their boss to assign tasks and to be the expert in resolving technical problems. American workers are more familiar with managers who emphasize motivation. (Kleppe, 2002) Experience in this area – particularly with mergers and joint ventures between organizations – demonstrates a definite change in style and approach between, say, Swiss, French and other European countries. However, there are many similarities. Managers may be very well organized and extremely structured, but some are reluctant to change. When there has been a steady improvement in performance, it is especially difficult to accept the need for change. But when this is accepted, the ensuing approach should be relaxed and take easy steps towards progress. (Gonzalez, 2000) This is rather like the difference between the Chinese and Japanese approaches, and it will be interesting to see how these develop in the future. The process of communicating change is more difficult than it seems. Changing one area of the organization – for example in customer services – will affect another area, so it is important to concentrate on the needs of customers. It is important to recognize both external and internal driving forces for change, to emphasize the role of strategic planning, and to redefine tasks. The political dynamics must be so shaped that organizations benefit from a highly developed supply chain management – irrespective of whether it belongs to European, American or Asian cultures. The Impact of Globalization on Supply Chain Management The globalization of business is the best thing to happen to supply chain management (SCM) in the last 30 years. This seemingly bold statement is made not because globalization has made SCM any easier — quite the contrary. Driven by overwhelming market forces, globalization has forced countries and companies to become more efficient, creating the infrastructure and competitive advantage necessary to survive the early rounds of a brawl that will undoubtedly go beyond the last bell. (Loeffler, 2002) While investigating the relationship between globalization and SCM, we did not address the motivations for the globalization of the supply chain. The current section addresses the rationale for this phenomenon. Some of these explanations include improving the firms achievement, economies of efficiency, comparative advantage, competitive advantage, costreduction, quality improvement and customer satisfaction. The various motivations for globalization may best be understood in the context of the supply chain, as the motivation to globalize one aspect of the supply chain may be substantially different from the motivation to globalize another. (Chng, 2000) Based on his own literature review, Delfmann (2000) has proposed a list of globalization drivers for supply chains. The drivers he cites are: reduction of inventory investment in the chain, general reduction in costs, improved customer service, higher customer satisfaction, and building a competitive advantage. Additionally, he cites ten drivers which enable a firm to gain cost or differentiation advantages. (Chopra, 2003) They are: linkages [among various value-adding activities], economies of scale, learning [from past experience and amassing knowledge], the pattern of capacity utilization, interrelationships [among business units that involve shared logistical systems, shared sales force, etc.], integration [of prior and subsequent value-adding activities], timing, discretionary policies, location and institutional factors.(Lee, 2001) One need not look only at recent literature to investigate the motivation for supply-chain globalization. International commerce has existed for millennia and the motivations for trade among the ancients may be instructive to us. When we consider familiar products that traverse the globe before they reach us, coffee may be among the first to come to mind. Although the coffee supply chain may provide an example of a supply chain literally spanning the globe, it fails to provide a true example of a deliberately globalized supply chain, because the "foreign" involvement in the process is strictly as a supplier of the raw ingredient, rather than an integral partner in the value-adding process. (Chng, 2000) Furthermore, the decision of where to source is merely a function of the availability of the raw product in tropical climates and its unavailability in much of the industrialized world. The British economist David Ricardo studied trade patterns among nations in the early part of the 19th century. He questioned why Britain would import wine when the locals were perfectly capable of making it on their own. (Chng, 2000) Further observing the importation of goods in other countries where domestic substitutes were readily available, he developed the concept of comparative advantage. Comparative advantage states that, while a country may be able to domestically produce all of the products it consumes, it is better off allocating its production capabilities to those it produces more efficiently, while importing those expensive to produce. In Ricardos time, as today, the cool climate in Great Britain made grape cultivation difficult, so farmers were better off importing grapes (or wine) and producing oats, or other similar goods that thrive under local conditions. Chopra (2003). cite "the logic of economic efficiencies" as the primary driver in the pursuit of global strategies. Similarly, in a commentary on Perlmutters geocentrism, states the aim of a global strategy is to "improve the firms ultimate achievement through a reasoned, competitively oriented adjustment of its efforts in supply, and marketing, across all possible locations." While this only topically states the goals of a global strategy, it brings further detail to the economic-efficiencies argument of Ramarapu and Lado, as it succeeds in addressing the question of why firms globalize from both the input side and output side of the supply chain. That is, globalization creates economic efficiencies through both cheaper inputs and larger pools of potential customers. Callahan (2000) identifies comparative advantage and competitive advantage as the two principles motivating global strategy. Comparative advantage, also referred to as location-specific advantage, guides the decisions of "where to source and market." As discussed earlier, this is a modern interpretation of the Ricardian explanation for the existence of international trade. Competitive advantage, also called firm-specific advantage, closely parallels the concentration of value-adding activities, as identified by (Chng, 2000). In a subsequent article Callahan (2000) distinguishes comparative advantage from competitive advantage as the former being driven by the cost of inputs and the latter by differences in the ability of firms to convert the inputs into goods and services. Guillén (2002) identifies four possible benefits to be achieved through the use of a global strategy. These include cost reduction, improved quality of products and programs, enhanced customer preference, and increased competitive leverage. Conclusion Internet trading is here to stay, and if recent experience is any guide, volumes are set to grow significantly in the very near future. Suppliers to both the consumer and business markets have a tremendous opportunity given the growth predictions. They are setting out on the journey against a background of heightened customer expectation and a history of failure to meet those expectations. The winners going forward will be those organizations that take the opportunity afforded by the Internet to change the manner in which they capture and fulfil their customers’ orders. To date, in many instances, the traders have implemented an Internet ‘front end’ to their existing business processes. Consequently, the initial limited volumes have been treated in the same way as their mainstream volumes. Those customers ordering via the Internet have different customer service level needs and expectations from most traditional customers – hence the levels of disappointment expressed by customers placing their orders via the Internet. The Internet allows for different trading relationships and physical networks to be established. Those traders that develop a vision of the future incorporating the available potential, enter into partnering arrangements to enhance their internal skill base, review their business processes to meet their customers’ needs, implement electronic systems to support those new business processes, and undertake the trade-off calculations to identify the most appropriate ways of meeting all of their customers’ needs will reap the benefits. Three benefits of global strategy include: (1) extra-national scale-economies in manufacturing, when the needs of a single national market are surpassed; (2) coordination of technology transfer between markets; and (3) leveraging reputation by providing a reliable level of service across multiple geographic markets. These explanations for globalization all resonate with familiarity, as some of the oft-quoted explanations for the institution of supply chains include cost reduction and competitive advantage. Similarly, inventory reduction, improved customer service and higher customer satisfaction closely parallel some of the explanations offered for globalization. One important issue that comes with international operations is the amount of centralization and decentralization needed, which largely depends on the size of the organization. The problem with decentralization is that the volume of activities may fall below a critical level. Although it is flexible to needs, it lowers the amount of coordination across countries and has little authority. It is important that the best level of centralization is found so that no leverage is lost. Another point is that purchasing and supply staff have to take into account the implications of legislative changes both locally and globally – as well as the rate of change. At the same time, they must keep a grip on the basic concepts of purchasing and supply, which really have not changed in many areas. References Anakwe, U. 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