Dubai: Global Logistics and Supply Chain Management - Essay Example

?Introduction: Dubai has been a hub of trade for the region. It has achieved this status through grabbing opportunities at vital moments, investing in infrastructure, and keeping in mind the broader picture. The government of Dubai, which is run by the royal family, is free from the pressure of satisfying the population’s short term needs, as a result of which they can take on capital intensive projects whenever they feel that there is a need arising for them. This liberal attitude of the royal family reflected in their economic policies is one of the reasons why the city has managed to attract huge amount of foreign direct investment towards its projects. Moreover, the emirate of Dubai is located in a prime location of the world map, which makes it very attractive from the logistics point of view. It offers access to many regions and nations of the world; this fact alone can be a very attractive feature from the point of view of logistics companies. Even the forecasted economic growth is creating an increased utility for logistics services in the region. This is a very encouraging point for the logistics companies, which have to muster a substantial amount of capital outlay when initiating their operations in Dubai. However, the current space constraint of the Dubai International Airport is proving to be a very costly constraint for the logistics companies and freight forwarders. Both these parties require more space in order to expand the horizon of their operations, but since the airport has literally come into the city, there is no scope for expansion there. However, as mentioned earlier, the royal family never fears a huge capital outlay when devising expensive projects; therefore, the royal family has decided to sponsor the construction of a Dubai Logistics City. This city will be located near Jebel Ali port and will be complemented with a Jebel Ali airport. These initiatives will allow logistics service providers to transform into tri-modal service providers, thus increasing their profitability substantially (Mangan, Lalwani, and Butcher 303-315). Part 1: Case Analysis Analysis of Relevant Issues: Emirate Dubai is home to a population of 1.2 million people. The city can be classified as a cosmopolitan, since it provides shelters to people from multilingual backgrounds, different cultural backgrounds, different countries, and different regions of the world. Dubai is the 2nd largest and wealthiest of the seven emirates of the United Arab Emirates. The city provides a linking ground between the West soil, Persian soil, and Asia soil. Trade in the region increased in the 2nd half of the centaury. The fundamental reason behind this change was the building up of a sea port and numerous tax concessions offered by the monarch of the land. When oil was discovered in the city, trade and exports of the city saw a drastic increase. However, the royal family of the land was clear that it would end this dependency of the economy on oil export and would create alternate avenues for revenue generation. It was due to this that the city started making progress in its infrastructure development and sites that could attract tourists. The initiatives taken by the rulers led to an increase in the internationality of the city. This was augmented by the easy living atmosphere offered by the city. Western foreigners also found a land were they could spend quality time. This easy going atmosphere was germinated due to the liberal religious attitude of the rulers and due to the English language being the most preferred language of the city (Mangan, Lalwani, and Butcher 303-315). Such favorable characteristics of Dubai made it a regional trade hub; it serves around 2 billion customers worldwide. Businesses interested in starting operations in this city should not fear the law and order situation in the country, political climate of the city, and external relationship of the city. The city has been deemed as the Switzerland of the Arab world because of it neutrality towards international events and incidents. A business wanting to start its operations in Dubai can take advantages of the tax free zones offered by the regime and the means of communications or, more specifically, transportation provided by the city. Availability of such facilities and above mentioned factors lead analysts to forecast a strong positive growth of the economy. The analysts predict that not only will this growth be strong, but also it will be sustainable. The grounds for such forecast are future tax free zones, forecasted 150 billion import and export market, growing imports and, last but not the least, growing liberalization of government policies. However, the current setup for handling air freight arriving or leaving the city has been found to be inadequate. This inadequacy has been the result of a drastic increase in air freight between 1999 and 2004. In 1999, the city was handling 480,000 tons of freight but by 2004 this figure increased to 1.2 million tons (Mangan, Lalwani, and Butcher 303-315). The Dubai Cargo Village, even though it is well known for its fast and flexible handling of goods due to its advanced capabilities, is being a source of problem for logistics service providers. Not only has it been a source of worry for logistics service providers, but also it has constrained the forwarders from providing value-added services to their clients. As far as logistics service providers are concerned, they are facing operational constraints in handling cargo. Another problematic situation is the location of the Dubai International Airport. This airport is located in the middle of the city, which restricts the government from expanding its size. This is the root cause behind the above mentioned problems shared by logistics service providers and forwarders. This location is creating the issue of space limitation, due to which there is no space available to enhance the agents’ warehousing capacity on the landside. Even if the government takes an initiative to undergo enlargement of the facility, this initiative would receive a serious blowback, because the airport is close to the bordering highway. As a result of this, the authorities can undertake just enough expansion to satisfy the capacity requirements for five years. Suggestions: Given the considerable amount of expected growth and significant space constraints, stern measures were needed from the government. In this regard, it was first proposed that a feasible space should be developed near the Dubai International Airport. But this suggestion did not receive approval on the ground that there was not enough land available for expansion. Finally the authorities decided to build a logistic city by the name of Dubai Logistic City near the Jebel Ali Port as a part of a free zone. The construction of this logistic city will be accompanied by a Jebel Ali Airport. Thus, single logistics service providers will be transformed into a tri-modal service provider. The most favorable aspect of this proposal was that these two entities would be built in the desert area, so there was a huge space available for any future expansion needs. The fundamental reason behind selecting Jebel Ali for Dubai Logistic Service was one that it was in close proximity to Jebel Ali Port. This project had numerous benefits. Not only did it resolve the issue of operational constraint of logistics service providers and allowed forwarders to offer value added services, but also it made it possible to easily change freight from air, sea, and land transport. Moreover, Dubai Logistics City made it possible to transport goods to neighboring countries and other regions of the world. Steps for Implementations: In this case, there are no specific implementation steps mentioned, since all that is needed to get this project underway is an approval from the royal family of the city. The royal family of this city has been very liberal in governing the affairs of the region. It has always looked at the broader picture. In this regard, it has always undertaken measures and initiatives which have lead to the long term prosperity of the region. The royal family is not renowned for thinking small ideas, but it rather believes in coming up with thoughts which take things to the next big level. Potential Steps taken to convert a vision into reality: Setting up a project team Site excavation Finding sources for funding this mega project Material sourcing Generation of labor pool Laying of infrastructure Initiating the construction project Selling the property claims Finishing the project Evaluate the operations of the finished projects Take rectifying steps in case of problems Part 2: Question # 1 Dubai Logistics City Project is a project initiated by the government of Dubai to cater to the current and future needs of the increased freight transportation in to the city. Since it has been predicted by analysts that Dubai will experience an increase in freights, it has been decided that this city should be built to facilitate this demand. However, the most troubling factors which have led to this project are: Logistics companies were facing significant operational constraints in handling cargo that come their way. As a result of the hike in demand of their services, these companies need twice as much space as compared to what they currently have. The second reason for this initiative is the problem arising for the freight forwarder, who can increase their turnover by offering value added services to their clients; however, because of the limited space, they are not in a position to meet the growing demand for value added services in their logistics operations. Both these problems are due to the poor location of Dubai International Airport, which is located in the middle of the city. Due to this, the boundaries of the airport can not be extended any further. At the time of it construction, the area had no city, but with the passage of time a city has developed all around it. This has created limitation of space. Question # 2: The most fundamental thing that needs to be seen when starting a business in a region is its future economic growth and stability. The analyst looking at the favorableness of Dubai as a possible avenue for expanding the operations of the parent company in the region has to look at many things. First of all, as mentioned earlier, he has to see the future economic growth potential of the city. Secondly, it needs to assess the political environment of the country, both internal and external. The analyst needs to ensure that the government of the country is serious about the future economic progress of the country. The way he or she can ensure this is by looking at the economic policies of the government. The analyst needs to see if the government is liberal enough to ensure a stable political environment. He or she should assess the trends in government’s policy actions, and by looking at these trends the analyst should predict future favorableness of the country for doing business. The most important of all these factors is that the analyst needs to weigh the benefits that will accrue to the business if it goes on to establish its operations in the region. The benefits should be seen in terms of potential return on invested capital, potential increase in customer base, and, last but not the least, the number of benefits that will accrue to the current customer base of the company by this initiative of the company. Question # 3: There are some advantageous factors that will accrue to logistic services providers and freight forwarders. After this project, these logistic services providers were transformed into a 3-model logistics companies offering air, sea, and land transportation. This enabled quick shifting of freights between different modes of transportations. This, in turn, provided cost advantage and efficiency to the operations of the logistics service provider. Other than that, this initiative provided these logistics companies with additional space to plan their operations and avoid space constraints. Moreover, these developments allowed freight forwarders to offer value added services to their clients and increase their profitability. In addition to these benefits, the initiatives taken will benefit the customers of the company who want quick access to foreign markets. Those customers who have perishable items will prefer the means of transport that will quickly take the company’s products to its end consumers without any damage to the products. Not only will this initiative help a logistics company to provide new services to its customers, but also it will allow them to tap into new customer base. The most apparent disadvantage in this case is that these international logistics companies do not have any platform where they can express their grievances from the government. Since only the natives of the land can attend the local “Majils”, there is no other way through which any company can have its voice heard. Also, there is no way that a company can undergo lobbying in order to have its concerns go across to the government. Question # 4: The government of Dubai has been very shrewd in seizing the opportunity that turned up in the global supply chain industry. This opportunity was missed by Europe and grabbed by the royal family of Dubai. The most apparent advantages that can be reaped form the Dubai Logistic City are as follows: This city provides opportunity for logistics service providers to provide services to both Eastern and Western Hemisphere. This is facilitated and made possible by the location of the city. This city is located at a central location, between Asia-Europe and Asia-Africa trades routes. The location of this logistic city is very advantageous for logistics companies. Other than providing a cost advantage to these logistics service providers, this city allows these companies to adopt a tri-modal logistics business model. The city is predicted to become the world’s largest integrated logistics service providing platform. This city will offer multi-modal transportation and value added services. This city is likely to become the world’s most responsive and sensitive spot for global supply chain market. The recovery phase of the economic cycle will allow logistics companies to supply products for increasing demand at a lower cost, thereby increasing their profit margins. Risks Associated with this Market: The potential investment that is needed to be a part of this initiative is very high. And if the global economy does not recover, the company deciding to go into this market will incur a huge loss on investment. This cost might be so high that it would take the company down with its investment. Question # 5: Peter should recommend his boss to undertake the initiative to make an investment in Dubai Logistic City. The environment for the investment is favorable in the region, and there is no point in holding back. If the company holds back, it will lose a valuable opportunity just like Europe did. Not only is the investment favorable in terms of its future returns, but also it is adding value to the current services of the company. Works Cited Mangan, John, Chandra Lalwani, and Tim Butcher. Global Logistics and Supply Chain Management. England: John Wiley & Sons, 2008. Print. Read More