Globalisation of Logistics and Supply Chain Management - Literature review Example

GLOBALISATION OF LOGISTICS AND SUPPLY CHAIN MANAGEMENT Logistics functions of the MNEs are mostly related with their business expenditure and their service structure. With the changes in the market structure and the expansion of the global marketplace, business strategies, such as Foreign Direct Investment and economic sustainability, are among the primary focus of the Multinational Enterprises. The development of MNEs is also influenced by the changes in the supply chain management processes of the firm. The Organisations for Economic Co-operations and Development have highlighted the economic concerns of corporate firms highlighted cost and markets as the major drivers in transcontinental business functions. PESTLE, Porter’s five forces and the YIP model were utilised in this study and focused on assessing the importance of developing a uniform strategy for managing the global operations of the business. Alternations in the concept of logistics operations and the growing influence of regulatory authorities are creating challenges for the MNEs to establish a standard platform for managing the logistics functions of the business. Although, in the contemporary scenario supply chain integrations are common at an individual level but in terms of strategic approach and international logistics network, the concept is yet to turn into reality. Table of Contents Table of Contents 3 Introduction 4 Operations and Logistics of Multinational Enterprises 5 Globalization and its influence on operations of MNEs 7 Integration of Logistics for MNEs 9 Linking MNE’s with Porter and YIP 10 Conclusion 12 Appendix 17 Introduction The prevailing scenario of the global corporate segment highlights the need for solutions to the social, economic and political issues faced by the nations and the international corporate sector. Upgrading the logistics and transport processes has been a primary factor associated with the international growth and development of business. Wilson, Mann and Otsuki (2004) mentioned that the basic concern regarding the changes taking place in the logistics sector is related to their sustainability. The report of Joint Transport Research Centre published by OCED highlighted that trade and commerce integration of the logistics and global transportation network is essential for the economic stability and development of the world (OECD, 2009). On the other hand, the aspect of globalization has been extensively connected with the changes in the operational processes of the multinational enterprises and their logistics services in the extended market place. This also brings in the concept of external environment and its variables that are allied with the logistics process of the firms. As noted by Djankov, Freund and Pham (2010), different markets are responding to the changes in the market structure in diverse manner such as the Asian markets are considered to be an important profile in the tactical plans of the global economic development. Meanwhile, the growth in Latin America has slowed down because of the reducing trade and commerce practices in the zone. A shift in the global power hold can be observed, as the emerging markets are overcoming the competition posed by the developed nations such as the USA, Japan and UK (Mazzarino, 2012). This study considers the importance of integration of the logistics segments of the MNEs for building a uniform growth in the international economic and corporate segments. In relation to this, the Total Global Strategy of the MNEs will also be evaluated by comparing them with the process of integration of logistics and the threats highlighted in the international market. Operations and Logistics of Multinational Enterprises Intriligator (2003) explained that efficient logistics and transportation services are added value for the business houses that are created by investing additional costs in the business systems. The logistics services of MNEs perform an array of functions such as increasing availability of products and services in the international market, management of the logistics and operational services of a firm in the global market, aligning the organizational objectives with the transpiration aspects of the business and also increasing the reach of business in the global market place. Moise (2009) noted that in the contemporary scenario, business expansion is an overrated trend being followed by majority shareholders of the business industry. As a result, the logistics and transportation services of the organizations were urged to adapt to the terms and conditions of the international segment of logistics. The global transpiration systems allowed the MNEs to utilize multiple sources for managing their logistics operations. The import and export functions of the businesses have increased along with the increase in globalization. However, it was evaluated by Organization for Economic Co-Operation and Development (OECD) that delay of a single day in the export or import processes results in 4% of loss for the business houses (OECD, 2009). Considering the work structure of the MNEs, Rushton, Oxley and Croucher (2000) stated that the logistics functions are also dependent on the infrastructural and economic structure of the domestic and foreign countries. The developing Asian markets are deemed to be the dominating forces in the international trade market in the next few decades (Nordas, Pinali and Geloso, 2006). Korinek And Sourdin (2011) criticized that the countries such as India, and Brazil are still trying to urbanize their underdeveloped sectors because of internal problems such as political disputes, corruption, illiteracy, etc. These factors reduce the continuity of the operational practices of MNEs as the market size is restricted and also limit the usage of transportation means. Pittman (2005) believed that economic stability and political relations are affecting the progress of the logistics segment as individual disputes among the nations are also preventing their corporate sectors to create a common platform for business and commerce. For instance, the territorial dispute between Russia and Ukraine is also creating problems for other European Union (EU) members mainly in exporting and importing oil and gas industry products (Havlik, 2009). The regional needs of the MNEs are also influencing their decisions related to the expansion of business and development of supply chain structure (Weber et al., 2005). The essentiality of fulfilling the national requirements and the expectations of the international regulatory bodies can hamper the logistics development process of the business segment. For instance, slow market growth of the Latin American countries has prompted them to create a diversified export base by adding more value and density to the domestic markets (Yip and Hult, 2012). Relating the entire scenario of the business with their logistics functions and international market challenges, Korinek And Sourdin (2011) stated that logistics management in the wide market place requires a singular platform and authority of management that can fulfil the transport requirements by considering the needs and expectations of national and corporate members. However, the growing diversity in the selection and use of transport means can be a barrier to this notion. Freight Transport Association (FTA) highlighted growth in trade in North and South American regions in the year 2014, whereas, the growth of trade of air carriers has slowed down mainly because of the rising fuel concerns (Freight Transport Association, 2014) (Please refer to the appendix 2). The air freight proportion had increased in all the markets except that of South America and Australia. The fall in the air freight volume of Australia has been related to the economic aspect of drop in Australian currency rates in the international market (Freight Transport Association, 2014) (Please refer to the appendix 3). These facts express the changing scenario of the logistics industry and its utilization within the international business segment. Globalization and its influence on operations of MNEs Cordella (2001) stated that the economic domination of the global market is changing as the Triads are facing a slow growth trend, while the developing nations such as China, India, Brazil and Russia (BRIC) are gaining on the competition with support from globalisation. Globalisation has transformed from a concept to a trend in the last decade with more and more nations trying to extend their businesses to foreign land. Ariel (2010) stated that business expansion and globalisation may not have directly affected the logistics process of the businesses, as the reasons for business expansion may differ. For instance, while some organisations try to expand to abroad nations in search of new markets, others are focused on the reduced labour cost of the new markets and outsource their functional aspects to these countries. Some of the Asian countries such as Thailand, Malaysia and Philippines are among the topmost outsourced countries of the world (Moise, 2009). Implementation of PESTLE analysis in this scenario will help in understanding the influence of globalisation in a transparent manner (Please refer to the appendix 1). After the global financial meltdown of 2007-08, Korinek and Sourdin (2011) observed that the influence of the Bretton Woods institutions has increased in the business and commerce segment. The Bretton Woods institutions are formed of three major international regulatory bodies namely, World Bank, International Monetary Fund and World Trade Organisation (Mazzarino, 2012). Djankov, Freund and Pham (2010) mentioned that because of the extended operations of the MNES, they suffered the most during the recession period because of subsequent downfall in the currency prices of the developing nations such as India. Apart from this, there has been an increase in the number of power groups such as BRIC or the EU who are trying to emerge as the dominating members of the international trade and commerce sector. These factors are directly influencing the strategic approach of the business firms in context of international trading mainly because of high Governmental influence on the business operations of the nations. Apart from this, the developing nations such as China and India suffered as MNEs started pulling out their operations from the countries in response to the reduced money flow in the markets. Furthermore, the decrease in the consumption of the European countries also reduced the efficiency of the labour market of China (Ariel, 2010). It can be evaluated that reduced consumption is related to the logistics processes of the business firms and resulted in an instable approach from the MNEs towards their logistics functions. Air freights were reduced, while shipping and road transport were the primary forms of logistics means for the MNEs. Technological influence was the most pressing concern as it has helped in the synchronisation of the communication and the marketing processes of the firms. Social media activity acted as a mutual platform for the businesses and consumers, to gather and utilise information in the decision-making process. From the perspectives of many business houses around the world, organisations were able to utilise these direct communication means to gather knowledge regarding the economic and psychological variables of a nation that can impact the business operations of the firm (Lasserre, 2012). This also boosted the growth of the emerging markets in comparison to the previously major markets, such as the US and UK. This overall situation is arguably a contribution of globalisation. Integration of Logistics for MNEs Reducing the cost of operations and primarily that of transportation has been considered as a major process of controlling the business expenses of the firms. The changes in the utilisation of logistics means is triggered by this notion in the international business scenario (Moise, 2009). Often, business firms try to engage in integration processes for reducing their business expenditure, however, inappropriate decisions also results in losses for the firms (Mazzarino, 2012). Vertical and horizontal integration can be commonly observed among MNEs such as Apple, Nike, etc which are focused towards aligning their supply chain activities with their organisational objectives. Relating the aspect of integration within the logistics industry, it can be mentioned that the extended routes used by the MNEs open the scope of developing a common platform for the logistic firms. For instance, shipping lines can be horizontally merged with inland logistic operators and terminal controllers in order to ensure quick and quality services (Freight Transport Association, 2014). This also highlights the process of integrating water and road transport processes. However, the individual needs of the MNEs may create barriers in establishing a standard procedure for managing the integrated logistics network. Also, national rules and regulations influence the process of integration. For instance, in France, the vertical integration of shipping and other maritime activities have been restricted to national ports and some neighbouring countries which are preventing the private sector to gain direct entrance in the French market by following common means of logistics (Nordas, Pinali and Geloso, 2006). According to Djankov, Freund and Pham (2010), integration of mostly used and cheap sources of logistics such as shipping and rail networks are facilitated by technological growth and networking processes. This also signifies that MNEs could further penetrate foreign markets with their uniformed logistics functions. Some countries such as Turkey have started to privatise their ports in order to reduce the losses of the railway system. Freight Transport Association (2014) observed that port profits are over shadowing the operations of the railway networks which is one of the primary reasons for countries such as Turkey and South Africa to subsidise their ports. Apart from the shipping industry, integration of railway networks in a horizontal manner can also help in reducing the complicacies of the MNEs for selection of their preferred route and means of transport. On the other hand, variety of vehicles in the road transport and border issues of the nations has also created problems for integration of road logistic networks with rail or shipping processes. These factors suggest the concept of integrated network of transportation to be more complex. However, based on the technological development rate and the changes in the strategic approaches of the MNEs and their consumers, integrated logistics network can be developed as the demand for the method is high in the international market place. Linking MNE’s with Porter and YIP The total global strategy of a business house not only reflects the organisational compatibility with the markets but also focuses on the factors that influence the process of developing a competitive advantage (Wild, Wild and Han, 2008). In this regard, Porter’s five forces and the YIP model of total global strategy can be used for assessing the overall impact of globalisation on the supply chain management of the business houses. Beginning with Porter’s five forces model, there are five main variables which define the nature of the market and the relative position of the organisation. The variables of Porter’s five forces focus on the threats of new entrants, threats of substitute products, customer and supplier bargaining power and the overall competitive rivalry created by these factors. Regarding the influence of globalisation on all of these factors, Van Weele (2009) mentioned that globalisation has opened the market for many players and thus has a high influence on the increasing number of firms operating in the corporate segments. Johnson, Scholes and Whittington (2009) focused on the increasing innovation and creativity among the operational processes aligned with the product and service development which have reduced direct substitutes for the products while increasing the number of similar products. For instance, the mobile phone industry faced this radical change in the nature of products when the concept of a smart phone was first aligned with a touch screen interface and launched by Palm (Lysons and Farrington, 2012). Subsequently, other leaders in the mobile industry, such as Apple, Samsung and Nokia, began producing smart phones and eventually changed consumers’ perceptions regarding smart phones. In the contemporary scenario, the smart phones being launched in the market are highly similar and hence have also enhanced the level of competition. Furthermore, an increasing number of products and brands in the market have increased the available options for the customers. According to Wild, Wild and Han (2008), the increase in customer bargaining power has been triggered by globalisation which has also reduced the monopolistic nature of the market. It can be observed that the growing market share of business houses has allowed them to cater their products and services to a larger group of customers and hence the criteria for generating a competitive advantage in the active markets are varied. The YIP model, on the other hand, mainly focuses on the factors that are present in overseas operations. The YIP model also relates to the key factors driving the process of globalisation as mentioned above, including cost, market competition and political or governmental factors. In accordance with the requirements of the YIP model, expanding the business activities to other nations also introduces various considerations regarding the formulation of strategy and the management of the supply chain functions. Johnson, Scholes and Whittington (2009) observed that the YIP model considers the core strategy of a firm which should be uniform across all of their operating zones. In other words, the core strategy of the firm needs to be globalised and hence the absolute operational uniformity can be achieved by a firm. Nike provides a classic example of core value integration (Van Weele, 2009).The core value of the company is focused on their love for sports and for motivating athletes. Nike’s promotional activities are never created on the basis of their products and services; rather, they highlight different athletes and sports in their advertisements. Nike has developed their brand based on their love for sports and by respecting the athletes belonging to various types of sports (Lysons and Farrington, 2012). Unlike Porter’s five forces, the YIP model does not focus on the aspects of competition for measuring organisational compatibility; instead, it focuses on the nature of the various factors which influence the operations and the decision-making process of the business firms. Factors such as cost, customer behaviour and government decisions contribute to the business’ decision-making process regarding the functional and operational aspects of the firm. However, certain aspects of globalisation, such as operational costs and currency fluctuations, also bring into consideration the dependency of the firms on the environmental changes that are correspondent to the changes taking place in the market. Conclusion Globalisation is a combined effort for unifying the resources of the world and generating a common marketplace for the business houses. However, the concept of globalisation has influenced the consumers and the sellers equally with its widespread variables. While the international marketplace and the operations of the MNEs are becoming increasingly aligned, the factors influencing business decision making and strategic planning process of the firms are likewise increasing. The use of Porter’s five forces and the YIP model reflected the impact on competitive rivalry generation which has reduced the ability of any firm to gain an absolute advantage. On the other hand, the PESTLE analysis also indicated that the numerous external factors working in concert with globalisation are also creating internal complicacies in the supply chain management of the companies. On the other hand, as the market size is decreasing because of competition, firms are trying to generate means for reducing their operational expenses. Concepts of integration such as vertical or horizontal integration are being implemented at an individual level by MNEs but in a global level, the prospect is still a farfetched expectation. Reference List Ariel, S., 2010. 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Assessing the Potential Benefit of Trade Facilitation: A Global Perspective, World Bank Policy Research, Working Paper 3224. Yip, G. and Hult, T., 2012. Total Global Strategy. 3rd ed. Boston: Pearson. Appendix 1. PESTLE Analysis: 2. Deep Sea Shipping Market Sentiment in 2013 (Source: Freight Transport Association, 2014) 3. Air Freight Market Sentiment in 2013 (Source: Freight Transport Association, 2014) Read More