International Logistics Inc Analysis - Research Paper Example

Logistics: International Logistics, Inc. Institutional Affiliation . Introduction With the rapidly increasing competition in the international market, it is essential for International Logistics Inc. to lay down strategies that will guarantee its survival, growth and expansion. The company must seek to increase its international market share by identifying potentially viable international markets. When looking for new international markets, it is prudent to look beyond the obvious candidates. Most international companies are heading to Brazil, China and Russia. The prospects of these companies remain high but apparently they are paying too expensively for them(International Business Publications, 2013). This paper presents a comprehensive review of Peru and proposes it as the best new international market for export of International Logistics Inc. high tech equipment. Evaluation of Peru as the New Export Country Advantages Under the current government, Peru has laid down economic policies that are driving the country’s economy in the right direction. Peru’s economic freedom has been rated at 7th position out of 29 countries in South and Central America, and its total score is higher than the world average. Peru has continually improved its economic freedoms particularly in trade freedom and monetary freedom whose improvement has provided a firm foundation to improve the Peru’s economy commitment in global commerce (International Business Publications, 2013). In addition, Peru gross domestic product has impressively grown since the beginning of the millennium through 2013 with a cumulative growth of 113%.The cumulative inflation as at 2103 was 48%, this being among the best rates in the whole of Latin America. In money terms, poverty had reduced by 50% in the recent years with more Peruvians enjoying better living conditions and a promising future. This economic growth and development is a major milestone after almost 20 years of the country’s hyperinflation. Peruvian economy is the fifth biggest economy in South America measured in terms of purchasing power parity. Security in the country has also improved greatly after almost 20 years of terrorism, providing way for perfect conditions of stability, respect and promotion of investment(International Business Publications, 2013). Disadvantages Institutional weaknesses undermine Perus opportunities for long-term economic development, reducing the pace of transition to greater economic freedom. Firstly, property rights are not adequately protected. The judiciary is also relatively inefficient. In addition, corruption is a major problem in Peru. Although the government has expressed its commitment in curbing the menace of corruption, the country is yet to have a breakthrough. The country also struggles to fight drug trafficking and the remnants of terrorism. (International Business Publications, 2013). To assert itself as an international point of reference uneconomic growth, the country faces a challenge of streamlining the management of public health, domestic security, environment, public administration, social inclusion and resolving of social conflicts. Further, the country is yet to prioritize investment in technological innovation, foster private investment and investment infrastructure. Additionally, the country still has a mile to cover in eliminating extreme poverty so that Peruvians can have enough purchasing power for secondary goods (2014 Index of Economic Freedom, 2014). Supply Chain Assessment The target consumers, Peruvian government and communities alike will be concerned with how International Logistics Inc. manufacturing of products affects the lives of their workers, communities and the environment and also the safety of the products that the company produces. The company, therefore, needs to improve its supply chain performance through review of processes and procedures, measurement of results in order to react better to risk and monitoring of market signals and facilitation of continuous improvement. The supply chain assessment measures business risk, capacity, workplace conditions, quality and safety of the product, security and sustainability of the environment. The assessment will allow the company to map the risk in its supply chain and track improvements and performance, enabling it to make more informed decisions and reduce its reputational risk (Walters & Rainbird, 2004). The assessment will be as follows: Global Supplier Management Management of global supplier for the company’s manufacturing materials will enable the company to improve the visibility of its supply chain and better manage risk. Activities will include: Gathering and cleansing of supplier information, completing business profiles, analyzing and reporting the risk and verification of services. Think Green Initiative (TGI) Green chain initiative allows the supply chain partners to show their environmental performance and improve the end product. Supplier Qualification Program A supplier qualification program will enable the company to manufacture its equipment with confidence. The program provides factories with enhanced controls and processes for managing the quality and safety of the product. The program also aligns with the general legal requirements. Workplace Conditions Assessment(WCA) This assessment involves evaluation of workplace conditions at the factory and puts working hours into perception by using the sector, the country and world averages as the benchmark. Workplace conditions evaluation also allows the company to focus on the factual issues since good working place conditions gives rise to a happy workforce. Global Security Verification (GSV) GSV entails verification of the supply chain in order to improve the efficiency of global trade. It enables factories to participate voluntarily in working towards fulfilling the requirements set by the United States Customs and Borders Protection. It also facilitates reduction of fatigue, costs saving and enables global recognition. Sandblasting Assessment and Management This assessment considers availability of sandblasting alternatives, prevention measures available to mitigate health risks for workforce, instructions and training provided for employees on handling of machinery and potentially hazardous materials, management systems available to guarantee the safety of the employees, process of managing hazardous materials and personal protective equipment provided and enforced(Walters & Rainbird, 2004) Transportation Plan Infrastructure The country has a total of 2,374 kilometers of standard gauge and narrow gauge railway. There are two principal unconnected railways that link many parts of the country. Further, the country has a total of 85900 kilometers of highway that include 45000 km of paved highways and 40,900 km of unpaved highway. The pan- American highway runs Peru from north to south just next to the coast, from Ecuadorians to Chilean borders and a branch of it runs to Puno and Bolivia. The northern highway which is 955 kilometers long connects the Ports of Peru (Bayovarand, and Paita) to Brazilian Ports of Santarem, Belem, Macapa and Manaus. The southern IIRSA highway which 2594 kilometers long links the Peruvian ports of Matarani, San Juan de Marcona and Ilo to the Brazilian ports of Paranagua and Santos (International Business Publications, 2013). Entering the new Market The marketing function will consider the following five steps: 1. Educate the marketing staff on the customs and business etiquette of Peru. The marketing workforce needs to know the country’s history and the way of life such as the usual time for lunch and the manner of communication. 2. Collect historical data on the nation’s fluctuation of currency and imports and export timelines. This is crucial because a deal you discuss today may not be implemented in time to obtain the full potential benefits of the opportunity. In order to optimize the benefits of transactions, the company will have to consider locking in currency and dates of delivery in advance whenever possible. 3. Mastering the Peruvian business laws. The company should have a local representation that will assist in navigation of invisible obstacles and explain the various contract terminologies and provisions. 4. Internalization of the Peruvian culture. It will be crucial to study Peruvian people including their personal and professional customs so that the company’s staff can conduct themselves in a respectful way according to the local’s culture. Understanding the Peruvian culture will also enable the company to identify any new approach needed to meet the expectations of the Peruvian markets and culture. 5. Finally, the company will need to know the competition & what they have done in Peru, did they fail? What barriers did they face? And most essential, what would International Logistics Inc. do differently? (Ruissalo, 2011). Incoterms Incoterms are integrated with contracts for sale of goods. They will guide the company in its export function. Terms for any mode of transport: The terms include: 1. EXW-EX WORKS. The seller’s only duty is to deliver the goods at the sellers business premises. It is for the buyer to bear all risks and costs of transferring the goods to the required destinations. 2. FCA-FREE CARRIER. The seller only delivers the goods which have been cleared for export, to the buyers selected carrier or any other nominated person. The seller loads the goods if the shippers vehicle is at the sellers premises. From that point, the buyer will bear all costs and risks of transferring the good to the destination. 3. CPT-CARRIAGE PAID TO. The company shall pay for transporting goods to their destination. From the moment the goods are handed in to the first carrier, but the purchaser bears the risks of loss and damage. 4. DAT-DELIVERED AT TERMINAL. The seller delivers once the goods unloaded from the means of transport they arrive in, are handed over to the buyer at the specified terminal or destination. The seller bears all risks inherent in transferring the goods and offloading them at the specified terminal port or any other place of destination. 5. DAP-DELIVERED AT PLACE. The seller is deemed to deliver when the goods are delivered at the purchasers disposal on the means of transport they arrive in ready for unloading at the specified destination. The seller bears all risk of conveying the goods to the specified place. 6. DPP-DELIVERED DUTY PAID. The seller hands in the goods cleared for import to the buyer at the place of destination. The seller bears costs and risks of transferring goods to the destination, including the customs duties and taxes. Maritime Terms Only: The terms include: 1. FAS-Free Alongside Ship. The seller hands in the goods to the port of origin. From there onwards; the purchaser bears all the costs and the risks of damage or loss. 2. FOB-Free on Board-The seller hands over the goods on board the transport vessel selected by the purchaser and clears the goods for export. From that point onwards, the buyer bears any cost and risk of loss or damage. 3. CFR-Cost and Freight. The seller certifies the goods for export and bears the costs of transferring them to the destination. The buyer bears any risks of loss or damage. 4. CIF-Cost Insurance and Freight. The seller certifies the good for export and bears the costs of transferring the goods to the port of destination. The buyer bears all risks and loss of damage. However, the seller obtains the cargo insurance (Ramberg, 2014). Documentation for Customs, Tariffs and Taxes Following the implementation of the Peru Trade Promotion Agreement in 2009, 80% of United States exports of industrial and consumer products entering Peru are duty-free with the remainder tariffs on these goods eliminated within ten years(Bush, 2007). . However the Peru average rate of tariff is 1.5 %. Duty rates in Peru range from 0% to 11% with the average duty rate being 5.78%(2014 Index of Economic Freedom, 2014). Mode of Transportation, Security and Insurance The company’s products will efficiently be transported by sea. From the ports, the goods will be transported by railway or road to the places of destination. The company will require to put in place adequate measures for security of the high-value goods. Due procedures and the necessary controls will have to be complied with in handling of the goods at the shipping and unloading points. The company will also need to purchase a marine insurance policy and a suitable road transport insurance policy to cover the goods against risks inherent in the two modes of transport. Nontariff Barriers The Peruvian government has eliminated most nontariff barriers. Currently, the country restricts import of used vehicles and clothing(2014 Index of Economic Freedom, 2014). Recommendations for implementation of the transportation plan For effective implementation of this transportation plan, all stakeholders need to be involved and assigned compatible roles and responsibilities. The company will also requirehiring additional logistics specialists who will oversee implementation of the plan. In addition, risk factor must be given key attention to avoid risk associated costs. Conclusion In conclusion, International logistics Inc. needs to identify the opportunities available for it to remain relevant in the rapidly increasing competition in the international market. The firm must lay down comprehensive strategies for new markets venturing. Peru is one of the largest and fastest growing economies in Latin America. The country has reasonable political stability, good transport infrastructure and has made export favorable agreements with the US. Peru is, therefore, a feasible market for International logistics Inc. The company should take the opportunity in order to increase its international market share, ensure survival and long-term growth. References 2014 Index of Economic Freedom. (2014). Wall Street Journal, 3(4). Bush, G. (2007). The United States-Peru Trade Promotion Agreement (1st ed.). Washington: U.S. G.P.O. International Business Publications, I. (2013). How to invest, start and run profitable business in Peru guide (1st ed.). [S.l.]: Intl Business Pubns USA. Ramberg, J. (2014). Incoterms® 2010 (1st ed.). The Hague: Eleven International Publishing. Ruissalo, S. (2011). International Strategic Alliance Model:-A study of a Finnish construction company, Fira Oy, entering a new market. Metropolia Ammattikorkeakoulu. Walters, D., & Rainbird, M. (2004). The value chain (1st ed.). [Bradford, England]: Emerald Group Pub. Read More