Various Aspects Of Integrated Logistics Economics Essay

Various Aspects Of Integrated Logistics Economics EssayA current Zealand entrepreneur is planning to launch a business in Hesperian europium lacquer chinaw atomic number 18 and CIS/easterly Europe and they accept appointed you as a consultant to advice on opportunities and challenges facing libertines want to commit logistics activities in the to a higher place mentioned countries. (Your answer should not cash in ones chips 1500 words)Global Logistics Opportunities and ChallengesWestern Europe consists of unify Kingdom, Netherlands, Belgium, Luxembourg, France, Germany, Italy, Ireland, Denmark, Norway, Sweden, Finland, Austria, Switzerland, Portugal, Spain, Greece, Malta and microstates of Vati pile City, San Marino, Monaco, Andorra and Liechtenstein. Western Europe is enumerateed as study(ip) contributor of the European economy. Its determining characteristics ar common currency, appraise equalization, policy-making homogenization and standards homogenization. Logis tically speaking Western European marts offer a great opportunity for exploiting economies of the scurf and size in moving goods through away the Europe opting from a telephone number of enraptureation modes. European convey networks cast water grown beca use of deregulation of transportation shipments, optimal route and plan scheduling, and the cultivation of national servings. The number of long-distance transports has grown significantly with the bear-sizedst sh be of freight transports as road transports. The preferred modes of transportation in the ara atomic number 18 roads and inveighs, closely fol scummyed by sea freight. In addition, the Chunnel links the UK with the lodge in of Europe reducing the transportation cost to a great extent. designing 1 Logistics Hubs in Western EuropeSource (DHL Discover Logistics, n.d.-a)The logistics systems in Western Europe are characterized to a greater extent by policy-making change associated with EU enlargement than by geographic features. In Western Europe transport, storage, box and administrative jobs are becoming noticeably more streamlined due to uni clay regulations. The transport networks are really tumesce developed but average shipping distances have grown principally in the wake up of the European Unions enlargement. Outsourcing activities are increasingly affecting logistics in Western Europe because companies no longer consider logistics to be a core business. Instead, larger dissemination networks are developing at a rapid pace. Global firms prefer vertical integration and go for turn to commercialiseing and distribution in hallow to reduce scroll and total logistics cost. The changes in the logistics sector have generated challenges of increased efficiency in shipping, packaging and labelling. Here, the reduction of customs treating plays a critical role. In addition, technological improvements throughout Europe are some uniform and not just clustered in individual co untries. As a provide, orderliness processing, inventory caution, warehousing and IT technology are being further centralized. In nutshell, the competitive situation in Western Europe is intense as compared to the rest of Europe.japanJapan has evolved into an economic powerhouse of Asia and created a tallly developed logistics system in spite of challenging geographic retards. On one hand, such a system is necessary to set off the Japanese islands omit of raw materials. On the new(prenominal) hand, it is the stand for expanding the positive growth of the export nation. The countrys main manufacturing and therefore, logistics hub lies in a triangle around the cities of Tokyo, Nagoya and Osaka on the island of Honshu. nimbus transport, in particular, plays an important role here. The most important means of freight transport in Japan are road transports and coastal shipping. Almost ninety percent of the transport is carried by trucks. The role of caterpillar track transpo rts is virtually non-existent. But this could change in the years ahead. A portion of sea freight has been shifted to station transport in recent years. As a result of this shift, outside(a) air transports on trans-Pacific routes have climbed tremendously.Compared with other industrial countries, Japans distribution system is very complex and inefficient leading to high distribution costs. Most aspects of goods distribution inFigure 2 Logistics Hubs in JapanSource (DHL Discover Logistics, n.d.-b)Japan is tightly regulated by the government. Joint distribution is typical competitors who make deliveries to the very(prenominal) businesses tend to use joint delivery capacities and trucks. The logistics market in Japan is opening up to supranational service canrs which are already successfully competing against Japanese companies in areas such as storage, distribution and complex contract logistics. The major logistics challenge is traffic congestion in metropolitan areas around the industrial hub. Just-in-time systems require small and everyday shipments to meet node requirements. The distribution system in Japanese market is characterised by non-store channels, carrying least inventory. It is facilitatory in introducing new increases through mail order, catalogue sales, and tele-shopping. Shared distribution system is common among competitors. earmark palletization is utilise to annul complicacy in operations.ChinaChinas logistics market is opening up gradually to the outside world. Logistics enterprises are reorganizing and integrating in the competitive environment. It is more and more obvious that state owned, private owned and contradictory funded enterprises are surviving and thriving in the competitive markets. With the increasing demand of logistics, the logistics service for enterprises is changing from low value fundamental services to the high value added services. Logistics infrastructure, incorporate logistics, traffic and transport ation, and delivery services provide huge investment opportunities. However, the related risks moldiness be put into account, and firms should be cautious when choosing investment jobs.Figure 3 Logistics Hubs in ChinaSource (DHL Discover Logistics, n.d.-c)In some parts of China, due to attainment in technology, the road network now approaches Western standards. Modern freeways have been built in the off-white River delta as good as in Shanghai and Beijing. Parts of this network extend removed into the countrys intimate but the standards and whole step of the road drops as we move away(predicate) from the cities particularly in the areas find away from the metropolitan areas. As a result of the develop infrastructure outside the metropolitan areas, logistics costs are high in an international context. In comparison to other means of transport, the rail network is almost inappropriate for logistics operations due to unequally built rail lines. For example, a container moot s five days to locomote by train from Hong Kong to Shanghai (DHL Discover Logistics, n.d.-c). A transport by ship takes about the same amount of time, but is much cheaper. Rail transports play a major role only in the shipment of bulk cargo like coal or iron ore. As a result, rail transports are not particularly attractive to international companies for general logistics operations.The key challenges for the Chinese logistics industry arePoor infrastructure insufficient integration of transport networks, knowledge technology (IT), warehousing and distribution facilities. code exist at discordent tiers, imposed by national, regional and topical anesthetic authorities and often differ from city to city, hindering the creation of national networks.Bureaucracy and Culture companies need to build links with political agents at various takes. Moreover, it is difficult to repatriate profits back to home country.Poor training in logistics sector and the manufacturing and retailing sec tors, two at a practical level, i.e., IT, transportation and warehouse as strong as at a higher strategic level.Information and chats technology lack of IT standards and poor systems integration and equipment. At a very basic level, there is no consistent supply of push button. undeveloped interior(prenominal) industry logistics sector is fragmented and dominated by commoditized and low quality transport and warehousing, futile to meet the growing supply chain demands for industrial and commercial enterprises.High transport costs almost 50% more than Japan, Europe and North America, mainly due to high tolls on roads. Logistics costs (including warehousing, distribution, inventory holding, order processing, etc.) are estimated to be two to three times the normal.Poor warehousing and storage high losses, damage and deterioration of stock, especially in the perishables sector.Regional imbalance of goods flows from the developed east of the country to the more undeveloped west lea ding to higher costs for haulage companies which are then passed on to their clients.house servant trade barriers besides begined trade barriers such as tariffs and quotas for international shipments, there are notwithstanding problems such as unofficial border tolls from an inland manufacturing location to a port city or vice versa.Commonwealth of In helpless States (CIS) and east EuropeFour out of fifteen former Soviet Republics belong to CIS are in Europe Russia, Ukraine, Belarus, and Moldova. Eastern Europe is made up of Poland, Czechoslovakia, Hungary, Romania, Bulgaria, Serbia, Croatia, Slovenia, Bosnia, Macedonia, Albania, and the Baltic states of Lithuania, Latvia, and Estonia. The countries of Eastern Europe occupy a strategically central position on the continent and are located at Western Europes interface with Russia. As a result of the European Unions enlargement to the east, they are increasingly serving as a bridge. As a result, many manufacturing companies have mo ved their production facilities to Eastern Europe for cost formers. Logistics service providers entered either ascertaining these companies or to exploit the new markets by carrying out mergers or acquisitions. The opportunities for the companies interested in move into these markets vary significantly from country to country. Although, these countries have relatively well developed transport networks but they do not meet western European standards. Despite the rapid growth of road transports, railroads remain the dominant means of transport.Figure 4 Logistics Hubs in Eastern EuropeSource (DHL Discover Logistics, n.d.-d)The Eastern European logistics market is characterized by wide regional differences. While the Czech Republic, Slovakia, Slovenia, Hungary and Poland have made major strides, Romania, Bulgaria and Croatia are trailing far behind. The infrastructure is in even worsened shape farther to the east. The road- familyd freight transports have hold ability to meet the de mands of European industry in a cost effective manner. The causes of these limitations include traffic jams, the limited potential for expanding network capacity, rising energy costs and growing intermodal competition from railways. Eastern European harbours, particularly the major sea ports in Poland, perform a significant amount of trans-shipping and are being increasingly expanded. The European Unions enlargement and the increasing transport volumes have resulted in intensified storage and distribution activities in the countries of Central and Eastern Europe. One of the major challenges is to overcome the barriers that exist between Eastern and Western Europe, including the transport infrastructure.Further, they would like you to advice them on several strategies ready(prenominal) to them to enter the above mentioned markets. Discuss all available strategies and give your specific recommendations. (Your answer should not exceed 1500 words)Foreign Market Entry StrategiesForeign market penetration strategies are mainly categorized into validating exportDirect exportingManufacturing strategiescooperative strategiesRisk and falsify in Market EntryControlRiskRiskIndirect ExportingPiggybacking duty CompaniesExport Management CompaniesDomestic Purchasing joint StrategiesJoint VenturesStrategic AlliancesDirect ExportingDistributorsAgentsDirect MarketingFranchisingManagement ContractsManufacturingOwn Subsidiary encyclopaedismAssemblyFigure 1 Foreign Market Entry StrategiesSource (Doole Lowe, 2001, p.249)Indirect ExportingPiggybackingAn established international distribution network of one manufacturer may be used to carry the products of a second high society without such a network. The second manufacturer is said to be piggybacking on the firstly in these cases. The first friendship has an established reputation and receives in an international environment. It handles the logistics and administration costs of exporting for the second manufacturer. Piggyb acking can offer many advantages to firms such as cheaper and quick access to new markets, an established experience base of the alien markets and economies of scale with regards to administration, shipping, marketing and distribution. Piggybacking may lead to unsatis factory marketing arrangements such as lack of strategic fit, providing technical support, and after sales services for buyers potentially leading to dis pact. This method of exporting withal is not ideal for building a long international market presence.Trading CompaniesA art company trades on its own account. It performs many functions as buying and selling as a merchant, discussion goods on consignment, or it may act as a commission house for some buyers. Trading companies match sellers with buyers and manage all the supportive functions such as export arrangements, paperwork, transportation, and legislative requirements. Firms initially opt this mode, because of TCs extensive contacts, experience, operation s and long-term commercial relationships in many different concern regions in the world. attendantly some experience in the international market, exporting firms want more manoeuver over conclusion making, so TCs are not their long-term partners.Export Management CompaniesExport Management Companies are specialist companies that act as export department for a number of companies. They provide companies with access to contradictory buyers, take orders from those orthogonal buyers, purchase finished products, and handle the transporting and distribution of the goods in the impertinent market. Their core competency is in export logistics and deals with the necessary documentation and extensive knowledge of purchase practices and government regulations in the foreign markets. This is a less risky and fast penetration strategy suitable for new entrants in the international market in the short-term. Disadvantages of EMCs include export strategy conflict among both parties, lack of manufacturers comptroller over foreign market decisions and market knowledge. Due to expertise in exporting, the EMC has complete control over all foreign market decisions. In addition, EMC may even export products that are in direct competition with each(prenominal) other. Therefore, manufacturers need to devote resources to monitoring the performance of an EMC and invest in managing the business relationship. As the manufacturers revenue from exporting increases, moving away from the EMC or eliminating EMCs from the business may prove harmful due to lack of foreign buyer contacts or market knowledge or because of contractual agreements.Domestic PurchasingDomestic purchasing is a method of market admission which involves the least company involvement. This export method often involves an unrequested purchase request from a foreign commercial buyer. The company may not even have considered the export potential of their products until approached from the foreign buyer. In gene ral, companies can use this method to sell off scanty stock with the least inconvenience. It generates a relatively low level of revenue and the company is completely dependent on the foreign buyer. The company gains limited knowledge of the international markets, as it has no direct contact with them. The foreign buyer often picks up the goods at the factory gates and proceeds to transport the goods, market them, and distribute them in one or more overseas market.Direct ExportingDistributorsExport distributors differ from agents in that they take ownership and responsibility for the goods. Distributors usually take limited rights for the sales and servicing of a particular territory where they represent the manufacturer in all respects. The capital investment can be particularly high for a firm exporting goods requiring specialist handling. Due to this large investment both parties undertake to maintain a long-term relationship.AgentsExport agents are usually individuals or firms direct in a foreign market, undertake by the firm, and paid a commission to obtain orders for the product. After entering into a contractual agreement, sales targets are usually agreed with agents by the firms. Agents are usually contracted to carry non-direct competing products therefore providing a lower exposure to risk. Although agents are the cheapest and quickest form of market entry, the long-term profitability is moderate to low with a short payback period. Agents can be beneficial to the company in that they have local market knowledge, established relationships and provide adequate feedback regarding further product or market development strategies. Agents do not owner goods which limits their motivation to improve performance. They can take the form of brokers, manufacturers representatives, managing agents and compradors performing specific functions (Cateora Graham, 2002).Direct MarketingUsing database marketing tools such as mail order, telemarketing, media marketin g, direct mail and the internet can be a useful technique to expand a firms node base abroad. Usually, this market entry method is very useful when there are high barriers to entry exist in a foreign market or where markets have insufficient or underdeveloped distribution systems. Success using direct marketing can only be obtained if the standard product/service is customized to meet the personal needs of the target market in different markets. Issues of product progress and privacy needed to be addressed when engaging in telemarketing, direct mail or earnings commerce.FranchisingIn franchising, the firm grants the legal right to use branding, trademarks and products, and transfers the method of operation to a third party (the franchisee) in return for a franchise fee. Franchising is less risky and less costly due to the personality of the agreement. The franchisee provides the local market knowledge, capital, time and resources needed to develop the franchise. The two types o f franchise agreement used by franchising firms are that of a master franchise and licensing. A master franchise often operates a multi-unit franchising agreement or it may take the form of a trading company whereas in licensing the franchiser uses the property, trademark and gifted rights for a royalty or fee.Management ContractsManagement contracts usually involve selling the skills, expertise and knowledge of firms in an international context. The contracts undertaken are usually those for installing circumspection operating and control systems and the training of local staff to take over when the contractors are finished (Doole Lowe, 2001).Manufacturing StrategiesOwn SubsidiaryThis form of market entry requires the maximum commitment in terms of management and resources and offers the fullest means of participating in a market. in the lead investing huge capital, the firm must esteem the pros and cons of the business as the cost of withdrawing from the market would be signi ficant. Although sole ownership provides high level of control, the firm may not only incur the costs if withdrawal is eminent but overly the companys reputation can be damaged both in the foreign and domestic market. The advantage is of avoiding communication and conflict of interest problems which may occur through other methods like acquisitions and joint ventures.AcquisitionAcquisition occurs where an organization develops its resources and competences by taking over another organization. It is a faster entry strategy in new product or market areas. A firm may acquire cost efficiencies, immediate access to a trained labour force, recognized brands, animate customer and supplier contacts, an immediate source of revenue and an established distribution network or other as a result of acquisition. In return, the acquiring company may have to make certain(p) sacrifices.AssemblyAssembly involves establishing plants in foreign markets simply to assemble components manufactured in t he domestic market by the firm. This method of market entry is attractive for certain companies when they see that the importation of components is subject to lower tariff barriers than assembled goods which eventually decrease their costs. Moreover, it can be more advantageous if the finished product is large and transportation costs are high. The domestic plant in addition, can focus on development and production skills and investment, hence, profiting from economies of scale. Assembly firms also take advantage of lower wage costs and government incentives.Cooperative StrategiesJoint VenturesJoint venture (JV) is a market entry option in which the exporter and a domestic company in the target country join together to form a new corporate company. Both parties provide equity and resources to the JV and share in the management, profits and losses. The JV should be limited to the life of a particular project. This option is popular in countries where there are restrictions on foreig n ownership, e.g. China. Its advantages include acquisition of competencies or skills not available in-house, risk sharing of a large project with other firms, faster market entry/penetration and payback, and avoiding technical trade barriers. Its disadvantages are divided management control, difficult to recover capital invested, disagreement on new export markets, and different views of partners on pass judgment benefits.Strategic AlliancesStrategic alliances are a wide range of cooperative partnerships and joint ventures which unite to follow a set of important, agreed goals while in some way remaining independent subsequent to the formation of an alliance. The partners share both the benefits of the alliance and control over the performance of assigned tasks during the life of the alliance. The partners direct on a regular basis in one or more key strategic areas, for example, technology or products. Strategic alliances are usually formed in three areas technology, manufactur ing and marketing. The main reason behind strategic alliances is competition. Other reasons include the reduction of risk, the attainment of economies of scale and complementary assets such as a brand name and government procurement. Firms, which employ strategic alliances, have the advantage of simultaneously lancinating several of their key markets.Specific RecommendationsThe decision of, which foreign market to enter, depends on firms away as well as internal factors and foreign countrys market conditions. The strategy to be adopted should be based on firms short and long-term corporate objectives. Initially, the firm should choose among direct or indirect exporting leading to cooperative and then manufacturing strategies. If exporting is a long-term goal of the firm, then indirect exporting methods may not prove to be the wisest strategic choice. In long-run, the firm has to trade off among costs and control over the decision making.Explain why it is usually more difficult for a firm to provide the same level of customer service in its international markets that it provides in its domestic markets. Under what band may an organization actually be able to provide better customer service to international markets than to domestic markets? (Your answer should not exceed 1250 words)Customer ServiceWhen a firm becomes extensively twisty in international business, logistics is seen as a critical part of the strategic planning process and a deterministic factor of customer service level. The complexity of the international business environment, including different business customs, curt/inappropriate transportation infrastructure, restrictive regulatory frameworks, and different levels of logistics services, presents barriers that make operations in foreign countries far more complicate and less controllable than in domestic markets. Generally, existing or emerging barriers result in longer order cycle times, higher logistics costs, and greater customer dissa tisfaction. The customer service level chosen for use internationally is based on expectations encountered in each market. These expectations are dependent on past performance, product desirability customer sophistication, and the competitive status of the firm and industry. Therefore, additional logistics costs are required to support operations which may be so important that, if not handled properly, they may offset any potential cost savings from using inexpensive labor and other resources in foreign countries. The need for cost-service trade-off analysis becomes inevitable for the managers in such an indifferent situation. Under these circumstances, logistics barriers obviously make it difficult for firms to gain a competitive advantage from their international operations.Table 1 summarizes the firms major external factors affecting its logistic performance (and therefore, customer service) at domestic and global level. It also depicts how difficult it becomes for the firms to p rovide same level of customer service at international level. Another major external (and therefore, uncontrollable) factor which has made international logistics more vulnerable and complex is security risks after 9/11 terrorist attacks. As a result security clearance procedures have lengthened and transit times of shipments have extended. indemnification rates for cross-border shipments have also climbed. Some factors internal (and therefore, controllable) to the firm, for example, centralized logistics activities, do not make the customer service work best, as it can be under local control in foreign market. Financial aspects such as working capital, inventory, capital investments in buildings and equipments, and accommodation of merchandise are also difficult to manage in the case of international operations. The managerial capability of logistics management in decision making optimal cost-service mix plays a major role in determining the customer level.Table 1 External Factor s Affecting Customer Service LevelFactorsDomestic ConditionsGlobal ConditionsCultureHomogeneous mixedCurrencyUniformDifferent currency and exchange ratesEconomyStable and uniform may be variable and unpredictableGovernmentStableMay be unstableLabor experienced workers availableSkilled workers may be hard to findLanguageGenerally a angiotensin-converting enzyme languageDifferent languages and dialectsMarketingMany media, few restrictionsMay be fewer media and more restrictions glamourSeveral competitive modesMay be inadequateSource (Marilyn Gale, 2006)In order to establish an efficient logistics system to support international operations, especially customer service, a firm should be able to evaluate when and where logistics barriers may disrupt materials flows in the distribution channel. The identification of barriers is important in designing an effective international operations network. A better understanding of those barriers enables a firm to take actions to reduce or avoid them so that it can improve its competitive position in international markets. The firms entering in the international market should obtain as much as possible information about the business conditions and operating expenses of potential markets. As the customer service levels and hence the cost incurred, vary between countries, the firm must examine the service requirements of customers in each foreign market.A flexible and responsive global customer service strategy is based on inventory policy and control procedures, packaging and containerization, sourcing raw materials, managing export shipments and terms of trade. International logistics is characterized by inventory points at more levels between suppliers and customers making it much complicated than at domestic level, leading to longer transportation times. Depending on the length of transit time and more inventory volume needed to cover the resultant delays, the firm can develop inventory policies and control procedures mos t appropriate for each market area. Another component of customer service is the products physical condition (must be in right condition). Packaging and containerization are important for product handling, climate effects, potential pilferage, communication and language differences, freight rates, and customs duties when a product moves across the borders. The quality of a product is obdurate by the quality of its raw materials. International sourcing may enable a firm to optimize products quality at lowest possible cost.The services of many facilitator organizations confused in international logistics activities are incessantly utilized by almost all of the firms operating internationally. These organizations include export distributors, customs-house brokers, international freight forwarders, trading companies, and non-vessel-operating common carriers (NVOCC). These organizations are highly professionalized in performing their functions and operate at economies of the scale. A firm involved in exporting for the first time would likely utilize the services of a facilitator organization. There are a number of shipment modes/terms, each one of them having its own pros and cons. These terms of trade/shipment used in international logistics are Ex-Works, FCA, FAS, FOB, CFR, CIF, CPT, CIP, DAF, DES, DEQ, DDU and DDP. Terms of shipment have a major impact on a firms logistics performance as each of them yields a different cost of shipment and value to the customer.Finally, integrated logistics management (ILM) is the ultimate strategy to deal with the international customers efficiently. ILM integrates all the logistics activities facility location and network design, information management, transportation management, inventory management, warehousing management, material handling, and packaging into a single activity or process of logistics directed towards servicing the customer effectively and at the lowest total cost of all the structural activities taken t ogether. The methodology of integrated logistics conforms to the logistics objectives getting the right item to the right customer, in the right quantity, in the right condition, at the right place, at the right time and at the right cost.Customer service level of a firm is the representation of managerial capability of its management team. A firms executive management is likely to use any or a combination of some or all of the above mentioned customer service strategies to deliver value