Global Logistics Flashcards
The Global Supply Chain
- Differences in Operation
- Differences in Systems Integration
- Differences in Alliances
- Differences in Operation
-Multiple languages are required for both product and documentation for international operations. Complexities increase due to language differences when a product is limited to a specific country once it is been customized with respect to language.
-A large amount of documentation is required for international operations. Though domestic operations can be generally completed using only an invoice and bill of lading, international operations require a lot of documentation.
-Global transportation is complex. Certain services which are available and taken for granted in a particular country may not be available in another country, especially the underdeveloped countries.
- Differences in Systems Integration
Earlier, there was little commonality between the international information systems in multinational enterprises. This was also acceptable as every country’s operation was viewed as separate and had an autonomous legal entity. In today’s scenario, there is a requirement for increased co-ordination through systems integration. There is a requirement for increased global co-ordination through integration of systems and a few firms have an integrated global logistics information system.
- Differences in Alliances
The importance of carriers and specialized service suppliers is more in the international operations than domestic operations. In the absence of alliances, enterprises operating internally need to maintain contacts with retailers, manufacturers, suppliers and service providers all through the world. It would be time consuming to maintain these relationships. Market access and expertise is provided by international alliances, which reduces the inherent risk.
Strategies to enter global market
- Indirect Exporting
- Active Exporting
- Production Abroad
- Indirect Exporting
This means firms are not willing to export directly as they prefer to concentrate on their domestic markets.
Alternative for Indirect Exporting
a. Export Trading Company
b. Export Management Corporation
a. Export Trading Company
This is an intermediary, which purchases the goods in the exporting company and resells them to a customer in a foreign country.
These trading companies have acquired a lot of information on potential sellers and buyers and they leverage this knowledge into sales.
b. Export Management Corporation
An EMC is located in the exporting country and is operating as an export-oriented manufacturer’s representative for the exporter. Thus, the EMC acts as the export department of the seller, handling every detail of the transaction.
- Active Exporting
This option is where the firm desires to exploit the possibilities of sales abroad and decides to become involved in its exporting activities.
Various alternatives in Active Exporting
a. Agent
b. Distributor
c. Marketing Subsidiary
a. Agent
An agent is usually a small firm or an individual located in the importing country, which acts as a manufacturer’s representative for the exporter. Thus the agent does not take title to the goods it sells but earns a commission on the sales it makes.
The exporter is known as the principal due to the relationship with agent.
b. Distributor
A distributor is usually a firm located in the importing country – or sometimes in a neighboring country, which buys goods form the exporter. A distributor takes title to the goods it sells and earns a profit on the sales it makes.
He takes more risk in his relationship with the exporter than an agent and experiences higher costs. He carries the traditional risks associated with inventory and also invests a considerable sum of money in the inventory.
c. Marketing Subsidiary
This refers to a foreign office, staffed by employees of the exporting firm that sells goods in the foreign market.
It is incorporated in the foreign market, and is the importer on record as far as the foreign government is concerned, and the export takes place between two legal entities that are part of the same company, at a transfer price.
- Production Abroad
This is a strategy where a company can start operations abroad.
Alternatives in Production Abroad
a. Contract Manufacturing
b. Licensing
c. Franchising
d. Joint Venture
e. Subsidiary
a. Contract Manufacturing
Company enters an agreement with a producer in the foreign market to manufacture its goods.
Suitable as an entry strategy for markets with significant barriers to entry such as high tariffs and quotas.
b. Licensing
Granting of rights to intellectual property owned by a company to another company for a fee.
Company using the intellectual property has the right only to use the property and for every use has to pay a fee called royalty.
In the international arena, the licensor is the exporting company and licensee is the foreign company.
c. Franchising
Process by which a firm possessing an array of intellectual property items grants another company the right to use these intellectual property items in exchange for royalties.
d. Joint Venture
Creation of a new corporation in a foreign country, jointly owned by the joint venture partners in any combination of ownership percentages.
e. Subsidiary
Investment by a firm in a foreign venture.
Another option is where the firm can relocate an entire plant to a foreign location, for utilizing cheap labor and forgoing the higher costs of a brand new facility.
This strategy is more beneficial to the host country as it creates jobs and offers substantial incentives to foreign company that are willing to establish a facility within their borders.
GENERALIZATION
Implementing a global pipeline control is dependent to a large extent upon the organization’s ability to find a correct balance between central control and local management. Global organizations are expanding and this suggests that there are certain tasks and functions requiring local management and control. International competition has become more intense, due to a gradual reduction in the national barriers. Sophistication of product technology or marketing communications determines the difference between success and failure in the global marketplace.
