global strategies & trading blocks

8/2/2019 Global Strategies & Trading Blocks

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Global Logistics Strategies

Introduction

Nearly 37% of all ocean cargo entering Europe passes throughthe part of Rotterdam. 5 million containers & a volume of 310million tons.

US exports to Africa are now 54% greater than US exports to

all countries of the former Soviet Union combined. Because of NAFTA, US and Canadian carriers are permitted to

provide cross-border truck services to & from Mexico. WhileMexico can also provide services to & from US & Canada.

35% of the largest US retailers are entering a new market everyyear & are growing 40% faster.

Weber-Stephens manufacturer of barbeques grills & accessoriesexports 15000 grills to Australia, New Zealand from US


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Circle International a third party logistics provider, opened a200, 000 Sqft. Distribution centre in Singapore.

DHL Worldwide Express & UPS Worldwide Logistics haveopened distribution facilities of 100,000 & 285,000 Sqft.respecting.

Adobe System Inc. provider of software technologies has

created partnership with Sykes a service provider to manage3000 SKUs in Europe.

Donaldson Company sell more than 40% of its productsoutside US.

Jabil Circuit, Inc. designer & manufacturer of electronic circuitboards & systems for OEM has annual revenues of $ 2bnManufacturing plants in US, Scotland, Brazil, China, HungaryMalaysia, Mexico & Italy generates 30% revenue outside NorthAmerica.


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Global Logistics Strategies

Environmental analysisCharacteristics of each nationalmarket common characteristics with other national markets.Should the firm cluster national markets for logistic operatingand/or planning purposes.

Global Logistics Management Process and key issues.

Environmental

AnalysisPlanning

StructurePlanImplementation

Card rollingLogisticsprogram


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PlanningWho should make logistics decision?

Valid major assumptions about target market

Customer service needs of the market

Characteristics of the logistics systems available

Major strength & weaknesses relative to competitors

Objectives, risk assessment, capability

balance of payment, currency situation, their impact. StructureLogistics structure of the organization to achieve

objectives.

Plan implementationDevelop effective business plan regarding

transportation, inventory, packaging, warehousing, customer servicecontrolling Logistic programMeasure, monitor plan

performance.

steps of meet desired

performance.


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Response Timereasons for longer and inconsistent responsetime in Global Logistics.

A substantial portion of international freight moves by ocean. Ata slower speed.

Additional documentations such as LC, consular invoice,

required which may take time Order completeness

Shipping accuracy

Shipment conditionpackages be protected. Time & costneeded to replace damaged items can be significant.


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Developing Strategy

Problem recognitionregulatory problems, processinginformation of suppliers, maintaining control of global supply

chains. Analyses options arising from new opportunities.

Prepare for rapid execution of plans, programs & strategiesinformation flows, language, currency variations

Logistics planning should be integrated into the companysstrategic planning process.

Logistics department need to be guided by a clear vision andmust measure output regularly.

Import export management should try to ensure integratedmanagement of all elements of the logistics supply chain fromorigin to destination.

Opportunities to integrate domestic and international operationsshould be pursued to leverage total company volumes withglobal oriented carriers.


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Global Marketplace

Global logistics costs are often higher

Customer service consistence is harder to achieve globally Customer service costs vary widely.

Inventory is more in international logistics, transit inventories arehigher. Longer number of locations.

Global differences in transportation, selecting a global transportmodes & carriers.

WarehousingDoes it justify WH, labour availability, urgencyin delivering product, third party option.

Markets served by warehouses and use of automation Global shipments require greater protection in packaging and

labeling

Information systems.


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Organizing for global logistics

Rapid product introductions

Focused market needscustomized design, packaging, serviceoffering to customer demands.

Quick response delivery

Expanded serviceslinking innovative, value added services toproduct offerings.

Innovative channelsusing minimum echelon, direct delivery tocustomers.

Financial aspects covering working capital, inventory, letter ofcredit etc.


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Global Market Opportunities

NAFTA integrates the markets of Canada, Mexico and theUnited States

NAFTA eliminates many tariff and non tariff barriers

Enhances carriers ability to operate across borders

Liberalizes foreign investment

Standardizes customs initiatives.

Canadian Pacific and Union Pacific Partnership in railtransportation for intermodal shipment. Customs clearance is

done at origin Canadian customs process documents electronically.


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Major International Trading Blocks

Trading block Member Countries

Asia Pacific

Economic cooperation

(APEC)

Australia, Brunei, Canada, Chite, China,

Indonesia, Japan, South Korea, Malaysia,

Mexico, Newzealand, Papau New Guinea,

Philipines, Russia, Singapore, Taiwan,

Thailand, United States. Association of South

East Asian Nations

(ASEAN)

Brunei, Indonesia, Laos, Malaysia,

Myanmar, Philipines, Singapore, Thailand,

Vietnam Burma.

European Union (EU) Austria, Belgium, Denmark, FinlandFrance, Germany, Greece, Ireland, Italy,

Luxenberg, Netherlands, Portugal, Spain

Sweden, United Kingdom.


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Mercado Comundel

Sur (Mercosur)

Argentina, Brazil, Bolivia, Chile,

Paraguay, Uruguay

North American Free

Trade Association

(NAFTA)

Canada, Mexico, USA

South AfricanDevelopment

Community (SADC)

Angola, Botswana, Lesotho, Malawi,Mauritius, Mozambique, Namibia, South

Africa, Swaziland, Tanzania, Zambia,

Zimbabwe.

World Trade

Organization (WTO)

134 member countries


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NAFTA Opportunities

Customer serviceBest practice companies manage key

accounts & take NAFTA opportunities to create uniform servicelevels.

ManufacturingBest practice companies modify their productdevelopment approaches to take advantage of market & tariff.

Channel DesignBest practice companies do market research toestablish distribution channels.

SouringBest practice companies revise souring strategies andmoving to NAF AT countries.

DistributionBest practice companies establish their carrierprograms with North American carriers. Cross border shipping isalso done.

Sales & MarketingThey develop strategies within North

America.


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Trade Agreement

North America and Canada

1. 1st Step - Agreement between United States and Canada On Free Trade Agreement (FTA) on Jan 1,

1989

i.e Trade, Investment and Commercial Cooperation

2. 1st Step - North American Free Trade Agreement (NAPTA)- August 1992, between.

U.S, Canada & Mexico, Effective Jan 1, 1994.

Eliminates tariff between three countries.

Enhances competitiveness with respect to Europe, Asia by

reducing administrative costs & delays, improving

investment & trade.


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NAFTA

Eliminate barriers to trade in and facilitate the cross boarder

movement of goods and services between the territories of the parties. Promote conditions of fair competition in the free trade area.

Increase substantially investment opportunities in the territories of the

parties.

provide adequate and effective protection and enforcement of

intellectual property rights in each partys territory.

Create effective procedures for the implementation and application of

this agreement, for its joint administration and forthe resolution ofdisputes.

Establish a framework for further trilateral regional and multilateral

cooperation to expand and enhance the benefits of this agreement.


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Trade Agreement

Europe

1. Formation of European Economic Community (EEC) in 1957.Members - Belgium, France, Germany, Italy, Luxembourg, Netherlands.In 1973 - Denmark, Ireland & UK Joined also

In 1981 - Greece also joined

In 1985 - Portugal & Spain joined

2. Established plan to eliminate inter country tariffs, create common externaltariffs, guide policy on tax structure, exchange rates, controls, immigration,agriculture support.

3. European Free Trade Association (EFTA)Formed in 1960 - Liechtenstein, Switzerland, Sweden, Finland, Norway, Iceland

and Austria.

4. EFTA - Pact with Czechoslovakia, Poland, Hungary Turkey, and Israel in1991, 1992.

- E.C eliminated trade barriers with EFTA in late 1991.


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5. Single Common market - Free movement of Labour

capital & goods - 19926. Mastricht Treaty - Monetary Union - Requires approval

of twelve EC states - Mandates Central European bunk 7

currency by 1999.

7. SAD - Single administrative document to facilitatemovement of transport & trade customs formalities, EDI

transmission, statistical information. Now custom

documentation has vanished for EC Countries.

8. Cabotage Restrictions - They have been eliminated forresolving road congestion & environmental problems.

Improvement in transport infrastructure.


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Eastern Europe

Significant changes have taken place in the former Soviet Union& Eastern Europe: fall of Berlin wall, reshaping of commercial

& political boundaries, in Eastern Europe, Asia. Common wealth of independent states (CIS) create in 1991

Five basic regionsBaltic states, Transcaucasia Central Asia &Russia.

Investment in Eastern Europe & CIS has increased.

Customer clearance procedures are extremely difficult.

Poor transportation infrastructurecarriers, rail, port facilitiesetc.

The concepts of customer satisfaction & customer service areunknown or misunderstood.

Using sophisticated logistics techniques & computerised orderprocessing & information systems are impossible.

Political instability in various countries of Eastern Europe.


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Developing Nations

Eastern Europe

1. Countries - Bosnia, Bulgaria, Common wealth of IndependentStates (formerly Soviet Union), Croatia, Czech & Slovak FederalRepublics, Hungary, Poland, Romania and Serbia.

2. Problems - Infrastructure, transforming industry facilities, Roads,

Communication railways underdeveloped.3. Growth - Czech Republic, Germany Hungary, Poland and Slovak

Republic offer potential for growth.

Central & South America

1. Latin America - Should invest in people

2. Countries - Argentina, Brazil and Chile, seeking strongerrelationships with America.

3. Exports - U.S Exports have doubled to these countries.


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Western Europe

Majority of European population lives within 500 mile radiustherefore patterns of transport and distribution are different.

Europe is much smaller than North America.

Creation of single European market & adoption of euro currencythroughout EU.

Centralization of distributio0n centers, increasing partnerships &strategic alliances, use of outsourcing and third parties.

Development of pan European transportation network &restructuring of logistics management.

Fewer distribution points serving larger market areas. Border crossings & customs requirements have been streamlined

in EU.

Kodak established logistics network to serve Scandinavian &

Baltic regions.


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Becton Dickinson closed all of its European facilities &centralised its operations into a single location.

One US based medical equipment manufacturer consolidated alllogistics operations into a single facility in Belgium reducing50% inventory levels, 75% reduction in stockouts & 20%reduction in total logistics cost.

Appropriately 950 European centres are located in Netherlands. Crossnational alliances have increased.

Use of outsourcing and third party logistics is very strong.

Pan-European transportation has increased its presence. Competitive situation in Europe has intensified.


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Asia Pacific Region

1. It consists of Japan & four dragons I.e South Korea, HongKong, Taiwan and Singapore.

2. Malasiya, Philippines, Thailand and Indonesia are also addedto Asia Pacific Region as they have booming export orientedeconomies.

3. Exports - US exports to the region have grown by 5 to 7% in

1989 & 1990.4. Asian Free Area (AFTA) - Created in 1992, members -

Brunci, Indonesia, Malasiya, Philippines, Singapore, andThailand in 1993. Duty frees trade, Logistics infrastructuredevelopment economic hub of Malay Peninsula and to be

Centre for entire Asia Pacific Region. Singapore offerspremier seaport.

5. Air Cargo - Growth in East Asia is 6 to 8% annually and by2010, 2/3rd of world our cargo traffic will be derived from east

Asia and the Pacific Rim Countries.


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Organization for Economic Cooperation and

Development (OECD)The mission of OECD are

To achieve highest sustainable economic growth andemployment and a rising standard of living while maintainingfinancial stability.

Contribute to sound economic expansion

Contribute to the expansion of world trade on multilateral,nondiscriminatory basis in accordance with internationalobligations.

International Bureau of Chambers of Commerce (IBCC)

1. To promote chambers of commerce2. To strengthen the movement of chamber of commerce

worldwide

3. To promote greater involvement

4. To expand technical assistance.


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Association of South East Asian Nations (ASEAN)

It is worlds largest running economic partnership

Brunei, Indonesia, Malasia, Philipines, Singapore, Thailand,Viet Nam.

Countries are dedicated to become a past of the globaltrading miracle.

Per capita GNP rose from 4400 to 4 1000 in less than 20years.

Trade is largely with USA.

More interested in investment and technology transfer

relationships. EU has also sought trade in 1996 with ASEAN and is goods

and services trading partner.

Can become prosperous like EU but with only U.S. umbrella

on security and global markets supported by agreements.


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World Trade Organisation

1. WTO replaces GATT and is a permanent institution having a

membership of more than 100 counties

2. WTO covers trade in services and trade related aspects of

intellectual property.

3. Provisions of WTO are multilateral and involve commitmentof member countries

4. The WTO dispute settlement system is faster more automatic

& less susceptible to blockages.

5. To supervise on regular basis the operation of the GATTagreements.

6. It serves as a trade review mechanism .


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OrganizationBest practice companies create internal NAF TAunits. They train people.

Alamo Iron Works (distributor), Darco Southern (industrialproducts manufacturer), NHK-RHP Canada (ball bearingmanufacturer), Rich Products (food) & Yellow Freight (trucking)are taking advantage of NAF TA .

Pacific Rimit offers opportunities to importers, exporteroutsourcing etc.

Supply Chains in Asia are complex. For every $ 1 bn of ofimports from china, at least $150 million could be saved by

efficient SCM. Three major logistics hub in AsiaSingapore, Hong Kong,

Tokyo.


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Singapore serves Southeast Asia, India Pakistan region.

Hong Kong is a sourcing point for North Asia & Tokyo is thekey hub for Japan.

Logistics environments are same in Asia, North America & E.U.while cultures & polities are different.

Transportation infrastructure is well developed, WH options,automated systems widespread & customer service concepts areunderstood & accepted by logistics service providers.

There are more logistics options available for firms enteringChina.

Figures show distribution channels in China.

Payback is slow.

Distribution Channels in China for


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Distribution Channels in China for

Consumer Products & Raw Materials

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Firms S & P Dept.

Agent

Retailer

Wholesaler Retailer

Trade Center

Cooperative Urban & Rural

Trade WH

Trust Co: & Consignment Ship

Exhibition & fair

Markets

HongKongagent


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Distribution Channels in China for Consumer Products

P

R

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Exhibition./fair /trade center

Agent

Comm. enterprise

Wholesaler markets

Co-operative

Own marketing dept.

Special Supplier co-operation

HongKongagent

C

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ST

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M

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Japanese Distribution System

Markets in Japan are sophisticated & provide wide services inlogistics which are common to industrialied countries.

Japan has efficient WH & transportation infrastructure with goodinformation system.

Long distribution channels make new entrants difficult to

penetrate In 1990 shorter & direct channels began to take shape.

Direct sales & mail order have been growing faster.

Japan is an archipelago comprising more than 5000 is lands.

Bulk of its population lives on the four major islands ofHokkaido, Honshu, Kyushu & Shikoku.

Island of Honshu contains all major cities & most of the

population of Japan.


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Characteristics of Japanese Logistics

Transportation is done by trucks (90%). They are long distancetrucks, short distance, district trucks & route trucks.

Traffic congestion is a critical problem. Speeds in major cities is15 km/hr.

Distribution systems for different products are different becauseof traditional differences in trade practices & channels of

distribution.

Distribution ChannelsNontraditional channels are boomingthey are mail order, catalog sales, door to door sales, tek-shopping & vending machines.

Shared distribution is common with competitors delivering to thesame stores sharing delivery facilities & trucks.

Pallefization Different sizes of pallets complicates logistics

Warehouses are supervised by Ministry of Transport & regionaltransport bureaus.


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Additional Factors to be considered

Degree of country indebt ness.

Development of banking system.

Level of productivity of industries & individual companies.

Quality of the workforce.

Condition of the infrastructure.

State of technology.

Depth of managerial skills.

Supply of production materials.

Profit repatriation regulations.


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Macquilladora Operations

Firms are getting involved in global manufacturing and hence

face different logistic constraints & opportunities. Advantage of having global operation is that it reduces cost.

Cost of doing business in Mexico, where many manufactureoperations have been established, is one-third of US.

Many US manufacturers have set up production sharing facilitiesin the Caribbean Basin, Mexico, South America & someEuropean countries.

Japanese firms have established a presence in Mexico.

European companies also have set up facilities in Mexico.


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Production sharing, twin plant or macquilladora operation areencouraged by special tariff provisions that reduce the duties.

Three types of macquilladora - Manufacturer owned and

operated, shelter operations & contract manufacture andassembly.

Macquilladora operations affect logistics costsCost ofdocumentation, inventory, sourcing & transportation are higherthan domestic operation.

Order processing, packaging, & warehousing costs are same orslightly lower in macquilladoras.

In total, because of lower labour costs in manufacturing the totalcost in lower.

There are more than 3100 macquilladora operations in Mexico &in increasing every year.

Macquilladora operation continues to be viable option as on now.

global strategies & trading blocks

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