1. Introduction + The Importance of Logistics in Responding to Globalisation
2. The Role of Knowledge Management in the New Logistics
3. The Rise of Corporate Social Responsibility in Logistics Industries
4. Technology: An Incentive and a Mean of this Shift
5. The Importance of Culture and Communication in Global Logistics
6. Geography: How Globalisation Made the World Flat for Logistics Operations
7. Conclusion
8. References
Introduction
The Importance of logistics in responding to Globalization
(Logistics)
Logistics for all
This current Fed-EX commercial shows the extent that businesses will go to in order to become a global player. UPS offers similar solutions and in one of its most recent commercials uses the motto, ‘helping small business act like big businesses’.
This goes to show that globalisation is not exclusively for large multinationals which command vast resources, the smallest of businesses can become involved too. Even an individual, can become involved in a global market thanks to the development of logistics. The online market EBay sees people from all over the world trading goods with each other. Many individuals use this website as a host for their online businesses and rely on its services to make a living. The advancements in logistics have accelerated globalisation like never before. This can be illustrated with the case study of Aramex International.
Aramex - Consolidation in the logistics industries
Aramex International is a good example of the consolidation and the shift from niche players to global providers that is taking place in the logistics industries. Aramex International is a logistics company which began life as the Middle East partner of a number of American delivery companies. Partnerships and alliances are what allow operators in the logistics industry to link with others in order to offer services in areas where they do not have their own operations. All was going well until 2003, when DHL bought Airborne Express, Aramex's chief partner in America. The deal gave DHL a way to compete in against UPS and FedEx in what is a very competitive market.
For Aramex however, this meant its link to the crucial American market was cut off. As a result, Aramex set out his own strategy of alliances and acquisitions, replicating what his big rivals were doing. The latest example is from February 2011, Aramex acquired an Irish liner agent and freight forwarder to further strengthen its presence in the Irish market and expand its ocean freight capabilities in Europe. This acquisition in Ireland is the latest in a series of recently formalized international partnerships and acquisitions, including in Turkey, Malaysia, Bangladesh, Vietnam and Kenya. Through this expansion strategy, Aramex is basically building a more geographically robust network capable of providing comprehensive logistics and transportation services.
The Role of Knowledge of Management in the New Logistics
As the world shifts from distinct national markets to linked global markets, knowledge management in the area of logistics has become a major source of competitive advantage for companies developing their supply chain on the international stage. Indeed, as globalisation enables sellers and buyers to be more efficiently connected, information management has become crucial to unify the different areas of operation and coordinate organisational resources by providing the right knowledge of the right quality at the right place and time (Gudehus, 2003). It is widely recognised that knowledge management provides an essential contribution to the planning and performance of logistics activities and is strongly linked with the quality and success of logistics services. Logistics providers now have a new role in the global market place, that of combining their professional knowledge in the areas of inventory management, purchasing, transportation, warehousing, and planning, in order to improve the whole supply chain efficiency and add superior value and benefit to the customer.
Operating at the international level presents a great challenge for logistics managers, considering the global market complexities and variability. In addition, customers are now increasingly demanding in terms of quality, lead time, and order fulfilment, which require companies to constantly try to find ways to improve their efficiency and flexibility and develop more customer-driven logistics models to anticipate and adapt to changes (Brutto, 2010). Cicsco Systems is a good example to illustrate how knowledge about business processes combined with a customer-oriented approach help the company to design networks for its customers with a great possible flexibility of product or service development. This strategy enables Cisco to achieve its four main goals that are: providing complete solution for businesses, making acquisitions a structured process, defining the industry-wide networking protocols, and forming the right strategic alliances (Cisco, 2010). The Case of Cisco Systems also indicates that knowledge management enables logisticians to become consultants as they inform and assist both managers and customers on complicated documentation, duties, and other issues related to the implementation of a cost-effective supply-chain. Their knowledge about trade agreements, tariffs, and location advantages for instance, enable them to advise companies on the best sourcing decisions they should make.
As logistics processes have become an essential part of the operations of a multinational organisation, integration with overseas suppliers and end-to-end visibility through the supply chain have arisen as a core concern. Creating an integrated workspace for all stakeholders of a product delivery requires a common and easy access to information including movement schedules, shipment details, costs, contracts, performance measures and reporting. Timeline and data accuracy is extremely important nowadays which is why developing visibility tools such as web-based supplier portal technology that integrates tracking and tracing systems improves logistics processes, ensures the smooth flow of goods, and reduces overhead costs. The increasing role of the Internet and e-commerce technologies strongly facilitates information sharing and data transparency and enables real-time global connectivity (Neumann and Tomé, 2005). Furthermore, I.T. enables to create efficient networking and collaboration between business partners over the world, which is necessary to maximize knowledge management efficiency and gain a better control of the business activities and schedules.
The ability to achieve real-time visibility and receive accurate and quality data and information is not only critical for planning effectiveness and time compression, but also increases the supply chain agility in general, which presents a great competitive advantage when doing business on the global scale. Flexibility and dynamic capabilities are indeed key components in reducing time and cost of inbound processing (Verlag, 2008), by coping with changes and uncertainty in demand, minimizing stocks, and developing the most effective combination of carriers, routes, and freight forwarders. Visibility, and thus flexibility, can only be achieved through continuous up-date of information of the different areas of logistics operations such as inventory, transportation, and warehousing (For example: information about available stock at each location, replenishment capabilities, information about the various modes of transportation costs, availability, and suitability, information about space capacity and utilization, unit load, work schedules, etc.) In addition, end-to-end visibility enables a constant control of costs and helps determining the overall effectiveness of operations and distribution. Though visibility is not easy to achieve within a multinational company, collecting accurate information and systematically analyse it will help maximise organisational efficiency and ensure important time and cost savings.
Knowledge management is thus definitely a core element in modern logistics operations success, particularly for businesses carrying activities overseas and in different geographically dispersed areas. It also represents a key challenge for companies operating in this highly competitive business environment to develop and maintain effective knowledge sharing through reciprocity and transparency across national and organisational boundaries (Buhler, 1999). Building a network structure that integrates knowledge and real-time information about the whole company is thus crucial to align organisational process and logistics operations in all parts of the multinational system (Kasper and Haltmeyer, 2002), as shown on the scheme below.
The Rise of Corporate Social Responsibility in Logistics Industries
Deutsche Post DHL, a multinational logistics company, is the first logistics company to commit a carbon efficiency target in the world by improving 30 percent by 2020 compared with 2007. According to the Intergovernmental Panel on Climate Change (IPCC, 2007), logistics is responsible for approximately 13.1 % of global greenhouse gas. The reduction of carbon emissions has become a common goal in the logistics industry and has been adapted in their CSR practices.
Though Corporate Social Responsibility (CSR) is not a new concept in the logistics industry, the content of CSR practices has changed over time. Back in 1979, Carroll’s raised a framework of “Four Responsibilities of Business” with the order of priority: economic (must do), legal (have to do), ethical (should do), and discretionary (might do). What logistics companies focused, at that time, was on improving their economic factor which was mainly referring to their financial strength in order to maximize the benefit of their shareholders. For them, their only social responsibility was to increase their shareholders and companies’ wealth. The phenomenon was indicated by Stock (1990), "Few individuals have as yet examined the relationship of logistics with issues such as consumerism, social welfare, and other societal concerns."
Today, with the technological breakthrough, economic integration and the increasing power and independence of stakeholders under globalization, multi-national logistics companies and SMEs start to have their own CSR practices in their companies. The real question is not that all firms should do CSR in the same form, but rather that firms should tailor certain specificities of CSR to their business strategy, to become more competitive. Apart from the employees’ education provision, participation of social volunteers, and use of technology, the goal of CSR practices of logistics companies is to reduce carbon emissions.
DHL in its “Environmental Report 2003” mentioned the importance of reducing CO2 to the environment and indicated its two major sources of CO2 in which 31 percent from electricity generation and 44 percent from fuel use. As a result, DHL adapted its operations to use alternative environmentally friendly fuel – Biogas, under the request of their customers with additional charges. The environmental awareness of customers is one of the main driving forces for the logistics companies to adapt CO2 reduction practices. In a study conducted by Deutsch Post/ DHL on the subject of sustainable logistics found that 63% of customers out of more than 3600 companies believed the key role of transportation on the carbon reduction.
Conflict of Interest between Stakeholders
Reducing CO2 is good to our environment but would leave the cost of investment on logistics companies. Without the legislation, companies have to analyse their cost and benefit before committing their social responsibility. But, letting logistics companies to control CO2 emission under the lack of incentive or punishment cannot push them to walk further.A legislative power is essential not only on the enforcement aspect but also on showing the direction. Some countries are now investigating the probability of implementing carbon pricing on logistic companies as a way to increase their cost of emit carbon. The progress is slow and controversial especially on the ways of measurement and pricing method; in addition, no all the countries are aware of the environmental protection. However, it is a good start for discussion. Some countries, like Sweden, have set their targets on the reduction of CO2 in the hope that other countries as well as other companies would follow: Sweden hopes to reduce 5 million tonnes by 2010, 10 million tonnes by 2020 and 50 million tonnes by 2050.
Nevertheless, the role of multinational logistics companies is important considering their influence and investment on carbon reduction. The key to encourage them to improve their performance further is customers’ environmental awareness. With the increase in oil price and the increase in environmental awareness of their customers, logistics companies, in the coming future, would focus on the value-added services and optimizing their cost by using alternative environmental friendly fuel with less environmental damage and affordable price that can help them to differentiate themselves. In a survey conducted by McKinsey on the order of importance of CSR issue in the next five years in 2007, the environment is ranked number one. The profitability of a firm nowadays is strongly related to the success of its brand. CSR has come about as a new way for companies to protect and enhance their firm’s brand and reputation. Thus, Customers is one and only one way to help CSR logistics to grow.
Youtube Globe Forum 2009 Speaker and DHL CEO Frank Appel interview on CNN
Technology - An Incentive and a Mean of this Shift
When talking about technology and the shift from niche players to global providers in the logistics industry, RFID is more and more often mentioned as a promising technological. Supply chains are become longer and more complex so they are becoming harder to look after. With RFID, labels carry a lot more information. With the addition of suitable sensors, it would become possible to tell whether a product had been dropped or kept at the wrong temperature. Finding a single product in a mountain of containers would become a simple matter of getting an RFID reader to analyze the contents—without even opening the doors. And combining RFID technology with GPS tracking would mean that nothing would ever get lost in the supply chain again, also reducing inventory pilfering. One of the biggest boosts to the adoption of RFID tags has come from Wal-Mart, which in 2004 began testing them in 150 stores around Dallas, Texas. Wal-Mart has seen some benefits, including a 16% reduction in out-of-stock items in stores using RFID. Moreover, items with RFID tags were replenished three times faster than non-tagged items. It is now predicted that most items in shops will carry RFID tags within 15 years.
With technology, the amount of information that a supply chain can provide changes the way in which companies deal with both shipments and inventory. Companies can know exactly when they will receive goods and make the right decisions. In the past, only multinational companies could afford to compete with global supply chains, not just because of the cost and complexity of operating trucks, aircraft and warehouses on different continents but also because of the difficulty of managing all these diverse elements. Nowadays, thanks to technology, even small companies can now afford to operate internationally, either themselves or by contracting out the management of the process.
The Importance of Culture and Communication in Global Logistics
Culture as a factor of logistics
Advances in logistics has seen the development of global markets and, for multinationals, the world has become much smaller and more accessible. In order to be successful in foreign markets it is important for a business to understand the culture of the country in which it is operating. Business practices will vary greatly from one country to another. It is important to understand and respect different cultures as it could ultimately be the difference between agreeing a deal or failing to enter a new country.
Culture has had a huge impact on logistics. The need to understand another culture is essential in order to achieve globalization. Take, for example, marketing. The way in which a business sells its product will vary from one country to another. The need for cross-cultural knowledge has been one of the main drivers behind logistics in business.
This HSBC commercial highlights the difficulties that a Western business can have when entering the Chinese market. HSBC is an organisation that prides itself on being an international business. Many see it as setting the standard for cross-cultural business relationships.
Culture must also be understood in order to meet the demands of the consumer. A business must alter aspects of its product in order to ensure its success in foreign markets. The fast food market is one of the best examples to illustrate the importance of understanding culture. McDonalds is the leader in many Western countries fast food markets but it did, however, initially struggle to achieve the same radical success in China. McDonalds slow market growth prompted the organisation to alter many of the items on its menu in order to suit the tastes of the Chinese consumer. Despite these changes it still lies second to KFC in the Chinese market.
Communication as a factor of logistics
For a multinational organisation operating in global markets there are great demands placed on logistics. Many factors have to be considered, none more important than communication. Traditionally, language barriers and technology would prove the greatest obstacle to overcome for cross-cultural trading. With advancements in technology, however, such concerns are a thing of the past. Multinationals can now hold video conferences where global meetings can be held, greatly reducing travel expenses and time. Such technology is often taken for granted as it is now widely available but the fact remains that it is a crucial part of a business’s logistics.
Globalisation has reached the stage where businesses are now operating in twenty-four hour markets. Dealing in various markets around the world rely on the communications and operations of a business must being of the up-most efficiency. A multinational organisation will have global operations around the clock which rely on complex logistics. By means of an example; when the closing bell sounds at the Hong Kong Stock Exchange, a multinational business will begin trading in London. If there should be any efficiency in communications, it can cost vast amounts of money through the loss of trading. Logistics facilitate such global operations and allow multinationals to maintain a constant operations, making it the most valuable asset to a business.
Communication has had, and will continue to have, a huge impact on logistics. For a business to expand it must reach it’s target market. This may involve the transportation of goods hundreds and even thousands of miles in a very short space of time. In order to meet the demands of the consumer, a business must find solutions to such complex logistics. Communication with the consumer relies on effective logistics, this can be the difference between a successful multinational and one which fails.
Geography: How Globalisation made the World Flat for Logistics Operations
With today’s business operations shifting from a regional or local focus towards a more global and international production, logistics companies arguably now play their most significant role in the history of business. As a result of this revolutionary shift, globalization is fuelling more advanced opportunities for logistics companies in the future. The myth that globalization has made the world “smaller” or “flatter” carries some truth.
According to the novel The World is Flat by Thomas Friedman the term “flat” refers to the aspect of global playing fields in business are more levelled.
“It is now possible for more people than ever to collaborate and compete in real time with more other people on more different kinds of work from more different corners of the planet and on a more equal footing than at any previous time in the history- using computers, email, teleconferencing…etc”. (Friedman page 8)
In essence globalization has made our world smaller.
As international business grew coincidentally the logistics industry grew as well. This quote fully expresses the magnitude and significance of the logistics industry in international business today.
“UPS is a global leader in logistics, and at any moment our business manages more than 2 percent of global GDP”
As bright as the future looks for logistics companies they still have many governmental policies and laws to overcome such as tariffs and trade restrictions. On the contrary, other economic factors are now forcing countries to lessen trade restrictions. In order to get many economies back on track due to recession several countries expanded their borders and allowed more imports into their countries. Globalization is another factor that can drive countries to broaden their trade horizons. Liberalization allowed China’s entrepreneurs to indulge more heavily in business. With more lenient trade restrictions and a new found entrepreneurial spirit China quickly became an export focused economy. With the massive inflow of information and technology as a result of globalization China was able to translate these factors into a booming economy. Logistics was the driving force behind what is now the worlds 2nd leading economy. Coupled with looser trade restrictions, Logistics was able to propel China into the world power it is today.
Conclusion
In conclusion the complexity and need for logistics operations in the business world today has become cirtical for the management and success for multinational companies. It is a vast area of acitivities that unifies knowledge management, culture, technology, corporate social responsibility and geography. In order to succeed overseas, a company must develop an extensive understanding and execution about the logistics industry. The management of logistics presents many competitive advantages in which companies operating an an international scale should indulge in. Globalization has fueled more advances opportunities for the logistics industry today as a result of the shift in business operations from a national or regional level to an international level.
References
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