UNIT-V

Managing global Logistic: Logistics in a global economy – views of global logistics- global operating levels –
interlinked global economy – Global strategy –Global purchasing – Global logistics – Channels in Global logistics –
Global alliances.

 LOGISTICS IN A GLOBAL ECONOMY / GLOBAL LOGISTICS:

Meaning of Global/International Logistics: “Global/International logistics is the design and
management of a system that controls the forward and reverse flow of materials, services and information
into, through and out of the international corporation”. It encompasses the total movement concept by
covering the entire range of operations concerned with movement of goods, including both exports and
imports at the same time.
Components of Global Logistics:
There are few activities that are exclusively specific to international or global logistics; the traditional
logistical activities are managed differently in an international environment than they are in domestic
environment.
1. International Transaction: It is eminently more completed, involving different modes of
transaction, different carriers, different transportation documents, and much greater transit times. Its
inherent risks and hazards are also much more significant.
2. International Insurance: It is also much more complex and honestly somewhat treacherous, as the
contracts are written using archaic language and terminology that varies in meaning depending on the
country in which the insurance company located.
3. Packaging Needs: They are different, as the goods are exposed to a number of risks rarely
encountered in domestic shipments.
4. International means of Payment: They are more involved, with the risk of non-payment and
currency fluctuations calling for specific strategies that are never used in domestic transactions.
5. Terms of Trade: These are much more involved, as the greater number of nodes and links increases
the number of possible alternatives for transfer of responsibility and ownership.
6. The Crossing of Borders: It also represents specific challenges. Products sold abroad or purchased
from abroad have to go through customers, a complicated and paper-intensive process in most
countries.
7. Inventory: It is managed differently as the risk of delays and variations in shipping times are
increasing the challenges of Just-in-Time production.
8. Environment of International Logistics: Finally, the environment of international logistics is quite
different, while there is obviously the issue of language and culture.

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Global Logistical Decisions: The major decisions in Global logistics that are needed to manage in order
to get success in logistics operations are as follows:

1. Warehouse Management: Global warehousing serves the same purpose as its domestic
counterparts; that is, receiving, transferring, picking, and shipping. However, rapid movement of
products through the warehouse receives more emphasis than in domestic warehousing. The global
warehouse mirrors a distribution centre, with little long-term storage. Third-party warehousing is also
quite com on globally.
2. Packaging: For overseas shipments packaging is more critical as compared to domestic shipments
because of the nature and number of hazards the packaging has to face or undergo during its journey
to its destination. The logistical packaging needs to withstand varying storage, transit, and handling
conditions during transit, and protect the packed material. The logistical packaging has to comply
with the shipping regulations of the countries of origin and destination.
3. Inventory Management: Inventory is the life of the life of integrated logistics. Without it, there is
nothing to do in physical supply-nothing to store, nothing to carry, and nothing to package. Inventory
management on a global scale becomes even more difficult and more important. Distance, port
delays, custom delays, and transit times encourage higher inventories. This, of course, increases the
costs of inventory. Political decisions such as, closing borders to trade or instituting or increasing
tariffs and duties only add to the inventory problems.
4. Material Handling: Material handling systems very globally. In countries like the United States.,
Canada, Australia, New Zealand, Hong Kong, Singapore, and most of Western Europe, these systems
will be among the worlds best, usually highly mechanized or automated. In developing countries, the
majority of systems are manual. Product through put in warehouses and plants tend to be much
slower in manual systems. Also, some products require more sophisticated handling equipment, so
some countries or ports may not be able to receive them. For example, some ports can handle
twenty-foot containers, while others cannot handle containers at all.
5. Information Systems: While developed countries have very sophisticated integrated logistics
information systems, not all countries do. Many third world countries use pencil and paper.
6. Transportation: Transportation mode plays a vital role in the movement of cargo within or between
countries. Normally cargo is moved using three modes of transportation, i.e., road, sea, or air
depending on the cost, urgency, and destination. However, for cross border cargo movement, mostly
sea and air depending on the cost, urgency, and destination. However, for cross boarder cargo
movement, mostly sea and air are the preferred modes of transportation as most countries are
connected well by air and sea. Transportation confers “time and place utility” to the product; it
determines the company’s customer service; it also has a crucial bearing on the other elements of
physical distribution and marketing, like warehousing, inventory control and channel management.

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 7. Insurance: To protect against damage or loss of cargo during transit in air or sea, shippers insure
their goods. In domestic cargo movement, carriers take the responsibility for transit loss or damage.
However, in sea transportation carriers do not take this responsibility because of the high degree of
risk due to unavoidable perils during sea journeys. The purpose of marine insurance is to protect sea
cargo against loss or damage in transit. The coverage of marine insurance is much broader as
compared to domestic cargo insurance.

Barriers to Global Logistics:

 VIEWS OF GLOBAL LOGISTICS:

The continuum of global trade perspective ranges from (1) an importing and exporting orientation to
the concept of (2) a stateless enterprise. While there are certainly intermediate positions, the different
perspectives are highlighted by reviewing extremes. The following section compares conceptual and
managerial implications of enterprise focus, process orientation, and structural relationships associated
with each extreme perspective. The section concludes with an examination of the logistical differences
between national and stateless enterprise perspectives.

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1. Importing and Exporting: A National Perspective

The national perspective considers all international activity as importing and exporting. The enterprise’s
organisation within each country is focused on internal operations and views each transaction from a
national perspective of what it will do for the local operation. Typically, when firms are guided by this
philosophy, their operation in each country is managed as an autonomous unit with performance
measurement focused on its own profit and loss statement, including self-generation of assets.

A national perspective influences logistical decisions in three ways.

i. Artificial Constraints: Sourcing and resource choices are based on artificial constraints. The
constraints may be in the form of use restrictions or price surcharges. A use restriction is a limitation,
usually government-imposed, that restricts import sales or use.
ii. For example, the enterprise may require that internal divisions be used for material sources even
though prices or quality are not competitive. Price surcharges are artificial price increases on foreign-
sourced products imposed by governments or home country operations to maintain the viability of
local suppliers. In combination, use restrictions and pricing surcharges limit management’s ability to
select what otherwise would be the preferred supplier.
iii. Increased Planning Complexity: Confronting logistics with a nation-by-nation perspective increases
planning complexity. A fundamental logistics objective is smooth product flow in a manner that
facilitates efficient capacity utilisation. Barriers resulting from government intervention make it
difficult to achieve this objective.
iv. Extension of Domestic Logistics Systems and Operating Practices around the Globe: A national
perspective attempts to extend domestic logistics systems and operating practice around the globe.
While this philosophy simplifies matters at a policy level, it increases operational complexity since
exceptions are typically numerous. Local managers must handle such exceptions while remaining
within corporate policies and procedures. As a result, local logistics management must accommodate
cultural, language, employment, and political environments without full support and understanding of
corporate headquarters.
The national perspective both decreases and increases decision complexity for logistics
managers.
 Decision complexity is decreased since the enterprise limits alternatives under consideration by
eliminating global sourcing and dictating suppliers.
 On the other hand, Logistics decision complexity is increased by the addition of non economic
constraints such as political policy or subsidiary ownership that can change overnight.
This combination often results in less-than-competitive product quality and price.

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2. Stateless Enterprise

The stateless enterprise perspective, which is also known as “companyism”, contrasts sharply to
operations under a national perspective. The stateless concept describing enterprises that are effectively
making decisions with little regard to national boundaries. These enterprises have the capacity to juggle
multiple identities and loyalties and resemble insiders in whatever area they operate.

For example, even though the stateless enterprise may have its historical foundations in Germany, japan,
or the US, a high percentage of its sales, ownership, and assets are outside the country of origin.

The stateless enterprise is also likely to have senior management and boards of directors representing a
broad range of nationalities and global experiences.

Examples of firms that fit these specifications are ABB (Switzerland), Dow Chemical (US), ICI (Britain),
Hoechst (Germany), Nestle (Switzerland), and Philips (Netherland). Examples of global firms operating
as stateless enterprises can be seen in China.

Logistics Implications of a Stateless Enterprise

1. Managers are able to Identify and Evaluate Alternative Strategies and Have the Authority for
Implementation:
In the case of Logistics management, this requires investments of time and effort to identify and
evaluate alternatives for materials, logistics service suppliers, manufacturing and warehouse locations,
and customer alliances. These requirements particularly affect the stateless enterprise because of the
geographic scope and cost of its operations, as well as the attendant risk involved in decisions of such
magnitude and complexity.
2. Need to develop and implement Flexible Systems and Procedures:
While basic logistic principle suggests that substantial scale economies are preferable to support
global development and implementation, the stateless enterprise is sensitive to local market requirements.
For example, business elements other than a country’s language must be adapted in order to support the
concept of global localization or customization. The system must also adapt to differences in
documentation, packaging, pricing, and operations. To provide this flexibility, firms are adopting a data
warehousing concept. The data warehouse is a database general enough to accommodate the information
needs of the global enterprise with a flexible user interface that can be customized to individual market
needs and procedural differences. Each market receives its own door to the warehouse so that each
country can meet its specific needs.

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 GLOBAL OPERATING LEVELS:

It traces the levels of enterprise evolution from domestic logistics operating to becoming a global
competitor. The duration of each level is a reflection of managerial philosophy rather than elapsed time.
The five levels are arm’s- length relationship, internal export, internal operations, insider business, and
denationalized operations. Below figure illustrates the risk and return associated with each global
operating stage.

The five levels are arm’s- length relationship, internal export, internal operations, insider business, and
denationalized operations.

1) Arm’s- Length Relationship (Level 1): Arm’s- Length Relationship is characterized by an arm’s- length
relationship between an enterprise and an international distributor that serves a country or region. The
enterprise, which probably has limited international experience, either sell’s or consigns its goods to the
international specialist, which accepts responsibility for ordering, providing international transportation,
completing documentation, as well as coordinating marketing, inventory management, invoicing, and
product support. On the positive side, the arm’s- length relationship significantly lowers the enterprise’s
risk by providing staff and expertise to establish and manage necessary relationships and operations. On
the negative side, the arm’s- length relationship reduces the firm’s contribution margin and decreases
product and logistical control.
2) Internal Export (Level 2): Internal Export enterprises develop the expertise to coordinate and manage
international transportation and documentation. However the local agent or distributor is retained to
provide marketing, inventory management, invoicing, and product support. Thus, the enterprise might
increase its contribution margin by internalizing some of the export activities but still uses specialized
assistance for marketing, sales, and customer service activities once the product is exported. The risk also
exists that internalizing selected logistics activities may increase cost as a result of less expertise. Lack of

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 internal sales, marketing, and distribution support for the international market also reduces the
enterprise’s sensitivity to local requirements.
3) Internal Operations (Level 3): Internal Operations is characterized by development of operations in the
local or foreign country. Internal operations include combinations of marketing, sales, production, and
distribution. Establishment of local facilities and operations increase market awareness and sensitivity.
This is typically referred to as local market presence. However, the internal operations stage often uses
parent company practices, management, and personnel, rather than employing locals. The rationale for
home country staffing is that headquarters can rely on international operations to better execute policy if
proven company managers are in charge. Since managers are assigned from the home country, this first
foothold of internal operations strongly reflects home country operations. The internal operations stage
increase enterprise control and sensitivity in comparison to the initial two stages but still relies heavily on
home country values, procedures, and operations.
4) Insider Business Practices (Level 4): Insider Business Practices the fourth level further internalizes
international operations and institutes local business practices. This level of sophistication typically
involves hiring host country management, marketing, and sales organizations and may include the use of
local business systems. This stage requires that headquarters management support local management
decisions regarding practices and procedures. As insider operations develop, a separate host country
philosophy emerges. However, the home country philosophy is clearly dominant. Individual international
operations are still measured against home country expectations and standards.
5) Denationalized Operations (Level 5): Denationalized Operations the denationalized operations level
maintains foreign country operations and develop a regionalized headquarters to oversee the coordination
of operations in the area. At this point, the enterprise is stateless in the sense that no specific home or
parent country dominates policy. Senior management likely represents a combination of nationalities.
Denationalized operations function on the basis of local marketing and sales organizations and are
typically supported by world class manufacturing and logistics operations. Product sourcing and
marketing decisions can be made across a wide range of global alternatives. Systems and procedures are
designed to meet individual country requirements and are aggregated as necessary to share knowledge
and for financial reporting. The sidebar discussion of the 3M Company describes many characteristics of
a firm with denationalized operations.
While most enterprises engaged in global logistics are operating at level 2, 3, and 4, a truly
international firm must focus on denationalizing operations. Enterprises in any of the other stages will
retain a home country perspective with its implicit pecking order. However, denationalized operations
require a significant level of management trust across countries and cultures. Such trust can grow only as
managers increasingly live and work in other cultures. While this cross-culturalization is beginning to
occur, it will be some time before it transcends a broad range of logistics managers.

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 INTERLINKED GLOBAL ECONOMY:

Global economies are increasingly interlinked by material suppliers, logistical systems, manufacturing
capacity, and markets. It is natural that this interconnectedness take the form of regional alliance that
leverage geographic proximity and scale economies. The major triad regions developing are North
America, Europe, and the Pacific Rim. As regional alliances emerge, they evolve through four stages of
integration. They are discussed below:

Stages of Regional Integration:

1. Free Trade Agreements 3. Common Market

2. Customs Union 4. Economic Unions

1. Free Trade Agreements: The first stage, a free trade agreement, eliminates tariffs on trade between
countries in a region. A free trade agreement may either stimulate or reduce interregional trade. Such
agreements can also reduce access of the firms to more efficient producers or markets outside their
region.
2. Custom Unions: The second stage, a customs union , eliminates tariffs between member countries.
Under this and the remaining two stages, member countries are required to give some control over
economic policies to the group.
3. Common Market: The third integration stage, a common market, is characterised by the same tariff
policy as the customs union. In addition, a common market allows factors of production such as labour
and capital, as well as goods and people, to move freely between member countries as dictated by market
conditions.
4. Economic Union: The economic union is the fourth and most advanced stage of development because it
implies harmonisation of economic policies beyond a common market. Economic union standardises
monetary and fiscal policy among member countries.

Economic Integration and Supply Chain:

 Economic structures will have a major effect on how global supply chains are designed and
developed, including both technical separation in production and distribution and in production
process and ownership of functions.
 A supply chain design will also be impacted by risk, trade restrictions and long lead times. For
instance, transportation systems required to manage supply chains in European markets are very
unique. The movement toward a single market has led to an impending set of bottlenecks that will
occur in the already strained transportation infrastructure. This structure is being challenged by

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 the deregulation of the transport market and liberalisation on cabotage (i.e., carrying goods in
domestic commerce by a foreign carrier).
 A number of other significant transportation barriers exit in Europe, including the problems
associated with nationally owned rail networks, water transport, and the new types of transport
operators that may emerge in the coming years.
 In other region of globe, the infrastructure to deploy an integrated supply chain presents even a
greater set of challenges.
 Emerging markets such as china, India, Latin America, Southeast Asia, Africa and central Europe
have incredibly large number of customers with rapidly rising spending power. A visitor to any of
these countries will be bewildered by the number of global corporations attempting to form joint
ventures, build plants and distribution centres, and establish market channels in effort to “get a
piece of the action” found in these rapidly growing markets. However, the infrastructure
within many of these countries is not adequately developed for these changes. Legal constraints
exist that prevent many common supply chain systems from being deployed.

 GLOBAL STRATEGY:
Introduction: Globalization and global competition are often seen as drivers for supply chain
management. as firms expanded their geographic scope of operations, the firm’s globalization strategies
become increasingly important in determining appropriate supply chain objectives and strategies.
Meaning of Global Strategy: Global strategy is “how the firm structures the flow of tasks within its
worldwide value-adding system”- which includes supply chain strategic alliance, strategic decision-
making, strategic planning, strategic lead time, strategic alignment etc.
Three broad categories of goals of an organization that must be balanced in the strategic actions of a firm
are as follows:
1. Achieving Efficiency in Current Activities: In a global context, efficiency can be enhanced through
three fundamental approaches, which are as follows:
a. Exploiting differences in input factors and markets in different countries.
b. Exploiting economies of scale, and
c. Exploiting economies of scope.
2. Managing Risk: The objectives of managing risk must consider four broad categories, which are as
follows:
a. Macro-Economic Risks: These includes catastrophic events and economic shifts in factors such as
wage rates, interest rates, exchange rates, and price factors often cited as important in a supply chain
context.

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 b. Policy Risks: These arise from actions of national governments. Changes in legal requirements,
technical standards, duty and tax structures, and trade policies have significant implications for a
firm.
c. Competitive Risks: These arise from uncertainty about competitor response to a firm’s strategy. For
example, differences in industry structure, culture, and laws may lead to differences in competitive
behavior.
d. Resource Risks: These are the risks that the adopted strategy will require resources beyond the
firm’s capability. To manage resource risk effectively, differences in capability of resources in
multiple countries must be understood and considered as part of strategic planning.

Managing these risks in such a complex environment becomes a critical issue for global firms. A key
factor in a firm’s performance is tailoring organizational structure and control systems appropriately to
monitor risk factors.

3. Developing Internal Learning: The objective that must be considered in strategy is that of innovation,
learning and adoption. Potential drivers for globalization include exploiting existing technology or
capability and accessing additional technology or capacity. This objective can be accomplished only
through appropriate inter-organizational processes that allow the diffusion of technology or capacity to
occur. This implies that this objective also influences the strategic choices a firm makes relative to how a
supply chain is managed.
Reasons for Global Strategy:
Global strategies should include ways to develop systems for linking and learning each country’s
or region’s capabilities on a global scale and to move between global and local strategies in a flexible and
timely fashion. Other key elements include:
1. Seeking out best opportunities for each operation from throughout the world.
2. Capitalizing on emerging markets.
3. Developing cadres of global exerts in core competencies to the organization.

Developing Global Supply Chain Strategy:

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1. Mission Statement: To establish a global mission statement, people in top management must draw upon
their personal and corporate philosophies and evaluate global opportunities in light of existing corporate
resources. The mission statement should “present a message stat is so simple and compelling that
employees are driven to follow it. Top management must articulate the mission in a written statement,
which will be used by middle-and lower-level managers as a guide for action”.
2. SWOT Analysis: One of the key areas to look at is the core competence of the corporation, what is called
a company “to build at a lower cost and faster than competitors”. Core competencies revolve around the
collective leaning of the organization, especially how to co-ordinate diverse production skills and
integrate multiple streams of technologies. The development of core competencies requires
communication, involvement, and a deep commitment to working across organizational boundaries. The
entire organization. From the chairman on down, must become involved.
3. Establishing Specific Goals and Performance Targets: Based upon the general direction and
philosophy provided by the mission statement and the results of the SWOT, the third step in developing a
global strategy is the development of clear objectives, that is, the desired outcomes to be achieved by the
corporation within a specified time period.
4. Identifying Global Alternatives and Making Strategic Choices: The firm should explore the best ways
for dealing with corporate opportunities and threats on a world-wide basis. The organization, in this step,
seeks to examine its global market positions, facilities, and investments so as to focus on leveraging and
linking opportunities. There are five possible global, competitive moves:
i. Cross-Country Alternatives and Making Strategic Choices: Using profits from one country in
which a business participates to subsidies competitive actions in another country.
ii. Counterparty: Defending against a competitive attack in one country by countering in another
country.

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 iii. Globally Co-ordinated Sequence of Moves: Simultaneous or planned sequence in which
competitive moves are made in different countries in the same business.
iv. Training of Global Competitors: Identifying actual and potential global competitors and selecting
an overall posture (attack, avoidance, co-operation, or acquisition) for each.
v. Developing Country Competitors Plans: Analyzing strengths, weaknesses, opportunities and
threats for each global competitors in each major country and developing a competitive plan or action
for each country-competitor combination.
5. Implementing Global Strategy: Putting the strategy into place and getting individuals and
organizational units worldwide to execute the global plan successfully involves:
i. Building an organization capable of carrying out the strategic plan.
ii. Developing strategy-supportive budgets and programs.
iii. Instilling a strong organization-wide commitment both to organizational objectives and the chosen
strategy.
iv. Linking the motivation and reward structure directly to achieving the targeted results.
v. Creating an organization culture that is in tune with strategy in every success-creating aspect.
6. Evaluating, Modifying, and Reapplying Global Strategy: The final step in the development of a global
strategy is to evaluate the plan in its entirety to determine if it working, and to develop provisions for
allowing alterations or redevelopment based on feed-back or new input. In measuring the effectiveness of
globalization strategy the following aspects of the strategy should be examined:

i. Business definition
ii. Strategic Thrust
iii. Financial Targets
iv. Sources of Competitive Advantage
v. Strategy Elements
vi. Value-added Activities
vii. Competitive Strategy

Among the globalization measures that a comprehensive global strategy addresses are:

i. Global Market Penetration: Market share, market presence, global coverage.

ii. Global Products and Services: Mix standardization, content standardization.
iii. Global location of Activities: Concentration of individual activity and of entire value chain.
iv. Global Marketing: Competitive marketing intensity, marketing uniformity.
v. Global Competitive Moves: Multi-country competitive moves and counterparty moves.
vi. Global Management Processes: Global strategic information system, cross-country co-ordination,
global strategic planning, global budgeting and global evaluation.

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 vii. Market Drivers: Common customer needs global channels, transferable marketing, and lead
countries.
viii.Cost Drivers: Global scale economies, steep experience effects, sourcing efficiencies, favorable
logistics, and difference in country costs, high product development costs, and fast-changing
technology.
ix. Government Drivers: Tariffs, subsidies, non-tariff barriers, compatible technical standards, common
marketing regulations.
x. Competitive Drivers: Exports, imports, competitors from different continents, globalized
competitors.

 GLOBAL PURCHASING:
Global purchasing is the process of procuring materials, components, goods, or services which is
available in a market or markets access to which involves crossing international orders. Global purchasing
strategy enhances the value-added benefit of the product or service to the consumer/buyer.

Different Disciplines Included In Global Purchasing:

Global purchasing involves disciplines including:

 Logistics ,  Supplier audits,

 Marketing research,  Design standards,
 Product evaluation,  International currency,
 International distribution,  Import regulation and constraints,
 Negotiation,  International legal environment,
 Cultural awareness of the international  Import documentation, Packaging,
environment, Transportation, Insurance, Customs, etc
 Technical skills in product specification,

The global purchasing function and its methodology embraces the following activates:

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 i. Identifying through market research, in-house discussion and other resources, the product/service
specification and standards together with the value and the quality required.
ii. Researching the supplier market.
iii. Formulating a negotiating plan with the preferred suppliers which covers the product specifications;
compiling with National, International standards, prices, availability, terms of sale, payment
agreement, etc..
iv. Implementing the contract within the buyers supply chain network.
v. Managing the supply chain-logistic operation-.in accordance with the delivery date, involving the
collection of goods from supplier’s premises.
vi. Tracking the cargo throughout the transit using on-line computer access.
vii. Taking delivery of the goods and services undertaking any product evaluation-transit delays, de
manage claims, payment arrangements including currency, import customs clearance etc..
viii. Evaluating suppliers and establishing goods supplier relationships.

Reason for Global Purchasing:

The more important reasons why company pursue world Wide sourcing are as follows

1. Cost/price benefits: After considering all the costs associated with international purchasing, savings of
20% to 30% may be available .Cost differentials between countries a raise because of lower labour rates,
different productivity levels, a possible willingness to accept a lower profit margin, exchange rate
differences lower-cost inputs for material, or perhaps even government subsidies.
2. Access to product and process technology: The United States is no longer the undisputed product and
process technology leader in the world. Other countries have developed leading-edge technologies in a
number of areas, such as electronic components known that Asian suppliers are technology leaders.
Gaining access to the most current technology leaves many companies with little choice expect to pursue
worldwide sourcing.
3. Quality: Some countries, such as Japan and Germany are obsessed with product quality. Producers in
these countries have been able to capture an increasing share of world markets across a range of
industries, during the 1980’s, many U.S purchaser began to purchase to foreign components with the hope
of improving and – product quality. The combination of consistently high quality and lower overall price
has been a major contributor to the growth of U.S foreign buying.
4. Accesses to only source available: The economic recession of the early 1980’s resulted in the permanent
closing of many suppliers across a wide range of industries. U.S, Copper producers, for example closed
many mines during the early and mid 1980’s because of low copper prices (low demand coupled with
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 high supply) and inefficient process technology. Some Copper buyers turned to overseas producers to
meet raw material and semi-finished material requirement.

A loss of supplier capability and availability in the auto motive, machine tool, and electronics
industries often left domestic buyers with no variable supply alternative except international sources. In
many industrial sectors today this is still a factor; no domestic supplier can adequately meet the
requirements of purchaser.

5. Introduce competition to domestic suppliers: Companies that rely on competitive forces to maintain
price and service level within their industry. Sometimes use worldwide sourcing to introduce competition
to the domestic supply base. In industries characterized by limited domestic competition, this can
diminish a supplier’s p[power and break certain practices unfavourable to purchases
6. Establish a presence in a foreign market: Marketing may have plans to sell to a foreign market where it
currently does no business. As a way of developing goodwill with a foreign country, purchasing may first
choose to source certain items from that country. The business relationship with members of the foreign
country may later support an expanded marketing presence.

Global Purchasing Options: The sourcing and purchasing options are can be categorised as follows:

1. Personnel: The personal working for a company is a critical component of any sourcing strategy. They
manage the overall strategy, serve as an interface to company executives and business areas, have subject
matter expertise and handle a variety of products themselves. If there are multiple business locations, treat
each location as a unique entity with its own characteristics.
2. Local on-site: This category includes contractors and other service providers personnel co-located with
the organisation. In the case of contractors, they may supply unique skills or short term assistance to
internal staff. Other service providers may maintain an on-site team to perform highly interactive tasks
and serve as an interface to off-site resources.
3. Local off-site: Off-site locations in lower cost areas of the host country are the first level of a distributed
sourcing strategy. For example, a service provider may locate an application development centre in a
rural area to pay advantage of lower salary and less expensive facilities. While more expensive than off-
shore alternatives, by operating in the same country, local off-site avoids many cultural, legal and
logistical issues.
4. Near-shore: Near- shore sourcing uses facilities in nearly countries with lower operating costs. For
example, U.S companies use near-shore facilities in Canada, Mexico and the caribbeal and western
European companies send work to Ireland, Russia, and other western European countries. Near-shore
resources tend to be less expensive than local opposite and remain within convenient travel distance from
the host organisation.

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5. Off-shore: Off- shore sourcing relies on facilities in developing countries, such as India, Russia,
Philippines, and china that offers a combination of highly skilled resources and significant wage
differentials. These facilities offer excellent price performance for their services and by being located in
other time zones, enable multi-shift development. The trade- off’s less covinient travel cultural
differences, logistical issues and a variety of business, legal infrastructure risk.
Barriers in Global Purchasing:-
There are lots of obstacles in the process of global purchasing which needed to be strategically managed.
These barriers in global purchasing are as follows:
1. Cultural understanding: Cultural differences between countries can result in some unwelcome surprises
when buying internationally. For example the standard procedures for negotiation and contracting are
distinctly different in Asia, Europe, and the United states. Understanding cultural differences will
improve a purchasers comfort and effectiveness when conducting business internationally.
2. Language and Communication Differences: A major part of total quality management is
communicating requirements clearly and effectively. Language differences can sometimes interfere with
the effective communication requirements. The largest differences in communication styles across
countries are message speed and level of content. Americans tend to give fast messages with the
conclusions expressed first. This style is not appropriate in many countries, particularly in Europe.
3. Logistical Issues: Buyers should not underestimate the potential effects of extended logistics on their
ability to plan and manage a world-wide supply chain. While advanced industrial countries have
developed infrastructures, many foreign countries do not, and making shipping delays a real possibility.
4. Legal Issues: Legal issues differ from country to country. The U.S uses common or case law, which
often results in longer and more detailed contracts compared with those in countries using code or civil
law. Advanced industrial countries will have legal systems that provide the buyer protection and fair
treatment. This may not be true in developing countries . Many countries offer no effective protection
against the piracy of intellectual property. It is necessary, therefore to perform a thorough check of
prospective suppliers before releasing designs or others proprietary information.
5. Organisational Issues: A logical approach when trying to meet a company’s growing worldwide
sourcing requirements has been the establishment of international purchasing officers (IPOS) is selected
areas around the world foreign nationals, who usually report directly to a centralised corporate
procurement office, staff the IPO. IPO’s can support the sourcing needs of the entire organisation, not just
a single division or buying unit. Larger rather than similar firms are more likely to have internal
purchasing offices.

 CHANNELS IN GLOBAL LOGISTICS:

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 The sole objective of production of any commodity is to help the goods reach the ultimate consumers. In
the era of modern large scale production and specialization it is not possible for the producer to fulfill this
work in all circumstances. The size of the market has become quite large. Therefore, the producer has to
face numerous difficulties if he undertakes the distribution work himself. In this regards, many different
distribution channels are needed between producers and consumers for effective distribution of products.
Global Distribution Channel: Global Distribution channel is the path across different countries which
include all individuals and institutions which work to make goods reach the consumers from producers
without interruption. Thus, distribution channel helps in the transfer of goods in original form from
producer to consumer.
Firms Success in International Markets Depends on Distribution System:

To support international markets a firm must have a distribution system or network that satisfies the
particular requirement of those markets.

Example:

 The distribution systems in the developing countries are characterized by a large number of
channel intermediaries supplying an even large number of small retailers.
 The distribution in the underdeveloped countries are characterized by inadequate transportation
and storage (warehousing) facilities, a large labor force of mainly unskilled workers and an
absence of distribution support systems.
 On the other hand, in the developed countries, the distribution systems are highly sophisticated,
have good transportation systems, highly technology warehousing and a skilled labor force.

International Distribution Channels:

Distribution plays an important role in the implementation of the international marketing programme as it
enable the products and services to reach the ultimate customer. An international marketing firm has the
option of managing its distribution function either directly or indirectly through middleman or a suitable
combination of the two. Following are the distribution channels in international market:

1. Indirect Distribution: Indirect distribution channels are further classified based on whether the
international marketer makes use of domestic intermediaries, or foreign intermediaries. An international
marketer therefore can make use of the following types of intermediaries for distribution in foreign
markets.

Domestics Overseas Intermediaries:

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i. Commission Buying Agents: A commission agent accepts or sells goods on behalf of his principal,
but in his own name, link an exporter’s goods with an overseas buyer. He is autonomous of his
principal, has a claim for his commission and has the right when dealing with certain goods to carry
out the transaction at his discretion. Commission agents can occasionally help with export logistics
such as export documentation, shipping, and packing. This agent does not establish the selling price
or take title to the product, but collect a percentage or fixed fee for serving as an agent.
ii. Country Controlled Buying Agents: A governmental agency or quasi-official corporation that is the
sole or primary entity authorized to trade with foreign countries for the purchase of certain goods.
Very often the buying agent is also the state monopoly for the sale of such goods within the country.
Country controlled buying agents are common in centrally planned economies but are used to a lesser
extent in market economy countries to regulate imports of liquor, tobacco, and similar luxury or
highly taxed products.
iii. Export Management Companies(EMC): Independent private company that act like an export
department for several non-competing manufacturers and suppliers. Export management companies
can be quite varied; they can be either local or foreign-owned, and operate on either a commission (as
an agent), a fee basis (as a consultant) or taking possession of the goods for direct export. The EMC
also has the ability to appoint sales representative in importing countries, promote goods and services
of its clients, arrange transportation, provide warranties and after-sales-service, and extend import
credit.
iv. Export Agents: An export broker is a firm or an individual responsible for bridging the gap between
the seller and the buyer. It functions as an intermediary between the organization which owns the
goods or services meant for export and the overseas organization which intends to import that goods
and services. It facilitates the transaction between the two concerned parties. It also undertakes the
smooth facilitation of the perfect shipment of the goods or services. For all these services, the export
agent receives a commission and does not take part in actual sales transactions
v. Export Merchants: An export merchant purchases products from foreign and domestic
manufacturers or producers then repackages them for export under its own name, by taking over all
risks and selling the goods to their own consumers. An export merchant is capable of competing
favorably due to its specialized knowledge of the goods in which they deal with, expertise in
international trading methods and comprehensive knowledge of the foreign market.
vi. Piggy Backing: Selling to domestic company with compatible product line already well placed in the
international market.

Foreign Intermediaries:

i. Foreign Sales Representatives: Sales representatives sell retail products to consumers. A foreign
sales representative is an equivalent of a producer’s representative. Sales representatives work
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 directly with the consumer to discover what they need, produce solutions and enable a perfect sales
process. Sales representatives will work to search for new sales leads via client referrals, business
directories etc. The sales representative normally works on a commission based.
ii. Foreign Sales Agents: A foreign sales agent is an entity or person acting as a foreign representative
for a local business. An individual or firm that serves as a foreign representative for a domestic
supplier and seeks sales in the foreign country for the supplier. This is an individual who knows your
target market is a resident of that market and has experience in driving sales on behalf of that
organization.
iii. State Controlled Training Companies: Government-owned or controlled firm which generally
engages in procurement of important raw materials and/or export of commodities and merchandise.
iv. Foreign Stocking and Non-Stocking Agents:

2. Direct Distribution: The options available to international marketer in organizing direct distributions
include:
i. Sending representatives abroad from the headquarters
ii. Setting up of local sales/branch office in the foreign country of for a region establishing a
subsidiary abroad,
iii. Entering into a joint venture or franchising agreement.
Companies having long-term interest in internal marketing find it expedient to deploy their own
sales forces in foreign markets. This helps them in increasing their sales volume through committed
market development activities, better control and motivation of foreign intermediaries being used and
paving the way for smoother transition to direct distribution and marketing.

Advantages of Using Own Distribution:

1. Total control over the entire distribution process.
2. No need to pay commissions and discounts to outsiders.
3. Distribution staff familiar with the firm’s products and how they need to be presented.
4. Development of managerial skills in international distribution.

Advantages of Using Intermediaries:

1. The international business firm does not require excessive foreign sales organizations.
2. No need to train and develop in-house staff in specialist distribution functions.
3. Savings on overheads.
4. Intermediaries are more knowledgeable of foreign market situation.

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 Functions of Distribution Channels:

1. Physical movement of goods.

2. Storage of goods awaiting transit and/or sale.
3. Transfer of title to goods and
4. Delivery of goods to final purchasers.

Difference between International and Domestic Distribution: International distribution differs from its
domestic counterpart in the following respects:

1. A more varied range of options is available. An MNC can establish its own distribution system in
various countries or may opt to use locally existing channels.
2. Distribution channels are usually longer than those in domestics business.
3. Delays and holds ups at various points in international distribution systems are common.
4. Wholesaling and retailing systems differ markedly from continent to continent.

Factors deciding whether to handle its own distribution or engage intermediaries:

Considerations that an international business should take into account when deciding whether to handle
its own distribution or engage intermediaries include the following:

1. Volume of Sales: If the sales within a particular market are modest, then it is not worth-while for
the firm to have its own distribution network.
2. Nature of the Product: High-tech products which require complex after-sales services are likely to
be distributed directly by the producing firms.
3. Availability of competent distribution network in the local market.
4. Feedback on how well the firm’s products are selling in the local market can be easily obtained
from local distributors.

Selection of Intermediaries: The major criteria to be examined when selecting an intermediary include:

1. The intermediaries’ geographical 5. Credit rating.

coverage. 6. Track record.
2. Product and market expertise. 7. Corporate image.
3. Required margins. 8. Customer care facility.
4. Size of sales forces. 9. Ability to promote products effectively.

 GLOBAL ALLIANCES:

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 In today’s complex business environment alliances represent an obvious effectiveness within a
market and represent the important practice of being able to asset corporate strategic control. Some 1422
international alliances were reported in the Wall Street Journal for the period 2005-2009. Of these, 630
involved logistics, with all but 128 a combination of logistics and marketing, operations, purchasing,
technology or some multiple of these functions. Multidisciplinary nature of these alliances indicates a
supply chain orientation.
Meaning: Global alliance exists when at least two organizations from different countries with well-
matched goal structures are combined to support and achieve significant competitive advantages.
Global alliance in distribution and marketing have increased as an efficient response to increasing
competitive intensity and degree of globalization of markets, through global alliance, a firm is able to do
the following;
 Access Technology
 Reach New Markets More Quickly
 Manufacture efficiently without investing and capital in building a new plant

Drivers in the Development of Global Alliances: Drivers in the development of global alliances
includes:

 Opportunities for expanding markets

 Achieving economies of scale, and
 Accessing new technology or production capacity

Several Forms of Global Alliances: An international alliance can take several forms:

1. The first form is the shared distribution network, for example, Nissan agrees to sell
Volkswagen in Japan.
2. Second form is licensed manufacturing, where one firm will agree to manufacturer for another
to utilize excess capacity.
3. A third form is that of collaborating on research and development. For example, Sony and
Philips joined together to develop the new videodisc. Two drivers for R&D alliances are to share
the high cost of R&D and to jointly establish common standards. By working together to create
common standards across the movement of goods across borders to serve global or multiple
markets.

Different forms of alliances may be appropriate, depending on the strategic objectives of the firm, and
each form may have different implications for a firm’s supply chain management strategies and
objectives.

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Utilization of alliances also poses potential drawbacks. By depending on an alliance, a firm may limit its
own ability to learn about new markets, to acquire additional capacity, or to pursue growth strategies in
foreign markets. Thus, the decision to form alliances in configuration for the firm as well as the potential
to either enhance or inhibit the firm’s ability to achieve its strategic objectives.

Checklist for Establishing and Alliance Partnership:

1. Choose Partner Capacity:

a. Research the company thoroughly
b. Make sure that there are same goals
c. Make sure technological capabilities match up
d. Understand cultural, corporate, and legal differences.
e. Tailor the agreement to meet objectives
2. Make a Long-term Commitment:
a. Design agreements for Long-term flexibility
b. Invest in human capital
c. Be patient; avoid short cuts
d. Get experienced help to handle business and legal details
3. Set Market-oriented Objectives:
a. Focus on the market, not the money
b. Establish clear and explicit objectives
c. Let the venture failure if it doesn’t meet objectives
4. Keep Control of Technology:
a. Minimize the risk of theft, but assume it will happen anyway
b. Control the evolution of technology
c. Strengthen your position on intellectual property protection

Negotiating and Contracting with Global Partners:

When negotiating with global partners, a number of cultural factors can add a tremendous amount
of time and cost in preparing documents and getting final approval and acceptance.

1. Establishing Trust and Rapport: In the American culture, one may quickly get down to business
and write up the contract. In most other cultures, the process of developing a trusting relationship
between the two parties must occur first, and this may take weeks or even months. Attempts to bypass
this step will lead to resentment and failure.
2. Power Structure: In societies in which there is a clear pyramid- like power structure, lower-level
officials or managers will never make final decisions without the approval of the higher authorities. It

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 is difficult for them to take risk or to do something new or untested. Only when the top person (who
must first see hundreds of documents) has reviewed and signed off, can one go forward.
3. Context: In negotiating and signing agreements, low-context and high context cultures differ
significantly. In low-context cultures, such as in Switzerland and Germany, every detail must be
agreed to and put in writing.
4. Communication: The cultural context often makes it difficult for the global manager to makes it
difficult for the global manager to obtain the level of communication necessary. For example, a
subordinate who has the data needed may be a mere shadow in a meeting that includes his superiors,
whereas he may have been very articulate outside the meeting. A senior official who is open and
worm when negotiating alone may become colleagues are present.
5. Language: Negotiating and contracting become even more challenging when people must perform
these actions in other than their primary language. The tone, nuance or even the meaning of a
message might be inadvertently lost through mistranslation.

Managing Global Logistics Strategic Alliances:

1. Need to Explore Strategic Alliance Opportunities: In the quest for global competitive advantage,
companies need to explore strategic alliance opportunities. In an alliance, individual partners gain
access to the other partner’s competencies that they do not possess. They increase utilization of
shared resources and attain scale economies that would otherwise be elusive to any one of them
operating individually. They pool resources to lower risks when the resources required for market
entry are too vast to commit to on their own. They also enjoy the benefits of co-ordination without the
problems traditionally associated with vertical integration. Each partner focuses on just one stage of
operations. This focus translates into lower overhead, leaner staff, and increased responsiveness.
2. Go Beyond Outsourcing: Strategic alliance in global operations go beyond outsourcing. When the
firm outsources, it simply “rents” its partner’s global operational and logical capabilities. On the other
hand, when a firm forms strategic alliance, its main objective is to internalize its partner’s distinctive
global skills. It uses the alliance to build its own competencies. Strategic alliances should therefore
take place within the context of the firm’s long-term strategic plan to seek dramatic improvements in
its competitive global position through operational collaborations.
3. Focus on Quality of Services: Global logistics alliances, or partnerships, are increasingly common.
Their primary focus is on quality of services. The time when customers look for low prices and
acceptable product/service quality has passed. Today’s customers demand the highest quality and
reasonable prices. Consumers are much more willing to pay for convenience and time-saving as they
devote more time to the core competencies.

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 4. Higher level of Logistics Performance: Through global logistics partnerships, leading competitors
can realize dramatic improvements in service quality that propel them into significantly higher levels
of logistics performance. They increasingly measure logistics performance in terms not only of order
lead time and service dependability but also service “process” dimensions (how logistics service is
being delivered).

 ROLE OF TECHNOLOGY IN CRM:

CRM technology fulfils the vision of CRM are through the streamlining of processes and the
acquisition of information to form knowledge about the customer.

Technology and the web has changed the way companies approach CRM strategies because
advances in technology have also changed consumer buying behavior and offers new ways for
companies to communicate with customers and collect data about them. With each new advance
in technology- especially the proliferation of self-service channels like the web and smart-phones
– customer relationships is being manages electronically.

CRM applications are a convergence of functional components, advanced technologies and

channels, applications of IT enabled CRM are stored for efficient retrieval. The IT tools can be
used effectively to facilitate customer relationship practices of an organization. These tools need
to integrate in a format so that they may deliver the intended results.

The application of it enabled CRM are as follows:

1. Sales applications: The thrust of the sales force automation (SFA) is automating the
fundamental activities of sales professional, both in the market and internally. The common
application includes scheduling; contact and account management; pricing; market area
assignment in the form of sales territory and management; and expensive reporting. The SFA
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 (Sales Force Applications) applications are sales configuration applications, which allow
application users (either a customer or sales representative) to assemble product components into
finished goods.
2. Marketing applications: The newest breed of application in the CRM space is the marketing
automation solution. These solutions complement SFA applications and provide certain
capabilities that are unique to marketing. These include web base and traditional marketing
campaign planning, execution and analysis, list generation and management, budgeting and
forecasting, collateral generation and marketing materials management, a marketing
encyclopedia which is typically a repository of the product, pricing and competitive information,
and lead tracking distribution and management. Marketing automation applications differ from
SFA applications in the services they provide and the target of those services.

3. Customer service and support applications: Rounding- out of the functional components of a
CRM solution are Customer Service and Support (CSS) applications. These applications,
typically deployed through a call centre environment, or the web for self-service, allow the
organizations to support the unique requirements of their customers with greater speed, accuracy
and efficiency.
4. Customer Interaction Management (CIM): It is a technology that makes use of the valuable
customer information contained in CRM applications and takes customer relationships to a much
more personalized and intimate level. What companies need to understand is that while CRM has
brought the value of the customer relationship to light, it is the growing and nurturing of those
relationships through personalized and consistent service which ensures their repeat business.
With a comprehensive CIM solution, businesses can leverage real-time knowledge about
customer relationships in dynamically delivering that personalized, consistent customer
experience across channels.
CIM+ CRM = lasting customer relationships.
5. Customer relationship portal: A customer relationship portal brings together all the disparate
interaction pieces necessary for gaining, and retaining customers. The portal software creates a
single virtual place where all customer contacts meet the enterprise. In addition, it easily defines
business rules for customer contacts, allowing businesses to quickly react to the dynamic e-
business environment. It connects customers with the best resource, whether the customer called
the company’s 800 number, or sent an e-mail not a website. With the portal, all the different
types of contacts are blended into a common queue. And if the customer first sends an e-mail,
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 and then calls, the agent knows this because every transaction is retained, routed and utilized
with the same customer relationship portal.
6. Interactive relationship management: To bring-out an effective meaning from incidents, such
as a customer as pulled out an usually large Amount from his savings account or deposited a
large amount, it needs to be coupled with the analysis made by the analytical tool used by the
bank, and it probably represent a marketing opportunity for the bank’s investment division. The
CRM tools would then proactively trigger in a rule for the bank to get in touch with the customer
through a medium one would prefer most. Companies, therefore, need to understand first what
information would be useful for serving the customer better and then how it should.

 ISSUES AND CHALLENGES IN GLOBAL SCM

1) External Environment: One key influence that has become increasingly important in recent years has
been the development of a number of different economic unions (the EU, ASEAN, NAFIA, etc). In some
instance the formation of these unions may be felt to hold an important political element, but experience
has shown that there will also be significant economic changes-most of these, hopefully, beneficial ones.
It is clear that one of the major consequences is deregulation within these internal markets, and this has a
particular impact on companies’ logistics strategies. Within the European Union there have been
significant advances in, amongst others:
a. Transport deregulations;
b. The harmonization of legislation across different countries;
c. The reduction of tariff barriers;
d. The elimination of cross-border customs requirements;
e. Tax harmonization.

Within logistics, this may led many companies to reassess their entire logistics strategy away from a
national approach to embrace a new cross-border/non-national structure. There are many examples of
companies that have significantly reduced depot numbers and associated inventory and storage costs
whilst maintaining or improving customer service.

2) Supply: There have been many important developments in supply or inbound logistics. These have
resulted from both technologies and organizational changes. Within the context of raw material sourcing
and production these include:
a. Manufacturing Technology
b. New Supplier Relationships
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 c. Focused Factories
d. Transnational Sourcing
e. Postponement
f. Co-Maker ship
g. Co-Location
h. Extended Lead Times of Supply
3) Distribution: In many ways, here have been fewer changes in the distribution elements of the supply
chain than in most of the other elements. In an operational context the major developments have been
technology based:
a. New vehicle systems- demountable bodies, etc;
b. Stockless depots operating cross-docking arrangements;
c. Paperless information systems, particularly in depots;
d. Interactive routing and scheduling for road transport operations.

An important and still expanding area is that of third-party distribution, or the outsourcing of distribution
operations. This has been a significant feature of logistics in the UK for many years, and now many
continental European countries have begun to follow the same track. The major advantage is that
outsourcing allows a company to specialize in its own core business, be it manufacturing or retailing,
without spreading its resources to cover distribution as well.

4) Extended and Unreliable Transit Times: The use of sea freight can represent considerable investment
in inventory on the high seas; it also seriously constraints the application of the basic logistics principle of
postponement, i.e.., delay shipping decisions until the last possible moment.
Increasingly it is the case that as true supply chain costs become more clearly understood the use of air
freight is growing. Such are the penalties of high inventories and inflexible response to marketplace needs
that the trade-off will increasingly swing towards shorter transit times and hence swifter transit modes.

5) Multiple Consolidation and Break Bulk Options: The options for the management of international
freight is several and the trade-offs will be complex and may vary for different product/market channels.
They can be summarized under four main headings:
a. Direct ship from each source to final market in full containers.
b. Consolidate in the supply region for final market in full containers.
c. Consolidate from each source for each theatre of operation with break bulk/intermediate inventory in the
theatre for specific markets.
d. Consolidate in the supply region and also break bulk in the theatre of operations.

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 Obviously the inventory holding, warehousing, customer service and freight costs balance will be
different for each of these and will be determined by the characteristics of the product and the profile of
demand.
6) Multiple Freight Mode and Cost Options: Shipping companies offer mixed sea/air services, different
container sizes, scheduled and unscheduled services. The extended lead times involved in long sea
passages are forcing companies to use air freight to an extent which appears costly but which, in the
context of inventory holding costs, potential lost revenue and market flexibility, may be a worthwhile
expense.
7) Consumer: The challenge is to provide the consumer with better value in return for their dollar. While
the firm may see global sourcing as a means to reduce material or component costs, the only value that is
relevant for consumers is a reduction in total landed cost while also considering such elements as quality
and post-sales support. Manufacturers need to make sure that their decisions to reduce sourcing costs also
continue to provide the best overall value to consumers.

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