Chapter Ten: Global Supply

Chain

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Table 10.1
Rationale for Globalization
Objective Rationale
Increase revenue • Open up more markets
• Expand beyond competitors
• Obtain accessibility to markets that limit access without local operations
Achieve economies of scale • Take advantage of production capacity
Reduce direct cost • Take advantage of lower labor rates or real estate expense
Advance technology • Reduce energy requirements by reducing distance or changing
transportation mode
• Take advantage of differences in production requirements
• Obtain access to advanced technology that may not be available from
current locations due to historical investments
• Obtain access to specialized expertise or language skills

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Table 10.1
Rationale for Globalization
Objective Rationale
Reduce firm’s global tax • Obtain local or regional tax benefits related to property, inventory, or
liability income
• Obtain reductions in value-added-taxes due to localized production or
other value added services (i.e., packaging inventory management,
customization)
Reduce market access • Source product from location that involves less transportation uncertainty
uncertainty • Source product from location that involved fewer security constraints
Enhance sustainability • Source products or other resources (including human resources) from
locations that have ongoing availability of materials and expertise such as
energy or trained workers

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Table 10-2
Estimated 2012 National Logistics Expenditures
Country/Region Logistics as a Percent of Gross
Domestic Product
United States 8.5
Japan 11.0
Europe 12.9
India 12.9
Mexico 14.0
China 14.4
Asia 16.8

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Generic International Strategies
High movement toward global Global strategy Transnational strategy
integration
Low movement toward global No international strategy Multi-domestic strategy
integration
Low movement toward local High movement toward local
responsiveness responsiveness

Source: James Fitzsimmons and Mona Fitzsimmons, Service Management Operations, Strategy, and
Information Technology, 7th ed. (New York: McGraw-Hill, 2011). P. 352.

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Differential Characteristics of Global Services
Development Service Focus Marketing Delivery Management Human
Stages Strategy Strategy Strategy Resource
Development

No international Standard Single strategy Direct to Single simple Operated by

strategy product for local focused on local customer financials entrepreneur
market market with limited
specialization
Multi-domestic Domestic Domestic Collaboration Transaction Management
strategy marketing and customers driven with with “home
delivery integrated country” focus
financials
Global strategy Local market Focused Subsidiaries Decentralized Limited top
customization specific market with local operations with management
areas which presence local profit with
may cross responsibility international
international experience
boundaries
Transnational Global branding Global Worldwide flow Centralized International
strategy and integrated customers of key resources planning in training and
operations global sites experience
Factors and Considerations –No International
• Advantages • Disadvantages
• Focused on local market • Growth limited to local markets
• Minimum coordination efforts • Not easy to respond to globally based
• Cross functional decisions made by small customers
group of executive managers • Not large enough to take advantage of
economies of scale

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Factors and Considerations –Multi-domestic
• Advantages • Disadvantages
• Focused on local market • Not scalable
• Minimum coordination efforts • Not easy to respond to globally based
• Allows firm to focus on key growth customers
markets while minimizing complexity
across a large number of markets.

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Factors and Considerations – Global
• Advantages • Disadvantages
• Focused on local market • Not scalable
• Firm begins to take advantage of global • Not easy to respond to globally based
brands and products customers
• Can meet the unique needs of individual • Limited synergies when working with
markets global customers
• Limited drivers for global data and
processes

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Factors and Considerations – Transnational
• Advantages • Disadvantages
• Global focus to facilitate global solution • Requires substantial coordination and
development and delivery information integration
• Very scalable to domestic and global • Reduced ability to respond to market
firms uniqueness

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Table 10-6
Comparison of Global Supply Chain Characteristics
Region Infrastructure Technology Human Capital Political
North America Built up but Access to new High technical Stable laws and
congested technology but talent but high trade agreements
infrastructure wages
represents old
technology

Europe Built up but Access to new High technical Stable laws and
congested technology but talent but high trade agreements
infrastructure wages
represents old
technology

South America Limited and Introduction of new Low technical Challenges due to
congested technology talent and low legal environment
wages and corruption
Asia Limited and Introduction of new Increasing technical Challenges due to
congested technology talent and wages legal environment
and corruption
Africa Minimal Introduction of new Low technical Challenges due to
technology talent and low legal environment
wagesInc. All
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 Table 10-7
Characteristics, Strengths, and Weaknesses by Entry Mode

Mode of Entry Favorable Conditions Strengths Weaknesses

Exporting • Limited or unclear sales potential in target • Minimizes involvement, • Company and its products are viewed
and countries commitment, and risk as outsiders and foreign market

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entrants
Importing • Standardized product requiring little product • Increases speed and flexibility of
modification engaging target countries • Costs associated with, for example,
trade barriers, tariffs, and
• Favorable import policies in target countries; • Uses existing production
transportation
unclear political stability facilities worldwide

Licensing • Import and investment barriers exist in target • Moderate involvement and • Licensee period is limited in
and Franchising countries but moderate sales potential exist commitment, and low risk contractual length and licensee may
become competitor
• Large cultural distance between home and host • Moderate speed and flexibility of

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countries engaging target countries • Lack of control over the use of
company and non-company assets to
• Licensee has limited ability to become a future • Can circumvent import barriers;
promote products
competitor sales potential

International Joint • Import barriers exist in target countries but
Ventures government restrictions exist on foreign
ownership
• Moderate to high sales potential of products
• Local JV partner can provide knowledge, skills,
and network
• Overcomes ownership
restrictions and cultural distance
• Potential for learning and
resource combination
• IJV ownership >50% are
typically viewed as domestic
companies
• IJVs are new companies, legally
independent from the original
companies
• IJVs are difficult to manage for the
original companies and there is a lack
of control over strategic and tactical
issues

Foreign • Import barriers exist in target countries but low • Viewed as being locally • Higher risk being taken while being
Direct Ownership political risk committed and involved more committed and involved
• Small cultural distance between home and host • Gain knowledge, over time, of • Requires more human and non-
countries the local market human resources, and interaction and
integration with local employees
• High sales potential of products but assets cannot • Can apply local skills to
be fairly prices customize production

Source: Hult, Tomas, David Closs, David Frayer. Global Supply Chain Management: Leveraging Processes,
Measurements, and Tools for Strategic Corporate Advantage. (New York: McGraw Hill, 2014). Pg. 205.
Common Forms of International Logistics Documentation

• Export irrevocable commercial letter of credit. A contract between

and importer and a bank that transfers liability or paying the exporter
from the importer to the (supposedly more creditworthy) importer’s
bank.
• Bank draft (or bill of exchange). A means of payment for an
import/export transaction. Two types exist: transaction payable on
sight with proper documents (sight draft) and transaction payable at
some fixed time after acceptance of proper documents (time draft).
Either type of draft accompanied by instructions and other
documents (but no letter of credit) is a documentary draft.

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Common Forms of International Logistics Documentation

• Bill of lading. Issued by the shipping company or its agent as

evidence of a contract for shipping the merchandise and as a claim to
ownership of the goods.
• Combined Transport Document. May replace the bill of lading if
goods are shipped by air (airway bill) or by more than one mode of
transportation.
• Commercial invoice. A document written by the exporter to precisely
describe the goods and terms of sale (similar to a shipping invoice
used in domestic shipments).

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Common Forms of International Logistics Documentation

• Insurance certificate. Explains what type of coverage is utilized (fire,

theft, water), the name of the insurer, and the exporter whose
property is being insured.
• Certificate of origin. Denotes the country in which the goods were
produced to assess tariffs and other government imposed restrictions
on trade.

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 Forward and Reverse Logistics

Forward Logistics

Raw Build Assemble Assemble Market Primary

Material Parts Modules Product Channel Customer

Remanu- Secondary
Trash Recycle facture Repair Reuse Customer

Reverse Logistics

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