Chapter 16Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 1 Global Marketing...

Chapter 16 Kotabe & Helsen's Global Marketing Management, Third Edition, 2004

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Global Marketing ManagementGlobal Marketing Management

Masaaki Kotabe & Kristiaan HelsenMasaaki Kotabe & Kristiaan Helsen Third EditionThird Edition

John Wiley & Sons, Inc., 2004John Wiley & Sons, Inc., 2004


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Chapter 16Chapter 16

Global Logistics and DistributionGlobal Logistics and Distribution


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Chapter OverviewChapter Overview

1. Definition of Global Logistics1. Definition of Global Logistics

2. Managing Global Logistics2. Managing Global Logistics

3. Free Trade Zones3. Free Trade Zones

4. Maquiladora Operation4. Maquiladora Operation

5. U.S. Special Import Tariff Provisions5. U.S. Special Import Tariff Provisions

6. Global Retailing6. Global Retailing


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IntroductionIntroduction

Global logistics and distribution have played a Global logistics and distribution have played a critical role in the growth and development of critical role in the growth and development of world trade and in the integration of world trade and in the integration of manufacturing on a worldwide scale.manufacturing on a worldwide scale.

The use of appropriate distribution channels in The use of appropriate distribution channels in international markets increases the chances of international markets increases the chances of success dramatically.success dramatically.

In the United States, the total logistics cost has In the United States, the total logistics cost has amounted to ten to eleven percent of the country’s amounted to ten to eleven percent of the country’s GDP every year in the last decade.GDP every year in the last decade.


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Introduction (contd.)Introduction (contd.)

As firms start operating on a global basis, logistics As firms start operating on a global basis, logistics managers need to manage shipping of raw managers need to manage shipping of raw materials, components, and supplies among materials, components, and supplies among various manufacturing sites at the most various manufacturing sites at the most economical and reliable rates.economical and reliable rates.

The development of intermodal transportation and The development of intermodal transportation and electronic tracking technology has resulted in a electronic tracking technology has resulted in a quantum jump in the efficiency of the logistic quantum jump in the efficiency of the logistic methods employed by firms worldwide.methods employed by firms worldwide.


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1. Definition of Global Logistics1. Definition of Global Logistics

Global logisticsGlobal logistics is defined as the design and is defined as the design and management of a system that directs and controls management of a system that directs and controls the flows of materials into, through and out of the the flows of materials into, through and out of the firm across national boundaries to achieve its firm across national boundaries to achieve its corporate objectives at a minimum total cost (see corporate objectives at a minimum total cost (see Exhibit 16-1).Exhibit 16-1).

Materials managementMaterials management refers to to the inflow of refers to to the inflow of raw material, parts, and supplies through the firm.raw material, parts, and supplies through the firm.

Physical distributionPhysical distribution refers to the movement of the refers to the movement of the firm’s finished products to its customers, firm’s finished products to its customers, consisting of transportation, warehousing, consisting of transportation, warehousing,


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1. Definition of Global Logistics (contd.)1. Definition of Global Logistics (contd.)

inventory, customer service/order entry, and inventory, customer service/order entry, and administration.administration.


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2. Managing Global Logistics2. Managing Global Logistics

The following factors contribute to the increased The following factors contribute to the increased complexity and cost of global logistics:complexity and cost of global logistics:– DistanceDistance– Exchange rate fluctuationsExchange rate fluctuations– Foreign intermediariesForeign intermediaries– RegulationRegulation– SecuritySecurity


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2. Managing Global Logistics (contd.)2. Managing Global Logistics (contd.)

Modes of TransportationModes of Transportation– Value-to-Volume RatioValue-to-Volume Ratio– PerishabilityPerishability– Cost of TransportationCost of Transportation– Ocean ShippingOcean Shipping

» Liner ServiceLiner Service» Bulk ShippingBulk Shipping

– Air FreightAir Freight– Intermodal TransportationIntermodal Transportation


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2. Managing Global Logistics (contd.)2. Managing Global Logistics (contd.)

Warehousing and Inventory ManagementWarehousing and Inventory Management– Hedging Against Inflation and Exchange Rate Hedging Against Inflation and Exchange Rate

FluctuationsFluctuations– Benefiting from Tax DifferencesBenefiting from Tax Differences– Logistic Integration and RationalizationLogistic Integration and Rationalization– E-Commerce and LogisticsE-Commerce and Logistics

Third-Party Logistic (3PL) ManagementThird-Party Logistic (3PL) Management– The largest 3PL sector is the value-added The largest 3PL sector is the value-added

warehousing and distribution industry.warehousing and distribution industry.


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3. Free Trade Zones3. Free Trade Zones

– Logistical Revolution with the InternetLogistical Revolution with the Internet» The trend toward third-party logistics is a The trend toward third-party logistics is a

result of the Internet and the intranet as well result of the Internet and the intranet as well as concentrating on core competencies.as concentrating on core competencies.

A free trade zone (FTZ)A free trade zone (FTZ) is an area that is located is an area that is located within a nation (say, the United States), but is within a nation (say, the United States), but is considered outside of the customs territory of the considered outside of the customs territory of the nation.nation.


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3. Free Trade Zones (contd.)3. Free Trade Zones (contd.)

FTZs provide many cash flow and operating FTZs provide many cash flow and operating benefits to zone users and include (see Exhibit 16-benefits to zone users and include (see Exhibit 16-2):2):– 1. Duty deferral and elimination1. Duty deferral and elimination– 2. Lower tariff rates2. Lower tariff rates– 3. Lower tariff incidence3. Lower tariff incidence– 4. Exchange rate hedging4. Exchange rate hedging– 5. Import quota not applicable5. Import quota not applicable– 6. “Made in U.S.A.” designation6. “Made in U.S.A.” designation


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4. Maquiladora Operation4. Maquiladora Operation

The maquiladora industryThe maquiladora industry, also known as the , also known as the in-in-bond or twin-plant programbond or twin-plant program, is essentially a , is essentially a special Mexican version of a free trade zone and special Mexican version of a free trade zone and was started in 1965.was started in 1965.

Mexico allows duty-free imports of machinery Mexico allows duty-free imports of machinery and equipment for manufacturing as well as and equipment for manufacturing as well as components for further processing and assembly, components for further processing and assembly, as long as 80 percent of the plant’s output is as long as 80 percent of the plant’s output is exported.exported.


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4. Maquiladora Operation (contd.)4. Maquiladora Operation (contd.)

Mexico permits Mexico permits 100 percent100 percent foreign ownership of foreign ownership of the maquiladora plants in the designated the maquiladora plants in the designated maquiladora zone.maquiladora zone.

Most of the maquiladora plants are located along Most of the maquiladora plants are located along the U.S.-Mexico border, such as the U.S.-Mexico border, such as Tijuana across Tijuana across from San Diego, Ciudad Juarez across from El from San Diego, Ciudad Juarez across from El Paso, and Nuevo Laredo across from LaredoPaso, and Nuevo Laredo across from Laredo. . Other cities include Monterrey, Mexico City, and Other cities include Monterrey, Mexico City, and Guadalajara.Guadalajara.

Mexico has been an attractive location for labor-Mexico has been an attractive location for labor-intensive assembly because of cheaper labor.intensive assembly because of cheaper labor.


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5. U.S. Special Import Tariff Provisions5. U.S. Special Import Tariff Provisions

Under NAFTA regulations, local content Under NAFTA regulations, local content requirements have encouraged companies to move requirements have encouraged companies to move their operations to Mexico.their operations to Mexico.

Special U.S. tariff provisionsSpecial U.S. tariff provisions have encouraged have encouraged U.S.-based companies to export U.S.-made U.S.-based companies to export U.S.-made components and other in-process materials to components and other in-process materials to foreign countries for further processing and/or foreign countries for further processing and/or assembly and subsequently to reimport finished assembly and subsequently to reimport finished products back into the United States. U.S. importsproducts back into the United States. U.S. imports


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5. U.S. Special Import Tariff Provisions 5. U.S. Special Import Tariff Provisions (contd.)(contd.)

under these tariff provisions are officially called under these tariff provisions are officially called U.S. imports under items U.S. imports under items 9802.00.609802.00.60 and and 9802.00.809802.00.80 of the U.S. Harmonized Tariff of the U.S. Harmonized Tariff ScheduleSchedule (the 9802 tariff provisions, for short). (the 9802 tariff provisions, for short).


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6. Global Retailing6. Global Retailing

In developed countries, retailing employs between In developed countries, retailing employs between 7 percent and twelve percent of the workforce.7 percent and twelve percent of the workforce.

In 2002, In 2002, Wal-MartWal-Mart was the largest retailer in the was the largest retailer in the world with a total revenues of $220 billion. Only world with a total revenues of $220 billion. Only 10 percent of its sales are generated outside its 10 percent of its sales are generated outside its core NAFTA region.core NAFTA region.

““Push” versus “Pull”:Push” versus “Pull”:– The traditional supply chain powered by the The traditional supply chain powered by the

manufacturingmanufacturing pushpush is becoming a demand is becoming a demand chain driven by consumer chain driven by consumer pull,pull, especially in the especially in the developed countries.developed countries.


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6. Global Retailing (contd.)6. Global Retailing (contd.)

On-Time Retail Information ManagementOn-Time Retail Information Management– Reduced InventoryReduced Inventory– Market Information at the Retail LevelMarket Information at the Retail Level

» Strong logistics capabilities can be used as Strong logistics capabilities can be used as an offensive weapon to help a firm gain an offensive weapon to help a firm gain competitive advantage in the marketplace.competitive advantage in the marketplace.

Retailing Differences Across the WorldRetailing Differences Across the World::– Industrialized countries tend to have a lower Industrialized countries tend to have a lower

distribution outlet density than the emerging distribution outlet density than the emerging markets.markets.


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– The advanced facilities available in the The advanced facilities available in the developed world allow a much higher square developed world allow a much higher square footage of retail space per resident,due to the footage of retail space per resident,due to the large size of the retail outlets.large size of the retail outlets.

– Large-Scale Retail Store Law (LSRSL)Large-Scale Retail Store Law (LSRSL) in in JapanJapan» This law helped to protect the small retail This law helped to protect the small retail

storesstores– E-Commerce and RetailingE-Commerce and Retailing


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» Countries such as Japan and Germany are Countries such as Japan and Germany are warming up to the same e-commerce warming up to the same e-commerce revolution as the United States has revolution as the United States has experienced.experienced.

» E-commerce is not limited to the developed E-commerce is not limited to the developed countries.countries.

» China is already the fastest growing Internet China is already the fastest growing Internet market in Asia.market in Asia.


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» Brazil is the most wired nation in Latin Brazil is the most wired nation in Latin America.America.

» Despite the rapid growth of the Internet, the Despite the rapid growth of the Internet, the need for local or regional distribution of need for local or regional distribution of products is likely to remain as important as it products is likely to remain as important as it was before the Internet revolution.was before the Internet revolution.

» Despite the rapid growth of the Web, the Despite the rapid growth of the Web, the need for local or regional distribution of need for local or regional distribution of products is likely to remain as important as it products is likely to remain as important as it was before the Internet revolution.was before the Internet revolution.

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