Global Marketing Management, 5e
1
Chapter 15
Global Logistics and
Distribution
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 15
Chapter Overview
2
1. Definition of Global Logistics
2. Managing Physical Distribution
3. Managing Sourcing Strategy
4. Free Trade Zones
5. International Distribution Channel
6. International Retailing
Appendix: Maquiladora Operation
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 15
Introduction
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


Global logistics and distribution have played a
critical role in the growth and development of world
trade and in the integration of manufacturing on a
worldwide scale.
The use of appropriate distribution channels in
international markets increases the chances of success
dramatically.
In the United States, the total logistics cost has
amounted to nine to eleven percent of the country’s
GDP every year in the last decade.
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 15
Introduction
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

As firms start operating on a global basis, logistics
managers need to manage shipping of raw materials,
components, and supplies among various
manufacturing sites at the most economical and
reliable rates.
The development of intermodal transportation and
electronic tracking technology has resulted in a
quantum jump in the efficiency of the logistic methods
employed by firms worldwide.
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 15
1. Definition of Global Logistics
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
Global logistics is defined as the design and
management of a system that directs and controls the
flows of materials into, through and out of the firm
across national boundaries to achieve its corporate
objectives at a minimum total cost (Exhibit 15-1).
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 15
Exhibit 15-1: Global Logistics
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Chapter 16
1. Definition of Global Logistics
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 Materials management refers to the inflow of
raw material, parts, and supplies through the
firm.
 Physical distribution refers to the movement
of the firm’s finished products to its customers,
consisting of transportation, warehousing,
inventory, customer service/order entry, and
administration.
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 15
2. Managing Physical Distribution
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
The following factors contribute to the increased
complexity and cost of global logistics:
 Distance
 Exchange
rate fluctuations
 Foreign intermediaries
 Regulation
 Security
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 15
2. Managing Physical Distribution
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
Modes of Transportation—Issues
Value-to Volume Ratio
 Perishability
 Cost of Transportation


Modes of Transportation—Methods
 Ocean
Shipping
 Liner
Service
 Bulk Shipping
 Air
Freight
 Intermodal Transportation
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 15
2. Managing Physical Distribution
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
Warehousing and Inventory Management
 Hedging
Against Inflation and Exchange Rate
Fluctuations
 Benefiting from Tax Differences
 Logistic Integration and Rationalization
 E-Commerce and Logistics
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 15
2. Managing Physical Distribution
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
Third-Party Logistic (3PL) Management
 The
largest 3PL sector is the value-added warehousing
and distribution industry.
 Logistical Revolution with the Internet
 The
trend toward third-party logistics is a result
of the Internet and the intranet as well as
concentrating on core competencies.
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 15
3. Managing Sourcing Strategy
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Companies adopt international sourcing for the following
reasons:
• Intense international competition
• Pressure to reduce costs
• The need for manufacturing flexibility
• Shorter product development cycles
• Stringent quality standards
• Continually changing technology
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 15
3. Managing Sourcing Strategy
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
Procurement (Exhibit 15-2)
 Intra-firm
sourcing
 Domestic
 Off-shore
 Outsourcing
 Also

known as contract manufacturing
Outsourcing Services
 Intellectual
outsourcing
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 15
Exhibit 15-2: Types of Sourcing Strategy
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Copyright (c) 2007 John Wiley & Sons, Inc.
Chapter 15
Exhibit 15-3: Major Reasons for
Outsourcing
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Copyright (c) 2007 John Wiley & Sons, Inc.
Chapter 16
4. Free Trade Zones
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

A free trade zone (FTZ) is an area that is located
within a nation (say, the United States), but is
considered outside of the customs territory of the
nation.
US FTZ’s are licensed by the Foreign Trade Zone Board
and operated under the supervision of the US Customs
Service. Presently, some 700 FTZ’s are in operation.
Across the US, about 335,000 jobs are directly related
to activity in FTZ’s.
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 15
4. Free Trade Zones
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
FTZs provide many cash flow and operating
benefits to zone users (Exhibit 15-4):
1. Duty deferral and elimination
2. Lower tariff rates
3. Lower tariff incidence
4. Exchange rate hedging
5. Import quota not applicable
6. “Made in U.S.A.” designation
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 15
5. Exhibit 15-4: Benefits of Using a Foreign
Trade Zone (FTZ) in the United States
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Chapter 16
5. International Distribution Channel
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
Firms may reach their customers through:
 Direct
sales
 Agent intermediaries who do not take title to goods
 Merchant intermediaries operating as independent
businesses
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 15
Exhibit 15-5: International Distribution
Channel Alternatives
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Copyright (c) 2007 John Wiley & Sons, Inc.
Chapter 16
5. International Distribution Channel
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
Guidelines for choosing foreign intermediaries:
 Intermediary
should be capable of developing
markets, not merely have good contacts
 Intermediaries are long term partners
 MNC seeks the intermediary, not the other way around
 Support your partner with necessary resources
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 15
5. International Distribution Channel
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 Get
essential information from your partner including
market information and sales performance data
 MNC controls marketing strategy as much as possible
 Establish links with foreign intermediaries as soon as
possible after entering the market
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 15
6. International Retailing
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

In developed countries, retailing employs between 7
percent and 12 percent of the workforce.
Retailing involves very locally entrenched activities,
including stocking of an assortment of products that
local consumers prefer and seasonal promotion.
Adaptation is a key success factor.
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 15
6. International Retailing
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

In 2006, Wal-Mart was the largest retailer in the
world with a total revenues of over $376 billion.
Only 10 percent of its sales are generated outside
its core NAFTA region, compared with Carrefour’s
20 percent of sales generated outside its core
Europe region.
In general, European retailers tend to be more
willing to customize their marketing and
procurement strategies to various local market
peculiarities than US or Japanese retailers.
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 15
Exhibit 15-6: International Operations of
the World’s Top 10 Retailers
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Copyright (c) 2007 John Wiley & Sons, Inc.
Chapter 16
Exhibit 15-7: SWOT Analysis of Carrefour’s
Operations in China and Worldwide
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Chapter 16
6. International Retailing
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
Private Label Brands
 Appeal
to price-conscious customers
 Attractive to MNCs facing strong local competition

“Push” versus “Pull”:
 The
traditional supply chain powered by the
manufacturing push is becoming a demand chain
driven by consumer pull, especially in the developed
countries.
Copyright (c) 2007 John Wiley & Sons, Inc.
Chapter 16
6. International Retailing
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
On-Time Retail Information Management
 Reduced
Inventory
 Market Information at the Retail Level
 Strong

logistics capabilities can be used as an
offensive weapon to help a firm gain competitive
advantage in the marketplace.
Retailing Differences Across the World
 Industrialized
countries tend to have a lower distribution
outlet density than the emerging markets.
Copyright (c) 2007 John Wiley & Sons, Inc.
Chapter 16
6. International Retailing
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 The
advanced facilities available in the developed
world allow a much higher square footage of retail
space per resident due to the large size of the retail
outlets.
 Large-Scale Retail Store Law (LSRSL) in Japan- this law
helped to protect the small retail stores
 Germany (store hours limited) and China (basket
shopping behavior) support adaptation
approach.
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 15
6. International Retailing
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E-commerce and Retailing
 Countries such as Japan and Germany are
warming up to the same e-commerce revolution
as the United States has experienced.
 E-commerce is not limited to the developed
countries.
 China is already the fastest growing Internet
market in Asia.
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 15
6. International Retailing
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 Brazil
is the most wired nation in Latin America.
Along with the growth of internet access is
expected a similar growth in entrepreneurial ecommerce operators.
 Despite the rapid growth of the Internet, the need
for local or regional distribution of products is
likely to remain as important as it was before the
Internet revolution.
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 15
Appendix: Maquiladora Operation
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

The maquiladora industry, also known as the in-bond
or twin-plant program, is a special Mexican version
of a free trade zone started in 1965.
Mexico allows duty-free imports of machinery and
equipment for manufacturing as well as components
for further processing and assembly, as long as 80
percent of the plant’s output is exported.
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 15
Appendix: Maquiladora Operation
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



Mexico permits 100% foreign ownership of the
maquiladora plants in the designated zone.
Automobiles and electronics product assembly are most
common.
Most maquiladora plants are located along the U.S.Mexico border (Tijuana, Ciudad Juarez, Nuevo
Laredo). Other cities include Monterrey, Mexico City,
and Guadalajara.
Mexico has been an attractive location for laborintensive assembly because of cheaper labor.
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 15