LOG 408: Global Logistics Management

Lecture 2: Globalization and International Trade

• What Is Supply Chain:– Scope: From the raw material to the final consumer– Process: purchasing, warehousing, transportation, etc.– Objectives: cost and service level

• Key Thought in Global Supply Chain Management:– Six factors makes global logistics much more important compared to a

few decades ago– Highly complex, covering various aspects– SC dispersed over a larger geographical area– It offers many more opportunities than just the domestic supply chain– Risk factors are also present

Key Points of Last Lesson

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Examples of logistics applications to manufacturing

and services• Robust logistics strategies enable the entire

supply chain to compete– e.g. Ikea

• ‘flat packed’ products, simplified & standardized processes

– e.g. triage• rapid assessment of patient needs, matching patients

with the right care stream as early as possible

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Growth in international trade

• There has been considerable growth in recent decades in world trade; world exports grew from $62 billion in 1950 to a peak of $16,000 billion by 2008 before subsequently declining due to economic crisis

• Facilitated by regional trade agreements• Hence more freight is moving all around the

world– Logistics systems are thus having to play an

increasingly important role in the global economy2-4

Total World Merchandise Exports 1950-2009

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An observation from the US perspective

• About one-fifth of the output of U.S. firms is produced overseas.

• One-quarter of U.S. imports are between foreign affiliates and U.S. parent companies.

• Since the late 1980s, over half of U.S. companies increased the number of countries in which they operate.

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Exports by Country (2010 estimates)

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Position of Turkey in 2010

• Import: US$186b, 21st in world (US world No.1, $1,968b)

• Export: US$114b, 30th in the world (China world No.1, $1,578b)

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Measuring Logistics Performance

• The global logistics performance index (LPI), developed by World Bank, ranks 155 countries’ logistics performance against six key dimensions:– Customs– Infrastructure– International shipments– Logistics competence– Tracking & tracing– Timeliness

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Top 10 countries in the global LPI (2010)

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Position of Turkey

• LPI 2010: No. 39– In comparison, China at No. 27.

• LPI 2014: No. 30– In comparison, China in 2014 at No. 28.

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UNCTAD Liner Shipping Connectivity Index (LSCI)

• Generated from five components:– Maximum vessel size in a country’s ports– The number of companies providing services to a

country’s ports– The number of services offered by the liner

companies– The number of ships deployed on services to a

country’s ports– TEU capacity on the deployed ships

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More on UNCTAD’s LSCI

• Compared to LPI, it focuses more on seaport infrastructure and services

• China ranked No.1 with largest ports and huge export volumes

• Other high ranking countries: Hong Kong, Singapore, Germany

• Turkey world No. 25

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Trends within the 2010 LSCI

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Globalization

• Companies must learn to operate as if the world were one large market (Levitt, 1983)– Multinational companies (MNCs)– Transnational corporations (TNCs)

• An example of globalization:A Greek owned vessel, built in Korea, charted to a

Danish operator, employing Philippines seafarers, is registered in Panama, insured in the UK, and transports German made cargo in the name of a Swiss freight forwarder from a Dutch port to Argentina

(Kumar and Hoffmann, 2002)

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More on Globalization

• Discussion: Is globalization is good or bad?– Key is a wise management of the wealth /job

redistribution due to globalization• Globalization stages:• Ethnocentricity: a company when doing business abroad thinks and

acts as if they were still operating in their home country– Examples: Turkish Airline

• Polycentricity: a company adopts the host country perspective– Examples: Carrefour

• Geocentricity: a company acts completely independent of geography and adopts a global perspective, and will tailor to the local environment as appropriate (i.e. ‘glocalization’)– Examples: MacDonald

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Foreign direct investment (FDI)

• Financial flows from a company in one country to invest in another country (for example in a factory) – Very significant in the overall global economy – Can be key to dictating a countries success– Strong competition to attract FDI among countries

• Some countries put in place certain conditions to attract more FDI

– e.g. low rates of corporate taxation– Setup special economic zones

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Some thoughts on FDI

• MNCs invest in foreign countries may primarily for – Market (e.g., Japanese firms invest in the US)– Natural or human resources (e.g., Western firms invest in

China)– Technology (e.g., firms from developing countries invest in

developed countries)

• How does Turkey posit itself in global FDI boom?– FDI inflow global ranking (2013):

• US (2815b), UK, Hong Kong, China (1344b), …, • Turkey (No. 28, 194b)

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Overseas site selection factors

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World’s Top 10 Non-financial TNCs in 2008 ranked by

foreign assets

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Major Trade Corridors

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Directional Imbalances

• When there are mismatches in the volumes or types of freight moving in opposite directions in a freight market

• The imbalances seldom happen in passenger markets, but often in freight markets– E.g., shipping a typical container from Hong Kong

to EU is twice expensive than that of shipping from EU to Hong Kong

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Traditional versus circular routings

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Questions to think

• How globalized is your country? If it not highly globalized, what can be done to improve its position?

• Taking your own country as an example, identify freight routes where you believe directional imbalances exist.

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