The optimal tactic for international logistics
Extending logistics activities beyond a country’s borders represents something more to a company than lengthening its transport distances. For instance, it must determine how the goods are to be shipped abroad. Another question that must be addressed is whether the company itself will become active internationally or whether an external expert will be brought in. In the end, all of these questions can be answered only within the context of the company’s overarching strategy for its international activities. A strategy can be developed only by considering all factors.
Logistics strategies according to the degree of internationalization
Just as logistics services are a component of the entire value chain and are dependent on other value activities, the international logistics strategy is an element of the internationalization strategy of manufacturing companies. The decision about which logistics strategy to choose can be made only within the context of the overarching internationalization strategy.
Logistics activities increase as indirect exports become direct exports. They reach their peak when a company assembles products abroad or conducts some form of international production. They decrease as other types of international production are conducted and global management is performed.
The international market entry of a production company is used here as an example. The following table shows how an international logistics strategy can be formulated in the selection of an international strategy of a manufacturing company [1].
| Internationalization strategy of a manufacturing company | International logistics strategy |
|---|---|
| Indirect exports by a domestic export company and/or an international import company | The company does not create a special international logistics system. Rather, it manages the flow of goods and information with its national logistics system or with external logistics systems. |
| Direct exports through licensed production abroad | The company can avoid creating an international logistics system. Unlike indirect exports, though, more influence can be exerted on the supplier service being offered abroad. This is because the supplier requirements that must be fulfilled can be part of the license contract. |
| Direct exports with direct investment in an international logistics system | As part of direct exports, the company making the investment can operate a traditional logistics system with one or more warehouses serving inventory or distribution functions. International customers are supplied directly from the country of origin with the help of fast means of transport |
| International assembly or production through joint ventures or a company’s own plant | A typical example of international assembly is “CKD production” in the automotive industry. Vehicle components of defined production steps are turned into subsets and exported to certain countries for assembly. The supply operation for CKD assembly plants places special demands on packaging, freight costs and delivery scheduling. If the international operation consists of production being undertaken in a customer’s country for this one particular nation, then the company making the investment will face no new logistics problems. |
| Global companies with centralized and/or decentralized management | Global markets with homogeneous products can lead to lower logistics unit costs if costs associated with order processing, packaging, inventories and warehousing fall as a result of standardization. They can also generate higher logistics unit costs if the communication and transport costs of supplying world markets rise. |
The impact on logistics during the international market entry of a production company
Source: Logistiksysteme | Pfohl 2004
Recommended reading
Fundamentals of Logistics Management | Grant / Lambert / Stock / Ellram 2006
Handbook of Global Supply Chain Management | Mentzer / Myers / Stank 2006
Logistiksysteme | Pfohl 2004
References
[1] Logistiksysteme | Pfohl 2004
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