Global Distribution

Global Logistics and Distribution

 Introduction

 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.
 Introduction

 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.
 1. Definition of Global Logistics
 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.
 Materials management refers to 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
 Managing Global Logistics

 The following factors contribute to the increased

complexity and cost of global logistics:
– Distance
– Exchange rate fluctuations
– Foreign intermediaries
– Regulation
– Security
 Managing Global Logistics
 Modes of Transportation
– Value-to-Volume Ratio
– Perishability
– Cost of Transportation
– Ocean Shipping
» Liner Service
» Bulk Shipping
– Air Freight
– Intermodal Transportation
 Managing Global Logistics
 Warehousing and Inventory Management
– Hedging Against Inflation and Exchange Rate
Fluctuations
– Benefiting from Tax Differences
– Logistic Integration and Rationalization
– E-Commerce and Logistics
 Third-Party Logistic (3PL) Management
– The largest 3PL sector is the value-added
warehousing and distribution industry.
 3. Free Trade Zones

– 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.
 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.
 Free Trade Zones

 FTZs provide many cash flow and operating

benefits to zone users and include
 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
 4. Maquiladora Operation

 The maquiladora industry, also known as the in-

bond or twin-plant program, is essentially a
special Mexican version of a free trade zone and
was 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.
 Home-Country Middlemen
•• Home-country
Home-country middlemen,
middlemen, or or domestic
domestic middlemen,
middlemen, provide
provide
marketing
marketing services
services from
from aa domestic
domestic base
base and
and find
find foreign
foreign
markets
markets for
for products
products for
for local
local manufacturers
manufacturers

Frequently
Frequently used
used types
types of
of domestic
domestic intermediaries
intermediaries include:
include:

1. Manufacturers’ Retail Stores 8. Home-Country Brokers

2. Global Retailers 9. Buying Offices
3. Export Management Companies 10. Selling Groups
4. Trading Companies 11. Webb-Pomerene Export Associations
12. Foreign Sales Corporation
5. Export Trading Companies
13. Export Merchants
6. Complementary Marketers
14. Export Jobbers
7. Manufacturer’s Export Agent
 Foreign-Country Middlemen
•• Some
Some of
of the
the more
more important
important foreign-country
foreign-country middlemen,
middlemen, who
who
find
find markets
markets for
for foreign
foreign manufacturers
manufacturers include:
include:

1. Manufacturer’s Representatives
2. Distributors
3. Foreign-Country Brokers
4. Managing Agents and Compradors
5. Dealers
6. Import Jobbers, Wholesalers, and
Retailers
 Factors Affecting Choice of Channels

Six Cs of Channel Strategy

1. Cost
2. Capital Requirements
3. Control
4. Coverage
5. Character
6. Continuity
 Locating Middlemen
Firms
Firms seeking
seeking overseas
overseas representation
representation should
should compile
compile aa list
list of
of middlemen
middlemen
from
from such
such sources
sources as
as the
the following:
following:

1. Commercially published directories

2. Foreign consulates
3. Chamber-of-commerce groups located abroad
4. Other manufacturers producing similar but
noncompetitive goods
5. Middlemen associations
6. Business publications
7. Management consultants
8. U.S. Department of Commerce
 Selecting Middlemen
In
In selecting
selecting middlemen,
middlemen, the
the following
following steps
steps should
should be
be used.
used.

1. Screening based on 2. The Agreement that

the following criteria: details terms of the
(a) reputation contract and the
functions to be
(b) creditworthiness
performed on behalf of
(c) markets served the foreign
(d) products carried manufacturer
(e) number of stores
(f) store size
 Motivating Middlemen
There
There isis aa clear
clear correlation
correlation between
between the
the middleman’s
middleman’s motivation
motivation and
and sales
sales
volume
volume

Motivational techniques may be grouped

into
five categories:
(1) financial rewards
(2) psychological rewards
(3) communications
(4) company support, and
(5) corporate rapport