Global Marketing Management

Masaaki Kotabe & Kristiaan Helsen

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

Global Logistics and Distribution

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 Chapter Overview

1. Definition of Global Logistics

2. Managing Global Logistics
3. Free Trade Zones
4. Maquiladora Operation
5. U.S. Special Import Tariff Provisions
6. Global Retailing

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

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 Introduction (contd.)

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.

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 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 (see
Exhibit 16-1).
Materials management refers to to the inflow of raw
material, parts, and supplies through the firm.
Physical distribution refers to the movement of the
firms finished products to its customers, consisting
of transportation, warehousing,
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1. Definition of Global Logistics (contd.)

inventory, customer service/order entry, and

administration.

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 2. Managing Global Logistics

The following factors contribute to the increased

complexity and cost of global logistics:
Distance
Exchange rate fluctuations
Foreign intermediaries
Regulation
Security

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 2. Managing Global Logistics (contd.)
Modes of Transportation
Value-to-Volume Ratio
Perishability
Cost of Transportation
Ocean Shipping
Liner Service
Bulk Shipping
Air Freight
Intermodal Transportation
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 2. Managing Global Logistics (contd.)

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.
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 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.

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 3. Free Trade Zones (contd.)

FTZs provide many cash flow and operating

benefits to zone users and include (see Exhibit 16-
2):
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
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 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 plants output is
exported.

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 4. Maquiladora Operation (contd.)

Mexico permits 100 percent foreign ownership of

the maquiladora plants in the designated
maquiladora zone.
Most of the maquiladora plants are located along
the U.S.-Mexico border, such as Tijuana across
from San Diego, Ciudad Juarez across from El
Paso, and Nuevo Laredo across from Laredo. Other
cities include Monterrey, Mexico City, and
Guadalajara.
Mexico has been an attractive location for labor-
intensive assembly because of cheaper labor.
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 5. U.S. Special Import Tariff Provisions
Under NAFTA regulations, local content
requirements have encouraged companies to move
their operations to Mexico.
Special U.S. tariff provisions have encouraged
U.S.-based companies to export U.S.-made
components and other in-process materials to
foreign countries for further processing and/or
assembly and subsequently to reimport finished
products back into the United States. U.S. imports

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 5. U.S. Special Import Tariff Provisions
(contd.)
under these tariff provisions are officially called
U.S. imports under items 9802.00.60 and
9802.00.80 of the U.S. Harmonized Tariff
Schedule (the 9802 tariff provisions, for short).

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 6. Global Retailing

In developed countries, retailing employs between 7

percent and twelve percent of the workforce.
In 2002, Wal-Mart was the largest retailer in the
world with a total revenues of $220 billion. Only 10
percent of its sales are generated outside its core
NAFTA region.
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.
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 6. Global Retailing (contd.)
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.

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 6. Global Retailing (contd.)

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
E-Commerce and Retailing

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 6. Global Retailing (contd.)

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.

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 6. Global Retailing (contd.)

Brazil is the most wired nation in Latin

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

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 Copyright John Wiley & Sons, Inc., 2004

Chapter 16 Kotabe & Helsen's Global Marketing 22

Management, Third Edition, 2004