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

2. Chapter 16Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 2 Chapter 16 Global Logistics and Distribution

3. Chapter 16Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 3 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

4. Chapter 16Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 4 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. 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. 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 country’s GDP every year in the last decade. In the United States, the total logistics cost has amounted to ten to eleven percent of the country’s GDP every year in the last decade.

5. Chapter 16Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 5 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. 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. 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.

6. Chapter 16Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 6 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). 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. 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, Physical distribution refers to the movement of the firm’s finished products to its customers, consisting of transportation, warehousing,

7. Chapter 16Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 7 1. Definition of Global Logistics (contd.) inventory, customer service/order entry, and administration.

8. Chapter 16Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 8 2. Managing Global Logistics The following factors contribute to the increased complexity and cost of global logistics: The following factors contribute to the increased complexity and cost of global logistics: –Distance –Exchange rate fluctuations –Foreign intermediaries –Regulation –Security

9. Chapter 16Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 9 2. Managing Global Logistics (contd.) Modes of Transportation Modes of Transportation –Value-to-Volume Ratio –Perishability –Cost of Transportation –Ocean Shipping »Liner Service »Bulk Shipping –Air Freight –Intermodal Transportation

10. Chapter 16Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 10 2. Managing Global Logistics (contd.) Warehousing and Inventory Management 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 Third-Party Logistic (3PL) Management –The largest 3PL sector is the value-added warehousing and distribution industry.

11. Chapter 16Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 11 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. 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.

12. Chapter 16Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 12 3. Free Trade Zones (contd.) FTZs provide many cash flow and operating benefits to zone users and include (see Exhibit 16- 2): 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

13. Chapter 16Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 13 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. 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. 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.

14. Chapter 16Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 14 4. Maquiladora Operation (contd.) Mexico permits 100 percent foreign ownership of the maquiladora plants in the designated maquiladora zone. 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. 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. Mexico has been an attractive location for labor- intensive assembly because of cheaper labor.

15. Chapter 16Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 15 5. U.S. Special Import Tariff Provisions Under NAFTA regulations, local content requirements have encouraged companies to move their operations to Mexico. 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 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

16. Chapter 16Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 16 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).

17. Chapter 16Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 17 6. Global Retailing In developed countries, retailing employs between 7 percent and twelve percent of the workforce. 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. 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”: “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.

18. Chapter 16Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 18 6. Global Retailing (contd.) On-Time Retail Information Management 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: Retailing Differences Across the World: –Industrialized countries tend to have a lower distribution outlet density than the emerging markets.

19. Chapter 16Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 19 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

20. Chapter 16Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 20 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.

21. Chapter 16Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 21 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.

22. Chapter 16Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 22 Copyright © John Wiley & Sons, Inc., 2004