In order to remain competitive, MNEs must pay full regard to
international logistics. This means that
they must formulate and coordinate a strategy to manage the flows of materials
into and out of the international organization. The concept covers all systems
which control the movement of all products as all stages of manufacture and
also the logistics of establishing relationships with customers and
suppliers. The use of such systems for
the efficient movement of all materials into and out of the organisation will
ensure that the company develops important competitive advantages. Technological advances have enabled firms to
improve their communication systems and order processing facilities. These will be important areas where firms can
seek further cost savings over the next few years, given that many companies
have already achieved all possible cost reductions in the financing and
production function.
International Transport
and distribution
Transportation is an important element of any system of
international logistics. An efficient
transport and distribution system determines how quickly the goods are received
by the customer. In most industrialized
countries a well-developed infrastructure exists but in developing countries
distribution within the internal market may be limited by poor road networks
and poor availability of motorized transport.
It is the role of the
international logistics manager employed by an MNE to investigate the costs and
benefits of locating and operating in a particular country. One mode of transport may be appropriate in
one country but may prove more costly or unreliable in another.
Cost is a major factor when a company selects a particular mode of
international transport. For example, although air freight is undoubtedly more
costly than transport overland, it possesses the advantage of rapidity for a
firm which may be entering the market for the first time and wants to avoid
having to invest in warehousing or distribution centres. In addition, air freight can be
cost-effective for high-priced items where the additional cost can be absorbed
into the price of the product more easily.
In addition, non-economic factors are also important and should be
taken into account, for example, whether a country’s transportation system is
subject to government subsidies. There
may be preferential policies in force whereby pressure is put on firms involved
in government contracts to use national flag carriers, even though these may
prove to be more costly.
Documentation, procedures,
and legal requirements
The International Logistics Manager must be aware of all the
different types of import/export documentation which are required for each
country and a company must comply with all the local regulations and law on
this. The types of documents required will depend upon the type of product
being sold and its country of destination.
However, the best range of documents required can deter firms from
selling goods abroad and can act as a barrier to international trade. Some
firms use freight forwarders who specialize in handling all export
documentation. The EU has tried to simplify and eliminate the red tape and
bureaucracy in order to encourage trade between member states. It has been
estimated that nearly 200 customs forms were eliminated after the introduction
of the Single Administrative Document in 1988.
The International Chamber of Commerce has defined in terms which are
internationally accepted terms and conditions of sale. These terms lay down the
rules relating to what is and what is not accepted in the same and when
ownership passes from the seller to the buyer. In addition, customs duty must
be paid on the goods at the point to entry into the country and this will depend
upon the type of goods, their country of origin, and their value. It may be
possible for companies to limit their ability to payment of duty by applying
for refunds on goods which are to be used as raw materials for finished
products which may later be exported. Another method of deferring liability for
customs duty is for the company to store its goods in bonded warehouse until
the goods are sent for sale or are used as raw materials in the manufacturing
process.
Managing international
logistics
Generally, it is more efficient for an MNE to organize its
international logistics department centrally so that the main organization in
the home country can retain control over these activities on a centralized
basis. However, the system will break own if the central department fails to
maintain constant contact with local staff in the host country. A centralized system may not be appropriate
if the firm is engaged with activities on a global basis with subsidiaries in a
number of countries. Where the many international
markets are of a diverse nature, a policy of total centralization could fail to
take into account local needs. If
subsidiaries are allocated a budget centre and are given responsibility for
meeting their own logistic needs, this may take into account local market
conditions, but the disadvantage may be that individual subsidiaries are unable
to extract the lowest rates from transportation carriers. However, another possibility is for large
MNEs to outsource its logistics requirements to another company specializing in
this field. Whilst there may be some
cost advantages associated with this strategy, problems may occur when control
over this important aspect of a firm’s organization is lost.
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