International Logistics as the Method of Scheming and Administration - Essay Example

Lecturer: presented: Introduction International Logistics is the scheming and administration of a structure that is used to manage the movement of supplies from and into a company which produces internationally. This structure is usually significant in an effective supply chain management within a company. The competitiveness of an international firm largely depends on its capability to manage the multifaceted components involved in the supply chain such as suppliers of raw materials, its product suppliers, as well as consumers. This makes it necessary for companies willing to expand globally to be competent in this field. Companies benefit from economies of scale when they produce in large scale. They are the factors which influence a drop in the cost of production per unit due to an increase in the level of output. Such benefits can be achieved when companies establish foreign subsidiaries which increase the overall output. While expanding globally, they should be capable of developing strategies to cope with local market factors which may hinder their establishment in foreign markets. These are strategies for local responsiveness (Harrison, A. and Van Hoek, R. 2008 pp. 76-81). Firm Options Operation of companies in the global market presents a major challenge to the management especially when developing a global business approach, which is fundamental in determining the ability of the management to preserve a profound measure of strategic association with the local cultures while promoting the cultural diversity. In order to successfully compete in the global market, managers have to be competent in the global perspective of business. They should be in a capacity to develop ideas locally while their actions reflect a global mindset. The major driving force is usually the diversity, which presents opportunities for expansion. In order to survive in the foreign market, it is significant to recognize and appreciate the local cultures which present an opportunity for the growth of the business (Mangan, J Lalwani, C. and Butcher, T. 2008 pp. 67-75). Companies pursuing global expansion should acquire two distinct abilities which are necessitated by the fact that the strategic benefits derived by companies competing in the global market vary from one industry to the other. It should be capable of establishing in the market that has been chosen. This ensures that it is able to effectively exploit the identified opportunities (Lysons, K. and Gillingham, M. 2003 pp. 67-69). For example the oil companies such as Shell and BP which operate globally have an advantage of dealing with a scarce product and therefore they can establish anywhere internationally so long as there is demand for fuel. It should also be capable of utilizing its international resources to cope with any emergent competition in the market, not considering the location of the competitive situation. In such a strategic position, the company is capable of coping with competitive circumstances such as a reduction in the prices of similar products by a competing company. Knowledge and technology should be transferred effectively to all the subsidiaries in order to boost a company’s overall performance (Harrison, A. and van Hoek, R. 2008 pp.89-96). Reduction in production costs is a major driving force towards establishing in the foreign market. A firm may be unable to produce in large scale within the home country, necessitating expansion in the global market. This enables it to produce in large scale, thereby enjoying economies of scale. An example of such expansion is in the food and beverage industry, where companies such as Cadbury, Nestle, Coca-cola and many others benefit from economies of scale due to large scale production globally. Reduced costs of transportation, communication, wages and the availability of incentives in the foreign market also influence the foreign expansion of the business. Local responsive strategies assist when some factors discourage the establishment of industries in the foreign market (Christopher M. 2005 pp. 78-81). A foreign subsidiary is usually a company that belongs to a larger parent company. It is usually established after the management of the parent company identifies an opportunity in a foreign country. On the other hand, according to David, & McGrew (2000 p.78), “A global company is that which offers the same products in the same manner, anywhere”. Such companies usually sell products which are scarce and highly priced. They include oil products, air travel services and others which companies are limited by the huge amounts of initial capital required. The affiliates of multinational companies usually have a common objective as the parent company, with resources being shared by all including the trademark, and patents (Cousons, P., Lamming, R., Lawson, B. and Squire, B. 2008 pp. 99-101). Multinational companies usually come up in order to shield themselves from the fears presented by the domestic business environment. This ensures that they have many other options in case local competition becomes overwhelming. For example companies operating in politically unstable countries may establish in foreign countries as a precaution in case of war. They also come up in order to utilize the available opportunities in the international market. Foreign Direct Investment is the establishment of a venture by a company in another country different from that of the parent company. According to Wilson M. S and Gilligan C. (2005 p. 67), “FDI is the presence of a company’s equity funds in a foreign country”. It is mostly the industrialized nations that invest huge amounts of money in other industrialized countries with few investing in less developed countries. This could be attributed to the fact that developed countries usually have the desirable factors that facilitate the growth of a foreign company such as; good infrastructure, skilled manpower, advanced technology e. t. c. In the FDI set up, there is usually a parent company which sets the overall objectives of the company. Subsidiary companies in different countries follow these objectives. They may be fully owned or partly controlled by the parent company. The multinational company is formed when such a company establishes its foreign affiliates. For example Coca-Cola produces in more than 200 countries worldwide through foreign subsidiaries which park and market their products independently while fulfilling the company’s objectives. Outsourcing is the practice of transferring some of the business activities to an external company. There is usually an agreement between the company transferring its functions and the external company in regard to the amount of products or service to be provided as well as the manner in which activities should be executed. The external partner may transfer knowledge through staff, equipment and any other factor of production to the contracting company. In other words, outsourcing involves the delegation of some of a company’s internal functions to another, but maintains control over these processes. Outsourcing benefits companies through economies of scale which enable it to reduce the cost of production. A company shares the risks associated with the production process through subcontracting. IBM is one of the companies that have turned to outsourcing in the recent past, whereby most of its PCs are assembled from outsourced hardware (Richard J. S and Gary J. B 1995 pp. 87-91). On the other hand, off-shoring is the relocation of business activities by a company to a foreign country. Mostly, manufacturing processes are moved to another country to take advantage of an opportunity that may not be available in the original country. This is mainly targeted at cost reduction for the company. It tends to bring a reduction in the cost of labor where it is cheaper in another country, or where other factors such as incentives and tax relief are offered. Outsourcing and off-shoring are significant in protecting companies from fluctuations in the market. They enhance the company’s proceeds on assets. Research and development is also improved, as well as widening a company’s technological expertise which improves production. Since mid 1990s many companies from the UK have relocated their facilities to India, especially for computer and electronic companies (Michael J Baker, 2000 pp.36-41). Multinational companies have strategic inclination towards conducting their activities. These include; Ethnocentric inclination. This is a tendency to be reliant on the objectives and values of the parent company in development and put a strategic plan in to practice. The foreign affiliate firms usually conduct their activities in a similar manner to which they are conducted in the parent company, with an aim of making profits. The management and organizational structure is usually similar to that of the main company. Polycentric inclination. This is a situation whereby the foreign affiliates are allowed to make their own management decisions in order to suit the local culture. However, the overall goal of all the affiliates is to meet the objectives of the parent company which are stipulated in the company’s strategic plan, even when many affiliates are producing in a variety of cultures. Geocentric predisposition. This is a situation whereby the company operates on a global perspective. Products are produced globally, but they exhibit local variation. The management team is pooled globally through selecting the best, not withstanding their country of origin Geocentric strategies are beneficial in the international expansion of the company. They make use of global leaders who have the capability of boosting the company’s competitiveness through conducting their operations in a global perspective. In the contrary, ethnocentric leadership is not much focused towards international expansion. It mainly concentrates on the local market. Polycentric leadership enhances the local responsiveness of a company. Bertelsmann and Walt Disney are examples of companies which exhibit geocentric strategies in their leadership (Zachary Fang 2005 pp 99-121). Conclusion Establishment of companies in the global market presents major challenges to the management. It should be composed of leaders who are able to strengthen the company’s capability to respond to local factors influencing production. The manner in which companies are predisposed in running their activities is significant in the company’s ability to establish internationally. It maybe challenging for affiliate firms to establish in a diversity of cultures and maintain the objectives of the parent company, but with polycentric and geocentric leadership, this may be achieved. Bibliography 1. Baker M J. 2000. Marketing Strategy and Management, Macmillan Business. 2. Cousins, P., Lamming, R., Lawson, B. and Squire, B. 2008. Strategic Supply Management: principles, theories and practice. Harlow: Prentice Hall/ Financial Times. 3. Christopher M. 2005. Logistics and Supply Chain Management; Creating Value-adding Networks, Harlow: Prentice Hall/ Financial Times 4. David B. & McGrew A. 2000. Globalization/Anti-globalization, (2nd edition), Polity, Cambridge University Press. 5. Fang Z. 2005. Supply Chain. Business Research. Vol. 11 No.1, 99-121. 6. Harrison, A. and Van Hoek, R. 2008. Logistics Management and Strategy, Harlow: Prentice Hall/ Financial Times. 7. Lysons, K. and Gillingham, M. 2003. Purchasing and Supply Chain Management. Harlow: Prentice Hall/ Financial Times. 8. Mangan, J Lalwani, C. and Butcher, T. 2008. Global Logistics and Supply Chain Management, Chichester: John Wiley & Sons Ltd. 9. Richard J. S and Gary J. B. 1995. Principles of Marketing: A Global Perspective, Cincinnati, OH: South-Western. 10. Wilson M. S, Gilligan C. 2005. Strategic Marketing Management, CIM/Elsevier Read More