Drivers and Logistics

implications of internalization
Group 1
Abaya, Jessa
Abayon, Abegail
Asne, Abigail
Bilbao, Hannah Grace
Borac, Joan
 Key Issue

What are the trade-offs between

responsiveness to local markets and
economies of scale?
In assessing the nature of cross-
border interfaces in logistics, three
questions can be asked:
1. Does Internationalization imply a
universal global approach of supply
chain?
2. Does internationalization require a
global presence in every market?
3. Does internationalization distinguish
between the companies that
globally transfer knowledge and
those that do not?
 The single business concept of
structuring the supply chain in the
form of uniform approaches in each
country is losing ground.
 McColonisation was effectively
abolished when Mcdonalds announced
localization of its business in such areas
as marketing and local relations. In
response to local crises in quality and
suffering from local competition, from
local headquarters were downsized to
help empower the local organization.
Same applies to the Coca-Cola
Company, which has abandoned
CocaColonisation.
In favor of local bands and product varieties,
Procter and Gamble is doing the same.
It does not mean to say that localization is
the new mainstay.
Unilever, a traditionally localized
competitor of Procter and Gamble, has
announced a decreased in the number of
brands, and has rationalized operations
away from strict localization over the past
decade, and probably will continue to do
so for a while.
At a company level, generic drivers internalization
include:
A search for low factor, and supply cost (land,
labor, materials);
The need to the follow customers internationally
in order to be able to supply locally and fast;
A search for new geographical market areas;
A search for a new learning opportunities and
exposure to knowledge (such as by locating in
Silicon Valley a hot spot in development of
international electronics, software and Internet
industries).
 I. Logistic Implications of
Internalization
1. Inventory
- centralizing inventories across multiple
countries can hold advantages in terms of
inventory-holding costs & inventory levels
that are especially relevant for high value
products.
- internationalization may lead to product
proliferation due to the need for localization
of products & the need to respond to specific
local product/market opportunities.
2. Handling
- logistics service practices may differ
across countries as well as regulation on
storage & transport. Adjusting handling
practices accordingly is a prerequisite
for internalization. Furthermore, the
opportunity to implement best practice
across various facilities may also be
possible. Both of these practices assist
the process of internalization.
3. Transport
- Owing to internationalization,
logistics pipelines are extended and
have to cope with differences in
infrastructure across countries, while
needing to realize delivery within the
time-to-market. This may drive
localization. On the other hand, the
opportunity for global consolidation
may drive international centralization.
 II. Time-to-Market
Product obsolence
- the extended lead time inherent in
international logistics pipelines means
that products run the risk of becoming
obsolete during their time in transit.
Inventory-holding costs
- lead time spent in the logistics
pipeline increases the holding cost of
inventory.
 III. Global Consolidation

occurs as managers seek to make

the best use of their assets and to
secure the lowest-cost resources
assets such as facilities and capital
equipment are being used to the
fullness of their capacity and
economize of scale being
maximized
Familiar Features of Global
Consolidation include:
sourcing of commodity items from
low-wage economies
concentration of specific sites
bulk transportation
Sourcing commodity items from low
wage economies

Two sourcing issues are used by

internationally operating organizations:
consolidation of purchasing of all
company divisions and companies
sourcing in low-wage economies
(examples of this are: Western Europe
to Eastern Europe, USA to Mexico,
Japan to China, India and also Vietnam)
The advances in social standards of
these developing economies raise the
cost of labour and other resources.

- Therefore, the relentless search for

the lowest production cost has led to
some companies re-sourcing
commodity items to lower-wage
countries in Asia, North Africa and
South America.
 IV. Risk in international
logistics
In additional to time-to-market and inventory
risks, events of recent years have forced
companies to adapt to new supply chain
reality of expecting the unexpected.
Companies are not only responding to current
volatility and geopolitical risks, they are also
developing new risk management
approaches based upon the realization that
decades of globalizing supply chains has
come at a price: a heightened and different
risk profile.
Geopolitical threats
The 2003 SARS crisis and the second
Gulf War were major events in and of
themselves; they were also
consecutive and had huge impacts on
supply chain continuity and execution
feasibility. Major trade routes had to be
altered and global travel was limited.
In additional, structurally heightened
government security measures and
screening are indicators of risk
involved in international logistics.
Transportation breakdowns
Transportation may be a commodity
that does not mean that nothing can
go wrong. A several-week strike in US
west coast ports in 2002 lasted long
enough to almost cripple the US
economy. With hundreds of cargo ship
floating outside the ports, shipments
were not arriving at US destinations.
This meant that factories were shut
down and stores were emptying.
It also had ripple effect on global trade
overall. For example, return shipments
were delayed because no ship were
leaving the ports either. In additional,
with so many ships and containers
caused a slowdown of shipments in
many other port regions. So shipments
on the other routes, in different
harbors and even shipments using
different modalities were affected.
 Risk and Security concerns are not a one-
time issue but require continuous risk
management. Helferich and Cook found
that this is necessary because , for
example:
Only about 61% of US firms have disaster
recovery plans;
Those that do typically cover data centers,
only 12% cover total organizational
recovery
Few plans include steps to keep a supply
chain operational