1. LOG 408: Global Logistics Management
Lecture 2: Globalization and International Trade

2. Key Points of Last Lesson
What Is Supply Chain:
Scope: From the raw material to the final consumer
Process: purchasing, warehousing, transportation, etc.
Objectives: cost and service level
Key Thought in Global Supply Chain Management:
Six factors makes global logistics much more important compared to a few decades ago
Highly complex, covering various aspects
SC dispersed over a larger geographical area
It offers many more opportunities than just the domestic supply chain
Risk factors are also present

3. Examples of logistics applications to manufacturing and services
Robust logistics strategies enable the entire supply chain to compete
e.g. Ikea
‘flat packed’ products, simplified & standardized processes
e.g. triage
rapid assessment of patient needs, matching patients with the right care stream as early as possible

4. Growth in international trade
There has been considerable growth in recent decades in world trade; world exports grew from $62 billion in 1950 to a peak of $16,000 billion by 2008 before subsequently declining due to economic crisis
Facilitated by regional trade agreements
Hence more freight is moving all around the world
Logistics systems are thus having to play an increasingly important role in the global economy

5. Total World Merchandise Exports 1950-2009

6. An observation from the US perspective
About one-fifth of the output of U.S. firms is produced overseas.
One-quarter of U.S. imports are between foreign affiliates and U.S. parent companies.
Since the late 1980s, over half of U.S. companies increased the number of countries in which they operate.

7. Exports by Country (2010 estimates)

8. Position of Turkey in 2010
Import: US$186b, 21st in world (US world No.1, $1,968b)
Export: US$114b, 30th in the world (China world No.1, $1,578b)

9. Measuring Logistics Performance
The global logistics performance index (LPI), developed by World Bank, ranks 155 countries’ logistics performance against six key dimensions:
Customs
Infrastructure
International shipments
Logistics competence
Tracking & tracing
Timeliness

10. Top 10 countries in the global LPI (2010)

11. Position of Turkey LPI 2010: No. 39 In comparison, China at No. 27.
In comparison, China in 2014 at No. 28.

12. UNCTAD Liner Shipping Connectivity Index (LSCI)
Generated from five components:
Maximum vessel size in a country’s ports
The number of companies providing services to a country’s ports
The number of services offered by the liner companies
The number of ships deployed on services to a country’s ports
TEU capacity on the deployed ships

13. More on UNCTAD’s LSCI
Compared to LPI, it focuses more on seaport infrastructure and services
China ranked No.1 with largest ports and huge export volumes
Other high ranking countries: Hong Kong, Singapore, Germany
Turkey world No. 25

14. Trends within the 2010 LSCI

15. Globalization
Companies must learn to operate as if the world were one large market (Levitt, 1983)
Multinational companies (MNCs)
Transnational corporations (TNCs)
An example of globalization:
A Greek owned vessel, built in Korea, charted to a Danish operator, employing Philippines seafarers, is registered in Panama, insured in the UK, and transports German made cargo in the name of a Swiss freight forwarder from a Dutch port to Argentina
(Kumar and Hoffmann, 2002)

16. More on Globalization Discussion: Is globalization is good or bad?
Key is a wise management of the wealth /job redistribution due to globalization
Globalization stages:
Ethnocentricity: a company when doing business abroad thinks and acts as if they were still operating in their home country
Examples: Turkish Airline
Polycentricity: a company adopts the host country perspective
Examples: Carrefour
Geocentricity: a company acts completely independent of geography and adopts a global perspective, and will tailor to the local environment as appropriate (i.e. ‘glocalization’)
Examples: MacDonald

17. Foreign direct investment (FDI)
Financial flows from a company in one country to invest in another country (for example in a factory)
Very significant in the overall global economy
Can be key to dictating a countries success
Strong competition to attract FDI among countries
Some countries put in place certain conditions to attract more FDI
e.g. low rates of corporate taxation
Setup special economic zones

18. Some thoughts on FDI
MNCs invest in foreign countries may primarily for
Market (e.g., Japanese firms invest in the US)
Natural or human resources (e.g., Western firms invest in China)
Technology (e.g., firms from developing countries invest in developed countries)
How does Turkey posit itself in global FDI boom?
FDI inflow global ranking (2013):
US (2815b), UK, Hong Kong, China (1344b), …,
Turkey (No. 28, 194b)

19. Overseas site selection factors

20. World’s Top 10 Non-financial TNCs in 2008 ranked by foreign assets

21. Major Trade Corridors

22. Directional Imbalances
When there are mismatches in the volumes or types of freight moving in opposite directions in a freight market
The imbalances seldom happen in passenger markets, but often in freight markets
E.g., shipping a typical container from Hong Kong to EU is twice expensive than that of shipping from EU to Hong Kong

23. Traditional versus circular routings

24. Questions to think
How globalized is your country? If it not highly globalized, what can be done to improve its position?
Taking your own country as an example, identify freight routes where you believe directional imbalances exist.