What is shaping the global logistics market?

In the last step, you explored the concept of globalisation and considered its impact on developing countries.

The growth of globalisation has allowed certain nations (namely those that have benefitted from a headstart in development and winning a major war) to shape the world economy to their own needs. This includes allowing businesses to grow on a global scale bigger than some nation-states. The guardian of this global system is the USA.

The growth of globalisation is not necessarily the answer to the world’s problems of growth and wealth, but evidence from the International Monetary Fund (IMF) does show that the level of world poverty, as measured by those living on less than $1 per day, has been cut in half over the past 20 years (Di Giovanni et al. 2008).

However, you can probably find examples of this not working in various developing countries and there appear to be regions of the world, such as Africa, that are struggling to compete in the global market.

Developed countries

If we consider that the countries around the world are all at different stages of development, it’s obvious that developed countries, who had their initial industrial revolution in the early parts of the 20th century, have considerable infrastructure advantages.

These countries, mainly in Europe, Japan and North America, have enjoyed a headstart over other nations. Many of the world’s largest international businesses were also founded in these countries.

In fact, the global oil businesses, such as Shell and Standard Oil, were founded in the first expansion of globalisation in the late 19th century. Like the internet businesses of today, they were the largest and most profitable organisations of their day. This was a time when railway tracks were being laid across the USA and the European railway network was expanding rapidly.

Following the second world war, there was a huge reconstruction effort in both rail and road in Europe and Japan, which has helped these areas grow their international trade safe in the knowledge that laws regarding ownership of assets and payment of goods would be respected by other nations. This being due to the formation of global governing bodies to enforce the rules-based expansion of globalisation.

Global brands

The growth of international businesses selling global brands has been a key factor in shaping global distribution networks. Conversely, the advent of global brands has highlighted problems of sub-optimisation within these distribution networks, especially in nations with poor logistics infrastructure.

Another issue is that many global brands are only supported either regionally or locally but have not expanded beyond into truly international markets. This reflects an issue known as the distance variable (Leamer and Storper 2001), which suggests that the further the distance goods travel, the less is traded – and this is subsequently a major issue against globalisation and the expansion of distribution networks.

This can lead to limitations in logistical support, through issues such as language and cultural barriers or problems regarding the reliability of local infrastructure to support technology. Examples could include poor electricity and telecommunications systems, bureaucratic business practices and transaction processes.

The attractiveness of global brands to consumers is a key reason for the growth of globalisation. Adam Smith (1789) first identified the human drive of individual self-interest. Human nature consistently wishes to improve and one of those measures is the desirability of physical goods which are not always available due to price or scarcity. This factor has had a hand in driving the expansion of globalisation.

The supply chains of these global goods, whether they are cars or athletic shoes, benefit from a truly global logistics operation. This includes the global sourcing of materials and production, which takes advantage of the comparative advantage of different countries.


References

Di Giovanni J et al. (2008) ‘Globalization: A Brief Overview’ IMF Issues Brief 02/08 IMF Pub

Leamer E. and Storper M. (2001) ‘The Economic Geography of the Internet Age’, Journal of International Business Studies 32(4), 641-665

Smith, A. (1789) The Wealth of Nations. 5th edn

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This article is from the free online course:

Principles of Global Logistics Management

Coventry University