Logistics and Supply Chain Management, 4th Edition

MANAGING THE GLO B A L PI P E L INE

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At the outset it is important that we define the global business and recognise its

distinctiveness from an international or a multinational business. A global business

is one that does more than simply export. The global business will typically source

its materials and components in more than one country. Similarly it will often have

multiple assembly or manufacturing locations geographically dispersed. It will subse-

quently market its products worldwide. A classic example is provided by Nike – the

US-based sportswear company. The company outsources virtually 100 per cent of

its shoe production, for example, only retaining in-house manufacturing in the US of

a few key components of its patented Nike Air System. Nike’s basketball shoe, for

example, is designed in the USA but manufactured in South Korea and Indonesia

from over 70 components supplied by companies in Japan, South Korea, Taiwan,

Indonesia and the United States. The finished products are sold around the world.

The trend towards globalisation and offshore sourcing has been growing rap-

idly for several decades. There has been a transformation from a world where

most markets used to be served from local sources to one where there is a grow-

ing worldwide interdependence of suppliers, manufacturers and customers in what

has truly become a ‘global village’.

Early commentators like Levitt

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saw the growth of global brands and talked in

terms of the growing convergence of customer preferences that would enable

standardised products to be marketed in similar fashion around the world.

However, the reality of global marketing is often different, with quite substantial dif-

ferences in local requirements still very much in evidence. Thus, whilst the brand

may be global, the product may need certain customisation to meet specific coun-

try needs, whether it be left- or right-hand-drive cars or different TV transmission

standards or local tastes. A good example is Nescafé, the instant coffee made by

Nestlé, which has over 200 slightly different formulations to cater for preferences in

taste country by country.

The trend towards globalisation in the supply chain

Over the last 50 years or so the growth in world trade has tended to outstrip growth

in global gross domestic product. In part this trend is driven by expanding demand

in new markets, but the liberalisation of international trade through World Trade

Organization (WTO) accords has also had a significant effect.

Once, companies established factories in overseas countries to manufacture

products to meet local demand. Now, with the reduction of trade barriers and the

development of a global transportation infrastructure, fewer factories can produce

in larger quantities to meet global, rather than local, demand.

Paradoxically, as the barriers to global movement have come down so the

sources of global competition have increased. Newly emerging economies are

building their own industries with global capabilities. At the same time techno-

logical change and production efficiencies mean that most companies in most

industries are capable of producing in greater quantity at less cost. The result of

all of this is that there is now overcapacity in virtually every industry, meaning that

competitive pressure is greater than ever before.