As the business grows, organisations tend to look into new markets to expand their operations globally. In the process of marketing their products globally, organisations need a distribution channel. The set of business units and intermediaries that facilitate the process is called a supply chain. In this topic, we will be looking into how organisations manage their global operations and the supply chains they use in the process.
Welcome to Topic 7: Global Operations and Supply Chain Management. In this topic, you will learn about:
- Components of the supply chain
- Global marketing and supply chain management
- International trade
- Internationalisation and resources.
These relate to the Subject Learning Outcomes:
- Explain the impact of globalisation on the business environment.
- Describe the fundamental frameworks and strategies for competing successfully in a global economy.
- Outline how global businesses are affected by the type of environment (legal, political, economic, financial and social-cultural) they operate in.
- Discuss the ethical impacts for global businesses with reference to sustainable and responsible practices.
- State the practical factors that impact on global business activities in regard to technology, supply-chain management, marketing and human resources.
Welcome to your pre-seminar learning tasks for this week. Please ensure you complete these prior to attending your scheduled seminar with your lecturer.
Click on each of the following headings to read more about what is required for each of your pre-seminar learning tasks.
Read the following chapter, which discusses the functionalities of a supply chain and further discusses ways to strengthen a supply chain. This reading will help you during the seminar and the forum discussions.
Pp. 481-486: Peng, M & Meyer, K 2019, International business, 3rd edn., Cengage Learning EMEA.
The company management has mentioned supply chain issues numerous times during the recent reporting season. The problems were attributed as one of the key reasons behind operational cost increases, logistical breakdowns, and inventory increases.
Read the article, “What's with the global supply chain issues? Two reasons why they may stick around”, which focuses on global supply chain issues and the main two (2) reasons for them.
Listen to the podcast “Global supply chains in a post-pandemic world”, which focuses on the challenge companies faced during the COVID-19 pandemic and how organisations need to be more resilient without weakening their competitiveness.
Assessment 1 – If you were allocated this week by your lecturer, you will need to co-facilitate the discussion on the discussion forum as per the assessment instructions provided. . You can access the activities by clicking on ‘Topic 7: Assessment 1: Facilitation & Participation.’ You can also navigate to the forum by clicking on 'BUS100 Assessment 1 Forum' in the navigation bar for this subject.
Assessment 1 – For all students not allocated a facilitation task this week, you are expected to actively participate in the class discussion and respond to peer facilitation. You can access the activities by clicking on ‘Topic 7: Assessment 1: Facilitation & Participation.’ You can also navigate to the forum by clicking on 'BUS100 Assessment 1 Forum' in the navigation bar for this subject.
Read through this week’s topic content.
Components of the supply chain
To ensure their products reach the market, businesses need a distribution channel. This includes the organisational units and intermediaries who facilitate the movements of products to the consumers. In the past, organisations used to have separate ‘purchasing’ and ‘sales’ units to interact with suppliers and customers. With the development of transportation, data processing and communication technologies, the purchasing and sales areas have merged.
Instead, the new challenge is how to manage the channel from suppliers all the way to consumers. This process has resulted in a new term, supply chain, which replaces the old-fashioned term, ‘distribution channel’.
According to Porter (1985), the following figure distinguishes between inbound and outbound logistics of the supply chain, while demonstrating that the two (2) functions complement each other like opposite sides of the same coin.
Inbound logistics include purchasing and the coordination of intermediaries on the supply side of the process. Outbound logistics take care of sales and the coordination of intermediaries on the customer side of the supply chain. An additional component, intra-logistics, pertains to the effective movement of goods within a factory (Porter 1985).
Supply chain management
At present, supply chain management has taken on new strategic importance and gained tremendous prestige. One indication of supply chain management's more central role is the rapid growth of transportation service providers such as UPS and DHL.
Traditional logistics companies face stiff competition from e-commerce and innovative systems to make more effective use of real-time sharing of data along the value chain (Economist 2018).
There are three (3) common ways to strengthen supply chains:
- Agility – The ability to react quickly to unexpected shifts in supply and demand.
- Adaptability – The ability to change supply chain configurations in response to long-term changes in the environment and technology.
- Alignment – The ability to align with various competitors’ interests.
Global marketing and supply chain management
In both target and home countries, formal and informal institutions constrain the options for marketing and supply chain management. For example, organisations marketing controversial products, such as tobacco or alcoholic beverages, must be adept at interpreting local rules and traditions in each of the countries in which they market those products (Saffer & Dave 2002).
Global marketing
It is also easy to occasionally fall foul of advertising standards in different countries. For example, the British Advertising Standards Authority (ASA) issues about a dozen (12) rulings every week and frequently bans adverts, including online adverts.
One of the main challenges in international marketing is understanding what sort of proof may have to be provided when making claims about a product, as this varies considerably across countries. For example, Germany does not permit direct performance comparisons with competing products.
Informal rules do not lead to official sanctions, but they can undermine the effectiveness of market strategies. In marketing, most issues take place due to a failure to appreciate the differences in cultures, religions and social norms between the home and target countries (Ham et al. 2004).
Global supply chain management
Other constraints to managing global supply chains arise from ownership restrictions. For example, India did not allow foreign direct investment (FDI) in the retail sector until 2003. While in China, foreign retailers were only allowed to operate through joint ventures (Bloomberg 2014).
Supply chains create interdependencies between firms and themselves can become a channel for the diffusion of practices and norms. Most European organisations adopt the ISO 9000 series of quality management systems. They then impose the same standards on their suppliers and partners throughout the world because every product is only as reliable as any one of its components. Similarly, the environmental standards of ISO 14000 also quickly spread through supply chains worldwide (International Organization of Standardization 2014).
International trade
Compared with local business, transaction costs are higher in international business. Organisations can act as sellers or buyers, or both. In international trade, the sellers are known as exporters and the buyers as importers.
Direct exports
The majority of global organisations commence international trade through direct exports, which are the sales of products to customers in another country. The following table outlines some standard methods exporters and sellers use to reach global markets:
| Seller (Exporting) | Buyer (Importing) | |
|---|---|---|
| Goods |
|
|
| Services |
|
|
| Combination of goods, services and rights |
|
|
Delivering an export order can create various challenges for an inexperienced organisation. One essential question to clarify with your trading partner is who is responsible for moving the goods from your location to theirs.
For example, if you are a regular user of eBay, you would have an understanding that you need to pay attention to whether the seller offers to post the product or expects you to pick it up. It gets more complicated in global trade. A whole vocabulary has been developed for traders to negotiate who is responsible for what.
A further concern is how to overcome the lack of trust when a firm receives an export order from an unknown customer abroad. Take a look at the following table, which focuses on a number of terms that are commonly used in international trade.
| Term | Meaning | Explanation |
|---|---|---|
| Trade documents | ||
| AWL | Airway bill | Document issued by an airline to certify receipt of merchandise. Contrary to B/L, it does not entail a legal title to the products. |
| B/L | Bill of lading | Document issued by a courier or shipping company certifying that the merchandise has been delivered and paid for. Only the person holding the B/L has the right to claim the products. |
| L/C | Letter of credit | A document certifying that the importer's bank will pay a specific sum of money to the exporter upon delivery of the merchandise. |
| Contract terms | ||
| CIF | Cost, insurance and freight | The seller pays all costs of transport, including insurance and freight. |
| DDP | Delivered duty paid | The seller will deliver the goods to a specified place and pay the necessary customs duties. |
| EXW | Ex works | Buyer has to pick up the goods from the seller's specified factory or warehouse. |
| FOB | Free on board | The seller delivers the goods on board a boat or train but does not pay for the transport. |
Indirect exports
Small organisations do not have the resources to build a local marketing operation in the country to which they are expanding. Instead, smaller organisations tend to reach overseas customers through indirect exports – exporting through an intermediary (Balabanis 2000).
Export intermediaries are usually based in the same country as the exporter. However, they have the expertise to perform a ‘middleman’ function by linking sellers and overseas buyers who would otherwise have not been connected (Peng & Ilinitch 1998).
When exporters are interested in understanding product performance overseas, they employ a local sales agent or distributor. The key difference between local sales agents and distributors is that sales agents receive a commission on their sales, while distributors trade on their own accounts. In other words, distributors buy the products and then sell them on the local market at their own risk and using their own channels (Solberg & Nes 2002).
Internationalisation and resources
For a business to succeed in the global market, considerable networks and knowledge about how to do business in each target country are required. For example, to succeed in Europe, Asian businesses need to learn not only the European rules and regulations but also how to engage appropriately with French and Spanish organisations.
Internationalisation models describe the processes involved in developing international trade. Three (3) of the most common internationalisation process models are:
- Uppsala model
- Network internationalisation model
- Stages models of internationalisation.
Uppsala model
Jan Johanson and Jan-Erik Vahlne developed the Uppsala model at the University of Uppsala in Sweden in 1977. This model presents a dynamic process of learning in which organisations make decisions about their next step based on what they know at the time (Johanson & Vahlne 1977).
Network internationalisation model
The network model, an extension of the Uppsala model, is often interdependent with the internationalisation of the organisation’s network. Smaller organisations and entrepreneurs tend to draw on resources that they do not own but can access through relationships with other businesses (Chetty & Blankenburg Holm 2000).
Stages models of internationalisation
The stages models suggest that organisations need to go through distinct stages before they can successfully operate as an FDI (Hadjikhani 1997).
Resources
New international businesses need resources and capabilities that aspiring entrepreneurs need to build. Four (4) key ways in which organisations build their resources and capabilities include:
- Building an entrepreneurial team with international competencies
- Cooperating with internationally active firms
- Learning from others
- Acquiring resources abroad (Madsen & Servais 1997).
Global business requires an understanding of new markets and international business operations. Trading at a local level compared to trading at a global level requires an understanding of how businesses operate in different countries. Organisations should be familiar with supply chain management, international trade and global marketing strategies in order to expand their business operations.
Knowledge check
Complete the following two (2) tasks. Click the arrows to navigate between the tasks.
Key takeouts
Congratulations, we made it to the end of the seventh topic! Some key takeouts from Topic 7:
- Supply chain management involves managing the flow of goods and services, inclusive of all processes that transform raw materials into final products.
- Global marketing involves planning, placing and promoting products or services in a global market.
- International trade is the act of exchanging goods, services and capital across international borders and territories.
Welcome to your seminar for this topic. Your lecturer will start a video stream during your scheduled class time, you can access your scheduled class by clicking on ‘Live Sessions’ found within your navigation bar and locating the relevant day/class or by clicking on the following link and then click 'Join' to enter the class.
Click here to access your seminar.
The learning tasks are listed below, these will be completed during the seminar with your lecturer. Should you be unable to attend, you will be able to watch the recording which can be found via the following link or by navigating to the class through ‘Live Sessions’ via your navigation bar.
Click here to access the recording. (Please note: this will be available shortly after the live session has ended.)
In-seminar learning tasks
The in-seminar learning tasks identified below will be completed during the scheduled seminar. Your lecturer will guide you through these tasks. Click on each of the following headings to read more about the requirements for each of your in-seminar learning tasks.
Based on the self-directed learning tasks, the lecturer will facilitate a discussion on the 4Ps of international marketing.
Based on the self-directed learning tasks, the lecturer will facilitate a discussion about the techniques organisations can use to analyse customer behaviours. Be prepared to discuss your findings.
Welcome to your post-seminar learning tasks for this week. Please ensure you complete these after attending your scheduled seminar with your lecturer. Your lecturer will advise you if any of these are to be completed during your consultation session. Click on each of the following headings to read more about the requirements for each of your post-seminar learning tasks.
Prepare some key terms and definitions from this topic.
Reflect on your learning from this week and write your notes in your journal. Discuss with your lecturer if you have any questions. You can access the reflective journal by clicking on ‘Journal’ in the navigation bar for this subject.
In your reflective journal, think about the podcast answering the two (2) following prompts:
- Before listening to the podcast I thought.... and now I think...
- One insight that surprised me was……
Each week you will have a consultation session which will be facilitated by your lecturer. You can join in and work with your peers on activities relating to this subject. These session times and activities will be communicated to you by your lecturer each week. Your lecturer will start a video stream during your scheduled class time, you can access your scheduled class by clicking on ‘Live Sessions’ found within your navigation bar and locating the relevant day/class or by clicking on the following link and then click 'Join' to enter the class.
Click here to access your seminar
Should you be unable to attend, you will be able to watch the recording which can be found via the following link or by navigating to the class through ‘Live Sessions’ via your navigation bar.
Click here to access the recording. (Please note: this will be available shortly after the live session has ended.)
- IBM n.d., What is supply chain management?, IBM.
- Schmierer, R 2020, Five value chain examples for the modern company, IT Chronicles.
References
- Balabanis, GI 2000, ‘Factors affecting export intermediaries’ service offerings’, Journal of International Business Studies, 31(1):83-99.
- Bloomberg 2014, How Walmart made its crumbling China business look so good for so long, Thandhnien, http://www.thanhniennews.com/world/how-walmart-made-its-crumbling-china-business-look-so-good-for-so-long-35147.html
- Chetty, S & Blankenburg Holm, D 2000, ‘Internationalization of small to medium-sized firms: A network approach’, International Business Review, 9(1):77-93.
- The Economist 2018, The global logistic business is going to be transformed by digitisation, The Economist, https://www.economist.com/briefing/2018/04/26/the-global-logistics-business-is-going-to-be-transformed-by-digitisation
- Fam, KS, Waller, DS & Erdogan, BZ 2004, ‘The influence of religion on attitudes towards the advertising of controversial products’, European Journal of Marketing, 38(5/6):537-555.
- Hadjikhani A 1997, ‘A note on the criticisms against the internationalization process model’, Management International Review, 37(special issue):1-23.
- International Organization for Standardization n.d., ISO, www.iso.org
- Johanson, J & Vahlne, JE 1977, ‘The internationalization process of the firm: A model of knowledge development and increasing foreign market commitments’, Journal of International Business, 8(1):23-32.
- Madsen, TK & Servais, P 1997, ‘The internationalization of born globals: An evolutionary process’, International Business Review, 6(6):561-583.
- Peng, MW & Ilinitch, AY 1998, ‘Export intermediary firms: A note on export development research’, Journal of International Business Studies, 29(3):609-620.
- Peng, M & Meyer, K 2019, International business, 3rd edn., Cengage Learning EMEA.
- Porter, M 1985, Competitive Advantage, The Free Press.
- Saffer, H & Dave, D 2002, ‘Alcohol consumption and alcohol advertising bans’, Applied Economics, 34(11):1325-1334.
- Solberg, CA & Nes, EB 2002, ‘Exporter trust, commitment and marketing control in integrated and independent export channels’, International Business Review, 11(4):385-405.
