Get insights on where the global economy is going. Learn how trading blocs, near-sourcing and supplier networks are changing.
Not long ago, when a small or medium-size business was tempted to go global, it was often thwarted by the complexities surrounding global trade. But today, whether you are considering offshore manufacturing or selling to growth markets overseas, logistics service providers manage the issues for you, no matter how big your business is.
The Web and pay-as-you-go software have made it easy to navigate international transportation, customs, compliance requirements and a host of other logistical complexities. Now any size business can get a sample or product designed, prototyped, made and sold globally with the heavy lifting done by experts – companies whose core business is managing ever-changing global networks for you.
Expansion is imperative for growth
"Over the past 10 years, globalization has taken hold in ways we couldn't have imagined beforehand," says Julie Fraser, president and principal industry analyst of Cambashi Inc. "Now the core business model of nearly every company encompasses globalization."
Bob Ferrari, vice president and managing director of The Ferrari Consulting and Research Group and executive editor of Supply Chain Matters, explains further: "The bulk of double-digit sales growth today resides in the emerging markets, such as Asia Pacific, India, Russia and Eastern Europe. Small to mid-size businesses that seek new growth markets are inevitably going to end up there."
Global trading blocs
As a consequence, these high-demand areas are attracting more manufacturing and logistics-related service infrastructure.
"We're beginning to see the supply chain becoming more focused within trading blocs," says Larry Lapide, an MIT research affiliate and recently retired director of MIT's Demand Management Center for Transportation & Logistics. "Blocs might include the U.S. trading within the Western Hemisphere; Europe with Africa, Eastern Europe and parts of Asia; China with its Asian trading partner companies and possibly Japan."
Exporting first steps
"If you're a small or medium-size business with a product idea and want some traction in the market, first you have to make some tough decisions about how to allocate your money," Ferrari says. "You may want to invest in the product design, or if sourcing is key to your strategic long-term plan, you may do the sourcing yourself and outsource the logistics piece. You can also outsource the whole process, from product design to order fulfillment.
"But whether you decide to outsource piecemeal or [outsource] the whole process to a one-stop shop, you don't have to compromise on overall visibility," Ferrari says. "With the Internet and the adoption of more advanced inbound or outbound supply chain synchronization technologies, all sorts of visibility options are available."
Manufacturers can near-source
When the price of oil skyrocketed to $125 a barrel, companies began near-shoring as well as taking other resource-saving measures, Ferrari explains. "One strategy, driven by product and model proliferation, is to retain low-cost manufacturers – largely in China – and send the unfinished products to be finished in distribution centers close to where demand fulfillment occurs," he says.
"Logistics suppliers provide these postponed manufacturing services and also direct shipment from manufacturers. After 2008, when demand dropped precipitously, postponement flexibility was very important to cash flow," he says.
A dependable supplier is key
No matter how dynamic global networks become, however, Fraser notes that you still need a trusted relationship with suppliers. "Having reliable suppliers as you build out in each of the areas where you are working is key," she says. "This is where a logistics provider's role will be very important. We foresee that volatility is and will be the new normal. It's not only that credit is tight, but markets will be far more unpredictable."
The consensus among thought leaders is that companies developing competitive and distributed global trade strategies are the ones most likely to succeed today and tomorrow – whether those companies are big or small.
"Today's elongated supply chains are a lot more complicated for all companies," says Kimberly Knickle, practice director, emerging agenda, for IDC Manufacturing Insights. "Increased expectations for supplier partnerships are putting a lot more pressure on logistics. Every participant is trying to take on efficiencies and reduce costs, resulting in logistics having to step up."
"Despite the ongoing pressures to reduce costs, I'm not so sure we'll see a reduction in product proliferation," Ferrari adds. "Customer needs drive demand, and this fusing of sourcing/production/distribution strategy serves those needs. Logistics becomes the key enabler. We're always going to need efficient sources of manufacturing, but logistics assures having product where you and your customers need it."
Watch the related video.