Globalisation and its impact on the logistic industry
by Wolf-Bernhard Kersten, Professor of Economics, Tianjin, China, August 8 th ¨C 2007

Abstract
This article contains 5 parts:
Part 1 highlights the global drivers and the consequences thereof who force the economy within the next decade based on the international marketing research. In this paper, we will focus on the logistic industry. Part 2 depicts the ¡°story of the antelope and the tiger¡± ¨C the situation of the competition in the global world. In part 3, we start an outlook to the year 2025 and we will see which nations will win and which will fall behind. Part 4 describes the perfect logistic provider and it shows which assets it should offer to the market, and consequently ¨C as logistic business is a people driven business - part 5 draws a picture of the prospective perfect logistic manager.

Part 1
The global economy ¨C forces who drive today and tomorrow -
and their consequences
The international marketing research (1) experts predict how market partners in the global economy within the next decade have to cope with the following driving forces:

¡ï Globalisation
¡ï Growth of digitalisation and the internet
¡ï Mergers and alliances worldwide
¡ï Overcapacity and hyper-competition
¡ï Ascendant power of customers
¡ï Proliferation of channels and media
¡ï Ascendant power of distributors over producers

Assumed these statements are true (they are indeed!!) then the global and web based economy today and tomorrow creates big chances but also huge risks and threats.

If we follow this prediction we have to enlarge the above statements into a matrix to demonstrate the consequences whether these drivers might become opportunities or threats.

Driving forces of the economy Consequences
_____________________________________________________

Globalisation Complex interdependencies
Growth of digitalisation + the internet Speed
Mergers + alliances worldwide Be a member of the Club !!
Overcapacity + hyper-competition Efficiency achievement
Ascendant power of customer Fast + unpredictable insolvencies
Proliferation of channels + media Huge networking
Ascendant power of distributors over Impact of logistic industry will
manufactorers increase

Everybody can make business with everybody on the globe today via the Internet. Speed of reaction and the management of risks (2) become the major skills of top managers. Wrong marketing strategies will lead to immense and fast losses. The old management truth: no more the big eat the small, rather than the fast eat the slow, becomes reality every day.
And the logistic industry plays a key role in this puzzle.

Let us take a little story as an example which I often use in my lectures and seminars in China to create awareness about what globalisation really means. Unfortunately, it is not a funny story at all.

Part 2
The story of the antelope and the tigers
The desert in Africa:
every morning when the sun rises, the antelope Mama and her antelope babies wake up and her first painful thoughts will be: how to survive today, me and my babies?
And some hundred meters away, Mama tiger and her tiger babies wake up and her first painful thoughts will be: how to survive today, me and my babies?

And the second thought of Mama antelope is: how to escape the tiger whereas the tiger Mama starts her strategic plan: how to catch the antelope?

First lesson learned:
a Mama is a Mama, globally there is no difference.

Now we convey this example to the global market: we see many tigers (competitive enterprises) focusing on one antelope (the desired customer) but only one tiger can win (eat the antelope). It is the story of survive or die. And ¨C with respect to Beijing 2008 - the global business today is far away to be comparative with the Olympic Games where even the silver and the bronze medallists gain exciting momentums. In the global economy, only the winner (the gold medallist) is the king (but only for one day), the second is already the first loser and he may starve to death.

Second lesson learned:
when the sun rises, you better run! In Africa, in the EU or in China! Otherwise you end as number 2 and lose the business. And no business means no turnover, no turnover means no profit (hopefully) and no salary, no dividends, no investment and at the end: no chance to survive.

Globalisation is on its fast and fierce way and it will bring tremendous constraints to those who may not be prepared to eat the antelope. But who will win? Who will fall behind?
Let us look at the following scenario:

Part 3
The world in 20 years

A macroeconomic scenario outlook to the dynamics of the ¡°world in 20 years¡± (3) grants a thrilling insight view what may happen until the year 2025.

¡ï about 8 billion people will live on earth, thereof 1,2 billion in developed and 6,8 billion in underdeveloped countries.

¡ï the USA still remains number 1 with 350 million people and they earn an average income of 55.000 USD per capita (9 times higher than in India and 5 times higher than in China).

¡ï the world median (4) will reach 33 years.

¡ï Japan`s median will rise to over 50 years, 33 % of all Japanese will be over 65 years old. Japan will face big problems and fall apart and its rank amongst the wealthy nations will decrease to number 5.

¡ï India will become the global internet star, 1,4 billion people ¨C similar to China - will live there and they will substitute Japan as economic power number 3 globally.

¡ï China and India will remain the drivers of the world economy.

¡ï China will become number 2 and its GDP will be 3 ¨C times higher than today, its income per capita will amount to 11.000 USD, and it will compete politically with the US to influence the world. The Yuan Renmimbi currency will compete with the USD and the € and will be fully floating.

¡ï China`s median will increase to over 40 years, the ¡°one-child-policy¡± will be history.

¡ï China will undergo heavy political and social reforms, the ¡°one-party-policy¡± by the ruling CPC will also be history. Taiwan will be a peaceful and associated member of the Chinese empire.

¡ï in the EU, the Turkey`s median will be 32 years, and the islamic state with 90 million people will be a strong member within the EU.

¡ï Spain will face a bright future and this sun-state will be stronger and more wealthy than the UK or Germany.

¡ï Germany will become older in average (its median will reach about 44 years) but it will remain politically stable and ranked number 5 amongst the wealthy nations.

For sure, the wealth of nations will shift. The economic power will certainly lie in Asia. Still then China will act as the factory of the world due to its never ending mass of cheap peasant workers but Chinese multinational enterprises have gone abroad and spread their wings internationally.
The logistic industry will play a dominant role but it has to cope with these scenarios and it has to be excellent prepared. So, which assets a logistic provider needs for the next 15 years? We will see this in detail within the next chapter.

Part 4
The assets of a future excellent logistic provider

Global business is always local business, is that still true? There are mainly 3 sectors in the economy who really act global:
finance, insurance and logistics.

We have seen in part 1 that not the producer is in the co-driver seat, it is the distributor, the logistic industry. In Germany, still the leading export nation, the logistic sector is ranked number three according to its macro-economic added value.

This will apply in the future for the whole world: the logistics sector will play an even more dominant role, much more than today. However, to be successful, the logistic industry has to understand the whole global interdependencies, all legal, political, social and administrative constraints. Logistic providers have to anticipate and to perceive what happens tomorrow and in 5 years. They have to be prepared that the economic powerhouse is Asia, and they have to find solutions how to deal ¨C for example - with the bad infrastructure in India or the bureaucracy in China.

Logistic managers act as the key interfaces between procurement and market (marketing), and only those who understand the global work flow systems will survive. Logistic providers will become ¡°think tanks¡± and they have to find and to offer their respective individual unique selling propositions (USP). USP however have two structural impacts:

First:
any USP is similar to a 3 ¨C step - layer system:

¡ï the logistic company itself has to offer one or more group-USP,
¡ï every department or subsidiary wherever in the world has to offer its bundle of USP and last but not least:
¡ï each logistic manager, every employee has to offer its own USP.

Or vice versa:

¡ï if the group has no USP, not even the best employee can make successful business.
¡ï if the group can offer USP but the employees are badly trained, the company cannot gain profit.
¡ï if the group and its employees have no or poor USP, the only asset they can offer is a cheap price, and even this price is always too high ¨C the typical downsized spiralling negative effect which leads to death.
Note: a price can never be an USP, even not in China.

Second structural impact:
an USP is like a bunch of flowers ¨C it perishes from time to time. The outside world changes and the competitors learn. Consequently, each logistic provider has to generate new types of USP - from time to time.

The USP of a car manufacturer is quite simple: function, quality, speed, technique, colour, status, ¡­ Every customer can touch, smell, drive the car and then decide. The logistic industry belongs to the tertiary sector. USP in the service industry are much more difficult to present. They are based on trust, on reliability. An USP shall answer the question: why should the client (the antelope) come to us and not to our competitor tiger? The word ¡°trust¡± is closely linked to the Latin word ¡°credere¡± (English: credit), a term we mainly use in the financing service industry (banking, trade, insurance). Trust however must grow. In the West we trust excellent companies and institution based on their respective image or rating. In the East ¨C mainly in China ¨C people trust people and not institutions. Thus trust is a cultural and social experience and it is one of the reasons why Westerners sometimes cannot understand Chinese (Asian) thinking and thus fail to create successful business.

Trust ¨C as we have seen ¨C is a matter between people. Logistic business ¨C at the end and when all things being equal ¨C is conducted between people who like, who trust each other. Therefore, the future logistic manager is the key to success. What propositions he / she has to offer, we will see in our last part of this paper.

Part 5
The future perfect logistic manager

Logistic business at the end remains a people driven business. As long as we cannot beam the goods from the EU to China or India and vice versa (like money), we have to use logistic providers. Apart from the virtual network we still have to transport goods physically, and the perfect logistic manager is the one who understands the whole supply chain: the physical one and the virtual one.

At the end, whenever we want to achieve excellent business we have to communicate. Communication is a selling process. Selling means: to create the awareness of offering more advantages, higher benefits to the ¡°buyer¡±. And only then you can ask for a good price.

So, what makes a future logistic manager a perfect and successful one?

¡ï he/she is absolutely market orientated, he / she is cost-sensitive and he / she cares about the customers because only this will create sufficient profit for his / her own group and for him / herself.

¡ï he / she knows about the best technology in the whole procurement management, the optimum production process, the best ware-housing systems, the fastest and most reliable transportation systems.

¡ï he / she understands laws and regulations globally and he / she can guarantee an ¡°in-time-delivery¡± with at least 95 % efficiency (which is excellent).

¡ï he / she is a fan of excellence and targeting a 100 % efficiency achievement with a zero default tolerance.

¡ï he / she understands the financing and the risk management side and is able to offer individual solutions.

¡ï he / she is innovative, creative, anticipative, reliable .

¡ï he / she can represent, communicate and convince the market by excellent communication skills and techniques.

¡ï he / she is open minded, international, mutual thinking, tough but solution orientated.
¡ï he / she is open for alliances and partnerships ¨C even amongst competitors ¨C as no one can handle all tasks and risks alone.

¡ï he / she is the key expert for work flow knowledge, for optimizing the value and supply chain.

¡ï he / she is an IT specialist and works with a sophisticated and updated IT technology.

Does this perfect manager already exist? If you are checking the logistic market as an ex ¨C or importer which provider you should chose, take this list, test the market and then tick it off.

If you are a member of the logistic society, do the same and assess your weaknesses and your strengths.
And then change and educate and train your staffs, but do not forget: if a fish stinks, its head stinks first. If you are a leader of a logistic company: test yourself first whether you are able to sustain this test matrix.

At the end, logistic becomes a knowledge management transformation system. Sure, logistic will always remain the physical transport of goods from A to B but moreover the logistic industry will become the conveyor of global information and know how to the market. Then ¨C and only then if both tasks are offered as a package solution ¨C a logistic provider will face a happy future.

References and Sources

(1) Kottler, Philip, China Forum of International Marketing, Beijing, 2003
(2) Lam, J.A.: Enterprise Risk Management, New York, 2003
(3) Deutsche Bank Research Group, China Papers, Frankfurt, 6/2005.
Of course this scenario is based on various assumptions, the major being:
¡ï no wars between these nations, especially not between Asian countries
¡ï no global diseases and no heavy natural disasters
¡ï the idea that only a sustainable environment can grant economic wealth has been set in place seriously, especially in China, to date one of the most poisoned and polluted areas globally
¡ï the icecaps on the North ¨C and the South poles have not melted down (70 % of all people on earth live next to the sea - level)
(4) the median is a often used statistical tool, to indicate the age and the prospective wealth of a nation. It is the figure given as an age where 50 % of the population statistically are above and 50 % are below this age. Rule of thumb is: the lower the median (the younger the people) the better prospects for the future for this nation.

About the author

Wolf-Bernhard Kersten, Banker, studied economics in Germany, gained 30 years of experience in the global risk and insurance management industry, appointed CSO in 10 countries in Asia, lives in Asia since over 10 - and in China since 6 years, appointed Professor of Economics at School of Economics at Nankai University, in Tianjin, China, since 2005, and also lecturing at School of Economics at Hamburg University, Master of International Business Administration Department, since 2002, advises and supports as International Consultant many Chinese as well as EU companies, is expert for Enterprise ¨C and Credit Risk Management plus International Marketing. He is a member of the Advisory Board of Tianjin Jiahe International Logistics Agency Ltd.
Contact: wolf.kersten@gmx.de and Wolf@cgfgroupe.com