'Going Global' Offers Both Pitfalls and Rewards

By Patrick Burnson -- Logistics Management, 9/1/1999

"Going global" may be the goal of many logistics providers in the United States, but achieving that aim in the coming century is likely to be more difficult than ever, says one logistics executive. "The new millennium will find us in a truly global market with new forces shaping the way we do business," says Katie Schumacher, vice president of DHL Worldwide Express Logistics. "The common denominator faced by companies like ours will be change. Those that embrace it will employ new manufacturing and distribution philosophies. Those that don't will have a hard time surviving."

Despite the harsh, Darwinian tenor of that declaration, Schumacher's keynote address at the INTERLOG 99 conference held in June in San Francisco also contained a positive message. Improved technology and heightened competition have enabled companies to expand their markets worldwide, she said. The most successful companies are developing products in Europe and the United States, manufacturing in Asia and Latin America, and selling their products worldwide, she noted.

Although global distribution appears to be necessary to success for large companies today, it presents a number of challenges for manufacturers, Schumacher continued. Chief among them are customs-related issues, she believes. "In some cases it costs more than 80 percent of inventory value just to import your product into another country," she said. Other troublesome aspects of international trade she cited included export licensing, documentation and record-keeping requirements, technology lag, and cultural differences.

In order to avoid these pitfalls and reduce costs, the DHL executive suggested shippers consider the following:

- Establishing a foreign sales corporation (FSC) or participating in a shared FSC;

- Using offshore holding companies in countries with favorable tax regimes;

- Using transportation partners' regional warehouses to delay payment of taxes and customs duties;

- Minimizing the amount of inventory held in any one country; and

- Sharing inventory among distributors in one country.

These and other financial strategies may make a big difference in holding down costs, but for many companies, other challenges, such as cultural barriers, remain, Schumacher observed. "A truly global company cannot be run like a U.S. company. It must know and practice business and social protocols in the markets to which it exports."

Beyond the issue of cultural differences, though, lies the universal issue of quality and customer satisfaction. "With more manufacturers moving into the global market, everybody's product--especially in the high-tech industry--is becoming the same in terms of quality, performance, and price," she said. "There must be a differentiating factor."

For Schumacher, that factor is end-user satisfaction, which requires manufacturers to provide value-added services and after-market warranty service. "To be the best," she concluded, "you must offer speed to market and get the right part to the right place at the right time. But most importantly, realize that in this business there are no acceptable excuses."