Globalization's Impact on Transportation and Logistics Management

Introduction

"Globalization is the growing economic interdependence of countries worldwide through increasing volume and variety of cross-border transactions in goods and services, freer international capital flow, and more rapid and widespread diffusion of technology" (International Monetary Fund, quoted by Rushton et al., 2007).

Globalization's impact on the world economy — in particular on the logistics and transportation management of economies worldwide — has been momentous. World trade has grown at "double the growth of GDP" over the past fifteen or so years, and for developing nations, their share in world merchandise trade has skyrocketed by over 31 percent since 1950 (Rushton, 2007). More trade — knocking down barriers to economic interaction — means stronger economic growth. Globalization has stimulated trade; specifically, it has helped the freight market enjoy healthy annual growth rates of up to 10 percent on an international basis (Rushton, p. 22). The rapid development in information and communication technology allows much faster "movement of data and transactions, as well as lower transport costs" for both air and sea freight (Rushton, p. 22).

What Are the Drivers That Propel Globalization?

This paper reviews and critiques the literature relating to the enormous impacts that globalization has had on the nations of the world. The advances in information technology, the increasing strategies used to remove trade barriers, and the enormous impact those dynamics have had on the transportation and logistics industries will be brought into focus. Aspects reflecting the downside of globalization will also be presented.

Importantly, trade has driven the globalization movement, and the increase in trade has facilitated an exchange in "cultures, politics, goods and services" between nations that previously had no interaction (Rushton, p. 21). Trade would not have been such a powerful force on the positive side of globalization without the enablers of trade — international treaties. The 1944 General Agreement on Tariffs and Trade (GATT), for example, was a key impetus to increased trade and resulted in the cost of ocean freight dropping by "over 70 percent since the 1980s" (Rushton, p. 22). In 1995 the World Trade Organization (WTO) superseded GATT and promoted vigorous trade activity between member nations. The WTO worked to resolve disputes between nations, remove harmful tariffs (taxes on goods being traded), and negotiate global free trade agreements (Rushton, p. 22).

The North American Free Trade Agreement (NAFTA) was established between Canada, Mexico, and the United States, removing many tariffs and fees and stimulating free trade between those North American neighbors. The European Union (EU) was established on November 1, 1993, forming an economic association of European countries into a "barrier-free market for products and services," as well as a common currency for transaction consistency (Rushton, p. 22).

Because of free trade, lower transport costs, and faster communication, more complex and "lengthy supply chains" have emerged (Rushton, pp. 23–24). More supply chains bring significantly more transportation requirements in order to keep products moving from marketplace to marketplace. Along with the increased growth of the transportation industry, there is necessarily growth in the management and logistics fields. For example, logistics professionals need to have a handle on "all inventory," including raw materials, finished goods, and "goods in transit" (Rushton, p. 24). Whether products are flowing to the right place according to the timetable previously established between the manufacturer and the recipient of goods is a key issue for partners in the global supply chain. When suppliers know exactly where their inventory is at every moment in the movement of materials, they have a solid grasp on how profitable their transaction will be.

Globalization and Information Technology

Benjamin Lawlor identifies six processes of globalization — relating to the doors globalization has opened and how it works. Those six are: (a) speeding up the movement of "capital, people, goods, images and ideas" worldwide; (b) "intensification of the links, modes of interaction and flows" that make the world interconnected; (c) the reaching out and stretching of cultural, political, and socioeconomic practices; (d) a sense of "interdependency of the global and the local landscape" — what is done locally now has effects globally; (e) values, goods, and cultural trends now come from and are shared by many countries around the planet, not just Europe and the United States; and (f) "Westernization" is not as powerful as before because people "customize their own ideas," and since ideas and values move back and forth around the world — originating in Asia, South America, and Africa as well as Western countries — the dominance of the US or UK has diminished (Lawlor, 2007).

The term "internationalization" is used as an alternative to globalization in the peer-reviewed Journal of Marketing Management. Companies launched in the age of the Internet are called "born-global" because they target markets from their very inception and do not follow the more traditional "sequential process" of internationalism. For firms — small or medium — that are not born-global but are entering the global marketplace after having been traditional, local, or regional companies, the Internet can provide great benefit (Mathews et al., 2012). The pace of a firm's international growth, once it becomes skilled at using the Internet, is typically much faster. As a player in the global marketplace, a company gains "marketing intensity" in the form of "greater development of international knowledge, which in turn leads to greater sales and market share" (Mathews, p. 737). Moreover, in addition to the process of internationalization, the authors point to greater "interactive communication with consumers," which plays an "essential role" in building relationships between buyers and sellers in the global marketplace (Mathews, p. 737).

Meanwhile, there is a "correlation" between the skyrocketing growth of the world's population and the "acceleration of technological progress" (Qureshi, 2013). Technological progress allows the world to "support more people," and because the population increases, there is an increased "flow of new ideas," which in turn powers the "engine for further technological development" (Qureshi, p. 190).

An example of how information and communication technologies (ICT) impact the global community is found in the story of Mexico and healthcare for its citizens. Many technological advances in healthcare delivery originated in the "first world" — the US, Europe, and elsewhere in the West. However, countries that were or are considered part of the developing world, like Mexico, have taken that information — through the use of ICT — and today Mexico has universal healthcare (Qureshi, p. 190). Ironically, the United States still lacks universal healthcare even though a developing country like Mexico, through ICT, has achieved it. This is a compelling example of how information technology delivers important ideas and strategies for better living to globally remote countries.

Globalization, Transportation, and Logistics Management

Other examples of the tremendously positive impact that information technologies have had on commerce and transportation are presented in Rushton's book International Logistics and Supply Chain Outsourcing: From Local to Global. It should be noted that there are still developing countries that are not fully up to speed when it comes to ICT access, and several organizations have taken steps to remedy that shortcoming. The WTO and the International Telecommunications Union have employed strategies to bring new and economically helpful technologies to developing countries in Africa, Asia, and elsewhere, Rushton explains. The advent of e-commerce — another feature of ICT — has opened up new opportunities for marketing goods and enabled "business-to-business" (B2B) transactions. These transactions have had a powerful impact on the buying and selling of goods globally (Rushton, p. 28).

Because of globalization, logistics providers face situations that are much different from what they faced years ago, according to the peer-reviewed journal Economics and Management. Supply chains, for one thing, have become "longer and more complex"; and for another, competition has become more intense because "barriers to trade have been gradually reduced" (Cepinskis et al., 2010).

The important consequences resulting from globalization trends within global logistics systems include the following: (a) global logistics is generally considered "one of the driving forces of economic growth and social development"; (b) transportation is "central" to logistics, operating as "an enabling mechanism"; (c) the services that freight transport offers have become "more critical"; (d) accommodating new technologies, markets, and organizational structures "requires change"; and (e) because there has been a need for "greater efficiencies," it has become more urgent to develop "more seamless" markets that minimize delays in freight movements, since routes are rarely hindered by "national or modal boundaries" (Cepinskis, p. 48).

Global Production Networks and Supply Chain Management

Managers in the field of logistics must understand the "motivation of global logistics decisions," because global market logistics rely very heavily on the "performance of infrastructure owned and operated by the public sector" (Cepinskis, p. 48). Understanding those infrastructures helps logistics managers identify freight bottlenecks; those managers must be able to solve bottlenecks and create conditions that allow "free access" to their products (Cepinskis, p. 48). Moreover, supply chain management must link the channels of distribution, the end client, "production processes and the procurement activity" in a way that not only meets but surpasses clients' expectations (Cepinskis, p. 49). The author asserts that "Logistics has been called the last frontier," and improvement of logistics is seen as "the prime source of companies' ability to make new profits" and sustain a competitive edge. However, a "customer-driven supply chain" must be optimized for companies to experience global growth at a level that will continue to produce profits (Cepinskis, p. 53).

Among the innovations that information and communication technologies have brought to "the global economic and social integration" called globalization is what essayist Jean Paul Rodrigue calls "global production networks" (Rodrigue et al., 2007). Rodrigue notes that in the recent past, manufacturing was largely done in developing countries while research, product design, and innovation activities were kept in "home countries and home markets of global corporations" (Rodrigue, p. 103). However, because of the substantial impacts ICTs have on global processes, many "production-related services are fragmented and being shifted towards what was formerly called the periphery" (Rodrigue, p. 103). In other words, there is software development, data processing, and call centers in places distant from the home offices of global corporations — which Rodrigue relates to global production networks.

More recently, logistics has been "transformed" into the "more comprehensive mode of supply chain management" (SCM), Rodrigue continues. SCM, because it is based on ICTs and because of the changing habits of corporate management — including the elimination of inventories — enables a more integrated management of supply chains. Rodrigue explains that a "major requirement for the global expansion of production networks" is built on logistics. In fact, logistics is becoming what Rodrigue calls a "key unit" in the system of production, because it must offer agility and flexibility when there is interaction along the network. Hence, a "major shift has occurred" in where and how products are assembled, manufactured, and distributed (Rodrigue, p. 105).

Conclusion

In conclusion, the impact of information technologies on globalization is powerful, as was indicated throughout this paper. The need for smart management when it comes to supply chain, logistics, and transportation is equally pivotal. Moreover, because parts of the world are undergoing social change and even social upheaval, companies that intend to branch out to a global marketplace need to be keenly aware not just of potential market success in any particular country, but also of the political, economic, and social dynamics of that country.