Globalization's Impact on Transportation and Logistics Management

Drivers of Globalization and International Trade

As the International Monetary Fund has defined it, 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" (quoted in Rushton & Walker, 2007).

Globalization's impact on the world economy—and 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% since 1950 (Rushton & Walker, 2007). More trade, achieved by 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% on an international basis (Rushton & Walker, 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 & Walker, p. 22).

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 each be brought into focus. Aspects reflecting the downside of globalization will also be examined.

Trade has been the primary driver of the globalization movement, and the increase in trade has facilitated an exchange of cultures, politics, goods, and services between nations that previously had little or no interaction (Rushton & Walker, p. 21). Trade would not have played such a central role in the positive dimensions of globalization without the enabling mechanisms of international treaties.

The 1944 General Agreement on Tariffs and Trade (GATT), for example, has been a key impetus for increased trade and has resulted in the cost of ocean freight dropping by over 70% since the 1980s (Rushton & Walker, 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 In 1995, the World Trade Organization (WTO) superseded GATT and promoted vigorous trade activity between member nations.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—that is, taxes on traded goods—and establish global free trade agreements (Rushton & Walker, p. 22).

The North American Free Trade Agreement (NAFTA) was established between Canada, Mexico, and the United States and removed many tariffs and fees, thereby stimulating free trade among 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 adopting a common currency for transactional consistency (Rushton & Walker, p. 22).

Because of free trade, lower transport costs, and faster communication, more complex and lengthy supply chains have emerged (Rushton & Walker, pp. 23–24). More supply chains necessarily bring significantly more transportation in order to keep products moving from marketplace to marketplace. Along with the increased growth of the transportation industry comes a corresponding growth in management and logistics.

For example, logistics professionals need to maintain a handle on all inventory—including raw materials, finished goods, and goods in transit (Rushton & Walker, 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 during the movement of materials, they have a solid grasp on how profitable their transactions will be.

Globalization and Information Technology

Benjamin Lawlor identifies six processes of globalization that describe the doors it has opened and how it functions. Those six are: (a) speeding up the movement of capital, people, goods, images, and ideas worldwide; (b) intensifying the links, modes of interaction, and flows that make the world interconnected; (c) reaching out to and stretching cultural, political, and socioeconomic practices; (d) creating interdependency between the global and local landscape, so that what is done locally now has global effects; (e) enabling values, goods, and cultural trends to originate from and be shared by many countries around the planet, not just Europe and the United States; and (f) diminishing the dominance of "Westernization" as ideas and values now move back and forth around the world, originating in Asia, South America, and Africa as well (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 international markets from their very inception and do not follow the more traditional sequential process of internationalization. For small or medium firms that are not born-global but are entering the global marketplace after having operated as traditional, local, or regional companies, the Internet offers substantial benefits (Matthews 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 (Matthews et al., p. 737). Moreover, in addition to the process of internationalization, greater interactive communication with consumers plays an essential role in building relationships between buyers and sellers in the global marketplace (Matthews et al., p. 737).

There is also 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 the provision of healthcare originated in the developed world—the United States, Europe, and elsewhere in the West. However, countries once categorized as part of the developing world, like Mexico, have taken that information through the use of ICT and today provide universal health care (Qureshi, p. 190). Ironically, the United States still does not have universal healthcare, even though a developing country like Mexico achieved it through ICT. This is a compelling example of how information technology delivers important ideas and strategies for better living to globally remote countries.

Further examples of the tremendously positive impact that information technologies have had on commerce and transportation are presented in Rushton and Walker's International Logistics and Supply Chain Outsourcing: From Local to Global. It should be noted that there are still developing countries not fully up to speed when it comes to ICT access, and several organizations have taken steps to remedy that gap. 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 & Walker, 2007).

The advent of e-commerce—another feature of ICT—has opened up new opportunities for marketing goods and has enabled business-to-business (B2B) transactions. These transactions have had a powerful impact on the buying and selling of goods globally (Rushton & Walker, p. 28).

Transportation and Logistics in a Globalized Economy

Because of globalization, logistics providers face situations that are much different from those of years past, according to the peer-reviewed journal Economics and Management. Supply chains have become longer and more complex, and competition has become more intense as barriers to trade have been gradually reduced (Cepinskis & Masteika, 2010).

The important consequences resulting from trends toward globalization 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 and operates 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) the need for greater efficiencies has made it more urgent to develop more seamless markets that minimize delays in freight movement, since routes are rarely constrained by national or modal boundaries (Cepinskis & Masteika, p. 48).

Managers in the field of logistics must understand the motivation behind global logistics decisions, because global market logistics relies very heavily on the performance of infrastructure owned and operated by the public sector (Cepinskis & Masteika, p. 48). Understanding those infrastructures helps logistics managers identify freight bottlenecks. Those managers must be able to resolve bottlenecks and establish conditions that allow free access to their products (Cepinskis & Masteika, p. 48). Moreover, supply chain management must link the channels of distribution, the end client, production processes, and procurement activity in a way that not only meets but surpasses clients' expectations (Cepinskis & Masteika, p. 49).

Logistics has been called the last frontier, and the improvement of logistics is seen as the prime source of companies' ability to generate new profits and maintain a competitive advantage. However, a customer-driven supply chain must be optimized in order for companies to experience global growth at a level that will continue to produce profits (Cepinskis & Masteika, p. 53).

Conclusion

The impact of information technologies on globalization is powerful, as indicated throughout this paper. The need for smart management of 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 the potential for market success in any particular country, but also of the political, economic, and social dynamics of that country.

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