DescriptionTotal Possible Score 6.00Explains Net Present V.docx

Description:
Total Possible Score: 6.00
Explains Net Present Value (NPV) and Future Value (FV) and
Describes the Factors that are Used in the NPV and the FV
Formulas
Total: 2.20
Distinguished - Provides comprehensive explanations of NPV
and FV and thorough descriptions of the factors used in the
NPV and FV formulas. The explanations and descriptions are
effectively supported with scholarly sources.
Proficient - Provides explanations of NPV and FV and
descriptions of the factors used in the NPV and FV formulas.
The explanations and descriptions are supported with scholarly
sources. Minor details are missing.
Basic - Provides limited explanations of NPV and FV and
descriptions of the factors used in the NPV and FV formulas.
The explanations and descriptions are somewhat supported with
scholarly sources. Relevant details are missing.
Below Expectations - Attempts to provide explanations of NPV
and FV and descriptions of the factors used in the NPV and FV
formulas; however, the explanations and descriptions are not
supported with scholarly sources and significant details are
missing.
Non-Performance - The explanations of NPV and FV and the
descriptions of the factors used in the NPV and FV formulas are
either nonexistent or lack the components described in the
assignment instructions.
Gives an Example of How to Use the Formula for NPV and the
Formula for FV for a Stock Purchase
Total: 1.80
Distinguished - Provides a comprehensive example of how to
use the formula for NPV and the formula for FV for a stock

purchase. The example is relevant and supported with scholarly
sources.
Proficient - Provides an example of how to use the formula for
NPV and the formula for FV for a stock purchase. The example
is relevant and supported with scholarly sources. Minor details
are missing.
Basic - Provides a limited example of how to use the formula
for NPV and the formula for FV for a stock purchase. The
example is somewhat supported with scholarly sources.
Relevant details are missing.
Below Expectations - Attempts to provide an example of how to
use the formula for NPV and the formula for FV for a stock
purchase; however, significant details are missing and the
example is not supported with scholarly sources.
Non-Performance - The example of how to use the formula for
NPV and the formula for FV for a stock purchase is either
nonexistent or lacks the components described in the assignment
instructions.
Summarizes the Differences Between NPV and FV and the
Purpose of Using Each
Total: 1.40
Distinguished - Provides a comprehensive summary of the
differences between NPV and FV and the purposes of each.
Each part of the summary is pertinent and supported with
scholarly sources.
Proficient - Provides a summary of the differences between
NPV and FV and the purpose of using each. The summary is
supported with scholarly sources. Minor details are missing.
Basic - Provides a limited summary of the differences between
NPV and FV and the purpose of using each. The summary is
somewhat supported with scholarly sources. Relevant details are
missing.
Below Expectations - Attempts to provide a summary of the
differences between NPV and FV and the purpose of using each;
however, the summary is not supported with scholarly sources

and significant details are missing.
Non-Performance - The summary of the differences between
NPV and FV and the purpose of using each is either nonexistent
or lacks the components described in the assignment
instructions.
Written Communication: Control of Syntax and Mechanics
Total: 0.15
Distinguished - Displays meticulous comprehension and
organization of syntax and mechanics, such as spelling and
grammar. Written work contains no errors, and is very easy to
understand.
Proficient - Displays comprehension and organization of syntax
and mechanics, such as spelling and grammar. Written work
contains only a few minor errors, and is mostly easy to
understand.
Basic - Displays basic comprehension of syntax and mechanics,
such as spelling and grammar. Written work contains a few
errors, which may slightly distract the reader.
Below Expectations - Fails to display basic comprehension of
syntax or mechanics, such as spelling and grammar. Written
work contains major errors, which distract the reader.
Non-Performance - The assignment is either nonexistent or
lacks the components described in the instructions.
Written Communication: APA Formatting
Total: 0.15
Distinguished - Accurately uses APA formatting consistently
throughout the paper, title page, and reference page.
Proficient - Exhibits APA formatting throughout the paper.
However, layout contains a few minor errors.
Basic - Exhibits basic knowledge of APA formatting throughout
the paper. However, layout does not meet all APA requirements.
Below Expectations - Fails to exhibit basic knowledge of APA
formatting. There are frequent errors, making the layout
difficult to distinguish as APA.

Written Communication: Page Requirement
Total: 0.15
Distinguished - The length of the paper is equivalent to the
required number of correctly formatted pages.
Proficient - The length of the paper is nearly equivalent to the
required number of correctly formatted pages.
Basic - The length of the paper is equivalent to at least three
quarters of the required number of correctly formatted pages.
Below Expectations - The length of the paper is equivalent to at
least one half of the required number of correctly formatted
pages.
Written Communication: Source Requirement
Total: 0.15
Distinguished - Uses more than the required number of
scholarly sources, providing compelling evidence to support
ideas. All sources on the reference page are used and cited
correctly within the body of the assignment.
Proficient - Uses required number of scholarly sources to
support ideas. All sources on the reference page are used and
cited correctly within the body of the assignment.
Basic - Uses less than the required number of sources to support
ideas. Some sources may not be scholarly. Most sources on the
reference page are used within the body of the assignment.
Citations may not be formatted correctly.
Below Expectations - Uses inadequate number of sources that
provide little or no support for ideas. Sources used may not be
scholarly. Most sources on the reference page are not used
within the body of the assignment. Citations are not formatted
correctly.

1
Chapter 3
Marketing 4220
International Sourcing, Logistics
& Transportation
International Logistics Infrastructure
5/22/2015
1
International Infrastructure
Infrastructure is a collective term that refers to all of the
elements in place (publicly or privately owned goods) to
facilitate transportation, communication and business
exchanges.
2
Types
Transportation Infrastructure

Communication Infrastructure
Utilities Infrastructure
Services Infrastructure
Legal and Regulatory Infrastructure
3
The Transportation Infrastructure enhances the movement of
goods efficiently within a country and between countries. This
requires well-maintained seaports, airports, railways, and roads.
The Communication Infrastructure allows businesses to
communicate clearly and quickly. This requires reliable phone
lines, cell phone networks, internet service and mail delivery.
The Utilities Infrastructure facilitates businesses to sustain their
daily operations. This requires allows reliable energy (natural
gas), electricity, water and sewer services.
4
The Banking Infrastructure helps businesses move funds and
documents quickly and reliably, both within a country and
between countries. A network of bank branches and well-trained
bank employees is required.
The Business Services Infrastructure offers businesses to
find additional competent logistics help quickly. This includes
freight forwarders, couriers, carriers, delivery services, packing
services and related entities.

The Distribution Infrastructure serves businesses to find agents
and distributors, to develop wholesale and retail channels and
promote their products.
5
The Court Infrastructure helps businesses to settle disputes
quickly and fairly. This includes not only an efficient court
system, but also a network of mediators and arbitrators and the
existence of clear jurisprudence.
The Intellectual Property Infrastructure facilitates businesses to
protect their intellectual property (copyrights, patents, and
trademarks) with law enforcement services intent on enforcing
intellectual property laws.
The Standard Infrastructure allows businesses to determine the
requirements their products and operations must meet. This
includes safety, design and performance standards.
6
Transportation Infrastructure
Ocean and Water Transportation
Air Transportation
Railroad Transportation
Road Transportation
Other Means of Transportation
7

Port Infrastructure
(1of 2)
Water Draft – Water depth determines the size
of the ships that can call.
Air Draft - Bridge clearances also determine which ships can
call.
Cranes - Post-Panamax ships need wider/taller cranes than
Panamax ships.
Port Operations - Many ports have strong unions which limit
operations.
8
Port Infrastructure
(2 of 2)
Space Limitations - The location of most ports limit their
ability for expansion.
Warehouse Space – The availability of reliable storage space for
goods in transit is limited
Connection to land-based Transportation - Ports need to have
reliable access to roads and/or rail lines to facilitate cargo
movement
9

The port of Yangshan, China
(near Shanhai)
10
11
A Panamax Ship
A Post-Panamax Ship
12
The Alameda Corridor
between the Port of Los Angeles
and the U.S.
13
Canals and Waterways
Maritime transportation is dependent on the existence of
reliable canals.
The Suez Canal in North Africa and the Panama Canal in
Central America are particularly important. The current trend of
building ships too large to fit through these canals is creating
new challenges for the industry.
Other key waterways include the Bosporus Strait in Turkey
connecting the Mediterranean with the Black Sea and the Saint
Lawrence Seaway in North America connecting the Great Lakes
with the Atlantic Ocean.
Some canals are less frequently used, such as the Corinth Canal

in Greece.
14
The Gatun Locks on the Panama Canal
15
The Suez Canal
16
. . .where is the water?
The Corinth
Canal
17
Airport Infrastructure
Runways – their length determines whether an airport
can handle large cargo planes; the number of runways determine
its capacity.
Space - most airports are landlocked and cannot expand.
Hours of operation - airports need to be located away from of
major cities if they are going to operate at night. Many airports
do not meet this requirement.
Warehouse storage facilities – are critical to protect cargo
from the elements.
18

Kai Tak Airport
Hong Kong
( closed )
19
Chek Lap Kok Airport
Hong Kong
20
Railroad Infrastructure
Gauge – when railroads were first built, countries installed
unique railroad track gauges to prevent rival armies from using
them. Today, these gauge differences prevent trains from
traveling quickly between multiple countries.
Multi-modal - cargo rail transport has shifted from traditional
railcars to multi-modal cars, carrying either containers or truck
trailers.
Land bridge – is the term used when containers are shipped
from Asia to Europe through the U.S. railroad network; they
arrive in a port on the west coast and are transported by rail to
an east-coast port.
21

A dual-gauge track in Thailand.
22
A double-stack container
configuration on a U.S. train
23
Road Infrastructure
Quality – the existence of high quality roadways is
important to the continuous flow of goods.
Congestion - in many countries traffic congestion is stifling
and prevents goods from moving quickly.
Civil engineering structures - such as bridges and tunnels need
to be built in many places in order to conveniently navigate
the landscape.
24
25
Russia’s Lena “Highway”
26
New Delhi, India
Traffic Congestion

27
The Oresund Link –
bridge and tunnel between
Denmark & Sweden
- Mail / Postal Service -
Speed – mail delivery efficiencies globally range from quick to
very slow,
Reliability - not all mail is delivered is some countries; it can
be lost, abandoned or pilfered.
Delays - postal unions have a great influence and strikes can
delay the delivery of important documents.
Competition - firms such as FedEx, UPS and DHL are very
reliable, but are generally much more expensive than public
postal services.
28
29
Hi-speed postal train
in France
- Telecommunications -
Land lines - some countries have reliable, inexpensive phone
lines; others have bad landline telecommunication networks.
Cellular phones - some countries built cellular phone networks
quickly, often because they did not have a good landline
network; they leapfrogged the landline technology, often
offering better cellular access than developed countries having

reliable landline networks.
Internet - access to the internet is still limited or cost
prohibitive in many areas; a contrast with fast and inexpensive
access in others.
30
Landline PenetrationCountryLandlines/person1
Taiwan 72.6%2 Germany 63.8%3 France
60.5%4 Hong Kong 60.5%5 South Korea 60.2%6
Switzerland 57.7%7 Greece 53.3%8 Canada
52.7%9 United Kingdom52.4%10 Japan 50.8%13
United States46.1%33 United Arab Emirates33.3%36
Russia31.0%55 China21.1%73 Panama15.7%
31
Cellphone Penetration
32
CountryCell phones /person1 United Arab Emirates214.2%2
Hong Kong 212.9%3 Panama 189.2%4 Kuwait
183.1%5 Finland 169.8%6 Libya 166.6%7
Russia 166.1%8 Oman 164.9%9 Austria
158.4%10 Italy156.2%23 Germany134.0%33
Taiwan123.9%84 United States91.7%86 France90.7%111
China73.1%

33
Tangled Wires
New Delhi, India
Utilities Infrastructure
Electricity
Unreliable electricity grids and insufficient production capacity
can cause blackouts or brownouts, limiting productivity.
Water and sewer
Access to clean water (and sewers) is fundamentally important
for many manufacturing processes.
Energy
Reliable pipelines need to be available to deliver natural gas
or oil products to the locations where they can be used.
Theft
In some areas, theft of utilities is common, making it difficult
for utility companies to earn a profit and invest in new
infrastructure.
34
The Alaskan Pipeline
United States
Banking Infrastructure
Foreign currency payments
The ability to quickly purchase and sell foreign currencies,
either through wire transfers or currency purchases is of

primary importance to firms engaged in international trade.
Methods of payment
The ability of the banking partners to support alternative means
of payment and provide assistance to firms engaged in
international trade is very important.
Document exchanges
Banks play a fundamental role in the exchange of trade
documents between an exporter and an importer.
36
Banking Services
Infrastructure (1 of 2)
Freight Forwarders
Freight forwarders help determine the best shipping
alternatives to firms engaged in international trade
Customs Brokers
Brokers provide assistance to importers when clearing
Customs.
Couriers
Couriers allow firms to ship documents and small parts using
the “next available flight.”
37
Banking Services
Infrastructure (2 of 2)
Packing services
Packing services allow exporters to rely on professionals to
pack goods destined for export.

Multiple other services
Carriers, delivery services, etc. are fundamental to implement
good international trade practices and must exist for
exporters to be successful.
38
Distribution Channel
Infrastructure
Agents and distributors
A strong network of agents and distributors allows an exporter
to enter new markets and expand abroad.
Retail distribution
Efficient access to consumers is important to a manufacturer of
consumer goods and is not available in all countries.
Advertising and promotion
Advertising agencies and media offer promotional activities
critical to the success of many products and services.
Trade shows
For most industries, trade shows present an unequaled
opportunity to reach potential customers and trade partners.
39
Court Infrastructure
Speed
Speedy resolutions of lawsuits allow businesses to “move on.”
Some countries have slow and cumbersome court processes.
Arbitration
Disputes can be resolved faster via arbitration. The existence of
experienced arbitrators is important to the conduct of business.
Mediation

Disputes can also be resolved through mediation; therefore a
group of mediators is often useful to resolve disputes.
Fairness
In some countries, the court system is perceived as corrupt or
unfair and hinders good business relationships.
40
Intellectual Property
Infrastructure
Protection
Businesses with intellectual property (patents, copyrights, trade
secrets) want to make sure that the countries in which they
operate will protect intellectual property.
In some countries, competitors, police and courts do not respect
nor protect intellectual property, often considering intellectual
property laws favor big foreign corporations over the local
entrepreneur trying to earn a living.
International Agreements
Many countries have not ratified international agreements on
intellectual property and therefore do not recognize some
aspects of foreign patents and copyrights
41
Standards
Infrastructure
Countries have different standards for products and
services offered for sale; these standards are specific
and must be followed.
Safety

Safety requirements often differ from country to country. Such
is the case for vehicles, appliances, and hotels, for example.
Design
Product designs are often dictated by local conventions
(electrical supply and plugs, plumbing sizes and pressures, and
telecommunication standards, for example).
Performance
Several countries have performance standards for products,
dictating what can be called “natural,” “organic,” “premium,”
and so forth.
42
3-12Chapter 3 International Logistics Infrastructure
Chapter 3 International Logistics Infrastructure 3-11
Chapter 3
International Logistics InfrastructurelEARNING oBJECTIVES
At the end of this chapter, YOU SHOULD:
Understand the importance of the infrastructure of a country to
an international logistician
Identify characteristics of international transportation
infrastructure.
Identify characteristics of international communication
infrastructure.
Identify characteristics of international utilities
infrastructure.Preview
Infrastructure varies throughout the world. Some countries have
major infrastructural deficiencies, but other developed portions
of the world enjoy state-of-the-art capabilities of conducting
international trade. Even in the world’s technological leader,
the United States, there are infrastructure bottlenecks because
of increased transportation demand. Railroads in recent decades

have had to increase clearances of bridges and tunnels in order
to accommodate double-stack container trains. Ports have had
to enlarge facilities for increased container traffic and huge
increases in ships’ sizes. Highways are strained handling truck
traffic. All in all, without adequate infrastructure, international
commerce is hindered.Chapter Outline
3-1 Definitions
I. Infrastructure
a. The basic facilities, services, and installations needed for the
functioning of a community or society, such as transportation
and communication.
b. A collective term for the subordinate parts of an undertaking;
substructure, foundation.
c. The permanent installations forming a basis for military
operations, as airfields, naval bases, training establishments, . .
. etc.
II. In the field of logistics, the definition can be very broad:
a. Infrastructure is a collective term that refers to all of the
elements in place (publicly or privately owned goods) to
facilitate transportation, communication, and business
exchanges.
b. It would therefore include not only transportation and
communication elements, but also the existence and quality of
public utilities, banking services and retail distribution
channels.
c. To this list, it makes sense to add
i. The existence and quality of the Court system.
ii. The defense of intellectual property rights.
iii. The existence of standards.
3-2 Transportation Infrastructure3-2-1 Port Infrastructure
I. Depth of water
a. Few ports have natural depth of 40 feet required for biggest
ships.
b. As a result they must dredge that depth.

II. Cranes
a. Large ships prevent cranes from having adequate reach.
b. Crane modifications can be very expensive.
c. An alternative is to allow ships to be loaded from both sides.
III. Bridge clearance
IV. Port operations
a. Work rules can hamper operations.
b. Long Beach only operates eight hours per day.
c. Strikes, work stoppages can be a problem.
V. Warehousing space
a. If not available, probability of cargo exposed to elements is
high.
b. Need for refrigerated storage areas.
VI. Connections with land-based transportation services
a. Adequate rail connections
b. Roads that are not clogged as they access ports3-2-2 canals
and waterways infrastructure
I. Canals and locks must be large enough.
II. Largest ships that can get through Suez Canal are called
Suez-Max ships.
III. Largest ships that can get through Panama Canal are called
Panamax ships.
IV. Ships too large for Panama Canal are called post-Panamax
ships.
V. Logistically strategic waterways:
a. Bosporus Strait in Turkey
i. Only link between Black Sea and the oceans.
ii. Primary trade route for Russia and the world.
iii. Becoming congested and raising safety concerns for nearby
Istanbul.
b. Suez Canal
i. Prevents requirement of sailing all the way around Africa
ii. Too shallow
iii. Costly tolls
c. Panama Canal
i. Prevents requirements of sailing all the way around South

America.
ii. Slow—only one direction of operation at a time.
iii. Running at capacity with waits of 22 hours.
iv. Still important despite rail land bridges.
d. Saint Lawrence Seaway
i. Links Great Lakes to Atlantic Ocean.
ii. Narrow and few ships can pass through its locks.
iii. Ice closes it January to March.
iv. Shippers are forced to find alternatives and its business is
down 45% from 20 years ago.
e. Other possibilities
i. A canal through Nicaragua, parallel to Panama Canal would
be free of locks.
ii. Canal through the Malay Peninsula would bypass the Strait
of Malacca and the Port of Singapore.
iii. War in the Balkans destroyed bridges on Danube River,
blocking fresh water transit between Black Sea and Northern
Europe.
iv. Fresh water transit between Mediterranean Sea and Northern
Europe.
v. Canal between Rhone River and Rhine River.3-2-3 Airport
Infrastructure
I. Runways
a. Runway size determines types of aircraft an airport can serve.
i. Long enough runways mean that an aircraft can handle jumbo
jets for long distance international operations.
ii. Many older major airports became landlocked by
development and could not be expanded to handle bigger jets.
b. Number of runways determines airport capacities.
II. Hours of Operation
a. Airports close to city must limit operations due to noise
constraints.
b. Cargo tends to fly mainly at night.
III. Warehouse Space3-2-4 rail infrastructure
I. Eighteenth century development of railroads often followed
military strategies.

a. Lines built for moving troops.
b. Varied gauges in Spain and Russia to slow down invaders.
II. China’s rail infrastructure has been unable to keep up with
economic growth.
III. Europe and Japan’s railroads have focused more on high-
speed passenger service than on freight.
IV. Multi-modal emphasis.
a. Factors contributing to renewal of merchandise traffic on
railroads:
i. Increased road congestion.
ii. Concerns about pollution and noise.
iii. Development of multi-modal containers.
b. Modernization of rail infrastructure:
i. Shift from boxcars to piggyback cars carrying truck trailers
and to container cars.
ii. Increasing of height clearances for tunnels and other
obstructions to allow doublestacking of containers.
iii. U.S. de-emphasis on passenger trains has allowed
development of freight railroading, including fast freight trains.
iv. In Europe, freight trains have lower priority than passenger
trains and use aging equipment.
v. There are plans to modernize the trans-Siberian railroad for
freight shipments from Asia (Vladivostok) to Europe by rail.
vi. There are plans for a trans-Asian railroad connecting
Singapore and Seoul to Europe via Turkey.
vii. Increased U.S. rail modernization has resulted in Land
Bridges, which allow Asia-Europe traffic to leave ships, be
transported across North America and be reloaded onto ships at
ocean on other side of continent.
1. Journey is faster and cheaper than by ocean.
2. Allows economies of scale by the use of post-Panamax ships
on Atlantic and Pacific routes.3-2-5 Road infrastructure
I. Paved roads do not always mean good roads.
II. Some paved roads are in bad shape.
III. Some cities have extensive road congestion.
IV. Cities in many countries do not have an easily determined

street numbering or naming system.
V. High-speed limit access highways sometimes limit truck
sizes and speeds and/or charge tolls.
VI. Civil Engineering Structures (Ouvrages d’Art)
a. Bridges, tunnels to overcome constraints of landscape.
b. Landscape constraints can have a major impact on
international trade.
c. A critical ouvrages d’art that is out of service can seriously
disrupt commercial operations.3-2-6 Warehousing infrastructure
I. Since cargo must often wait instead of being moved it is
important to have good warehousing infrastructure.
II. Warehousing must protect goods
a. From rain.
b. From sun.
c. From possible floods.
d. From unusual cold.
III. It is difficult to assess individual country’s public
warehouses as there is no directory of conditions.
3-3 Communication Infrastructure3-3-1 Mail services
I. Reliability of mail service differs among countries.
II. Safety of mail differs among countries.
III. Some companies are using arbitrage by shipping mail in
bulk to country with lowest postal rates and then doing bulk
mailings from that country.3-3-2 telecommunications services
I. Demand for voice and data telecommunications service has
been increasing.
II. In some countries the economy has grown but the
communication infrastructure has not.
a. In those countries Leap Frogging has taken place in that
people have bought cell phones to replace slow, outmoded
traditional telephone service.
b. This is occurring in Czech Republic and China.
III. Transoceanic cables are vulnerable to being snagged by
fishing nets and boat anchors.
IV. Satellite communications are vulnerable.

a. Capacity is eaten up by television broadcasting.
b. Single satellite failure can severely disrupt communications.
V. Internet is dependent upon operability of root servers.3-3-3
Internet services
I. Despite commerce relying on fast internet access, only 8.6
percent of the world has a high-speed connection to the internet
(Table 3-7).
3-4 Utilities Infrastructure3-4-1 electricity
I. Some developing countries have economic growth that
outpaces availability and reliability of electric power.
II. In sub-Sahara Africa there are scheduled power blackouts.
III. Utilities are frequently victims of theft as people bypass
meters or, as in the case of Russia, steal electrical wires for
scrap.3-4-2 water and sewer
I. Cities sometimes lose water through leaky pipes and illegal
siphoning.
II. Some cities have impure water which needs to be boiled
before use.
III. Some cities have inadequate sewage systems.
IV. Striking sanitation workers can cause problems.3-4-3 energy
pipelines
I. Easily accessible oil and gas fields are near the end of their
life expectancies.
II. Energy resources are increasingly being piped from further
away.
a. Distance makes for difficult operation.
b. There can be many obstacles
i. Weather
ii. Natural barriers
iii. Political issues
iv. Environmental challenges
v. Bickering between oil companies and governments in
countries where the pipelines are being built.
III. Infrastructure of world’s pipelines is growing.

3-5 Services Infrastructure3-5-1 banking
I. International trade can only take place if there is access to
competent international banks to process foreign-currency
transactions and letters of credit.
II. International banks have created networks of branches to
assist their customers.3-5-2 Logistics support
I. International logisticians need freight forwarders, packing
services, Customs brokers, etc.
3-6 Legal and Regulatory Infrastructure3-6-1 Courts
I. An efficient court system allows for disputes to be resolved
quickly and fairly.
II. The average duration for the resolution of a contract dispute
is 510 days in an OECD country.
III. Inefficient court systems lead companies to use mediators
and arbitrators.3-6-2 Intellectual Property
I. Intellectual property is not always protected in developing
countries:
a. There are more urgent problems
b. A large foreign company is not going to be favored over a
small local business.
II. Intellectual property defense has come to the forefront of
countries’ international agreements. 3-6-3 Standards
I. Unified standards of performance, design, and safety are
useful to businesses.
II. The United States tends to be different from the rest of the
world, with non-metric standards and standards that can vary
from state to state.
Suggested Homework
1. Assign students to do a report on the infrastructure
problems and opportunities in developing nations like China and
India and in former Soviet satellites in Eastern Europe.
2. Assign students to do a report on the future of airport

development. With terrorist-driven declines in air traffic will
there be a need for new airports? Are existing airports adequate
for current passenger and freight needs?
3. Assign students to do an evaluation of the infrastructure of
a country of their choice, using the CIA’s website as well as
others, in order to determine the state of the infrastructure of
that country.
4. Assign students to list the difficulties that an international
logistician would experience in mving goods from a country
with a developed infrastructure (transportation, communication
and utilities) to a country with a deficient infrastructure.
5. Assign students to do a report on the state of the
infrastucture in the United States and the expected growth in
commerce, both national and international, and the ability of the
infrastructure to accommodate such growth.Key terms
Infrastructure
A collective term that refers to all of the elements in place
(publicly or privately owned goods) that facilitate
transportation, communication, and business exchanges.
Panamax ship
A ship of the maximum size that can enter the locks of the
Panama Canal.
post-Panamax ship
A ship whose size is too large to enter the locks of the Panama
Canal.
air draft
The minimum amount of space between the water and the lowest
part of bridges that a ship nees in order to enter a port.
berth

The location, in a port, where a ship is loaded and unloaded.
dredging
The removal of sediments or soil from the bottom of a water
channel to increase its depth.
draft
The minimum depth of water that a ship needs in order to float.
list
A ship that leans to one side is said to list.
canal
A man-made waterway connecting two natural bodies of water.
runway
The strip of concrete in an airport from which airplanes take off
and land.
land bridge
A term coined to describe the practice of shipping goods from
Asia to Europe through the United States. By taking the
containerized goods to a West Coast port, loading them onto
trains, transporting them across the United States and loading
them again on a ship from an East Coast port, shippers avoid the
costs and delays of crossing the Panama Canal.
leap frogging
The idea that some countries will “skip” a particular technology
to adopt the most recent one available. For example, several
developing countries never had a reliable telephone
infrastructure; however, rather than spend funds on creating an
infrastructure based on land lines, they will build a cellular-
based phone system, thereby “leap frogging” the older
technology.
Possible Quiz Questions

1. Of the following, the best definition of logistics
infrastructure would be that it consists of ___.
a. all of the elements in place to facilitate transportation,
communication, and business exchanges
b. a country’s electrical supply and road network
c. the amount of computerization a country has
d. a developed banking system
ANS: A
Rationale: A country’s electrical supply and road network, the
amount of computerization a country has, and a developed
banking system are incomplete answers. Option “all of the
elements in place to facilitate transportation, communication,
and business exchanges” incorporates all aspects of logistics
infrastructure.
REF:3-1
2. Because some ports are becoming increasingly limited in
their ability to handle ever-larger ships it is possible that ___.
a. ship sizes will become smaller
b. massive government programs will do what is necessary to
upgrade the smaller ports
c. large ships will go to “hub” ports where “feeder” ships
will traverse to and from the smaller ports
d. ocean shipping costs will rapidly decline
ANS: C
Rationale: Given the cost advantages of economies of scale,
ship sizes will probably not become smaller; while ocean
shipping costs may or may not decline, it will not be directly
due to the obsolescence of some ports, and economically some
ports cannot be successfully upgraded to handle the big ships. It
is likely there will be a need to create large port hubs for large
ships, while smaller ports would service “feeder” ships.
REF:3-2-1

3. The busiest cargo airport in the world is ___.
a. London Heathrow
b. Denver International
c. Dallas-Fort Worth International
d. Hong Kong Chek Lap Kok
ANS: D
Rationale: The busiest passenger airport in the world is
Atlanta, and the busiest cargo airport in the world is Hong Kong
(vignette).
REF:3-2-3
4. Factors contributing to the rise of U.S. freight railroads since
about 1980 are ___.
a. road congestion, concerns about pollution and noise, and
development of the multi-modal container
b. higher train speeds, development of more custom service
by railroads, and concerns about terrorism
c. increased shipments of high-value goods like computers,
unreliability of air freight, and the building of new railroads
d. All of the above
ANS: A
Rationale: Freight train speeds have not increased noticeably;
most major railroads are not good at custom service, especially
for small shippers; terrorism has not caused a shift of freight to
rail; trains do not do well with high-value goods like computers;
air freight is reliable, and there has been little new railroad
construction. Railroad freight has grown due to road congestion,
concerns about pollution and noise, and development of the
multi-modal container.
REF:3-2-4
5. In the European Union, the goal for mail delivery sent to a
national address is ___.
a. two days

b. three days
c. D + 1
d. D + 2
ANS: C
Rationale: The goal is D + 1, or delivery on the day after the
letter is mailed.
REF:3-3-1
6. There are sometimes problems with electrical supply in ___.
a. Sub-Sahara Africa
b. Saudi Arabia
c. some parts of a developed country like the United States
d. All of the above
ANS: D
Rationale: All of these areas have had electrical supply
problems, including California.
REF:3-4-1
7. Regarding water availability in the infrastructure ___.
a. more than 95 percent of the world’s population has running
water
b. many cities have old leaky pipes
c. it is not important to economic development
d. All of the above
ANS: B
Rationale: Water is critical to economic development, indeed,
to supporting life. Less than 80 percent of the world population
even lives within one kilometer of clean water. However, many
cities do have old leaky pipes.
REF:3-4-2
8. As ships move through the Panama Canal, the locks they
traverse use an inordinate amount of fresh water, including

water from the reserve at ___.
a. Lake Panama
b. Guillard Lake
c. The Panama River
d. Gatun Lake
ANS:D
Rationale: The answer is Gatun Lake.
REF:3-2-2: The Panama Canal
9. As a defense measure to keep invading military troops from
using their railroads, Spain and Russia ___.
a. built explosives into bridges and tunnels
b. made drive controls in locomotives opposite to what they
were in the rest of Europe
c. developed widths between the rails (gauges) different from
those of the rest of Europe
d. All of the above
ANS: C
Rationale: To prevent possible invaders from using their
railroads, Spain and Russia developed railroad gauges that were
incompatible with those in standard use in Europe.
REF:3-2-4
10. Although there is no equivalent term in English, the French
term ouvrages d’art has to do with ___.
a. civil engineering structures
b. art museums
c. art galleries
d. telecommunications
ANS: A
Rationale: Ouvrages d’art—or art structures—is a term used for
civil engineering structures built and designed to eliminate the
constraints of the landscape.

REF:3-2-5PowerPoint SLide list
· Definitions (4 slides)
· Transportation Infrastructure ( 20 slides, 14 photographs)
· Communication Infrastructure ( 7 slides, 2 photographs)
· Utilities Infrastructure ( 2 slides, 1 photograph)
· Service Infrastructure (4 slides)
· Legal Infrastructure (3 slides)Additional REsources
Airwise: The Airport and Air Travel Guide,
http:www.airwise.com/airports/index.html
World Factbook, Central Intelligence Agency,
http://www.cia.gov/cia/publications/ factbook/index.html
The discussion example and question;
What is your position on the realities, as well as the pros and
cons of bio-fuel replacements for oil? Is the corn ethanol push
really a scam? Why or why not? What about biodiesel? Hint:
They are not the same.
1
Chapter 2
Marketing 4220

& Transportation
International Supply Chain Management
5/22/2015
1
International Logistics
Historical Development
Logistics & Supply Chain Management
Elements of International Logistics
Economic Importance of Logistics
International Reverse Logistics
2
Historical Development
3
The early “slow” days
The move toward speed
Customer satisfaction

A strategic advantage
The Early “Slow” Days
The first international logisticians were traders on the Silk
Road, a well-traveled trade route for over 3,000 years. It
stretched from Europe to Asia, passing through the Middle East.
The primary concern of early modern logisticians was to
ensure that goods arrived at their destination in good condition
and at the lowest possible cost.
Following World War II, logistics began to incorporate the
techniques used by the military.
The logistics definition of expanded to include the movement
of goods, procurement of supplies, sales and the management of
supplier and customer relationships.
4
The Move Toward Speed
The introduction of containers (“boxes”) in the late ‘50s, and
their eventual widespread adoption, made shipping much more
efficient, cheaper and faster.
In the ‘70s, new companies, such as FedEx and DHL,
introduced time-defined air shipping services, gaining a large
market share in domestic shipments.
In the ‘80s, international air shipments increased as costs
declined and the number of destinations escalated. Air transport
became cost-competitive with ocean transport for many

products.
5
5
Customer Satisfaction Emphasis
The very high interest rates of the 1980s led companies to
reduce inventory levels.
New inventory management techniques were created to reduce
inventory costs. Those techniques included:
Just-in-time (JIT)
Materials Requirement Planning (MRP)
Manufacturing Resources Planning (MRP II)
Distribution Resources Planning (DRP)
Since these techniques relied on rapid and reliable deliveries,
logistics firms provided reduced shipping times and time-
defined deliveries.
6
6
Just-In-Time Techniques
Just-in-time manufacturing is a process whereby parts are
planned to arrive on the assembly line just before needed. The
goal of this technique is to reduce or eliminate the need for
inventory.
It now includes the delivery of parts to the assembly plant just

before they are needed and the delivery of finished goods just as
the retail store is running out.
JIT has become part of standard operations management
practices in most manufacturing facilities.
JIT involves a risk if the supply chain is disrupted and
production may have to shut down due to lack of materials.
7
Computer-Based Tools
Materials Requirement Planning (MRP) and Manufacturing
Resources Planning (MRP II) are tools manufacturers use to
determine what to produce (or order from suppliers), how much
and when, to facilitate sales forecasts and pending customer
orders.
Distribution Resources Planning (DRP) is a tool retail firms
use to determine what to order from its suppliers, how much and
when, to facilitate sales to retail customers.
These tools are dependent on the reliable and efficient delivery
of relatively small shipments.
8
Transformation into a
Strategic Advantage
International Logistics management has become a
strategic advantage for the firms capable of:
Containing the costs of shipping, in view of increased fuel costs
Providing “visibility” in the supply chain, or the ability to
determine the location of a particular shipment at any time

Maintaining reliable, dependable deliveries
Ensuring the security of the goods while they are in transit
Engaging in sustainable practices
9
Sustainable Practices
Implementation of green practices by region of the world.
Source: IBM
10
Definitions
Logistics
Supply Chain Management
Evolution of Logistics
Relationship between Logistics and SCM
Logistics, International Logistics and SCM
11
Logistics
“Logistics is the part of the supply chain process that plans,
implements and controls the efficient, effective forward and
reverse flow and storage of goods, services, and related
information between the point of origin and the point of

consumption in order to meet customers’ requirements.”
Source: Council of Supply Chain Management Professionals
12
12
“Supply Chain Management encompasses the planning and
management of all activities involved in sourcing and
procurement, conversion, and all Logistics Management
activities. Importantly, it also includes coordination and
collaboration with channel partners, which can be suppliers,
intermediaries, third-party service providers, and customers. In
essence, Supply Chain Management integrates supply and
demand management within and across companies.”
Source: Council of Supply Chain Management Professionals
13
Evolution of Logistics
Source: Alfred Battaglia
14

Logistics / SCM Perspectives
Inclusionist Evolutionist Intersectionist
Logistics
SCM
Logistics
SCM
Logistics
SCM
Source: Larson and Halldorsson
Three different perspectives on the relationship between
Logistics and Supply Chain Management. The “inclusionist”
perception prevails today.
15
15
International Logistics,
Logistics and SCM

16
Elements of International
Logistics ( 1of 2)
The environment in which international logisticians operate is
quite different from the domestic environment.
The decisions regarding international transportation are much
more complicated than those regarding domestic transportation.
The number of intermediaries involved in an international
transaction is greater than in a domestic transaction.
The inherent risks and hazards of international transportation
are much greater.
17
Elements of International
Logistics ( 2 of 2 )
International insurance is much more complex
International means of payment remain complicated
Terms of trade can be convoluted
Border crossings involve specific challenges
18
Economic Importance of
Logistics in the U.S.
Source: State of Logistics Annual Reports 2000-2012

19
1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971
1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982
1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
2005 2006 2007 2008 2009 2010 14.7 14.6 14.9 15.2 15
14.7 14.4 14.7 14.4 14.1 14.7 13.8 13.5 14.3 15.3 13.5
13.4 13.4 14.3 15.3 16.100000000000001 16.2 14.5
13.3 13.4 12.4 11.6 11.4 11.5 11.7 11.4 10.6 10.1 9.9
10.1 10.4 10.3 10.199999999999999 10.1 9.9
10.199999999999999 9.4 8.6 8.5
8.6999999999999993 9.4 9.6999999999999993
9.9 9.4 7.8 8.3000000000000007 8.5
Economic Importance
of World Logistics
Source: Supply Chain Brain
(U.S.$ billions)
20
Europe North America Asia Pacific Central/South America
Other Countries 1445 1688 2248 453 1572
Reverse Logistics
Source: Lora Skarman
21

Reverse Logistics
The German approach: require companies
recycle all packaging and create a post-
consumer recycling program.
The Curitiba approach:
Use recycling as an anti-
Poverty program.
22
Fragmentation 1960 Evolving Integration 1980

Total Integration 1990 2000
Demand Forecasting
Purchasing
Requirements Planning
Physical
Distribution
Materials
Management
Logistics
Supply Chain Mgmt.
Production Planning
Manufacturing Inventory
Warehousing
Materials Handling
Industrial Packaging
Finished Goods Inventory
Distribution Planning
Strategic Planning
Customer Service
Transportation
Order Processing
Sales
Marketing
Information Technology
Fragmentation 1960 Evolving Integration 1980
Total Integration 1990 2000
Demand Forecasting
Purchasing
Requirements Planning
Physical
Distribution
Materials
Management

Logistics
Supply Chain Mgmt.
Production Planning
Manufacturing Inventory
Warehousing
Materials Handling
Industrial Packaging
Finished Goods Inventory
Distribution Planning
Strategic Planning
Customer Service
Transportation
Order Processing
Sales
Marketing
Information Technology

Domestic
Suppliers
Domestic
Customers
Foreign
Customers
Foreign
Suppliers
Company
Logistics
Domestic
Supplier
s
Domestic
Customer
s
Foreign
Customer
s
Foreign
Supplier
s
Company
Logistics

2-6
Chapter 2 International Supply Chain Management
2-7
Chapter 2 International Supply Chain Management
Chapter 2
International Supply Chain ManagementlEARNING
oBJECTIVES
Have a basic idea of the recent historical developments in the
practice of logistics.
Know the basic definitions of logistics and international
logistics.
Know the basic components of international logistics.
Recognize the economic impact of international logistics
activities.
Understand the processes of reverse logistics.Preview
This chapter lays the foundation of the importance of
international logistics in the context of supply chain
management. It demonstrates its history, basic definitions and
components, and its economic impact. The chapter lists later
chapters of the text where expansions on these various topics
occur. Also important to understand is the wide scope of
logistics functions, since many of them will be addressed
throughout the course.chapter outline
2-1 Historical Development of International Logistics
I. The term “logistics” is based on the physical movement of

goods
II. The modern interpretation of the term “logistics” has its
origins in the military
III. Business logistics include all the activities related to the
physical movement of goods (upstream and downstream) and
related paperwork
2-1-1 The Early, “slow” days
I. Very early international logisticians were traders who bought
and sold goods internationally (Silk Road, for example)
II. As trade expanded, international logistics grew
III. In the early days, international logisticians were concerned
about making sure that the goods arrived in good condition and
at the lowest possible cost2-1-2 The Move toward speed
I. The advent of containers in ocean trades (mostly 1960s and
1970s) lowered transit times substantially
II. International air shipments became an increasing percentage
of all shipments in the 1980s:
a. the number of destinations served by airlines grew
b. air shipments became increasingly cost competitive with
surface alternatives 2-1-3 The Emphasis on Customer
Satisfaction
I. In the 1980s, with very high interest rates, companies shifted
their emphasis to inventory reductions
II. International logisticians became ever more focused on
transit times in order to minimize inventory costs, raising the
expectations of customers
III. Fast delivery times facilitated the adoption of different
inventory management techniques: Just-In-Time, MRP and MRP
II2-1-4 The transformation into a strategic Advantage
I. In the 1990s, integration of logistics into supply chain
management
II. A differential advantage is sought by providing better
service, better delivery terms, providing greater flexibility
III. Sustainability efforts become more common, especially in
Western Europe and Asia, later in North America

2-2 Logistics and Supply Chain Management2-2-1 LOGISTICS
Logistics is the same as the (previous) CLM definition:
“Logistics is that part of the supply chain process that plans,
implements, and controls the efficient, effective forward and
consumption in order to meet customers' requirements.”2-2-2
Supply chain management
Supply Chain Management is defined in the same way as the
CSCMP definition:
“Supply Chain Management encompasses the planning and
demand management within and across companies.”
Comparison of the “Inclusionist,” “Evolutionist,” and
“Intersectionist” viewpoints yields a preference for
“inclusionist” (see Figure 2-5)
Battaglia’s Evolution of Logistics and SCM over time (see
Figure 2-4)2-2-3 International logistics
“The process of planning, implementing and controlling the
flow and storage of goods, services and related information
from a point of origin to a point of consumption located in a
different country.”2-2-4 international Supply chain management
Supply Chain Management is inherently global, with firms
buying from foreign suppliers or selling to foreign customers,
but domestic logistics activities and international logistics
activities are distinct and managed differently.
2-3 Elements of International Logistics
I. The environment in which international logisticians operate is
quite different from the domestic environment

II. The decisions regarding international transportation are
eminently more complicated:
a. International insurance is much more complex
b. International means of payment are more involved
c. Terms of trade are much more complicated
d. The crossing of borders represents specific challenges
e. Inventory is managed differently
III. The number of intermediaries involved is greater
IV. The inherent risks and hazards of international
transportation are much more significant.
2-4 The Economic Importance of Logistics2-4-1 lOGISTICS IN
THE United StATES
I. Logistics consumes a substantial portion of the United States
Gross Domestic Product.
II. American businesses have spent about US$ 1.4 trillion on
domestic logistical activities.
III. The percentage of the U. S. GDP has been decreasing.
a. 16.2% in 1982.
b. 8.5% in 2004.
c. 10.1% in 2007, due to rising energy costs.
d. but 8.5% again in 2011.
IV. There has been a development of increasing logistics
efficiencies.
a. Just-in-Time inventory management
b. Manufacturing Resources Planning and other methods have
reduced inventories.
V. More efficient transportation.
a. Containerization
b. Deregulation of U.S. transportation industry2-4-2 lOGISTICS
IN THE WORLD
I. Costs of logistics activities vary by region.
II. Logistics costs amounted to 20 percent of the Chinese GDP
in 2000, and they had only decreased to 18.3 percent in 2006.
III. Overall, logistics costs are approximately 10.4 percent of
worldwide GDP.2-4-3 INTERNATIONAL lOGISTICS

I. Difficult to estimate total value of international logistics.
II. Probably 15% of total international trade volume or about
US$ 2.7 trillion.
III. Value of monies collected through tariffs probably results in
US$ 1 trillion in revenues to the world’s governments.
2-5 International Reverse Logistics
I. Goods returned to the manufacturer for warranty work,
because they are “used up,” because they are defective, ...etc.
II. Some companies see reverse logistics as a cost saver, and/or
a strategic advantage.
III. Several countries mandate reverse logistics activities.Key
terms
Container
A large metallic box used in international trade that can be
loaded directly onto a truck, a railroad car or an ocean-going
vessel. The most common dimensions of a container are
8x8.5x20 feet and 8x8x40 feet, with some 45-footers, some
high-cube (9.5 feet high) and some 10-footers (shorts).
longshoreman
A person who performs manual labor in a port.
stevedore
A person who loads and unloads goods from a vessel in a port.
Distribution Resources Planning (DRP)
A computer-based management tool that allows a retail firm to
determine what to order from its suppliers in function of what it
sells to retail customers. Such information is shared with the
suppliers, so that they know, in turn, what to manufacture, and
in which quantity.
Just-In-Time
A management philosophy that consists of planning the

manufacturing of goods in such a way that they are produced
just before they are needed in the next step of the assembly
process, in order to minimize the amount of inventory that a
firm carries. The philosophy extends to supply parts, that need
to be delivered just before they are used in the assembly process
as well.
International logistics is the process of planning, implementing,
and controlling the flow and storage of goods, services, and
related information from a point of origin to a point of
consumption located in a different country.
International Supply Chain Management
Supply Chain Management encompasses the planning and
intermediaries, third-party service providers, and customers,
whether they are located in the United States or abroad. In
demand management within and across companies.
Logistics
Logistics is that part of the supply chain process that plans,
implements, and controls the efficient, effective forward and
consumption in order to meet customers' requirements
Manufacturing Resource Planning (MRP II)
A computer-based management tool that uses MRP at its core,
and that allows a manufacturing firm to determine what to
manufacture, and in which quantity, in function of what it sells
to its customers. MRP II also includes financial and cost

information and includes other functions in the firm, such as
procurement and purchasing.
Materials Requirement Planning
A computer-based management tool that allows a manufacturing
firm to determine what to produce, and in which quantity, in
function of what it sells to its customers. Such information is
shared with the suppliers, so that they know, in turn, what to
manufacture, and in which quantity.
Reverse Logistics
The management of the logistical activities involved in the
return of a product (or parts of it, including the packaging) to a
manufacturer.
Supply Chain Management encompasses the planning and
demand management within and across companies.PowerPoint
SLIDES – STUDY THEM – PRINT THEM OUT !
· Historical Development of International Logistics (8 slides)
· Logistics, Supply Chain Management, International Logistics,
and International Supply Chain Management (5 slides)
· Elements of International Logistics (2 slides)
· The Economic Importance of Logistics (2 slides)
· Reverse Logistics (2 slides)Additional Resources
Three remarkable sources on the evolution of the container were
published on the occasion of its fiftieth anniversary:
Levinson, Marc, The box; how the shipping container made the
world smaller and the world economy bigger, Princeton

University Press, Princeton, New Jersey, 2006
Cudahy, Brian J., Box boats: how containerships changed the
world, Fordham University Press, New York, New York, 2006
Donovan, Arthur, and Joseph Bonney, “The box that changed
the world,” The Journal of Commerce - Commonwealth
Business Media, New York, New York, 2006
Rosalyn Wilson’s report on the state of the industry:
Wilson, Rosalyn, 24thAnnual State of Logistics Report: Is This
The New Normal, Council of Supply Chain Management
Professionals, June 19, 2013, http://cscmp.org/member-
benefits/state-of-logistics.
and the website of the Council of Supply Chain Management
Professionals:
http://www.cscmp.org

How large an impact has international trade had on your own
life, with the products that you own or have purchased in the
recent past. Is your quality of life better or worse? Why?
1
Chapter 1
Marketing 4220
& Transportation
International Trade
5/21/2015
1
International Trade
International Trade Growth
International Trade Milestones
Largest Exporting and Importing Countries
International Trade Drivers
International Trade Theories
International Business Environment
2

International Trade Growth
1953 - 2013
3
International Trade Milestones
Bretton-Woods Conference (1944)
Creation of the International Monetary Fund (1945)
First General Agreement on Tariffs and Trade (Geneva, 1948)
Multiple reductions on tariffs: GATT’s Kennedy Round (1964-
67), Tokyo Round (1973-79) and Uruguay Round (1986-94)
Treaty of Rome (1957)
World Trade Organization (1995)
Creation of the Euro (1999); placed in circulation (2002))
4
Major Exporting Countries
CountryExports (US$ billions) Percentage
China2,048,81411.2%United
States1,547,2838.4%Germany1,407,0987.7%Japan798,5674.4%
Netherlands655,8413.6%France569,0653.1%Korea
(ROK)547,8703.0%Russian
Federation529,2552.9%Italy500,2392.7%Hong Kong,
China493,3662.7%United
Kingdom468,3702.6%Canada454,8402.5%Belgium446,3022.4%
Singapore408,3932.2%Mexico370,9152.0%India293,2141.6%Re
st of the World6,783,56837.0%World18,323,000100.0%
5

Major Importing Countries
CountryImports (in US$ billions)PercentageUnited
States2,335,37512.6%China1,818,0699.8%Germany1,167,4236.
3%Japan885,8454.8%United
Kingdom680,4093.7%France673,7093.6%Netherlands590,6893.
2%Hong Kong, China554,2223.0%Korea, Republic
of519,5842.8%India489,3642.6%Italy485,8902.6%Canada474,9
002.6%Belgium434,8472.3%Mexico380,4772.0%Singapore379,
7232.0%Russian
Federation335,4461.8%ROW6,361,02834.3%World18,567,0001
00.0%
6
International Trade Drivers
Cost Drivers
Companies increase their sales worldwide to recover their high
investment costs.
Competition Drivers
Companies enter foreign markets to keep up with their
competitors, retaliate against them or enter a market first.
Market Drivers
Companies enter foreign markets because their customers
expect them to be present in those countries.
Technology Drivers
Companies enter foreign markets because their customers use
technology to make purchases from these markets
7
Cost Drivers
Automobile production is dominated by 18 companies - (85

percent of all automobiles worldwide)
Automobile production is concentrated in 15 countries - (87
percent of production in the world . . .and yet -
Automobiles are sold in 143 countries.
8
Competition DriversThe way Carrefour and Wal-Mart split the
world
Countries in which both
are presentArgentina, Brazil, China, India, Japan.Countries in
which only Carrefour is presentAlbania, Bahrain, Belgium,
Bulgaria, Cyprus, Egypt, France, Georgia, Greece, Indonesia,
Iran, Iraq, Italy, Jordan, Kuwait, Lebanon, Macedonia, Monaco,
Malaysia, Morocco, Oman, Pakistan, Poland, Portugal ,Qatar,
Romania, Saudi Arabia, Spain, Slovakia, Slovenia, Syria,
Taiwan, Tunisia, Turkey, United Arab Emirates. Countries in
which only
Wal-Mart is presentBotswana, Canada, Chile, Costa Rica,
Ghana, Guatemala, Honduras, Lesotho, Malawi, Mexico,
Mozambique, Namibia, Nicaragua, Nigeria, South Africa,
Tanzania, Uganda, United Kingdom, United States, Zambia.
9
Market DriversNumber of countries in which selected
companies are presentMcDonald’s Restaurants118Hilton
Hotels91Benetton Stores120Cartier Jewelry Stores125Accor
Hotels92Exxon-Mobil Gas Stations100+

10
International Trade Theories
Adam Smith’s Theory of Absolute Advantage
David Ricardo’s Theory of Comparative Advantage
Eli Hecksher and Bertil Ohlin’s Factor Endowment Theory
Raymond Vernon’s International Product Life Cycle Theory
Michael Porter’s Cluster Theory
Yossi Sheffi’s Logistics Cluster Theory
11
Theory of Absolute Advantage
If a country can produce a certain good more efficiently than
other countries, it will trade with countries that produce other
goods more efficiently.
In this case, both countries are using the same amount of labor
to produce these alternatives. France will specialize in making
wine, and Germany will specialize in making
machinery.WineMachineryFrance20,0002Germany15,0003
12
Comparative Advantage Theory
Nations will trade with one another as long as they can produce

certain goods relatively more efficiently than one another.
The UK has an absolute advantage in both machinery and wheat.
However, in the UK, the relative price of 1 unit of machinery is
5 tons of wheat, and in Brazil, it is 7 tons of wheat.
The nations will trade: If the UK sells 1 unit of machinery to
Brazil for 6 units of wheat, both the UK and Brazil are better
off. The UK has a comparative advantage in producing
machinery, Brazil in growing wheat.CountryTons of
WheatUnits of MachineryUK255Brazil213
13
Factor Endowment Theory
A country will enjoy a comparative advantage over other
countries if it is naturally endowed with a greater abundance of
one of the factors of economic production.
CountryAbundanceAdvantageArgentinaGrazing
LandBeefIndiaEducated LaborCall centersUSAEconomic system
where entrepreneurship is rewardedInnovation & development
of intellectual propertyFactors of Economic Production1.
Land2. Labor3. Capital4. Entrepreneurship
14
International Product
Life Cycle Theory
Over its product life, a product will be manufactured in
different countries, in stages, generating trade among these

countries.
Stage 1
Product is created in a developed country, using new technology
and serving a market need.
Stage 2
As sales grow, competitors begin to make similar products in
other developed countries, responding to local needs.
Stage 3
Product manufacturing has become routine, costs need to be
reduced and production moves to developing countries.
15
Life Cycle Theory Example
16
Cluster Theory & Examples
Competitive clusters form when companies in the same
industry, as well as their suppliers, concentrate in one
geographic area. When this happens, the companies “feed” on
each other’s know-how, pushing them to innovate faster. They
become so efficient and innovative that they become world-
class suppliers.Cluster ExamplesSilicon Valley, California, U.S.
– Information technologySassuolo, Italy – Ceramic tilesGenève,
Switzerland – WatchesYiwu, China – Socks & hosiery

17
Logistics Cluster Theory
Logistics clusters form when logistics companies concentrate in
one geographic area. When this happens, the companies allow
manufacturers to operate more efficiently, since all the
services they need to ship are located in one area.
The logistics suppliers, even though they are competitors,
actually help each other attract new customers.
Logistics Cluster ExamplesSingaporeMemphis, USARotterdam,
The NetherlandsZaragoza, Spain
18
International Business
Environment
To be successful in international logistics, not only is it
important to have an understanding of logistics, but also
fundamental to understand the international environment.
This can be achieved by a) learning a foreign language, b)
taking courses in international economics, international finance,
inter-cultural communications and international marketing, c)
traveling frequently, d) meeting foreign nationals, and e)
making an effort to understand the current environment in
foreign countries.
19

19
1-2
Chapter 1: Introduction
1-3
Chapter 1: Introduction
Chapter 1
IntroductionlEARNING oBJECTIVES
Recognize the exponential growth of international trade in
recent decades and the reasons for it.
Acquire a basic idea of ancient and recent historical
developments in the practice of logistics.
Know the basic theories of international trade.
Know the basic explanations for international trade.
Have a cursory exposure to the international business
environment.
Preview
This chapter lays the foundation of international trade, by
reviewing its remarkable growth since the mid-twentieth
century, as well as identifying the “main players” in world
trade. An important foundation of this course is to understand
the nature of international trade and why it is beneficial to
countries. It therefore reviews the traditional trade drivers (cost,
competition, market, and technology), as well as the main
theories of international trade: the classic absolute advantage,
comparative advantage and factor endowment theories, but also
the International Product Life Cycle, and the cluster theory,
including the variation introduced by Sheffi in 2012. Finally,
the chapter closes on a description of the elements of the
international business environment.
chapter outline

1-1 International Trade Growth
I. International trade has grown 3,180 percent from 1948 to
2012 [it is 32.8 times larger] (in constant dollars)
a. From $ 518 billion per year (exports) in 1948 to $ 22,670
billion in 2012
b. Merchandise trade has almost quintupled [4.9 times] from $
3,766 billion in 1992 to $ 18,323 billion in 2012
c. Services trade has almost quintupled [4.7 times] from $ 932
billion in 1992 to $ 4,347 billion in 2012
II. The creation of multiple international institutions facilitated
international trade
III. Reduction in transportation costs and transit times
IV. Greater acceptance of “things foreign”
1-2 International Trade Milestones
I. Development of important treaties and organizations
a. Bretton Woods Conference, July 1944, created International
Monetary Fund (IMF), December 1945
i. International payment system
ii. Stable currency exchange rates
b. General Agreement on Tariffs and Trade (GATT), 1949–94
resulted in gradual reduction of average tariff from over 40
percent in 1947 to about 4 percent in 2008
c. World Trade Organization (WTO), January 1995
i. Replaces GATT
ii. Enforces free trade
II. Treaty of Rome, 1957, forerunner of European Union
III. The creation of other trade blocs (NAFTA in particular)
IV. Introduction of the euro as currency, 2002
1-3 Largest Exporting and Importing Countries
I. Mostly a review of Figures 1-4 and 1-5, with an emphasis on
the relative ranks of the United States as an exporter (second

after China, and slightly ahead of Germany) and as an importer
(first, in front of Germany and China)
II. Emphasis on the imbalance between the value of exports and
imports for several countries (trade surpluses and trade deficits)
1-4 International Trade Drivers
1-4-1 Cost Drivers
I. Export
a. Some companies require large capital investments in plants
and machinery
b. Strong incentive to spread the costs of these fixed costs over
a large number of units
II. Import / Outsourcing
a. Some companies, in response to consumer demands, attempt
to offer goods at the lowest possible price
b. Strong incentive to lower production costs
c. Several business processes are outsourced abroad
1-4-2 Competition Drivers
I. Companies follow their domestic competitors abroad to
maintain their world-wide market share
II. Companies retaliate against foreign competitors entering
their home market by going to these competitors’ home markets
III. Companies counter a competitor’s new product entry by
offering a similar product, often produced abroad
1-4-3 Market Drivers
I. Consumers’ tastes and preferences have become increasingly
uniform worldwide
II. Consumers have become increasingly knowledgeable about
products and willing to try new foreign alternatives
1-4-4 Technology Drivers
I. Diffusion of information is universal
II. Competition for products is worldwide: the Internet allows
people to trade with one another
III. Competition for talent and employees is worldwide: “The
World Is Flat” written by Thomas Friedman

1-5 International Trade Theories
1-5-1 Absolute Advantage
Adam Smith’s Theory of Absolute Advantage (The Wealth of
Nations, 1776)
When a nation can produce a certain type of goods more
efficiently than other countries, it is in its best interest to
manufacture more of those goods than it needs, and trade with
countries that produce other goods more efficiently than that
nation can. Table 1-7 gives a numerical example.
1-5-2 Comparative Advantage
Ricardo’s Theory of Comparative Advantage (On the Principles
of Political Economy and Taxation, 1817)
a. Nations trade with one another when they can produce certain
goods relatively more efficiently than one another
b. Most international trade today is explained by the Theory of
Comparative Advantage
c. Table 1-8 gives a numerical example
1-5-3 Factor Endowment
Factor Endowment Theory developed by Hecksher and Ohlin
(1933)
d. A country will enjoy a comparative advantage over other
countries if it is naturally endowed with a greater abundance of
one of the factors of economic production, such as land, labor,
capital or entrepreneurship
e. Explains why certain countries specialize in the production of
certain products
f. Table 1-9 gives numerical examples based on actual data
1-5-4 International Product Life Cycle
International Product Life Cycle Theory developed by Raymond
Vernon (1966)
Over its life cycle, a product will be manufactured first in the
country in which it was first developed, then in other developed
countries, and eventually in developing countries. Figure 1-6
explains it graphically

1-5-5 Cluster Theory
Porter’s Cluster Theory (1980)
A firm can develop a substantial competitive advantage in
manufacturing certain goods when a large number of its
competitors and suppliers are located in close proximity
The area attracts the most talented employees and the
extraordinary competition between the firms generates a greater
need to innovate and become efficient
Such a grouping of companies is called a cluster
1-5-6 Logistics Cluster Theory
Sheffi’s Logistics Cluster Theory (2012)
An area can develop a substantial competitive advantage by
providing several logistics service providers in one area. The
area then attracts export- and import-minded manufacturers.
Such a grouping of trade-minded companies is called a logistics
cluster
1-6 The International Business Environment
I. Culture
II. Demographics
III. Economics
IV. Regulations and Laws
V. Infrastructure
VI. Communications
VII. .....much of the international business environment is
different from the domestic environmentKey terms
international trade
The sale of goods and services across international borders.
constant dollars
Dollars adjusted for inflation so that it is possible to compare
dollar values from one period to another.
current dollars
Dollars not adjusted for inflation. Their value is determined by
the year they were actually received or paid.

World Trade Organization
The international organization responsible for enforcing
international trade agreements and for ensuring that countries
deal fairly with one another.
Bretton-Woods
A 1944 conference at which many of the international
institutions were created.
International Monetary Fund
The international organization created in 1945 to oversee
exchange rates and develop an international system of
payments.
General Agreement on Tariffs and Trade
An agreement between countries to lower tariffs and trade
barriers.
tariff
A tax collected by an importing country on the value of
imported goods.
Treaty of Rome
The treaty between six European countries that created the
European Union.
Maastricht Treaty
A 1992 Treaty between the European Union countries in which
a number of standards were adopted, including a standard
currency.
euro
The common currency of 17 of the 27 countries of the European
Union. Updates on the number of countries that have adopted
the euro can be found at the European Bank’s Web site,

http://www.ecb.europa.eu/euro/html/index.en.html.
trade deficit
A situation where the total exports of a country are worth less
than its total imports.
trade surplus
A situation where the total exports of a country are worth more
than its total imports.
cost driver
One reason a firm may go international is to spread its costs
over a large number of units.
outsourcing
A practice which consists of a business contracting with other
businesses to have them perform some of the operations that it
used to handle in-house. It decided that these operations were
deemed unessential to its core competency.
reshoring
The practice of returning to the home country the manufacturing
processes that had been outsourced abroad.
competition driver
One reason a firm may go international is to compete more
aggressively against its foreign competitors.
market driver
One reason a firm may go international is to follow its
customers when they travel abroad.
technology driver
One reason a firm may go international is to respond to
technologically savvy customers who buy products worldwide.

absolute advantage
An economic theory developed by Adam Smith that holds that
when a nation can produce a certain type of good more
efficiently than other countries, it is in its best interest to
manufacture more of those goods than it needs, and to trade
with countries that produce other goods more efficiently than
that nation can.
comparative advantage
An economic theory, developed by Robert Torrens and David
Ricardo, that holds that nations will trade with one another as
long as they can produce certain goods relatively more
efficiently than one another.
factor endowment
An economic theory, developed by Hecksher and Ohlin, that
holds that a country will enjoy a comparative advantage over
other countries if it is naturally endowed with a greater
abundance of one of the factors of economic production, such as
land, labor, capital, or entrepreneurship.
international product life cycle
An economic theory, developed by Raymond Vernon, that holds
that, over its life cycle, a product will be manufactured first in
the country in which it was first developed, then in other
developed countries, and eventually in developing countries.
cluster
An observation, first made by Michael E. Porter, that a firm can
develop a substantial competitive advantage in manufacturing
certain goods when a large number of its competitors and
suppliers are located in close proximity, because the area then
attracts the most talented employees, and the extraordinary
competition between the firms generates a greater need to
innovate and become efficient. Such a grouping of companies is
called a cluster.

logistics cluster
An observation, made by Yoshi Sheffi in 2012, that an area can
develop a substantial competitive advantage by providing
several logistics service providers in one area. The area then
attracts export- and import-minded manufacturers. PowerPoint
SLIDES – STUDY THEM – PRINT THEM OUT !
· International Trade Growth (1 slide)
· International Trade Milestones (1 slide)
· Largest Exporting and Importing Countries (2 slides)
· International Trade Drivers (4 slides)
· International Trade Theories (8 slides)
· The International Business Environment (1 slides)
Additional Resources
Friedman, Thomas, The World Is Flat: A Brief History of the
Twenty-first Century, Farrar, Strauss and Giroux, New York,
New York, 2005.
Porter, Michael E., The Competitive Advantage of Nations, The
Free Press, New York, New York, 1990.
Sheffi, Yossi, Logistics Clusters: Delivering Value and Driving
Growth, MIT Press, Cambridge, Massachusetts, 2012.
Lustig, Myron W. and Jolene Koester, Intercultural
Competence: Interpersonal Communication Across Cultures, 6th
Edition, Allyn and Bacon, Pearson Education, Boston, 2009.
Daniels, John, Lee Radebaugh and Daniel Sullivan,
International Business: Environment and Operations, Prentice-
Hall, Upper Saddle River, New Jersey, 2010 (13th Edition)
Nicoleta-Lascu, Dana, International Marketing, Cengage
Learning, Cincinnati, Ohio, 2009 (3rd Edition).
as well as a the “classics”:

Smith, Adam, An Inquiry into the Nature and Causes of the
Wealth of Nations, Bantam Classics, 2003.
Ricardo, David, On the Principles of Political Economy and
Taxation, Dover Publications, 2004.
Ohlin, Bertil, Interregional and International Trade, 1933,
reproduced in Samuelson, Paul A., Heckscher-Ohlin
International Trade Theory, MIT Press, 1991.
Vernon, Raymond, “International Investment and International
Trade in the Product Life Cycle,” Quarterly Journal of
Economics, May 1966, 80(2), pp. 190-207.
and the following Web sites:
http://www.cia.gov (Central Intelligence Agency)
http://www.wto.org (World Trade Organization)
http://www.imf.org (International Monetary Fund)
http://www. ecb.int (European Central Bank)
http://www.culturegrams.com/ (Brigham-Young’s
CultureGrams)
http://www.gapminder.org (Gap minder)
http://www.stat-usa.gov (United States Department of
Commerce, some databases require a subscription)
http://www.euromonitor.com (Euromonitor, subscription
required)

Industrial cluster cities and countries could have natural
advantages like the availability of raw materials, or man-made
advantages caused by entrepreneurs from the same city or the
preferences of the country's community. An example of a
cluster caused by the preferences of the people in the same city
would be Paris, France, as it has large perfume brands like
Channel and Dior. Hollywood would be an example of
entrepreneurs making a cluster. Hollywood is known to be the
home of film making studios like Paramount, Warner Bros and
Columbia.
COLLAPSE
Top of Form
In addition to the clusters of Silicon Valley of the U.S. and
Sassuolo, Italy, Michael Porter identified a cluster for printing
presses in Heidelberg, Germany. Others have written about
clusters in Limoges, France for porcelain and in Valenza Po,
Italy, for gold jewelry. What characteristics do industrial
clusters have that other cities do not have? Can you think of
other industrial clusters in the United States or abroad?
Bottom of Form

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