Explain the advantages and disadvantages between the logistics of delivering a product to a local, national and international Market.
In today’s global environment where consumers are able to source from different producers all over the world, the key to being successful lies in being able to move the commodities efficiently. According to Milton Friedman in his theory of a flat world, countries and economies are able to compete with each other with relative ease because the traditional barriers such as geographic boundaries and tariffs are slowly being disregarded by technological advances (Basker 2005). This essential means that in gauging the competitiveness of a company in the context of the global market, the firm must be able to attain to understand its competitive advantage (Hicks 2005). In doing so, one factor that plays a crucial role is in ascertaining the advantages and disadvantages of delivering a product to a local, national and international market.
In arriving at a better understanding of this issue, it is necessary to examine the different factors that affect one market but may not necessarily have an impact of other markets. The reason for this is that certain factors that affect the logistics in one market may or may not be present in another market. This is critical in this analysis because the presence or absence of such factors could either prove to be an advantage or disadvantage (Hicks 2005). This short discourse will therefore attempt to shed more light on this issue by discussing each market separately and will outline the basic differences in the conclusion.
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The logistics of delivering a product in a local market may seem simple enough but it may also be difficult given the geographic layout of the market. Companies located in countries that are contiguous and have a good infrastructure system have a clear advantage in this area because it allows the transfer of products with relative ease. The availability of mass product delivery systems such as trains and large trucks allow the company to cut down on the cost of delivering the product per unit (Hausman 2005). It must be noted, however, that such advantage is not present in a country that is not landlocked or rather has an archipelagic structure such as Indonesia.
Another advantage for local deliveries is that the exchange rate is stable. There is only one currency in effect and such is not subject to any exchange rate fluctuations which affect the final cost of products (Hausman 2005). In line with this, since the deliveries are local there are also no local tariffs that are present which further reduce the cost of delivering.
The problem with local deliveries, however, lies in the fact that it is a limited market. By delivering solely to a local market, companies are not able to tap into the larger market and can only grow so much (Basker 2005). While this may remain stable from a logistics perspective, it may also reduce the competitiveness of a company.
The national market on the other hand provides an advantage that is not present in the local market, which is the volume of deliveries. As previously discussed, cost per unit delivered is reduced with volume. In a local market, such a volume is not present and therefore the cost of delivery per unit may be much higher. In the national market, there is a certain amount of volume involved that makes it cheaper to deliver (Hicks 2005). The availability of other modes of delivering such as airplanes and cargo vessels can reduce the delivery cost of the product and result in a cheaper product when it reaches the consumer.
While national deliveries may be cheaper due to the volume involved, the disadvantage lies in the fact that there is simply much more that has to be considered on a national scale. Logistics wise, there will not only be a problem with making sure that all the orders are the correct volume or the product is of the guaranteed quality, but also the issue on the presence of local distribution centers must be considered. It is simple enough to deliver to one consumer in the national market but when it involves the redistribution to other consumers within that area the problems begin to arise (Hausman 2005). This problem is not limited to redistribution but also with the guaranteed delivery time and the quality of the product as well, depending on whether or not these are perishable items.
Finally, in international markets, the logistics scenarios are clear in that the delivery cost is subjected to many variables such as existence of tariffs, trade quotas, exchange rate fluctuations, delivery times and geopolitical factors (Nene 2005). Tariffs can add to the final cost of the product and trade quotas can increase the delivery time. Exchange rate fluctuations are also an important factor to consider since they can adversely affect the desirability of the product and also increase the delivery cost (Nene 2005).
Most important perhaps would be the geopolitical factors that will affect the delivery. In case the international market becomes compromised by political instability, the company involved will be hard pressed to enforce claims since these may be subject to international laws. Other international standards also have to be met and may add to further delivery expenses (Nene 2005).
This comparison and analysis of the advantages and disadvantages of delivering a product to different markets clearly illustrates one thing, that as the market becomes larger the logistics involved become more difficult. The upside of delivering to a larger market, however, is that it enables the company to tap into a larger consumer base and hence derive more profits in the long run (Basker 2005). The risk that is involved is oftentimes offset by the large profits that may be reaped in such markets (Basker 2005). The one thing that is clear, however, is that any company that wishes to tap into these larger markets must have a good logistics plan on how to deliver the end product to the consumer.
Basker, E. (2005). Job Creation or Destruction? Labor-Market Effects of Wal-Mart Expansion. The Review of Economics and Statistics, 87, 174-183
Hausman, J. & Leibtag, E. (2005). Consumer Benefits from Increased Competition in Shopping Outlets. Economic Research Service, U.S. Department of Agriculture.
Hicks,M. (2005) “The Impact on Local Fiscal Health: Evidence from a Panel of Ohio Counties.” Econ WPA Economics Working Papers. (Urban/Regional Archive No. 0511016)
Nene, G. (2005). The Effect of Wal-Mart on the Economic Growth of Nebraska Counties. Master of Sciences Thesis, Agricultural Economics: University of Nebraska-Lincoln.
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