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Various Aspects Of Integrated Logistics Economics Essay

A New Zealand entrepreneur is planning to launch a business in Western Europe; Japan; China and CIS/Eastern Europe and they have appointed you as a consultant to advice on opportunities and challenges facing firms seeking to perform logistics activities in the above mentioned countries. (Your answer should not exceed 1500 words)
Global Logistics Opportunities and Challenges
Western Europe consists of United Kingdom, Netherlands, Belgium, Luxembourg, France, Germany, Italy, Ireland, Denmark, Norway, Sweden, Finland, Austria, Switzerland, Portugal, Spain, Greece, Malta and microstates of Vatican City, San Marino, Monaco, Andorra and Liechtenstein. Western Europe is considered as major contributor of the European economy. Its determining characteristics are common currency, tax equalization, political homogenization and standards homogenization. Logistically speaking Western European markets offer a great opportunity for exploiting economies of the scale and size in moving goods throughout the Europe opting from a number of transportation modes. European transport networks have grown because of deregulation of transportation; shipments, optimal route and plan scheduling, and the development of national services. The number of long-distance transports has grown significantly with the largest share of freight transports as road transports. The preferred modes of transportation in the area are roads and rails, closely followed by sea freight. In addition, the ‘Chunnel’ links the UK with the rest of Europe reducing the transportation cost to a great extent.
Figure 1: Logistics Hubs in Western Europe Source: (“DHL Discover Logistics,” n.d.-a)
The logistics systems in Western Europe are characterized more by political change associated with EU enlargement than by geographic features. In Western Europe transport, storage, packaging and administrative jobs are becoming noticeably more efficient due to uniform regulations. The transport networks are very well developed but average shipping distances have grown principally in the wake of the European Union’s enlargement. Outsourcing activities are increasingly affecting logistics in Western Europe because companies no longer consider logistics to be a core business. Instead, larger distribution networks are developing at a rapid pace. Global firms prefer vertical integration and go for direct marketing and distribution in order to reduce inventory and total logistics costs. The changes in the logistics sector have generated challenges of increased efficiency in shipping, packaging and labelling. Here, the reduction of customs processing plays a critical role. In addition, technological improvements throughout Europe are almost uniform and not just clustered in individual countries. As a result, order processing, inventory management, warehousing and IT technology are being further centralized. In nutshell, the competitive situation in Western Europe is intense as compared to the rest of Europe.
Japan Japan has evolved into an economic powerhouse of Asia and created a highly developed logistics system in spite of challenging geographic conditions. On one hand, such a system is necessary to offset the Japanese islands lack of raw materials. On the other hand, it is the foundation for expanding the positive growth of the export nation. The country’s main manufacturing and therefore, logistics hub lies in a triangle around the cities of Tokyo, Nagoya and Osaka on the island of Honshu. Air transport, in particular, plays an important role here. The most important means of freight transport in Japan are road transports and coastal shipping. Almost ninety percent of the transport is carried by trucks. The role of rail transports is almost non-existent. But this could change in the years ahead. A portion of sea freight has been shifted to air transport in recent years. As a result of this shift, international air transports on trans-Pacific routes have climbed tremendously.
Compared with other industrial countries, Japan’s distribution system is very complex and inefficient leading to high distribution costs. Most aspects of goods distribution in
Figure 2: Logistics Hubs in Japan Source: (“DHL Discover Logistics,” n.d.-b)
Japan is tightly regulated by the government. Joint distribution is typical; competitors who make deliveries to the same businesses tend to use joint delivery capacities and trucks. The logistics market in Japan is opening up to international service providers which are already successfully competing against Japanese companies in areas such as storage, distribution and complex contract logistics. The major logistics challenge is traffic congestion in metropolitan areas around the industrial hub. Just-in-time systems require small and frequent shipments to meet customer requirements. The distribution system in Japanese market is characterised by non-store channels, carrying least inventory. It is helpful in introducing new products through mail order, catalogue sales, and tele-shopping. Shared distribution system is common among competitors. Uniform palletization is used to avoid complicacy in operations.
China China’s logistics market is opening up gradually to the outside world. Logistics enterprises are reorganizing and integrating in the competitive environment. It is more and more obvious that state owned, private owned and foreign funded enterprises are surviving and thriving in the competitive markets. With the increasing demand of logistics, the logistics service for enterprises is changing from low value fundamental services to the high value added services. Logistics infrastructure, integrated logistics, traffic and transportation, and delivery services provide huge investment opportunities. However, the related risks must be put into account, and firms should be cautious when choosing investment projects.
Figure 3: Logistics Hubs in China Source: (“DHL Discover Logistics,” n.d.-c)
In some parts of China, due to advancement in technology, the road network now approaches Western standards. Modern freeways have been built in the Pearl River delta as well as in Shanghai and Beijing. Parts of this network extend far into the country’s interior but the standards and quality of the road drops as we move away from the cities particularly in the areas located away from the metropolitan areas. As a result of the underdeveloped infrastructure outside the metropolitan areas, logistics costs are high in an international context. In comparison to other means of transport, the rail network is almost inappropriate for logistics operations due to poorly built rail lines. For example, a container takes five days to journey by train from Hong Kong to Shanghai (“DHL Discover Logistics,” n.d.-c). A transport by ship takes about the same amount of time, but is much cheaper. Rail transports play a major role only in the shipment of bulk cargo like coal or iron ore. As a result, rail transports are not particularly attractive to international companies for general logistics operations.
The key challenges for the Chinese logistics industry are:
Poor infrastructure: insufficient integration of transport networks, information technology (IT), warehousing and distribution facilities.
Regulation: exist at different tiers, imposed by national, regional and local authorities and often differ from city to city, hindering the creation of national networks.
Bureaucracy and Culture: companies need to build links with political agents at various levels. Moreover, it is difficult to repatriate profits back to home country.
Poor training: in logistics sector and the manufacturing and retailing sectors, both at a practical level, i.e., IT, transportation and warehouse as well as at a higher strategic level.
Information and communications technology: lack of IT standards and poor systems integration and equipment. At a very basic level, there is no consistent supply of energy.
Undeveloped domestic industry: logistics sector is fragmented and dominated by commoditized and low quality transport and warehousing, unable to meet the growing supply chain demands for industrial and commercial enterprises.
High transport costs: almost 50% more than Japan, Europe and North America, mainly due to high tolls on roads. Logistics costs (including warehousing, distribution, inventory holding, order processing, etc.) are estimated to be two to three times the normal.
Poor warehousing and storage: high losses, damage and deterioration of stock, especially in the perishables sector.
Regional imbalance: of goods flows from the developed east of the country to the more undeveloped west leading to higher costs for haulage companies which are then passed on to their clients.
Domestic trade barriers: besides lowered trade barriers such as tariffs and quotas for international shipments, there are still problems such as unofficial border tolls from an inland manufacturing location to a port city or vice versa.
Commonwealth of Independent States (CIS) and Eastern Europe Four out of fifteen former Soviet Republics belong to CIS are in Europe: Russia, Ukraine, Belarus, and Moldova. Eastern Europe is made up of Poland, Czechoslovakia, Hungary, Romania, Bulgaria, Serbia, Croatia, Slovenia, Bosnia, Macedonia, Albania, and the Baltic states of Lithuania, Latvia, and Estonia. The countries of Eastern Europe occupy a strategically central position on the continent and are located at Western Europe’s interface with Russia. As a result of the European Union’s enlargement to the east, they are increasingly serving as a bridge. As a result, many manufacturing companies have moved their production facilities to Eastern Europe for cost reasons. Logistics service providers entered either following these companies or to exploit the new markets by carrying out mergers or acquisitions. The opportunities for the companies interested in entering these markets vary significantly from country to country. Although, these countries have relatively well developed transport networks but they do not meet western European standards. Despite the rapid growth of road transports, railroads remain the dominant means of transport.
Figure 4: Logistics Hubs in Eastern Europe Source: (“DHL Discover Logistics,” n.d.-d)
The Eastern European logistics market is characterized by wide regional differences. While the Czech Republic, Slovakia, Slovenia, Hungary and Poland have made major strides, Romania, Bulgaria and Croatia are trailing far behind. The infrastructure is in even worse shape farther to the east. The road-based freight transports have limited ability to meet the demands of European industry in a cost effective manner. The causes of these limitations include traffic jams, the limited potential for expanding network capacity, rising energy costs and growing intermodal competition from railways. Eastern European harbours, particularly the major sea ports in Poland, perform a significant amount of trans-shipping and are being increasingly expanded. The European Union’s enlargement and the increasing transport volumes have resulted in intensified storage and distribution activities in the countries of Central and Eastern Europe. One of the major challenges is to overcome the barriers that exist between Eastern and Western Europe, including the transport infrastructure.
Further, they would like you to advice them on several strategies available to them to enter the above mentioned markets. Discuss all available strategies and give your specific recommendations. (Your answer should not exceed 1500 words) Foreign Market Entry Strategies Foreign market entry strategies are mainly categorized into:
Indirect exporting
Direct exporting
Manufacturing strategies
Cooperative strategies
Risk and Control in Market Entry Control Risk Risk
Indirect Exporting Piggybacking
Trading Companies
Export Management Companies
Domestic Purchasing
Cooperative Strategies Joint Ventures
Strategic Alliances
Direct Exporting Distributors
Direct Marketing
Management Contracts
Manufacturing Own Subsidiary
AssemblyFigure 1: Foreign Market Entry Strategies
Source: (Doole

Nationalisation Of Banks In India The Economic Effect Economics Essay

After Independence India adopted a socialist pattern of economy as its goal. The aim was to achieve a society with wealth distributed as equitably as possibly but ensuring that the government does not acquire a totalitarian role.
The Government of India wished to play an active role in the economic life of the nation and with this the government adopted a mixed economy. The two sectors, private and public were allowed to function independently of each other. The private sector was regulated through a system of checks and balances such as regulations, licenses controls and legislations. The public sector was allowed to grow through setting up of institutions and industries and nationalization of some belonging to private sector who failed to achieve the desired result of growth of the economy. [1]
Nationalization of Banks
Considering this basic objective in mind the government decided to nationalize the banks in an attempt to monitor and exercise some control over the banking sector. The motives for nationalization are both political and economic. It is the process whereby the means of production, distribution and exchange are owned by the state on behalf of the people or working class to allow rational allocation of output, consolidation of resources, rational planning or control of the economy. This enables the government to exercise full democratic control over the means thereby ensuring effective means of distribution of output to benefit the public at large. [2]
The nationalization of banks in India was primarily done for two reasons. First, the partition of India in 1947 adversely affected the banking activities especially in Punjab and West Bengal. [3] The laissez faire regime was brought to an end and the government started to play an active role in the reconstruction of the economy especially banking and finance. Secondly, the government believed that the ownership of the Bank by the sovereign will give new confidence to the customers and that it would dispel the suspicions existing in the minds of the people with regards to the capabilities of the bankers in the private sector. [4]
In the year 1948, the Reserve Bank of India, Indias central banking authority was nationalized and it became an institution owned by the government of India. In a further attempt to control the banking activities the government enacted the Banking Regulation Act, which authorized the RBI to regulate, control and inspect the banks in India. The act provided that no bank could be opened without the sanction of RBI and that no two banks can have the same directors. [5]
Then in the year 1955, the government took another major step and nationalized the Imperial bank of India and its undertaking was taken over by State Bank of India.
However, the scheduled banks were accused of directing their advances to the large and medium scale industries and big business houses and the sectors such as agriculture, small scale industries and exports were not receiving their due share. Keeping this mind in February 1966, a scheme of Social Control was setup whose main function was to regularly assess the demand for credit from various sectors of the economy, to determine the needs of the economy and prioritize grant of loans and advances to ensure optimal allocation of resources. The main feature of this scheme was the establishment of a National credit council headed by the Finance Minister and representatives of agricultural sector, trade, industry, banks and professional groups as the members. [6]
This scheme was challenged by the banking industry representatives who argued that social control was not necessary since the RBI had already been vested with effective and extensive powers over almost every aspect of banking. [7]
However, this scheme failed to provide any remedy and therefore even though the number of banks were opened in the rural areas the private banks were still not oriented towards meeting the credit requirements of the weaker sections. [8]
Since the social control had failed to meet its objective, on 19th July 1969, fourteen Major banks each having deposits of more than 50 crores and having between themselves aggregate deposits of Rs. 2,632 crores with 4130 branches were nationalized. This process of bringing the banks under the government control was considered nothing short of a revolutionary step and marked the beginning of a co-ordinated endeavour to use an important part of the financial mechanism for the country’s economic development. [9]
Nationalisation was initially met with skepticism and faced strong opposition.
Arguments for Nationalisation
As stated earlier, the primary reason behind the nationalization of the banks was to achieve the socialistic pattern of society.
It was proposed that nationalization will enable to direct the credits to priority fields of agriculture, small scale and exports, that banking units would not expand in rural areas and there will be enhancement of public confidence. It was felt that Indian commercial banks were catering only to the large and medium scale industries who was ready to pay the money back to these banks at a higher interest rate in comparison to the rural areas. This can be evidenced by the fact that whereas industry’s share in credit disbursed by commercial banks almost doubled between 1951 and 1968, from 34 per cent to 68 per cent, agriculture received less than 2 per cent of total credit. [10]
It was strongly believed that nationalization would enable the banks to charge lower rate of interest from the weak and the backward areas and the exporting sector thereby subsidizing these sectors. The long title of ‘The Banking Companies (Acquisition and Transfer of Undertakings) Ordinance, 1969 for the nationalization of the 14 banks stated that the nationalization was being done ‘in order to serve the better needs of development of the economy in conformity with the national policy and objectives.’ [11]
Moreover, in response to the argument that the social control scheme was not implemented for a longer period to achieve the desired results, the Prime Minister claimed that that the officials in the banks were not performing their duties efficiently but were doing so because they had been instructed to do the same. It was also argued that restrictions imposed by the social control measures were capable of being flouted in spirit although observed in form. The government then strongly believed that this temporary measure of imposing social control will not achieve the desired result. What is required is a plan which is imposed permanently and one which enables direct control. The need of the time were pressing and that the country could not afford a trial and error method. [12]
The government also believed that these banks did not have enough paid up capital and were operating with other peoples money. This aspect of banking had led even the predominantly capitalist countries like france to nationalize their banks or atleast keep a control on them. [13]
Arguments against Nationalisation
Several imminent persons including Morarji Desai, the then Deputy Prime Minister and the Finance Minister, opposed the measure. They argued that 168 days of imposition of social control was too short a period to achieve any results and it was wrong to conclude that it had failed.
On the other hand, they argued that social control in this short period of 168 days had achieved substantial rewards. The banks and the officials concerned were not acting under compulsion as alleged but were acting in the spirit of cooperation and willingness. [14]
They also argued that there was no such pressing need as it was claimed to be and this measure of taking control over the bank was indicative of political tussles and result of inter party struggle for power. [15]
They argued that by converting these banks and bringing them under state control will not remedy the evils but will only substitute one group of evils with another. Public sector institutions are known for the lack of their dynamism, non realization of its potential as a business and abysmal customer service. [16] Public control shall leave the door open for corruption and favoritism. Performances of these banks will go down and losses will pile up. Therefore instead of reforming the banking sector it shall stall the progress.
Legal procedure adopted for nationalisation
Disregarding the stiff opposition faced by the government, nationalization was carried out. On 19th July 1969, the Vice President of India, promulgated ‘The Banking Companies (Acquisition and Transfer of Undertakings) Ordinance, 1969’. The ordinance provided that the banks each with a deposit of Rs. 50 crores or more shall be transferred to 14 new body corporates called ‘corresponding new banks’. The ordinance also provided for the machinery of management of these 14 new banks and payment of compensation to the shareholders of the banks being taken over. [17] The ordinance provided for the concept of priority sectors which included agriculture, small scale industry, retail trade, small business and small transport sectors. The ordinance made it mandatory for the bank to provide a minimum of 40 per cent of their net credit to these priority sectors. [18]
Petitions were filed against this ordinance in the Supreme court. However, before the petition could be decided the ordinance was passed and enacted as the Banking Companies (acquisition and Transfer of Undertakings Act, 1969. This act was then challenged in the Supreme court in RC Cooper v. Union of India [19] where the court granted an interim injunction against the operation of the act.
On 15th April 1980, six more private sector banks having demand and time liabilities of not less than Rs. 200 crores each were nationalized thereby extending further public control over the banking sector. The acquisition by the state was done under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980. This was done in conformity with the principles laid down in clause (b) and (c) of Article 39 of the Constitution. [20]
RC Cooper v. Union of India
Facts: The petitioner held shares in 4 banks namely, the Central Bank of India Ltd, the Bank of Baroda ltd, the Union Bank of India Ltd and Bank of India ltd. He also held accounts with these banks and was the director of the Central Bank of India, Ltd. The petitioner challenged the Banking Companies (Acquisition and Transfer of Undertakings) Ordinance which was later enacted as Banking Companies (Acquisition and Transfer of Undertakings) Act 22 of 1969, as violative of Article 14, 19 and 31 of the Constitution. This ordinance provided that the assets, rights and obligations of every named commercial bank was to be taken over by the corresponding new bank. The petition was filed at the time of the promulgation of the ordinance. However, at the time when the petition was before the Supreme court the act was passed by the Parliament on August 9, 1969. The petitioner challenged both the ordinance and the act.
Arguments: The petitioner challenging the validity of the ordinance and the act contended that first The Ordinance promulgated in exercise of the power under Article 123 of the Constitution was invalid, because the condition precedent to the exercise of the power did not exist. Second, that in enacting the Act the Parliament encroached upon the State List in the Seventh Schedule of the Constitution, and to that extent the Act is outside the legislative competence of the Parliament. Third, that by enactment of the Act, fundamental rights of the petitioner guaranteed by the Constitution under Articles 14, 19(1)(f)