What are Third-party logistics firms?
In the context of international supply chain management and logistics, the term third-party logistics firms refer to those economic entities responsible for the provision of outsourced logistics services to either a firm’s entire supply chain management functions or a portion of its functions (Wen, & Al-Barakati, 2019). Typically, a core firm providing goods or services is referred to as the first party, whereas the firm’s client(s) referred to as the second party.
Outsourcing within the logistics context refers to the business practice where a firm hires another firm or individual outside of the company to carry out an existing activity which could as well be undertaken internally. Outsourcing at times even involves the transfer of a firm’s assets as well as the workforce from one company to another (Wen, & Al-Barakati, 2019). Notably, in situations where the firms are not within the same geographical proximity, such as different regions, offshoring occurs. Offshoring, in this case, refers to the relocation of an entity’s operations from one country to another.
Explain the motivational factors for going international?
Among the main motivational factors considered by firms before going international, is the desire for growth and profitability. With improved global networks that have made the earth “a global village,” it is desirable by firms to consider global markets for growth (Hummels, Munch, & Xiang, 2018). The introduction of new products into international markets plays a vital role in the broadening of the firm’s consumer base, revenue, sales, and profitability indices. In addition to the profitability and growth motive, the economy of scale is another motivational factor for going international. Economies of scale refer to the cost advantage enjoyed by firms which arise from the firm’s increased output. With an increased global presence in more nations, it is almost automatic a firm’s sales, revenue, and consumer base are expected to expand, therefore increased economies of scale. This factor best explains why firms pursue international expansion.
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On what ground do companies choose developing countries as locations for offshoring? Use examples. (Mention the country and decisive factors)
The lower cost of goods production and or service delivery in foreign nations in comparison to home nations is a significant ground for offshoring (Hummels, Munch, & Xiang, 2018). For example, the US-based IBM Company employs an estimated 130,000 workforce in India, a figure higher than what it uses in the US. As a result of the lower cost of production in India compared to the US, the firm has successfully countered stiff competition in the tech market (Zhang, & Kurien, 2017). The decisive factor facilitating IBM’s direct investment is the country’s cheaper wages compared to developed nations. Additionally, a developing nation such as India has not only cheap labor but also abundant labor, high skilled workforce, and excellent proficiency in the English dialect.
Assess the reasons for using third-party logistics service in Saudi Arabia? Using examples, Explain
The option for third party logistics in Saudi Arabia owes to several reasons such as scalability and flexibility, the need to save costs and time, and the need to re-engineer a firm’s distribution channels and networks (Ferrer, & Santa, 2017). In an oil-rich nation such as Saudi Arabia, the government has sought to reduce the Kingdom’s overreliance on oil through its involvement in trade relations with foreign investors as well as local private investors. In so doing, the Saudi leadership has sought to engage other non-oil related investments to diversify the Kingdom’s economic activities. It is, therefore, due to this ultimate goal that the Kingdom has hugely invested in third-party logistics over time.
References
Ferrer, M., & Santa, R. (2017). The mediating role of outsourcing in the relationship between speed, flexibility and performance: a Saudi Arabian study. International Journal of Productivity and Quality Management, 22(3), 395-412.
Hummels, D., Munch, J. R., & Xiang, C. (2018). Offshoring and labor markets. Journal of Economic Literature, 56(3), 981-1028.
Wen, Z., Liao, H., Kazimieras Zavadskas, E., & Al-Barakati, A. (2019). Selection third-party logistics service providers in supply chain finance by a hesitant fuzzy linguistic combined compromise solution method. Economic research-Ekonomska istraživanja, 32(1), 4033-4058.
Zhang, Q., & Kurien, J. (2017). A comparative empirical study on determinants of IT offshore outsourcing to China and India as recipient countries. Information Technologies and International Development, 1(2), 21-37.