International Logistics Operations of MNCs: An Exploration of the Pharmaceutical Industry

Beginning of article

Marketers in multinational corporations (MNCs) realize that global markets mean intense competition and that logistics is the key to making and keeping customers. Exploratory research was conducted using telephone interviews with l6 pharmaceutical companies. Logistics techniques are compared across companies with negligible international sales to those with 100 percent international sales.

Introduction

Businesses are experiencing increasing pressure as the globalization of markets intensifies competition [7, 22]. Leading U.S. companies are responding by making changes in their organizations' operations. Logistics - managing the flow of materials from the raw material to ultimate consumer state - has emerged as an important element in this corporate renewal as it becomes a greater percentage of total costs. Logistics costs currently comprise between 10 and 25 percent of the total cost of an international sale [1], and these costs are rising. This increase occurs with the pursuit of more global market opportunities.

Many companies have expanded their domestic operations and are now considered multinational corporations (MNCs), with operations in several countries outside the U.S. Neglecting distribution and logistics issues will not only yield higher costs but also eventual non-competitiveness, resulting in a loss of market share, more expensive supplies or lower profits. Logistics problems can prevent the marketer from fully exploring the potentially profitable global market.

Logistics strategies must reflect that fewer and fewer companies are simply domestic operations. The efficiency/effectiveness balance - minimization of costs and increased customer satisfaction - has traditionally involved cost tradeoffs in the area of physical distribution. Improving customer service is a goal in dealing with increased competition, with logistics costs often increasing as well [11]. However, it has been noted that logistics can help a company attain a sustained competitive advantage through the combined benefits of improved customer service and lower costs [7]. Customer retention may result from building long-term relationships with customers.

This study focuses on how the effectiveness/efficiency dichotomy is addressed for the logistics function in international distribution. The pharmaceutical industry was chosen as the group of firms to study for several reasons. First, this industry consists of various product categories, including products that are necessary to keep the recipient alive. This high degree of product importance makes the area a significant one to study. The pharmaceutical industry is also continually changing by developing, testing and marketing new products.

Second, the players engaged in the international distribution of pharmaceuticals are changing, and the new players from small- and medium-sized firms are exploiting opportunities in the emerging economies of the world. Third, the global economy is changing with the elimination of tariffs and other trade barriers. In their continuing efforts to satisfy customers, logistics firms are transcending boundaries in adapting to a growing global market.

Prior work on customer satisfaction and costs in the area of international logistics has not concentrated on any one industry. Although costs and customer satisfaction may be measurable across industries, the concerns, problems and challenges of international distribution are often unique to the industry or product category cited. For instance, the physical product may require certain logistical considerations. Pharmaceutical products may require more security, speedier delivery (especially for those pharmaceutical products with quick expiration dates) and special handling for those products with temperature restrictions.

This article shares the insights derived from telephone interviews with the international logistics managers of several pharmaceutical firms. The first section of the study focuses on identifying customer expectations and meeting these expectations through strategic alternatives and operations. The next section presents insights gained from our exploratory research. And the final section discusses conclusions and implications of the study. Exhibit 1 summarizes the structure of the study.

Evaluating Customer Expectations

A prerequisite for delivering superior service is understanding customer expectations. Customers compare their perceptions with their expectations when evaluating a firm's service [17]. Customers expect service companies to do what they are supposed to do. Research has shown that reliability of service, which entails performing the promised service dependably and accurately, is the most important dimension in meeting customer expectations [17]. Further, the process dimensions, assurance, responsiveness and empathy are most important in exceeding customer expectations. Assurance is the knowledge and courtesy of employees, and their ability to communicate trust and confidence. Responsiveness is the willingness to help customers and provide prompt service. Empathy is the caring, individualized attention provided to the customer.

The relationship between performance and expectations is well documented in research literature [17]. The difference between performance and expectations defines the level of satisfaction. In other words, when performance exceeds expectations, the result is satisfaction. Thus, exceeding customer expectations is key to achieving complete customer satisfaction, securing customer loyalty and generating superior long-term financial performance [13]. The only truly loyal customers are those who are totally satisfied. A completely satisfied customer usually believes that the organization excels in understanding and addressing his or her preferences, values, expectations or problems.

Many organizations in the logistics business have realized that their environment is continuously evolving. Technological advancements have brought new dimensions of speed and ease in the area of international logistics operations. Leading carriers are facing the challenge of meeting the changing expectations of customers in the global economy. Customers increasingly measure service providers by their ability to address particular logistics problems, not just the ability to provide cost-effective and reliable service [4]. In addition to invoice accuracy and a prompt response to inquiries, customers are seeking intelligence and imagination. Byrne and Markham [5, p. 42] state, "Suppliers that use a proactive approach with their customers have an advantage in a global economy because of the relationships they build with customers." Service failures occur because the company does not know its customers. Customers will continue to solicit suppliers who work cooperatively in meeting their expectations. But how are the expectations addressed?

Meeting Customer Expectations through Strategic Alternatives and Operations.

As shown in Exhibit 1, there are several alternatives when it comes to meeting customer expectations. These alternatives are neither mutually exclusive nor collectively exhaustive. Below we discuss the ways to meet customer expectations through strategic alternatives and operations...

Strategic Alternatives. Organizational Strategic Structure for Internationalization: Largely due to their respective product lines or industry, some firms have been more successful than others in breaking into world markets. The successful industries have been named global industries [2]. According to Bartlett and Ghoshal [2], there are three major strategies and structures for engaging in international operations: global, multinational and transnational.

Global corporations design products for the world market from the beginning. The products, such as cameras or stereos, seldom have to be localized to sell in different markets. Corporate subsidiaries do not have …