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

By Javalgi, Rajshekhar G.; Reisenwitz, Timothy H. | Review of Business, Spring 2001 | Go to article overview

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


Javalgi, Rajshekhar G., Reisenwitz, Timothy H., Review of Business


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.

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