PLACE IN RETURN BOX to remove this checkout from your record. TO AVOID FINES return on or baton date duo. = DATE DUE , DATE DUE DATE DUE ——1'| -—- ll __ :1 —._l m MSU I. An Afflrmdlvo AGIIONEquaI Opportunity InstIIqun amma AN ENPIRICAL STUDY OF TEE RESOLUTIONS TO BARRIERS TO INTERNATIONAL TRADE CREATED BY UNCONTROLLABLE ELEMENTS IN INTERNATIONAL LOGISTICS BY PHILIP SCOTT SCHERRER A DISSERTATION Submitted to Michigan State University in partial fulfillment of the requirements for the degree of DOCTOR OF BUSINESS ADMINISTRATION Department of Marketing 1989 5 L.) ”I 91055 ABSTRACT AN EMPIRICAL STUDY OF THE RESOLUTIONS TO BARRIERS TO INTERNATIONAL TRADE CREATED BY UNCONTROLLABLE ELEMENTS IN INTERNATIONAL LOGISTICS BY PHILIP SCOTT SCHERRER The study of logistics is somewhat new, and most research in this field has concentrated on domestic issues. However, at a time when federal trade deficits are the‘ highest they have been in more than 40 years, research concentrating on international logistics seems appropriate if not necessary. Logistic solutions have been used effectively to resolve barriers to international trade. However, research has focussed on the elements of barriers perceived by scholars as controllable. The objectives of this dissertation include identifying uncontrollable elements of barriers to international trade and their underlying factors. Further, objectives include prioritizing the underlying factors, determining what resolutions to the uncontrollable elements have been applied, and recommending resolutions that should be applied. Both secondary and primary research were employed to meet objectives. The secondary research included a review of literature about both domestic and international logistics. This review resulted in the identification of six uncontrollable elements of barriers to international trade: Competition, Geography, Technology, Economics, Cultural and Social Status, and Political and Legal Systems. Factors underlying these elements were also identified. Interviews with logistics scholars and industry experts were conducted to obtain additional information about the uncontrollable elements. These interviews resulted in the formulation of 40 specific barriers to international trade, derived from the underlying factors of the six uncontrollable elements. Using a questionnaire, logistics managers across the United states rated these 40 barriers in terms of importance and controllability. Managers also indicated solutions employed to overcome each barrier. The results of this questionnaire were statistically analyzed to reduce large amounts of data into categories. The primary research disputes the findings of the secondary research, indicating that many barriers previously thought to be important and uncontrollable are neither. Further, barriers that are important and uncontrollable to logistics managers can more accurately be classified into seven uncontrollable elements: Competition/Marketing, Financial Management, Channels of Distribution, Demand Assessment, Business Practices, Ethics, and Law. Logistics managers use combinations of marketing/ logistics, financial, and production solutions to overcome these newly identified elements. Recommended resolutions include elevating logistics to senior management status within firms, increasing foreign market information analysis, and forming lasting business relationships with competent agents and brokers. ACKNOWLEDGMENTS The writing of a dissertation is never easy and cannot be accomplished without the love, understanding, and support of many other people. My sincerest gratitude is extended to my wife, Barbara, and daughter, Becky, for their faith and love during the writing of this dissertation. I could not have completed it without their understanding and support. A dissertation is only as good as its concept and committee. I wish to thank Drs. Closs, Wagenhiem, and Cooper for their assistance and diligence in the pursuit of this dissertation. Dr. Closs was a great benefit to the writing of this dissertation. His tireless dedication and endless assistance will be appreciated forever. A special thanks is given to Dr. Donald Taylor for his advice that convinced me to pursue the PhD. He was my first mentor, and I appreciate his dedication to my pursuit of the Ph.D. There are many other people to be thanked. Certainly my work would not have been completed without the assistance of Kevin McConnaghy. His insight and advice are greatly valued and will always be appreciated. Finely, my sincere thanks to the staff at Michigan State University, School of Business Department of Marketing, for their patience and assistance. vi TABLE OF CONTENTS CHAPTER ONE: The Research Problem Defined INTRODUCT ION O O O O O O O O O O O O O O O O LOGISTICS PERSPECTIVE . . . . . . . . . LOGISTICS DEFINITION . . . . MAGNITUDE OF LOGISTICS EXPENDITURES LOGISTICS STRATEGIC IMPORTANCE . . . INTERNATIONAL LOGISTICS PERSPECTIVE INTERNATIONAL LOGISTICS SCOPE . . . International Logistics Size . International Logistic' s Strateg'c Importance . . . . . . . . o .6- o o o o o o 0 BUSINESS PROBLEM . . . . . . . DELEGATION OF INTERNATIONAL LOGISTICS TO PARTI ES O O O O O O O O O O MAJOR INTERNATIONAL LOGISTICS PROBLEMS . RESEARCH PURPOSE . . . . . . . . . . . . . . RESEARCH QUESTIONS O O O O O O O O O O O O O RESEARCH S COPE O O O O O O O O O O O O O O O POTENTIAL CONTRIBUTIONS OF THE RESEARCH . . . RESEARCH LIMITATIONS . . . . . . . . . . . . DISSERTATION ORGANIZATION . . . . . . . . . . CHAPTER TWO: Literature Review INTRODUCTION . . . . . . . . . . . . . . . . INTERNATIONAL TRADE THEORY . . . . . . . . . vii oooxmhumw H \O 10 11 12 15 16 19 19 20 20 23 23 INTERNATIONAL TRADE CAUSES . . . . REQUIREMENTS FOR INTERNATIONAL TRADE Absolute Advantage . . . . . Comparative Advantage . . . International Balance of Payments BARRIERS TO INTERNATIONAL TRADE . . . . UNCONTROLLABLE ELEMENTS IN INTERNATIONAL TRADE FACTORS UNDERLYING CULTURAL/SOCIAL ELEMENT language O O O O O O O O O O Religion . . . . . . . Cultural Institutions . . . . Class Structure and Social Mobility Aesthetics . . . . . . . . . Social Patterns . . . . . . . FACTORS UNDERLYING POLITICAL/LEGAL ELEMENT Regulations . . . . Laws . . . System Stability . Public Policy . . . FACTORS UNDERLYING GEOGRAPHY ELEMENT Climate and Topography . . . Natural Barriers . . . . . . Natural Resources . . . . . Location of Population Centers FACTORS UNDERLYING THE ECONOMIC ELEMENT Population . . . . . . . . Income . . . . . . . . . . National Controls . . . . . Employment . . . . . . . . FACTORS UNDERLYING COMPETITION ELEMENT Entity Survival and Profitability Market Access . . . . . . . . Profitability . . . . . . . . Differential Advantage . . . FACTORS UNDERLYING TECHNOLOGY ELEMENT Research and Development . . Industrial Development . . . Technology Transfer . . . . . FACTOR INTERACTION OF UNCONTROLLABLE ELEMENTS CULTURAL/SOCIAL FACTOR INTERACTION POLITICAL/LEGAL FACTOR INTERACTION GEOGRAPHICAL FACTOR INTERACTION . ECONOMIC FACTOR INTERACTION . . . TECHNOLOGY FACTOR INTERACTION . . COMPETITION FACTOR INTERACTION . . 24 26 27 28 29 33 37 38 39 40 4O 42 44 44 45 45 46 48 48 49 49 50 51 51 53 53 54 56 57 57 57 58 59 6O 60 61 61 62 63 66 68 69 7O 7O 71 UNCONTROLLABLE ELEMENT INTERACTION . . . . . . METHODS TO CONTROL FACTOR AND ELEMENT IMPACT . . USE OF INTERNATIONAL LOGISTICS TO OVERCOME BARRIERS . . . . . . . . . . . . . . . . . LOGISTICS REQUIREMENTS FOR INTERNATIONAL TRADE . . . ROLE OF INTERNATIONAL LOGISTICS . . . . . . . . Process of International Logistics . Exporting Firms Initial Process of International Logistics . . FUNCTION OF INTERNATIONAL LOGISTICS . Direct Exporting . . . . . . . . Indirect Exporting . . . . . . . Exporting Considerations . . . . APPLICATION OF INTERNATIONAL LOGISTICS MOTIVATION FOR TRADE BY DOMESTIC FIRMS . . . . . . . PURPOSE OF DISSERTATION . . . . . . . . . . . . . . . CHAPTER THREE: Methodology INTRODUCTION . . . . . . . . . . . . . . . . . . . . RESEARCH METHODOLOGY PROCESS O O O O O O O O O O O O O O O O O O O O SAMPLE DES IGN O O O O O O O O O O O O O O O O O SAMPI‘E s I z E O O O O O O O O O O O O O O O O O O QUESTIONNAIRE DESIGN . . . . . . . . . . . . . . ANALYSIS PLAN FOR EACH RESEARCH QUESTION . . . . FAflOR ANALYS I S O O O O O O O O O O O O O O O Measurement Model . . . . . . . . . . . . . CHAPTER FOUR: Analysis of Data INTRODUCTION . . . . . . . . . . . . . . . . . . . . DATA ANALYSIS . . . . . . . . . . . . . . STATISTICAL ANALYSIS OF IMPORTANCE RATINGS . . . Results of Factor Analysis of Importance Ratings . . . . . . . . . . . . STATISTICAL ANALYSIS OF CONTROLLABILITY RATINGS Results of Factor Analysis of Controllability Ratings . . . . . . . . . . . . . COMPARABILITY OF ROTATED FACTOR PATTERNS FOR IMPORTANCE AND CONTROLLABILITY FACTORS RELATED TO INTERNATIONAL DISTRIBUTION . . . STATISTICAL ANALYSIS OF ACTION UNDERTAKEN To OVERCOME BARRIERS . . . . . . . . . . . . . Actions Taken In Response To Uncontrollable Barriers To International Distribution . ix 71 72 73 74 76 82 83 84 86 87 87 92 101 104 111 112 112 113 114 115 120 123 124 128 129 132 136 144 148 156 158 163 RELATIONSHIP OF ORGANIZATIONAL CHARACTERISTICS TO IMPORTANCE/CONTROLLABILITY FACTORS . . . Product Versus Service Organization Perceptions of Importance and Controllability . . . . . . . . . . . . Type of Product and Perception of Importance and Controllability Factors . . . . . . Perceptions of Importance and Controllability by Size of Organization . . . . . . . . Perceptions of Importance and Controllability by Export Sales . . . . . . . . . . . . Summary . . . . . . . . . . . . . . . . . . . CONCIIUS ION O O O O O O O O O O O O O O O O O O O O O O CHAPTER FIVE: Discussion and Conclusions INTRODUW I ON O O O O O O O O O O O O O O O O O O O O O UNCONTROLLABLE BARRIERS TO INTERNATIONAL TRADE . . . . FACTOR ANALYSIS INTERPRETATION . . . . . . . . . . . . NEW EI‘EMENTS O O O O O O O O O O O O O O O O O O O O O UNDERLYING FACTORS OF NEW ELEMENTS . . . . . . . . . . RESOLUTIONS CURRENTLY EMPLOYED TO OVERCOME BARRIERS COMPRISING NEW ELEMENTS . . . . . . . . . . . . . RESOLUTIONS RECOMMENDED TO OVERCOME BARRIERS . . . . . PROPOSED NEW MODEL O O O O O O O O O O O O O O O O O O CONCLUS ION O O O O O O O O O O O O O O O O O O O O O O Appendix A: Invitation to participate, questionnaire, and cover letter . . . . Appendix B: Intercorrelation of Importance Ratings of Barriers . . . . . . . . . . . . . . Appendix C: Intercorrelation of Controllability Ratings of Barriers . . . . . . . . . . Bibliography . . . . . . . . . . . . . . . . . . . . . 166 167 170 172 175 177 179 180 181 185 187 188 192 196 197 208 210 216 220 224 LIST OF TABLES CONTROLLABLE & UNCONTROLLABLE BARRIERS TO IWATIONAL MOE O O O O O O O O O O O O O 3 4 ELEMENTS BY CONTRIBUTING AUTHORS . . . . . . . . . 36 INTERACTION OF FACTORS UNDERLYING UNCONTROLLABLE ELEMENTS . . . . . . . . . . . 65 CROSS REFERENCE TO QUESTIONNAIRE BY QUESTION NUMBER O O O O O O O O O O O O O O O O O O O O O 118 SUMMARY STATISTICS AND 95% CONFIDENCE INTERVAL FOR MEAN IMPORTANCE RATINGS OF BARRIERS TO INTER . . . 133 FIRST ORDER FACTOR ANALYSIS IMPORTANCE ”TINGS O O O O O O O O O O O O O O O O O O O 1 3 8 INTERCORRELATION OF IMPORTANCE FACTORS . . . . . . 140 SECOND ORDER FACTOR ANALYSIS . . . . . . . . . . . . SUMMARY STATISTICS AND 95% CONFIDENCE INTERVAL FOR MEAN CONTROLLABILITY RATINGS OF BARRIERS TO INTERNATIONAL TRADE . . . . . . . . . . . . . . . . . . . . 145 FIRST ORDER FACTOR ANALYSIS CONTROLLABILITY “TINGS O O O O O O O O O O O O O O O O O O O 150 INTERCORRELATIONS AMONG CONTROLLABILITY FACTORS O O O O O O O O O O O O O O O O O O O 1 5 2 SECOND ORDER FACTOR ANALYSIS CONTROLLABILITY MTINGS O O O O O O O O O O O O O O O O O O O 154 CORRELATIONS BETWEEN IMPORTANCE AND CONTROLLABILITY FACTOR SCORES . . . . . . . . 157 PERCENTAGES OF RESPONDENTS REPORTING ACTIONS TAKEN/NOT TAKEN TO OVERCOME BARRIERS TO INTERNATIONAL DISTRIBUTION . . . . . . . . . 159 xi 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. LEVEL OF ENDORSEMENT OF SOLUTIONS TO PERCEIVED UNCONTROLLABLE BARRIERS TO INTERNATIONAL DISTRIBUTION . . . . . . . MULTIVARIATE AND UNIVARIATE ANALYSIS OF VARIANCE AND MEAN IMPORTANCE FACTOR SCORES FOR PRODUCT VS. SERVICE EXPORTING FOCUS O O O O O O O O O O O O O O O O O O MULTIVARIATE AND UNIVARIATE ANALYSIS OF VARIANCE AND MEANS OF CONTROLLABILITY FACTOR SCORES FOR PRODUCT VS. SERVICE EXPORTING FOCUS . . . . . . . . . . . . . MULTIVARIATE AND UNIVARIATE ANALYSIS OF VARIANCE AND MEANS OF IMPORTANCE FACTOR SCORES FOR TYPES OF GOODS EXPORTED . . . MULTIVARIATE AND UNIVARIATE ANALYSIS OF VARIANCE AND MEANS OF CONTROLLABILITY FACTOR SCORES FOR TYPES OF GOODS EXPORTED . . . . . . . . . . . . . . . . MULTIVARIATE AND UNIVARIATE ANALYSIS OF VARIANCE AND MEANS OF IMPORTANCE FACTOR SCORES FOR SIZE OF COMPANY . . . . . . . MULTIVARIATE AND UNIVARIATE ANALYSIS OF VARIANCE AND MEANS OF CONTROLLABILITY FACTOR SCORES FOR SIZE OF COMPANY . . . . MULTIVARIATE AND UNIVARIATE ANALYSIS OF VARIANCE AND MEANS OF IMPORTANCE FACTOR SCORES FOR AMOUNT OF EXPORTS . . . . . . MULTIVARIATE AND UNIVARIATE ANALYSIS OF VARIANCE AND MEANS OF CONTROLLABILITY FACTOR SCORES FOR AMOUNT OF EXPORTS . . . BARRIERS RATED MOST IMPORTANT . . . . . . . . NAMED FACTORS FROM IMPORTANCE AND CONTROLLABILITY FACTOR ANALYSES . . . . . ELEMENTS OF BARRIERS TO INTERNATIONAL TRADE . UNDERLYING FACTORS TO NEW ELEMENTS OF BARRIERS TO INTERNATIONAL TRADE . . . . . SOLUTIONS APPLIED TO NEW ELEMENTS . . . . . . RESOLUTIONS THAT SHOULD BE EMPLOYED . . . . . xii 164 169 170 171 172 174 174 176 176 183 186 188 189 193 198 30. QUESTIONNAIRE . . . . . . . . . . . . . . . . . . 212 31. IMPORTANCE RATING MISSING DATA CORRELATIONS . . . 216 32. CONTROLLABLE RATING MISSING DATA CORRELATIONS . . 220 xiii CHAPTER ONE The Research Problem Defined INTRODUCTION The increasing importance of logistics has become more apparent in recent years, first in the military and then for commercial application. In the 1960's the field of logistics was still undergoing development as an academic area. The research into and development of logistics proved to be of great value to business. The cost savings and increased efficiency created by effective logistic's techniques enabled businesses to be more profitable. The major research area has been domestic logistics. The field of international logistics has developed more slowly as the emphasis for research has tended to be transportation oriented or descriptive of the exporting process. The research was concerned with variables and elements over which the international manager was able to exert control. The research partially surfaced and discussed barriers to international trade and logistics, but often did not directly consider the uncontrollable elements. The overall study objectives are to: (1) discover the barriers to international logistics encountered by U.S. firms which export and classify them into controllable and uncontrollable elements: (2) identify the factors underlying each of the uncontrollable elements; (3) identify the relative priorities of each of the underlying factors which 2 comprise the uncontrollable elements: (4) identify resolutions to the barriers created by the uncontrollable elements and their underlying factors that have been used; and (5) identify resolutions to the barriers created by the uncontrollable elements and their underlying factors that should be used. LOGISTICS PERSPECTIVE This section offers a perspective on overall logistics in terms of its activities, magnitude of domestic logistics expenditures, and its strategic importance. LOGISTICS DEFINITION Although the definition of logistics has also undergone numerous changes, this study adopts the definition proposed by the Council of Logistics Management as being descriptive of the broad range of logistics activities. The Council of Logistics Management has defined logistics as "the broad range of activities concerned with efficient movement of finished products from the end of the production line to the consumer, and in some cases included the movement of raw materials from the source of supply to the beginning of the production line. These activities include freight transportation, warehousing, material handling, protective packaging, inventory control, plant and 3 warehouse site selection, order processing, marketing forecasting and customer service" (CLM, 1982). MAGNITUDE OF LOGISTICS EXPENDITURES The economic impact of logistics is the best surrogate to establish the magnitude of logistics activities. In the United States, it is estimated that the cost of logistics represents approximately twenty percent of the gross national product (Tinghitella, 1984). During 1982, United States industries spent more than $240 billion on freight transportation (Tinghitella, 1984). More than 435 billion on warehousing and storage, and an additional $100 billion to administer, communicate, and manage the logistics process. A total of more than $400 billion expended on logistics (Delaney, 1984). Logistics and related activities provided employment for more than 15 million people in the United States in 1980: approximately 14 percent of the workforce for 1980 (Coyle and Bardi, 1984). Investment in transportation and logistics facilities, excluding public sources, is estimated to be in the hundreds of billions of dollars (Stock and Lambert, 1987), which confirms the original study of Stewart and Morehouse (1978) that estimated the investment at $420 billion. These statistics clearly indicate the impact of logistics on the economy. Beyond the economic impact, logistics has a direct impact on every consumer in the 4 United States. This direct impact is evidenced by the timely availability of a wide range of products with reasonable prices. These products include primary, secondary, and domestically produced products, as well as imported products. Logistics costs are estimated to be 21 percent of a firm's sales revenue (LaLonde, Grabner, and Robeson, 1970) and (Stock and Lambert, 1987). The absolute magnitude of logistics costs makes it an ideal area to investigate for cost containment. This desire to minimize logistics costs and at the same time maximize customer service resulted in the development and application of the concept of total systems and cost analysis. The total cost concept has been the major motivation in the advancement of logistics management from merely traffic management to executive level policy establishment and decision making. LOGISTICS STRATEGIC IMPORTANCE The role and acknowledged importance of logistics has increased throughout the last decade. The activities required to accomplish the logistics functions are becoming more important in the development of each firm's strategic plan. Historically, firms have developed strategic plans which take advantage of competitive strengths in the areas of product, price, or promotional elements of the marketing mix. Firms have historically used these marketing mix 5 elements either by selling better products, offering products at a lower price, or through more effective advertising and promotion. However, with today's technologies, it is becoming easier for competitors to match the market offerings of firms using only these marketing mix elements. In response to this, firms are beginning to look to the logistics function to provide a strategic advantage. This advantage can be gained through better customer service, wider product distribution, greater product availability, better post-sale support, or closer product proximity to provide examples of the benefits provided through better logistics. In addition, due to the capital and organizational requirements, it is often easier to maintain a competitive differential advantage anchored in the logistics marketing mix element. With the increased logistics awareness and the need to identify, implement, and protect competitive position, the logistics activities are seen as an important aspect of strategic planning. As a result, it is important for firms to consider logistics when developing the firm's strategic plan. INTERNATIONAL LOGISTICS PERSPECTIVE As firm's have sought out new markets in their search for increased profits, U.S. firms have begun to target increased international penetration. This increase has resulted in an increased need for international logistics. 6 While there is much similarity between domestic and international logistics practices, there are also some differences due to changes in the economic, political, social, geographical, technological and regulatory environments as well as the longer logistics channels. In order to provide a more detailed understanding of this impact, the following sections define a scope for international logistics, document the size of the international logistics expenditures, and discuss its strategic importance. INTERNATIONAL LOGISTICS SCOPE As United States firms attempt to expand their markets, the role of logistics requires a concomitant expansion. Firms merged, purchased other firms, eliminated competition and eventually recognized that the extent of their markets was limited by the geographical boundaries of the United States. This expansion was driven by marketing desires and the logistics function was called on to perform effectively using the total system analysis and cost concept. Domestic logistics is in the process of becoming its own distinct function at the executive level. As firms expand into the international arena they expect that the logistics function should service the chosen markets as was the case in domestic logistics. 7 Depending upon the size of the firm and its commitment to international business, the logistics function development is significantly influenced by the sophistication of the firm with international marketing. It was the normal course of action for the domestic logistics manager to be responsible for international logistics. The assumption was made that international logistics was merely a slight extension of domestic logistics. As a result, the field of international logistics became an area of ad hoc planning. The marketing department would decide on a product and a market and the logistics department would then act as the international logistics department and proceed to move the product to the market. The planning which was normally performed for domestic logistics would be circumvented and all international logistics functions would be performed on a 'as needed' basis. The requirement for international logistics grew in importance as the domestic firm became more involved in international business. The role of international logistics expanded as domestic firms continued to increase their international markets. As the importance of international marketing increased for the firm, the role of the international logistics manager increased in importance and firms realized that international logistics presented a significant area of cost savings. In a 1980 survey of its members, NCPDM (CLM) found that 30.5% of its logistics 8 managers had full international logistics responsibility as compared to 9.5% in 1974 (Stock, Lambert, 1982). This indicates that firms are placing more importance on international logistics along with a concomitant increase in authority to the domestic logistics manager, who must learn international logistics on an 'ad hoc' basis. While international logistics has not been defined in any literature, it has acquired a working definition as an extension of domestic logistics. This research defines international logistics in the following way: International logistics is not merely a marketing support system, but it is an integral part of the marketing mix which helps create and develop the international marketing process. International marketing success depends extensively upon the efficiency and practices employed by international logistics to ensure economic distribution of goods especially as competition intensifies from developed and developing nations. a ' cs As international marketing grew, the size of the international logistics problem has also grown and has not been fully appreciated. There are approximately thirty thousand United States firms which export their products to foreign buyers (U.S. Dept. of Commerce 1983). The dollar amount of exported products is known and becomes part of the 9 balance of trade computations. In 1981 exports from the United States firms totaled more than $245 billion. This equates to over 4.6 million export related jobs and further it represents one manufacturing job in six (Caetora, 1983). e n 'o o ' t'c's e m o ance The requirements and opportunities for international logistics bring the same strategic importance as has been experienced by domestic logistics. The importance of customer satisfaction is paramount in strategic planning for the United States firm. When a firm decides to export, the importance of customer satisfaction does not decrease. The fact that the customer may be geographically removed places an additional burden on the achievement of customer satisfaction. The sale of products internationally becomes part of the firm's strategic planning and therefore it is only logical that international logistics is axiomatically part of the firm's strategic planning. The importance of international logistics has lagged behind domestic logistics because of the domestic firm's development approach for international marketing. Traditionally, the domestic firm has initially used an exporting intermediary to act as its international agent. The domestic firm would merely deliver the product to the intermediary and lose all product control from that point. At this time in a firm's international development it did not perceive the need for its own 10 international logistics function. As a firm's exports increased and it realized the need for channel control, an ad hoc international department was often formed. Usually this department consisted of an executive of each of the firm's major departments. If the firm did not go on to joint ventures with foreign manufacturers, or license agreements, or build a foreign facility then its international department may have not developed any further. However, with increased exports and increased foreign sales the importance of the international department was recognized along with a simultaneous recognition of international logistics. BUSINESS PROBLEM International logistics is not merely a marketing support system, but an integral part of the marketing mix which helps create and develop the international marketing process (Slater, 1980). International logistics adds time and place utilities to products by placing the product where the customer desires it and extending the market, thus enabling better scale economies. This more effectively offers possession utilities and maximizes customer satisfaction. Logistical management's objective is to provide competitive customer service levels at a minimum cost level. The firm's required cost/service mix varies 11 between the international markets, thus placing additional strain on international logistics management. DELEGATION OF INTERNATIONAL LOGISTICS TO THIRD PARTIES International logistics provides the means by which the customer receives the products, and the credibility of the whole company image may depend upon the way in which the logistics process is planned and executed (Slater, 1980). Industry has been slow to recognize the importance of logistics and even more slow to recognize the importance of international logistics. The majority of planning and execution has been allotted to third party specialists, such as freight forwarders, so many firms have not taken maximum advantage of the opportunities presented in international trade. Firms which utilize freight forwarders do not retain channel control. Channel control becomes more necessary as firms expand into foreign markets due to the necessity to protect the firm's image and market share. L. Soorikian stated that "international logistics dramatizes some of the homegrown problems...and that...in no other function is there as much waste, duplication and indifference as there is in moving goods from one country to another" (Soorikian, L., 1974). The increased desire of domestic firms to export has exacerbated the problem as stated by Soorikian. Domestic firms have varied reasons for expanding their markets: the desire to extend product 12 lifecycles, increase sales, gain competitive advantages, escape domestic business cycles, counter demographic changes in other areas of operations, benefit from technological differences between countries, enhance political posture, gain economies of scale from increased production due to increased sales, to dispose of excess inventories, gain tax advantages offered by other countries, create research opportunities for new products, and to establish a progressive image while enhancing political image through the patriotic stance of foreign earnings contributing to the balance of payments of the United States (Norvell and Raveed, 1980) . MAJOR INTERNATIONAL LOGISTICS PROBLEMS Increased export activity has increased the demand for efficient international logistics which, in turn has placed additional burdens on logistics systems which are already strained due to their relatively 'ad-hoc' nature. Alan Slater identified the following nine major problem areas in international logistics. The problems identified suggest the lack of individual status of international logistics within the firm, the lack of knowledge about international logistics, the lack of international business knowledge within many firms, and the lack of adequate information for international logistics to function effectively. 13 First, many senior managers maintain that exports should be sold FOB-source. In addition, they feel that any transportation problems should be the responsibility of the customer or the freight forwarder acting upon the customers instructions. Second, the planning activities for international logistics is generally non-existent or short-term at best. As a result, much of the activity takes place in an 'ad-hoc' manner with the resulting inefficiencies. Third, there is a lack of current information regarding the policies, procedures, and status of international shipments. This is particularly evident in the elements of additional costs, changes in customs policies and duties, changes in tax laws, and laws regarding products movements. Fourth, the communication channels to support international logistics operations are more difficult than domestic channels due to distance, culture, language, time zone, and variations in action priorities. Fifth, while technology offers opportunities for addressing many of these international logistics problems, it has introduced problems of its own. The lack of consistent technologies between countries introduces added problems for communicating information about material handling hardware. Sixth, international payment systems and currency regulations are complex. As such, they conceal numerous 14 pitfalls for the non-specialist and expert advice is often needed particularly when "buying currency forward." Seventh, there is a wide range of skill capabilities and information for material handling individuals who must process the orders and move the products. Eighth, there is a significant problem with security and safety as the shipment moves through a wide range of environments over extensive distances. The security problems are often demonstrated through pilferage, theft, or damage. The safety issues are evidenced through the extended liabilities for products which spill or damage the environment while in transit. The wide range of liability requirements and resulting consequences make this a difficult problem. Finally, the costs incurred for international logistics are continually rising and difficult to control. Overseas contracts are often signed months or even years before shipment. For some products the logistics costs may have risen more than fifty percent during that time period (Slater, 1980). The above problem discussions suggests a need for a deeper understanding along with some suggestions for addressing them. Although some of these problems are internal to the firm, many of them are external and therefore somewhat uncontrollable for the firm. 15 RESEARCH PURPOSE The formulation of an international logistics strategy is an integral part of international business planning. Various barriers are encountered by the logistics executive while attempting to achieve satisfactory international logistics results. The barriers encountered represent both controllable and uncontrollable elements. The controllable barriers can be managed with adequate logistics planning. The uncontrollable barriers can be adapted to by logistics executives provided they are anticipated. The purpose of the research is to identify the controllable and uncontrollable elements which are barriers to international logistics. The controllable elements have been analyzed in previous literature. The resolution to the controllable elements has also been suggested by previous authors (Stock and Lambert, 1982). The uncontrollable elements have not been analyzed nor completely discussed. It is not known whether other unknown uncontrollable elements exist. This research seeks to fully identify, classify, and prioritize all of the uncontrollable elements and suggest approaches to minimize their impact. For these reasons only the uncontrollable elements are investigated and resolved in this study. The factors underlying each of the uncontrollable elements will be analyzed to determine their effect upon the uncontrollable elements. Any cross 16 effect the factors may have on the other elements are evaluated and discussed. RESEARCH QUESTIONS This research seeks to identify the barriers to international logistics created by uncontrollable elements and that these elements have underlying factors which make up the uncontrollable element. Further it will be shown that each of these factors has a different significance to the uncontrollable element of which it is a part. Each of these factors may act alone or in concert with another factor. Each uncontrollable element may be somewhat influenced by a firm's management and therefore may be subject to some form of control. The controllable elements will not be discussed nor analyzed because of prior research which has addressed the issues raised in this study using the controllable elements. The research initially seeks to determine the barriers to international logistics. After the barriers are identified they will be classified into controllable and uncontrollable elements. The uncontrollable elements are those which can only be indirectly influenced by the logistics executive. Current literature suggests that these uncontrollable elements include: geography: social and cultural elements: political and legal elements; economics; competition: and technology (Caetora, 1983). The individual 17 factors which underlay the uncontrollable elements only have been briefly discussed in business literature (Caetora, 1983: Cundiff and Higler, 1984: Kahler and Kramer, 1977: Kirpalain, 1985). Whether there are other uncontrollable elements has not been determined and this study will seek to discover any other unidentified uncontrollable elements. The strategies for adapting to uncontrollable elements have not been extensively analyzed in business literature. Firms have traditionally reacted to the uncontrollable elements with little advance planning. The possibility of modifying the uncontrollable elements has been explored by U.S. firms only recently. It may be possible for management to indirectly effect and perpetrate a change in the uncontrollable elements, such as suggested in the following examples. Competition can be overcome with adequate information systems. Technology can be obtained and/or altered by adequate information systems. Technology can be obtained and/or altered by adequate research facilities. It can also be purchased. Legal and political systems can be influenced by the amount of business potential a firm, consortium of firms, or another country has to offer the foreign country. Cultural and social elements can be modified by adequate information dissemination. Geography can be overcome by modern transit and materials handling equipment. Economic conditions can be altered through the intercession of third parties, such as the World Bank. 18 The amount of modification and involvement depends upon the exporting firm and whether its exported product commands enough demand either by the host or domestic government to gain assistance from those governments. The majority of exporting firms do not receive any aid from governments or third parties and are therefore alone in their effort to modify the uncontrollable elements. The amount of modification to the uncontrollable elements by an independent firm is limited to its management skill. Management must be able to adapt to the uncontrollable elements and modify them where they are able. The questions to be answered by this study are: 1. What are the uncontrollable elements. 2. What are the factors underlying each of the uncontrollable elements. 3. What are the relative priorities of the factors underlying the uncontrollable elements. 4. What resolutions to the barriers created by the uncontrollable elements and their underlying factors have been used. 5. What resolutions to the barriers created by the uncontrollable elements and their underlying factors should be used. 19 RESEARCH SCOPE The study includes the perceptions of barriers to international logistics from logistics executives involved in international trade for their respective firms. The study did not have the advantage of an extensive body of prior research into uncontrollable elements. The firms chosen for information were selected from among the 30,000 firms in the United States which export and are registered with The World Trade Institute at the World Trade Center. POTENTIAL CONTRIBUTIONS OF THE RESEARCH For marketing literature this study represents an investigation into an area which has not had significant investigation. Obtaining an understanding of the roles of the uncontrollable elements should enhance the ability of domestic exporting firms to engage in international trade. Knowing the barriers created by the uncontrollable elements and confirming the known existing uncontrollable elements should allow domestic exporting firms to plan around them. The research examines and explains the role of management in overcoming the barriers created by the uncontrollable elements in international logistics, in addition, it suggests strategies for addressing these problem areas. The domestic firm should then be able to make an informed choice about the potential benefits of international trade and costs of overcoming the barriers to that trade. 20 RESEARCH LIMITATIONS The study is limited in application to United States firms which export. The population for the study was all firms in the United States which export and are registered with the World Trade Center. The barriers which surfaced were those of domestic exporting firms and may not be generally applicable to other firms. DISSERTATION ORGANIZATION The remaining chapters of this dissertation present the results of research on the barrier to international logistics created by the uncontrollable elements. Chapter 2 reviews the literature and discusses the causes of international trade, barriers created by uncontrollable elements, factors underlying the uncontrollable elements, and managements' influence on the uncontrollable elements. Chapter 3 describes the hypotheses and research methodology. Chapter 4 contains the results of the analysis of the information gathered. Chapter 5 presents the conclusions of the study. BIBLIOGRAPHY 21 BIBLIOGRAPHY Chapter One Cateora. Philip R- International_uarketinsl (5th edition). Homewood, 111.: Richard D. Irwin, 1983, pp. 3 & 7. Council of Logistics Manager's Pampplep, 1982, 222 West Adams St., Chicago, Ill. Coyle, John J. and Bardi, Edward J. T a e 0 Business Logistics, (3rd edition), St. Paul, MN,; West Publishing, 1984, pp. 39-40. Delaney, Robert V. "Distribution Productivity: Old Myths and New Realities," Western New York Roundtable of the National Council of Physical Distribution Management, Rochester, N.Y., 1984. Heskett, J.L., Ince, Robert M., and Glaskowsky, Nicholas A., Jr. Bpsipess Lpgispics: Management of Physical Supply and Distpibution. New York: The Ronald Press Co., 1964, p. 21. Kotler, Phillip Ppipciplgs of Mapkgtipg, Englewood Cliffs, N.J.: Prentice Hall, 1980, p. 23. LaLonde, Bernard, Grabner, John R., and Robeson, James F. "Integrated Distribution Systems: A Management Perspective, "International Journal of Physical Distribution, October, 1970, p. 46. LaLonde, Bernard and Cooper, Martha "Career Patterns in Distribution: Profile 1980," proceedings of the eighteenth annual conference of the NCPDM, October 13- 15, 1980, p. 15. Locklen, D. Philip Economics of Transportatipn, (7th edition), Homewood, 111.: Richard D. Irwin, 1972, p.12. Norvell, Douglass and Raveed, Sean "Eleven Reasons For Firms to 'Go International'," Marketing News, (v.14 N 18, Section 1), October 17, 1980, pp. 1-2. 22 Slater, Alan "International Marketing: The Role of Physical Distribution Management," International Journal of Physical Distribution and Materials Management (UK), (v.10 N 4), 1980, p. 160. Soorikan, L. "Planning and Control in International Physical Distribution," Transportation and Distribution Management, January/February, 1974. Stewart, Wendell M. and Morehouse, James E. "Improving Productivity in Physical Distribution: A $40 Million Goldmine," proceedings of the sixteenth annual conference of the NCPDM, October 16-18, 1978, pp. 4-5. Stock, James and Lambert, Douglas sppptegic Logistics Mgpgggpgpp, (2nd edition), 1987, Homewood, Ill.; Richard D. Irwin, pp. 4-5. Stock, James and Lambert, Douglas "International Physical Distribution - A Marketing Perspective," International Journal of Physical Distribution and Materials Management (UK), (v.12 N 2), pp. 3-39, 1982. Tinghitello, Steve "What Transportation Deregulation Means to Shippers and Carriers," Dun's Business Month, (v.123 N 1), January, 1984, p.95. The World Institute of Trade at the World Trade Center, N.Y., 1986 Statistics. CHAPTER THO Literature Review INTRODUCTION Chapter Two reviews the literature describing international logistics. The chapter is divided into ten sections. Following the introduction the sections are: 1) International Trade Theory 2) Barriers to International Trade 3) Uncontrollable Elements in International Trade 4) Factor Interaction of Uncontrollable Elements 5) Uncontrollable Element Interaction 6) Logistics Requirements for International Trade 7) International Logistics Model 8) Motivation for Trade by Domestic Firms, and 9) Dissertation Purpose INTERNATIONAL TRADE THEORY International trade is a special case of international exchange (Liodakis, 1980). International exchange includes all transfers between countries regardless of the motive for the exchange. Traditional international trade theory assumes perfect competition (Hwang, 1983). There has been a growing awareness that many international trade phenomena may be explained better on the basis of theories which assume imperfect competition. Traditional trade theory has 23 24 not adequately integrated international trade with other forms of the increasing internationalization of capital: primarily international investment. The traditional trade theories of absolute and comparative advantage assume perfect competition. They suggest that the basis and pattern of international trade is determined by the levels of labor productivity and the structure of the different spheres of production of the economies involved in trade. These theories do not integrate the other forms in international trade which are based on transfer of capital in the form of investments. These transfers can be politically motivated and therefore an analysis of the international balance of payments theory is presented. INTERNATIONAL TRADE CAUSES The basis of all trade, domestic or international, is economic; and, unless purely politically inspired, nearly all debates which for centuries have surrounded the topic of international trade have been argued in economic terms (Kimball, 1978). The international executive must understand the basis of trade in order to develop a viable international business and logistics strategy. The understanding of international economic theories and policies results in better strategy when planning for international trade. A country's trade policies 25 traditionally develop from one of the more important uncontrollable environmental elements which is economics. Since economics is the basis for all international trade it is only logical to limit the reasons for international trade to economic theory. Any reason propounded for international trade can be explained by economic theory. There are numerous theoretical analyses of international economic theory. The primary are those of welfare economics, which are the concepts of absolute (Smith, 1778) and comparative advantage (Ricardo, 1817). Propounded by Adam Smith and David Ricardo, respectively, they are known as the classical trade theories. These concepts are concerned with the gains which may be achieved by nations, groups, or individuals from international trade. It is the comparative or absolute advantage which is the basis for these gains. Another area of theoretical analysis for international economic theory is concerned with monetary equilibrium and international balance of payments. The desire for a balance in a nation's trade account causes it to intervene in the trading process. This is also the case for monetary equilibrium (Caetora, 1983). Any interference in international trade by a government effects the basis of trade between the parties directly involved in the trade. A government may use political or economic persuasion to influence trade. The use of government influence modifies 26 the cause of international trade. The reasons for trade may be changed because of government involvement. The products traded and the distribution of those products may be changed by government involvement in the trading process. REQUIREMENTS FOR INTERNATIONAL TRADE In order for international trade to take place certain economic requirements must be perceived by the trading partners. The partners must be convinced that there is a gain to be made. It is not necessary that each party to the trade perceive that the other party(s) also gain from the exchange. The perceived gain must be believed by the individual trading partners about their own status. The classical theories concerning the economic gain are commonly entitled the theories of relative advantage. The term 'relative' is applicable whether there is an absolute or comparative advantage (Klaus, 1977). The theory of absolute advantage is often cited but reference is infrequently given to the author. There may be some confusion about the actual author but for purposes of this study, Adam Smith is cited as the author of the theory of absolute advantage. The concept appeared in his publication, Wealth of Nations, in 1776. The theory of comparative advantage suffers partially from the same fate. The use of the term comparative advantage in international trade has become generic. In any event, David Ricardo is 27 given credit as the author (Ricardo, 1817). The theory is known as the Law of Comparative Advantage, and sometimes referred to as the Law of Comparative Costs. Apsolutg Advanpage When a product can be produced less expensively in one country than in another, the former country is said to have an absolute cost advantage. This absolute advantage lends itself to an easy analysis of the basis for trade in this situation. The country with the absolute advantage is eager to trade to profit from the advantage it has in the world's marketplaces. A country which can produce the same product, but at a cost in excess of the open market price, would seek to purchase it on the open market. This, of course, assumes that the price of transportation does not increase the cost of the product above the production cost of the purchasing country. It is at this point that the cost of international logistics is considered in the theory. If the cost of foreign production and international logistics exceeds the cost of domestic production and logistics then the product will be produced domestically. The theory of absolute advantage is most readily understood using as an example a country which can produce two products. One of the products is produced with an absolute price advantage in world markets. This country is the price leader for the production of this product. The second product is not produced with the same price 28 advantage. Another country is able to produce the second product less expensively. The second country, however, cannot produce the first product as inexpensively as the first country. The first country has an absolute advantage in trade for product one and the second country has an absolute advantage in trade for product two. In this case trade would occur between the two countries each using the product wherein they enjoy an absolute advantage and trading for the products wherein they do not. mepapative Advantage The principle of comparative advantage is applicable when one country can produce both products (or all products) more inexpensively than another country. International trade can still take place beneficially even though one country produces both products less expensively. A significant amount of world trade takes place daily where there is a comparative advantage rather than an absolute advantage. A country with a comparative advantage will trade in an effort to further its comparative advantage in the product where it has the most comparative advantage. If product one generates the greatest comparative advantage and therefore the highest profit then country one will trade product one in the world markets. Country one's production of product two will be reduced and it will then trade to obtain product two. Country one generates more profits from 29 emphasizing its trade of product one than it would from producing and trading both products. The reasons that nations trade can be applied to individuals, groups, or businesses. Whether individuals, groups, or businesses are able to trade depends on the political/legal, economics, and cultural/social philosophies and the competitive, technological, and geographical environments of the countries where they desire the trade to occur. The reason for trade, whether it is by a nation or a business, is economic. Trade takes place because the parties involved intend to profit from it. t na 'onal Balan e of Pa ents Balance of payments, balance of trade, and exchange fluctuations all relate to the basic process of recording and adjusting international financial relationships. These are important considerations which underlie international trade. These relationships influence whether a country will trade and what that country will trade. A nation's influence on internationally traded products from within its borders has a direct relationship on the products that the nation's businesses will trade. Certain products which are preferred for trade by the nation will have economic benefits attached to them which will influence a firm's trading decision. This governmental influence alters the classical theories of trade because the products traded may 30 not be those wherein the firm or nation has a relative advantage without the government's subsidy. The system of accounts which records a nation's international financial transactions is called its balance of payments. A nation's balance of payments statement records all the financial transactions between its residents and those of the rest of the world during a given time period. The balance of payments record is made by double entry bookkeeping and therefore it must always be in balance. A nation's balance of payments reflects an overall view of its international economic position. The balance of payments is an important economic measure used by governmental agencies such as, treasuries, central banks, and other departments who responsibility it is to maintain external and internal economic stability. The overall state of a country's balance of payments has an effect on its worldwide trade policies. A country's worldwide monetary value is affected by its balance of payments. The balance of payments also affects a country's domestic policies such as, wages, employment, and investment. A country's balance of payments affects the relative value of its currency and its ability to acquire the currencies of other country. In international trade, countries continually assess the external positions and currency prospects of the countries with which they trade. As a consequence, a country's 31 balance of payments also influences decisions of international businesses (Caetora, 1983). A balance of payments represents the difference between receipts from foreign countries and disbursements to them. A balance of payments deficit occurs when international payments are greater than receipts. Deficits can be eliminated by increasing a country's international receipts, or reducing expenditures in other countries. The balance of payments statement has three major accounts: the current account which includes a record of all imports, exports and services, plus all unilateral transfers of funds: the capital account which includes direct investment, portfolio investment, and short-term capital movements between countries: and the official reserves account which includes exports and imports of gold, changes in foreign exchange, and changes in liabilities to foreign banks (Henning, Pigott, and Scott, 1978). The current account has the most significance to international businesses because it includes international trade and service accounts. These are the accounts which have the value of all merchandise and services imported and exported by a country. The relationship between imports and exports is frequently referred to as the balance of trade. The current account is generally the largest account in the balance of trade statement. Generally when a country has a negative balance of trade it also has a negative 32 balance of payments. External factors, over which a country does not have any control can affect the balance of trade and payments. National inflation and oil prices caused rapid changes to the balance of trade and payments for many countries during the 1970's. These factors eventually require adjustments in the balance of payments through changes in exchange rates, prices, and/or incomes. As a country's exchange rates, prices, and/or income change, its ability to trade internationally is affected. This results in changing trade policies, which affect the individuals, groups, or businesses within that country which are involved in international trade. The capital account provides another area of governmental interference in international trade (Keegan, 1980). It is also the source of theoretical questioning of the adequacy of classical trade theory. The capital account includes foreign investment which is not part of classical trade theory because classical trade theory does not include internationalization of capital. As capital is redistributed between countries the demands for the products on international trade are modified by governmental concerns. By using the capital account a government can limit or encourage foreign direct and portfolio investments and short-term capital flows. The government can also adjust a country's economic policies. This can be accomplished through an adjustment in interest rates, 33 government spending, programs to restrain inflation, programs to restrict and limit domestic demand, and programs to encourage improvements in productivity and international competitiveness. In an extreme move, the government can devalue its currency. Any government involvement alters classical trade theory and the resultant products traded and their logistics. As a country's desired international product mix changes the domestic firm which exports must rely on its international business expertise and logistics capability to profitably distribute the products. The logistics system must be flexible to adapt to quickly changing international markets. International logistics allows a firm to overcome the barriers to international trade created by governments, market imperfections, market locations, and other firms. BARRIERS TO INTERNATIONAL TRADE Barriers to international trade can be caused by known and unknown elements which can be controllable or uncontrollable. The uncontrollable elements, whether known or unknown, present the majority of problems for domestic exporting firms. The potential barriers to international trade have not been fully analyzed and compiled. A review of the international business literature yields logistically oriented barriers to international trade (see Table 1), including both controllable and uncontrollable elements. 34 Table 1 CONTROLLABLE & UNCONTROLLABLE BARRIERS TO INTERNATIONAL TRADE Controllable Uncontrollable 1. Channels of logistics X 2. Communications X X 3. Competition X 4. Customer Service X 5. Documentation X 6. Economic Development X 7. Forecasting X X 8. Geography X 9. Intermediaries selection & capability X 10. Inventory X 11. Labelling X 12. Packaging X 13. Political & legal systems X 14. Port availability X & capability 15. Research X 16. Social & cultural status X 17. Technology X 18. Transportation X 19. Warehousing & storage X 35 There is an overlap between the controllable elements of communications and forecasting. This is because the domestic firm can control its communications and forecasting, but not that of the foreign country. The controllable elements are resolved by the application of domestic logistics techniques to their international counterpart. Recently there have been more solutions based on international logistics research which has served to offer more realistic resolution to international logistics problems. The controllable elements have received the majority of the attention in international logistics literature and therefore, this study will concentrate on the uncontrollable elements. Table 2 shows each uncontrollable element and authors who have written about them. 36 Table 2 ELEMENTS BY CONTRIBUTING AUTHORS Cultural/Social Cundiff & Hilger, 1984 Dichter, 1962 Douglas & Dubois, 1977 E.T. Hall, 1977 Hirsch & Petters, 1974 Markim, 1974 Norvell & Morey, 1983 Schooler, 1984 Political/Legal Business International, 1980 Choi, 1979 Geography Cateora, 1983 Stogaugh, 1981 Economic Cateora, 1983 Daly, 1971 Engel Henning, Pigott, & Scotti, 1978 Keegan, 1980 Kimball, 1978 Ricardo, 1871 Smith, 1778 Competition Alderson, 1957 Hwang, 1983 Rapp, 1973 Technology Cateora, 1983 37 The underlying factors of the uncontrollable elements include many dimensions which create barriers to international logistics. Uncontrollable elements are those external conditions which exist in the firm's international business environment over which the firm does not have any direct control. The domestic exporting firm can only influence the uncontrollable elements in an indirect manner through the management of its international business strategy. UNCONTROLLABLE ELEMENTS IN INTERNATIONAL TRADE The uncontrollable elements of international trade can be known or unknown. There are not any definitive studies which attempt to classify all of the uncontrollable elements. The known uncontrollable elements have significant interactions. Each of the uncontrollable elements is composed of underlying factors. The underlying factors form a composite of the uncontrollable element. These underlying factors have additional interactions which are reflected in the uncontrollable element. To understand the nature of the uncontrollable elements it is necessary to understand the underlying factors of the elements. When the underlying factors are understood, domestic exporting firms are able to manage the uncontrollable elements more effectively. For those uncontrollable elements which may be unmanageable it will be 38 easier to develop plans which circumvent them after their underlying factors are understood. Each of the six uncontrollable elements has factors from which it is composed. In this section of Chapter 2 the underlying factors of each uncontrollable element are discussed. FACTORS UNDERLYING CULTURAL/SOCIAL ELEMENT The cultural/social element contains six underlying factors. These underlying factors have been extensively examined by the literature of several different areas of study. This will become more evident as these factors are individually examined. The underlying factors of the cultural/social element are: 1) language 2) religion 3) cultural institutions 4) class structure and social mobility 5) aesthetics, and 6) social patterns Culture is defined as a group of people's learned responses to various stimuli (Edward T. Hall, 1977). The responses are interrelated and learned rather than innate. Culture is acquired through association with other members of the same group. Different cultures may have similar characteristics, however, each culture possesses unique 39 traits which set it apart and allow its identification as a separate culture. Every culture has a number of important factors which interact to determine its cultural and social patterns. The social part of the element refers to the interaction of the individual with the group. Further, the social portion of the element is combined with the cultural portion because of the tendency of groups to band together and form cooperative and interdependent relationships. It is the interaction of the six underlying factors of the cultural/social element which determine cultural/social patterns. LQDQEQQQ Language is the primary means of communication between civilized people. It is the most important single cultural input. Translation of ideas from one language to another must be performed with great care to insure that the correct idea is transmitted. Improperly used words can distort the message which was intended. Misuse of words has created many international business problems. Verbs in English may translate with different meanings in other languages. A dictionary translation is not the same as an idiomatic translation. Carelessly translated advertising statements may lose their intended meaning and in fact imply something very different than the original meaning. Language may be the most difficult factor in the social/cultural element to 40 overcome. A translator is generally used by international businesses to minimize any unwanted translations. 1191131211 Religion establishes moral codes and taboos for the behavior of its adherents, and consumption behavior is one such aspect (Cundiff and Hilger, 1984). Certain religions may disfavor various businesses or business practices. Participants within those religions may refrain from purchasing certain products or entering into negotiations for them. The major religions of the world vary dramatically in their philosophies. Their impact on their individual societies may effect the social behavior, dress codes, manners of doing business, and relations between people in the religion. Even within the same religion there can be differing impacts on different groups. Religion also reflects the principal values of a people. Social mobility, work ethic, family life, and business morality are all established by religion. Religion can be expressed through the institutions of a society. The church is an expression of religion in a society, as are value systems, both secular and non-institutional. The moral values that a culture derives from a combination of these sources may be in conflict or concert. 41 W229 Institutionalized bases are developed by each culture to determine the relationships between individuals for daily living. To understand and predict buyer behavior the international marketer needs to understand these relationships. The institutions include the family, the educational system, the influence and place of peer groups and peers, and the role of women in society (Douglas and Dubois, 1977). The family is the central social institution in every society. It nurtures the children and passes on the values of that society. In primitive or rural societies the family is an essential social focal point. The family provides food, clothing, shelter, education, acculturation, and a social center. In more sophisticated societies, the family may only provide food, shelter and basis acculturation. All other family roles are provided by other groups within that society. In more advanced societies the family role is superceded by other groups, peers, and institutions. Family contact may be limited to a few hours daily. The family may lose input over the traditional buying decisions and marketing strategies must be adjusted accordingly. The traditional areas of important family influence are in transmitting saving-verses-spending ethics and in establishing the importance of consumption as it reflects personal goals and status (Markim, 1974). 42 Every culture has a method by which it educates its young. The organized educational systems of established societies are used as the means by which societies important values are passed on to its members. The major goal of education is to prepare the younger members of society for roles they will have to assume to continue that society. Education is not limited to schools of more advanced societies. In more primitive societies education elders and oral historians transmit traditions and values to the young people. Whatever the form of the education it has a significant impact on international marketing and logistics. Formal education has a direct relationship with literacy levels in a society. Literacy levels are highest in those societies which have a broad educational base and mandate education for some specified period of time. The better educated people are, the more they demand sophisticated information about products. The better educated people are, the more sources of information they use when making purchase decisions. ss t t e ocial Mobi it Every society has a class structure which relegates individuals to different levels of social status and power. Each social class has distinct differences in consumption patterns (Hirsch and Petters, 1974). These differences are apparent in housing, clothing, education, automobiles, food 43 choices, home furnishing, and entertainment choices. The degree of social mobility varies greatly with different societies. Western societies exhibit more social mobility than eastern societies. The degree of social mobility is important to the international marketing and logistics efforts of domestic firms. Any product which is consumed in view of the general public carries with it an element of social statement. Depending on the degree of social mobility in each society, the same product might require different marketing and logistics strategies to succeed in different markets. The relative size and number of distinct classes within a society is a significant indicator of class structure. An interesting observation about the upper classes of each society is that they exhibit more similarity to each other than they do to the rest of their own society (Dichter, 1962). Lower classes seem to be more culture bound because they are less aware of other cultures and of these cultures' solutions to the problems of life. They are, therefore, more distinct from each other in the ways they dress, the food they eat, and how they spend leisure time and discretionary income. Middle classes are more prone to cultural borrowing. This is a method of social mobility from lower to middle class and within the middle class. Therefore, the larger the upper and middle classes, the more likely a market is to buy products and services that are not 44 culture bound - food, clothing, household items, personal care products (Dichter, 1962). Miss Aesthetic values differ greatly between societies. The differences in preferences in music, arts, and design are the most noticeable to the casual observer. Each individual's culture teaches him how to look and feel, and this is apparent in their taste for art, color, design and music. Modern communication has increased the understanding and appreciation of aesthetic values from other cultures in most parts of the world. 0 i tte ns A society dictates how its members should behave in many kinds of personal relationships. A pattern of traditions and rules of behavior evolve in each society, and people who ignore these rules are considered naive, crude, or uncaring. These patterns of social usage vary from society to society, but they all have the common purpose of facilitating and structuring communication between individuals (Douglas and Dubois, 1977). In many societies the rules between social and business relationships are separate. In others the rules of social usage are the same for personal and business relationships. Adjusting to the 45 local rules is essential for success in international business. FACTORS UNDERLYING POLITICAL/LEGAL ELEMENT There are four factors underlying the political/legal element, they are: 1) laws: 2) regulations; 3) systems stability, and: 4) public policy. These factors have extensive influence over the manner in which a domestic exporting firm is able to conduct business within a country. These laws and public policies which govern business activities within a country are an integral part of a country's social/cultural environment. A country's social/cultural environment effects its political/legal systems. There is in fact an interaction between the cultural/social and political/legal elements. The political/legal environment of each country is important in international business since each country's laws and governmental policies have an effect on the ability of the domestic exporting firm to conduct business within that country. Laws and policies vary between countries, although certain similarities can be observed throughout geographic regions or within trading groups or partners. Eggplations Trading groups or partners often adopt common regulations for trade which is used for their mutual 46 benefit. Each country has the power to permit or refuse a company to conduct business within its territorial boundaries and obtaining trading permission can be politically difficult for the foreign firm. A further complexity arises when a company transacts business which involves two or more countries. In the event of a dispute it can be very difficult to determine which country's legal system is applicable to the dispute. The use of regulations between the trading partners offers an alternative to litigation. The regulations include the prescribed penalty in the event of the default of any party to the agreement. Since the parties to the agreement have developed or hope to develop a long term trading relationship the regulations serve to codify the agreement between the parties. mg A listing of the potential legal problems for international marketing and logistics includes: 1. Rules for competition on (a) collusion (b) discrimination against certain buyers (c) promotional methods (d) variable pricing (e) exclusive territory agreement 2. Retail price maintenance laws 47 3. Cancellation of distributor or wholesaler agreements 4. Product quality laws and controls 5. Packaging laws 6. Warranty and after-sales exposure 7. Price controls, limitations on markups, or markdowns, and 8. Patents, trademarks, and copyright laws and practices (Business International, 1980) Common law or civil law are the factors underlying a country's legal system. Common law is derived from English law and is prevalent in countries which have an English influence in their history. Civil or code law is derived from Roman law and found in the majority of the countries of the world. Both common and civil law are modified by the political influence of a country. The politics of a country are influenced by the cultural and social elements of that country. The laws of a country are the embodiment of that country's cultural/social history. Laws are more formal than regulations and the violation of a law is treated more seriously than the violation of a regulation. Laws are used when the trading partners desire the ability to enforce their agreement through the court system of a country. Regulations can have the effect of a law because governments can draft regulations. Laws always involve governments, whereas regulations may involve governments or may be the 48 embodiment of an agreement between the parties. Laws always carry the weight of government, whereas regulations which are privately drafted are first attempted to be resolved between the parties and then litigated as a last resort. §Y§§£m_§£§hiliiY The stability of a country's political/legal system is very important for the continual transaction or international business. Frequent or unexpected political or legal changes create uncertainty in the trading environment. System stability is judged by the length of time that a country's political and legal systems have continuously functioned without drastic interference in international trade. Since all political and legal systems are dynamic there is always change in their environment. The question is not whether there is change in the system but whether the change drastically interfered with international trade. W A country's public policy will address the issue of whether it is open or closed to trade. Public policy addresses the position of a country on a given issue. Matters of public policy are generally developed from the perceived position of knowledge about those things that a country's population desires. The matters of public policy can be obtained in a democratic manner, at one end of a 49 spectrum, or in an autocratic manner, at the other end of the spectrum. The manner in which the public policy was determined has some bearing on the system's stability. More important, however, is the realization that public policy is the embodiment of a people's or government's attitude towards something. International trade is something that is effected by public policy. FACTORS UNDERLYING GEOGRAPHY ELEMENT Geography is the study of the earth's surface and its underlying factors are: 1) climate: 2) topography: 3) natural resources: 4) locations of population centers; and 5) natural barriers. The geography of a nation is perhaps the principal and broadest determinant of both the characteristics of a society and the means by which that society undertakes to supply its needs (Cateora, 1983). C t n o o ra Climate and topography are the most important elements of geography. Altitude, humidity and temperature extremes are all climate features of interest to international marketers. Products may have to be altered to function as designed in various climates. Topography influences the infrastructure of a country which in turn affects logistics. The ability to develop roadways, ports, and railways is directly affected by topography. 50 Climate has a direct effect on the suitability of a country for various products. The demand for products drives the demand for international logistics. The climate of any particular country practically determines the demand for goods and services by the country's population. Climate also affects the packaging of products for international shipment. 'ers Geography affects the character of a nation's economy and its economic and social development. This directly affects international marketing and logistics. South America, for instance, presents a geographical picture of natural barriers that inhibit national growth, trade, and communication. A country's natural barriers must be considered for market development. Coastal cities or those on navigable waterways have historically developed prior to inland cities due to the ease of logistics. The coastal or water cities become the trading centers for the country wherein they are located. Cities which are not located near transportation routes generally are isolated form each other even when they are in the same country. It would be unwise to assume that one logistics point within a country could serve the entire country or any significant portion of it. 51 u on c Natural resources are essential for the development of any society. The location of natural resources are geographical accidents. Nations are not equally endowed with natural resources, nor does a nation's demand for particular resources necessarily coincide with its supply of those resources. Energy, which is the by-product of resources, is essential for modern production techniques and economic prosperity. The principal supplements to human energy are: animals, wood, fossil fuel, nuclear power, oceanic tides, geothermal power, and the sun. The location, quality, and availability of resources will affect the pattern or world economic development and trade for at least the remainder of this century (Stogaugh, 1981). International logistics requires that the location, quality, and availability of resources be considered when making logistics decisions. c ' o c at' n s The location of population centers is a result of geography. The population centers are rarely homogeneous in their desires. This requires separate marketing efforts and logistics channels for the domestic firm which exports. The population factor of geography influences exporting decisions and international logistics. The number of people in particular areas has an impact on marketing and logistics 52 decisions. Factors such as current population figures, rates of growth, age levels, and rural/urban population distribution are all closely related to demand for various products and the resulting logistics required. This influences product export decisions and the logistics of these products. Geography influences world trade because the imbalance caused by the factors of geography must be balanced through world trade in order for the world's populations to receive the various products from different parts of the world. World trade allows a society to balance its needs and wants against its supply of goods. International trade is the result of differences among countries and the desires of those countries populations to have other products which are not available in their own countries. There are three major reasons countries differ in what they trade for and produce: 1. Difference in culture and skills 2. Differences in the stages of economic development, and 3. Differences in the availability of natural resources (Cateora, 1983). A country offsets its geographic disadvantage through world trade. World trade routes have developed between advanced societies throughout history. The routes are modified depending upon the societies involved at a particular time. As societies develop, world trade also develops to accommodate those societies. World trade routes 53 serve to bind the world together, minimizing distance, natural barriers, lack of resources, and the fundamental differences between peoples and economies. The historical development of trade routes has been, first overland, later by sea, and in present times, by air. Trade routes present a vivid picture of various countries attempting to overcome economic and social imbalances created in part by the influence of geography. FACTORS UNDERLYING THE ECONOMIC ELEMENT The factors underlying the economic element are: 1) population: 2) income: 3) national controls: and 4) employment. International business and logistics require that the exporting firm understand the dimensions of the economic development of the countries with which it desires to do business. It is important to understand the origins and destinations of exports and imports and the reasons that these trade flows between nations occur. It is also essential to understand the nature of changes occurring in the world marketplace. Populatigp There are over four billion people in the world today. Papulation and capital have been growing exponentially. there are limits to the supply of food and energy; as well as the amount of pollution that can be absorbed by the 54 environment. From a marketing standpoint, it is obvious that the system in its current form cannot continue growing indefinitely at historic rates. This has led to research into the relationship between population and capital growth (Daly, 1971). From an international business viewpoint the population factor is very important because the size of the market is one of the determining factors in the decision making process of where to trade. The relationship between population and its economic position (per capita income, national income, employment level, and consumption) is a vital strategic decision for international business. IDEQEQ Income and its location are key factors for the economic element. Income influences the timing of trade and is the single most important variable for the trading of most products. World markets are located in income and: population centers. Income is not a precise measure of market potential; it is only a gross indicator. By coupling income with population, a more accurate indicator of market potential can be rendered. Gross national product (GNP) and other measures of national income converted to U.S. dollars should be calculated on the basis of purchasing power (i.e. what the currency will buy in the country of issue) or through direct real product comparisons. This will allow the exporter to have an actual comparison of the standards 55 of living in the countries of the world. The concentration of wealth in a few large industrialized nations is the most striking characteristic of the global economic environment. This characteristic appears when one examines the world regions and again if one examines the logistics of wealth and income within countries. An examination of the logistics of wealth within countries reveals patterns of income concentration. These patterns are important for market analysis purposes for the exporter. The relationship between income level and consumption patterns is very important to marketers. This relationship allows marketers to use income segmentation to define a market. The nature of income elasticity for food was first observed by Ernst Engel. Engel's Law observes that as income grows above a certain minimum level, expenditures on food as percentage of total income decreased, although the absolute amount of food expenditures was maintained or increased. This phenomena has been confirmed by empirical budget studies. One such study was conducted by the United Nations Food and Agricultural Organization in Rome, 1955. In general, as the underlying factor, national per capita income, increases product saturation (the percentage of potential buyers or households who own a particular product) increases. In any particular economy, income is a major determinant of ownership of consumer durable goods. 56 As national income per capita increases demand patterns are changed. Firms which export need to be cognizant of these changes. As demand changes the channels of logistics change to meet the new demand. The exporter must be aware of these changes also. W121; An important underlying factor of the economic element is national controls which the nation-states exercise over a broad range of international transfers. National controls include goods, services, money, technology, and rights. All of these national controls are important to international marketing and must be considered by the exporting firm. The major reason for exercising national controls is to accomplish economic goals. The initial economic goal of controls over international transfers is revenue production. As societies have progressed this goal has yielded to the goals of protection of local industries and fostering local enterprise. These three goals can be combined and a country can increase revenues by increasing tariffs and duties on transfers of goods and at the same time can provide protection for infant industries and local enterprise. n11 57 mm Employment is another factor of the economic element. The goal of full employment influences a country's controls over its international business policies. Tariffs, quotas, quality of goods, and quantity limits are typical control devices. In the event that local employment is endangered by international trade then local governments may use economic controls to restrict trade. The underlying factors of the economic element cause countries to respond to international trade in various ways. Countries may seek to protect their indigenous resources and industries by using controls. The per capita income level affects demand patterns, and the location of the population can determine where the demanded goods and services are required. This affects international logistics and the exporting firm. FACTORS UNDERLYING COMPETITION ELEMENT The underlying factors of competition are: 1) entity survival: 2) market access; 3) profitability: and 4) differential advantage. En ' u iv a Pro ' abil Competition arises in international business for the same reasons that it does in domestic business. The underlying major factor in competition is survival of the 58 entity. This is accomplished by generating profits. Firms seek to enter a market because they believe that the desired market will allow them to generate revenue in excess of the cost of entering that market with a resulting profit. The access to foreign markets is viewed as an opportunity to increase revenues. Due to the absolute size of foreign markets, international trade provides domestic exporting firms the opportunity to insure survival into the indefinite future. 152391199299 The ability to enter a market and sell a product internationally is a driving force behind domestic firms which export. The state of competition within a foreign market is a determining factor of the ability to enter that market. Market access is desired by exporting firms for many reasons, including a desire to use foreign markets to alter life cycles of existing products, additional product and market segmentation, to improve cost-volume relationships, and use existing products to innovate in new markets (Rapp, 1973). The competitive element in international business and logistics is exacerbated for the domestic exporting firm because of the ease with which unlimited foreign firms can enter and exit markets, that is their access to the country's markets. The potential competitor is usually 59 unknown except for very large firms. Since the potential competitor is unknown and their country of domicile is equally unknown it is difficult for the domestic firm to adopt a specific strategic plan to fend off the invasion of a newly established market. It is more difficult to use international logistics to compete when the unknown competitor may already have an established logistics base in the country wherein the domestic firm is doing business. Competition is an uncontrollable element because any number of firms can enter and exit the market. It is not possible for the domestic exporting firm to control a foreign market. W U.S. domestic firms operate within a free market system which allows them to be rewarded by profits from successful competition within the marketplace. Profits are essential for the continuation of the firm. While an entity can survive at the point where revenues equal expenses it cannot return anything of financial value to its owners or stakeholders. In this event, they do not have any incentive to continue to invest or be involved in the business. The quest for profits has created a desire by some U.S. domestic firms to export. The increased competition in the domestic markets has decreased domestically earned profits and the foreign markets are viewed as avenues to increased profitability. Profitability is the method by which 60 domestic firms are judged by their shareholders, stakeholders, and competition. RM The competing firm has its survival as its main goal. The nature of its competition is for a differential advantage through which it may enter the market and earn a profit. The competitor is an unknown and uncontrollable element because of the ease of market entry and often the competitor is another domestic exporting firm. Differential advantage allows the domestic exporting firm to enter a market and survive within that market without being neutralized by another firm before it has an opportunity to generate a return on its capital deployed in that market (Alderson, 1957). Differential advantage is the key element to successful penetration of a foreign market. The nature of the differential advantage will determine the period of time that the domestic exporting firm will remain profitable in the foreign market. While maintaining the differential advantage the domestic exporting firm will experience higher than normal profits. These abnormal profits will bring additional competitors into the market. 61 FACTORS UNDERLYING TECHNOLOGY ELEMENT The factors underlying the technology element are: 1) research and development: 2) industrial development: and, 3) technology transfer. The technology and its developmental state influence international trade and have a resultant influence on international logistics. W The basis for technology is frequently a firm's own research and development. It is necessary to utilize the correct technology for the state of development of the society wherein the domestic exporting firm will market its product. Research and development in the domestic exporting firm can create products which are highly desirable in foreign markets. It is necessary to determine, through thorough research the type of product necessary for the foreign market. It is often the case that products developed by a domestic firm are not appropriate for the foreign market. Domestic firms often export products which are in a later stage of product life cycle to foreign markets which are not as technologically advanced. ngppppipl pevelopmgpt The degree of industrial development attained by the recipient country will partially determine whether the domestic exporting firm can successfully do business there. 62 Perhaps the most significant environmental factor affecting the market for goods is the degree of industrialization. The degree of economic development is an inaccurate but useful proxy for the degree of industrialization. Regardless of the degree of industrialization, demand for products exists, but different levels of development typically result in changes in demand and kinds or quality of products sought. The most significant area for technology differences is in industrial products. There are five basic stages of development for countries: (1) Preindustrial;(2) Primary manufacturing: (3) Growth of manufacturing for nondurables; (4) Well-industrialized: and (5) Complete industrialization (Cateora, 1983). The stage of development will help a domestic exporting firm determine where it desires to sell its product. The stage of development also influences the stage of logistics development. The product sold should be able to flow through the purchasing country's channels of logistics. A domestic firm with advanced logistics techniques should not expect to fully utilize those techniques in a country which purchased outdated technological products from it. 63 W Technology can be transferred, and therefore the domestic exporting firm needs to be cognizant of the extent of its technology's transferability as it develops its foreign markets. It is possible for other firms to duplicate the technology and displace the domestic exporting firm. Since there is not any form of international patent, the copying of technology is clearly not illegal. Once a product is developed and placed in a foreign market it is available for other firms to duplicate. This problem becomes circular because the solution to it leads back to market entry and differential advantage. A domestic exporting firm may obtain differential advantage by using a new technology and then maintain it through market segmentation and market control. FACTOR INTERACTION OF UNCONTROLLABLE ELEMENTS There are interactions which take place between the factors which underlay the uncontrollable elements, and there are also interactions between the uncontrollable elements. The interaction between the factors and the interaction between the elements need to be examined in order to comprehend their dynamic nature. This examination allows management to make informed decisions about the factors and elements allowing for more effective control. Any decision made by an international logistics executive 64 which concerns any of the uncontrollable elements could cause an interaction with another uncontrollable element and its underlying factors. Any interaction among the underlying factors has an effect on its uncontrollable element. Therefore an examination of the interaction of the factors of each uncontrollable element is necessary to understand and control the effect of the interaction. Since the uncontrollable elements are a composite of their underlying factors it is necessary to understand the interactions of the underlying factors in order to properly comprehend and model the interaction between the uncontrollable elements. The factor interactions are summarized in Table 3. 65 Table 3 INTERACTION OF FACTORS UNDERLYING UNCONTROLLABLE ELEMENTS ,, 8 c E's .2 as: cc *3 g, in 3a- .2a '0 - 9 °" .. n 3- g in o e 8" — 222: c— :-- =33 = 3° 9 3 :25 53 .053 >33}: 5‘5 22,. 5 3 3 2533103: €2:)~ COaOO CSngog’. -8 .aczasai 99:: 39:92 eaE~==2 62- .eoem-o_a ‘e'iE a253.9‘i§°¢c"im:c 3° ~3-‘no£o= ‘oU‘G°r"r ETD-9 "I" 5': 5°93“.--.-.fl=-= 503a3c03~o :15: 3‘ fissss°882’8:%§=3:gsaosae§2-28898 UACUOIg<¢043CUJ¢OUhZJZIHSILZmuwzml-Cst- OMS“ Language XXX Religion XXX Cultural Institutions X X X ClaaaStruclureand X X X 80mm Mobility Aesthetics x x x Social Patterns X X X LegallPolItlcal Laws Regulations Syetem Stability Public Policy OWOPM Climate Topography Natural Resources Location ol Populations Natural Barriers Economlca Income Population National Controls Employment Competition Entity Survival Marketing Access Profitability Technology Research and Development Industrial Development Technological Transler 66 CULTURAL/SOCIAL FACTOR INTERACTION The factors which underlay the cultural and social element are: 1) language 2) religion 3) cultural institutions 4) class structure and social mobility 5) aesthetics, and 6) social patterns Each of these factors may interact with the factors of other uncontrollable elements as well as with each other. The interaction will be examined on a factor by factor basis. Language, because it is the basis of oral communication, indirectly interacts with all the factors underlying the legal/political and economic elements. Its direct relationship is limited to its own element, cultural and social. The cultural and social element is one of the very few to have anything written about it in the business literature. The literature about the cultural and social element has centered around language and its use in advertising. It is frequently suggested that the domestic exporting firm use a local advertising agency in the foreign market which understands the local language and customs (Schooler, 1984). The factor of language was carried further and applied to ethnodomination which was concerned 67 with the domination of certain ethnic groups in various functional areas of business. In international logistics ethnodomination was concerned with domination of the channels of logistics in certain foreign markets by various ethnic groups. The ethnic dominators can supply expertise for international marketing and logistics and provide effective communication skills for use in marketing and advertising programs (Norvell, Morey, 1983). The main impact of language occurs within the context of the cultural and social element. Religion directly interacts with cultural institutions in its own social and cultural elements. Religion also interacts with the political and legal element. Numerous rules and regulations are the result of religious influence. Many countries have political systems which are influenced by religion (Cundiff, Higler, 1984). Laws are frequently based on religion, especially those concerned with morality or ethics. Cultural institutions interact with the factors of social mobility and social patterns. The most important part of the cultural institutions factor is the educational system. The educational system interacts with the political and legal element, economic element, and technological element. In fact, the education subfactor of cultural institutions is at the very heart of the social and cultural element. The education factor interacts with the factors of 68 the elements of political and legal, economic, technology, and competition. Class structure and social mobility interacts with the economic element. In particular the income and employment factors of the economic element interact with class structure and social mobility. Social patterns are closely aligned with social mobility and class structure. Social patterns interact with the economic element's factors of income, population, and employment. Aesthetics are also closely aligned with social patterns, class structure and social mobility. The aesthetic factor has an interaction with the economic element and its underlying factors of income, population and employment (Dichter, 1962). POLITICAL/LEGAL FACTOR INTERACTION The factors which underlay the political/legal element are: 1) laws: 2) regulations: 3) public policy, and 4) system stability. The factors of the legal and political element interact with all of the factors of the cultural and social element. There is also a complete interaction of the factors of the legal and political element with the national controls factor of the economic element. The political element has received the most attention in literature due to political instability in some countries. The subject of political risk is frequently cited when international marketing and logistics are considered by domestic exporting 69 firms. "Political risk includes actions that limit the freedom of a foreign firm to operate in a give host environment and actions that result in the actual takeover of enterprise assets" (Choi, 1979). The legal and political element also interacts with the competitive element. The very essence of competition is protected by the legal and political systems in the United States and numerous other countries whether they practice capitalism or other economic forms of government. GEOGRAPHICAL FACTOR INTERACTION The factors which underlay the geographical element are: 1) climate: 2) topography: 3) natural barriers: 4) natural resources: and 5) locations of population centers. The factors which underlay the geographical element interact with the factors of the cultural and social element, economic element, technological element, and competitive element (Cateora, 1983). For international logistics the geographical element has significant importance. The location of the final destination of products designated for export by the domestic exporting firm can greatly effect the efficiency, effectiveness, and cost of international logistics. In the event that unique shipping routes, special packaging, different destination transportation systems, and/or delivery to unique locations are required, 70 then the cost, efficiency, and effectiveness of international logistics are affected. ECONOMIC FACTOR INTERACTION The factors of the economic element are: 1) income: 2) population: 3) national controls: and 4) employment. These factors interact with the factors of class structure, social mobility, aesthetics, and social patterns of the cultural and social element. All of the factors of the economic element interact with all of the factors of the political and legal element. The factors which underlay the technological element interact with the factors of the economic element: and all of the factors of the competitive element interact with the factors of the economic element (Daly, 1971). TECHNOLOGY FACTOR INTERACTION The factors of the technology element are: 1) research and development: 2) industrial development: and 3) technology transferability. The factors of technology interact mainly with the factors of the economic and competitive elements. There is also an interaction with the cultural institutions of the cultural/social element. The interaction is with the educational system. The factors of the legal and political elements also interact with the factors of the technological element. 71 COMPETITION FACTOR INTERACTION The factors which underlay the competitive element are: 1) survival of the entity: 2) access to markets: 3) profitability: and 4) differential advantage. These factors interact with the factors of the technological element, economic element, political and legal element, and with the educational system factor of the cultural and social element. UNCONTROLLABLE ELEMENT INTERACTION The interaction of the uncontrollable elements is determined by the interaction of their underlying factors. Based on the interactions, as stated in the above section, the following uncontrollable elements have interactions: 1. Cultural/Social with Political/Legal and Economic 2. Political/Legal with Economic, Competition, and Cultural/Social 3. Geography with Cultural/Social, Economic, Technology, and, Competition 4. Economic with Cultural/Social, Political/Legal, Competition, and Technology 5. Technology with Competition and Economic 6. Competition with Political/Legal, Technology and, Economic In order to manage the uncontrollable elements it is necessary to understand their interactions. In order to understand the uncontrollable elements and their 72 interactions it is necessary to understand their underlying factors and their interactions. The factors and their interactions and the elements and their interactions have now been explained. The methods to control factor and element impact will now be analyzed. METHODS TO CONTROL FACTOR AND ELEMENT IMPACT Factor impact results when two or more factors interact. This interaction can take place between factors within the same element or between factors among different elements. Uncontrollable element impact is the result of the interaction of two or more uncontrollable elements. Uncontrollable element interaction only takes place when the underlying factors of the respective elements have an interaction. This is because the uncontrollable elements are the composite of their factors. The methods to control factor and element impact include: public policy changes, education, and management interaction. The uncontrollable factors can be influenced and the impact of their uncontrollable elements altered through education, public policy changes, and management interaction. There may be additional methods for altering the uncontrollable elements which will be discovered through this dissertation. The management of the domestic exporting firm is relatively powerless to alter the underlying factors by changing public policy. Education is a very broad term 73 and refers to altering the underlying factor by making the domestic exporting firm and the foreign importing firm aware of the underlying factor's existence. This is often an insurmountable task for a small or medium sized exporting firm. This leaves companies with only the tools of management to alter the uncontrollable elements and their underlying factors. The methods most often used by management are the finance, production, and/or marketing/logistics functions. USE OF INTERNATIONAL LOGISTICS TO OVERCOME BARRIERS The interactions of the factors and results on the elements have an effect on international business and logistics. The factors and uncontrollable elements create barriers to international trade. Identification of the factors and elements will allow for improved control of them by international business executives. Knowledge of the elements and their underlying factors in the international logistical area makes it possible for the international business executive to overcome the barriers to international trade. International logistics is an enabling power for management to use to expand their exports. Through international logistics, management is better able to control the impact of the underlying factors and their uncontrollable elements. 74 LOGISTICS REQUIREMENTS FOR INTERNATIONAL TRADE International logistics enables international trade and is subject to many of the same barriers as international trade. In addition any barrier which is an impediment to international logistics is a barrier to international trade. International logistics can aid in the resolution to some of the barriers of international trade. This section will discuss the role, function, and application of international logistics. The demand for logistics is a function of the reciprocal demand for a continual supply of goods and services. The interregional differences in prices of goods and services causes a demand for them and when the cost of logistics plus the cost of the goods and services is less than that prevailing in the demanding regions then the goods and services are traded. International logistics has forced management to be aware of the total costs of logistics, not just the cost of moving goods (Davies, 1983). It is the total cost of logistics which is the final determining factor of whether the product can be profitably traded. International logistics enables the theories of relative advantage to become reality for the trading nations. During the trading process it is assumed by the parties to the trade that the products or services traded can be delivered as specified by the terms of trade. Until the last two decades very little thought has been given to 75 the position of international logistics within the firm or its structure and function within the firm. International logistics was perceived as only transportation without regard to the extensive ramifications of the role of international logistics. Attempts to determine the actual effect of international logistics on international trade were not made until 1956 when Lewis, Culliton, and Steele published their now famous article about air freight (Lewis, Culliton, and Steele, 1956). The late emergence of the study of international logistics is directly related to the late start of the study of domestic logistics. In 1922, the role of logistics in marketing was identified by Fred Clark in his book, Principies of Mapketing, and in 1927 the term logistics was first used in a text by Ralph Borsodi entitled Tne Logistigs Agg. The study of logistics did not further develop until World War II began, when logistics were further developed and refined by military strategists. After the end of World War II, logistics became part of the marketing concept used by the corporate culture of the 1950's. Then in 1956, as previously stated, the study of international logistics commenced. The literature concerning international logistics can be divided into three parts: 1) Role of international logistics within the firm: 2) Functions of international logistics: and 76 3) Application of international logistics techniques either by case example or suggestion. ROLE OF INTERNATIONAL LOGISTICS International logistics role within the firm has been suggested and described in many articles. The size of the firm, the nature of the business and the firm's involvement with international marketing are significant factors in the amount of responsibility given to the logistics departments (anonymous, 1981). The more international business that a firm has, the larger the role of its international logistics department. In the typical firm, the larger the amount of sales volume from international business, the larger the role of international logistics. In this situation, sales volume is controlling logistics. International logistics capability is not considered prior to making international sales. As an aid to determining the role of international logistics within the firm, many articles used surveys to obtain opinions from management about the role of international distribution. The role is divided among lower, middle, and upper management. There is a minority of persons in larger companies with decision-making responsibility in export shipping and this indicates the cross-functional role for international logistics managers (Gray and Davies, 1981). As a multinational sales and 77 marketing organization is established and production, logistics and other functions are centralized a strategy of integrating manufacturing, product development, and marketing should be followed. This strategy results in the decentralization of the firm (Anonymous, 1984). The decentralized strategy results in the autonomy of the international logistics function because it must serve diverse markets. These two articles represent the diversity of organizational structure for international logistics. There is not a consensus about the role of international logistics and therefore it has been developed on an ad hoc basis. The literature on international business has just recently commenced analyzing the role of international logistics within international trade. A reason given for the slow development of the role of international logistics has been the increasing competitive international environment and the preoccupation of multinational businesses with strengthening business in their own nations (White, 1984). As domestic exporting businesses react to additional pressures from international competition they tend to apply techniques with which they are familiar in domestic markets, rather than attempting to expand further into international trade. Governments, however, decided that it was in the best interest of their countries to become involved in increasing international trade. Increased involvement in international trade was 78 perceived as a strong force in the eradication of various domestic problems, such as a reduction in the deficit in the balance of payments (Stoner and Arora, 1983). The involvement of governments into international trade serves to increase the amount of international logistics with a concomitant increase in the role of international logistics. United States companies which export were generally viewed as too slow, too narrow, and too half-hearted. Foreign customer service problems had created this situation. Since customer service was within the realm of domestic logistics it was a natural solution to the problem to utilize international logistics to resolve the problem: however, since the majority of the domestic exporting firms lacked international logistics expertise, the problem was not solved. This resulted in an increased emphasis on international logistics by domestic exporting firms. A survey which rated the exporters to six major countries on the basis of ten service components ranked United States firms as number six in international trade (Lancioni, Christopher, Gattorna, 1983). The lack of a definite role for international logistics was causing a problem in foreign markets. The problems created in foreign markets forced United States exporting firms to establish a more permanent form of international business which created a larger and more autonomous role for international logistics. 79 Establishing a permanent role for international logistics requires that firms place the international logistics function within the corporate organizational structure. The application of the concept of integrated logistics to international business necessitates a number of modifications of the concept traditionally used in domestic business. A separate logistics concept is suggested for international logistics. This concept emphasizes the movement of the export order rather than the movement of goods, and it ignores the movement of materials into and within the firm. The internal movement of materials remains a part of the domestic logistics system (Davies, 1983). The changing role of international logistics requires that firms recognize the difference between domestic and international logistics. The primary differences are in three areas: 1) documentation: 2) order processing: and 3) the presence of a freight forwarder for the domestic exporting firm. In addition, there is another area of concern which arises for the domestic exporting firm. This is the area of channel control into the foreign countries. It can be argued that the integrating of export sales and logistics allows extended channel control for better customer service. A study of the logistics organization of forty multinational firms was made by Jacques Picara in 1983. The study revealed two possible models for solving the international logistics problem. The first solution is the 80 decentralized full-profit approach in which complete authority over domestic and international logistics operations affecting the subsidiaries is given to their managers. The second approach is the "centralized" approach in which a centralized domestic and international logistics staff reports to the executive who is responsible for the profitability of foreign operations. There are arguments for both centralization and decentralization of international logistics. Centralization of functions, such as warehousing and order-processing at the divisional or corporate level results in cost reducing economies of scale. While combining warehousing throughout the entire company might reduce storage costs, the cost of shipping would increase. Decentralization of international logistics could result in maintaining full inventories at each subsidiary to offer a high level of customer service. The result from decentralization would be an increased cost for inventory. The extent to which a firm choses to centralize or decentralize is linked to the achievement of the overall corporate goals (Picard, 1983). Neither approach has been proven to be superior to the other, such a determination depends partially on other elements of the firm's organizational philosophy and on the nature of the firm's activities and characteristics. 4 In the largest of companies the total logistics structure receives limited attention. The minority of 81 persons in larger companies with decision-making responsibility for international logistics indicates the cross-functional role for international logistics management. The overall management of international logistics is accomplished by senior and middle management personnel (Gray, Davies, 1981). The increasing rate of multinational business growth and international trade require that logistics management become more involved in corporate strategy and structure for multinational organization. More emphasis has to be placed on the adapting of specific structures and processes for the management of logistics activities to complement the company-wide logistics strategies adopted for the firm. There is a need for people who can fill the integrative roles essential to the successful performance of many logistics organizations and the procedures, such as coordinative and decoupling devices, to facilitate the integrative process. Only by serious effort on all these fronts will multinational firms relying heavily on logistics achieve the structures and processes necessary to support their strategies (Heskett, Mathias, 1976). Since the publication of this article in 1976 there has been substantial progress on the integration of the international logistics function to a role in the corporate structure. This progress has been predominate in larger corporations which export as well as maintain foreign 82 facilities. The role of international logistics is increasing in importance. However, the highest corporate offices are not involved in international logistics. Over 40 percent of international logistics decisions are made by middle managers. While domestic logistics departments have little involvement in international logistics affairs, they are often asked to take care of international logistics problems without any additional staff (Lancioni, 1984). Pppggsp of intgrnationai Lpgistics There has not been a clear definition of the role of international logistics management within the majority of companies. The lack of an adequate description of the international logistics process serves to further exacerbate this problem. Three basic stages are found in the international logistics process: 1) order to dispatch time- from receipt of the customer's order to dispatch of the order complete from the factory or warehouse: 2) dispatch to arrival time-international transit operations: and 3) arrival to receipt time-customs clearance, payment, and movement to the customer's premises. The role of international logistics management is to ensure that the large number of tasks for each of these stages are all completed correctly and at the right time. The amount of international logistics effort in international marketing is a function of the channel strategy adopted and the stage of 83 the development of the international marketing strategy. A planning approach is suggested for international logistics and international marketing. The plan should include: a logistics strategy, organization structure, costs, operating procedures for the strategy, information system, and continual audit process. Successful and efficient international physical logistics involves adopting a wide conceptual view of the system together with an extensive detailed analysis of operational activities (Slater, 1980). ,.1901 i- 1031' ._ ' - -:‘ O i --iio.,-i-. 100‘ ° : Firms which become involved in international business by exporting tend to be smaller firms with revenues less than $250 million (LaLinde and Czinkota. 1981). They have not established permanent forms of international logistics, and therefore their process of international logistics is to make extensive use of export agents for product movement. Their knowledge of international logistics is limited to transportation modes. It is not until their international business expands or they experience product problems in the foreign countries where their products are located that they begin to understand the function of international logistics. The learning of international logistics and its role in corporate planning are functions of the amount of revenue a domestic firm has in international markets compared to its total annual revenue. 84 As the revenue from foreign markets increases, the emphasis placed on those markets increases. Efforts to contain costs and increase sales are made. This increased emphasis on foreign markets highlights the need for improved international logistics. FUNCTION OF INTERNATIONAL LOGISTICS The function of international logistics is to enable the international marketing process. The total cost concept involves minimizing the sum of transportation, warehousing, inventory, order processing and communication, and production lot quantity costs while achieving a desired level of customer service (Kraofel, Mentzer, Williams, 1981). This allows for the effective and efficient utilization of international logistics at the lowest cost to the domestic exporting firm. International logistics when used with the total cost concept, will allow for the efficient movement of finished products from the end of the production line to the consumer, and in some cases this will include the movement of raw materials from sources of supply throughout the world to the beginning of the production line (CLM,1982). Domestic firms have long recognized that customer service efforts directed at domestic customers enlarge market shares and increase profits. Customer service is an integral part of the logistics function and it is the 85 preferred method of non-price competition. However, domestic firms which export have their customer service problems handled by third parties, with the result that foreign customers very often do not receive quality service. This problem is caused by the use of export agents that perform sales and shipping functions only (Lancioni, Christopher, Gattorna, 1983) and do not have any permanent role in the domestic firm. The initial function of an international logistics department in a firm which commences exporting is generally limited to using foreign agents to ship product. As previously mentioned, the international logistics function is truncated in firms which have recently begun exporting and, further, the international logistics department is non- existant. For a domestic exporting firm, entering a foreign market is much like expanding domestic sales into new geographical areas. The issues that must be addressed include how the product will be delivered and serviced and how money is to be collected. For exporting firms there are two basic methods for selling their products: direct and indirect exporting both of which are effected by international logistics. 86 Wins In the direct method of exporting, the domestic firm is responsible for the contract and overseas shipment of the product and all phases of its international logistics. Intermediaries for direct exporting are: 1) foreign sales representatives: 2) foreign sales agents: 3) stocking and nonstocking agents: 4) end users: and 5) state-controlled trading companies (Walvoord, 1983). Direct exporting allows the domestic exporting firm to have greater control over their product(s) in the foreign markets. The domestic exporting firm has more presence in the foreign market because their products are represented by agents that they retain. The agents selected represent the domestic exporting firm and not an intermediary, which is the case in indirect exporting. When either direct or indirect exporting is used, market control is an important issue. The company image and reputation are created and maintained in foreign countries by their representatives. The customer service offered in foreign countries affects the companies sales and profitability (Walvoord, 1983). International logistics is a function which enables a domestic exporting firm to maintain positive contacts in foreign markets. The selection of international intermediaries for the domestic exporting firm is a crucial decision which has profound impact on the firm's international logistics and 87 its success in foreign markets. The criteria for selecting an international intermediary should include: 1) market knowledge, 2) market coverage, 3) sales force management, and 4) international logistics ability. These criteria have a direct relationship to the exporting firms sales performance in foreign markets. Several studies have indicated that intermediaries are motivated by manufacturers who provide them with attractive remuneration, support, and effective two-way communication. These factors need to be combined to enable the domestic exporting firm to select the proper intermediary (Shipley, 1984). MW In the indirect method of exporting, the foreign sales contract and product delivery are given to an intermediary, who takes control of the product and international logistics. Such agents are: 1) commissioned buying agents, 2) country-controlled buying agents, 3) export management companies, 4) export merchants, or 5) export agents. In the indirect method the exporting firm loses product control when it reaches the possession of one of the above five above mentioned institutions. Expopping Qonsidgpntions There are eleven functional areas of exporting involving product movement and international logistics that 88 the international logistics executive must coordinate. These eleven areas are: 1) selection of a common carrier to the port 2) aerial port 3) ocean port 4) air carrier 5) ocean carrier 6) freight forwarder 7) consolidator 8) export packing 9) insurance 10) banking, and 11) outside consultants (Virdrick, 1983). When the domestic firm decides to utilize direct exporting all eleven functional areas must be considered in conjunction with an international logistics strategy. When the domestic firm decides to export it must consider the functions of the export agent it chooses in order to be assured that the export agent can fulfill the firm's international business and logistics strategy goals. In the event that the domestic firm decides to select a foreign distributor the selection should include the following criteria: 1) financial stability, 2) technical competence, and 3) ability to provide needed sales support (Blake, Gagliano, Babson, 1983). In effect, the foreign distributor should appear to be an extension of the domestic 89 exporting firm. The foreign distributor is the domestic exporting firm's presence in the foreign country and therefore part of its international business and logistics presence in the foreign market. It is generally recognized that major foreign market opportunities are available to a wide range of domestic exporting firms. The difficulties in establishing an effective and profitable foreign logistics system form a substantial barrier to market penetration. It is important to anticipate and minimize the business and logistics problems involved in the establishment, operations and termination of a foreign logistics system. The methods to enter foreign markets, in addition to exporting are: licensing, joint ventures, and operation of foreign facilities (Berlew, 1984). This study is limited to exporting and therefore the other methods of conducting business internationally and their concomitant international logistics systems will not be discussed. Exporting includes market planning, package design, sales negotiation, financial monitoring, banking, insurance, and consular documentation. It is essential that the international logistics executive and department be familiar with all of these. negotiating the final terms of the sale is the most significant part of successful exporting and this process directly includes the functions of international logistics. The responsibilities of 90 international logistics for the exporting firms changes dramatically with the terms negotiated in the sale. Negotiating the final terms should not be left with any one department, but should instead be a combined effort of all departments effected and coordinated by the international logistics executive (Foster, 1980). The documentation of an export is at the very heart of the negotiating process. The documentation reflects the terms as negotiated between the parties to the sale. The documentation flow is an extremely important part of the export program and it is essential that the international logistics department is fully aware of the progress of the documentation. When a domestic exporting firm uses a shipper for documentation, it is important that the firm be cognizant of its status and progress in order for the international logistics function to be fulfilled. Export financing is closely associated with the document flow, with the letter of credit being the most frequently used document for export financing. Since shipping arrangements specified in the letter of credit must be followed exactly, it is crucial that the international logistics department be in contact with other departments effected by the document flow, the negotiating process, and the documentation itself. The international logistics department has a distinctive role in the planning of exports for the domestic firm. The extremely important channel decision is only one of a series 91 of decisions that must be made in international logistics. The international logistics function must also consider: 1) logistics strategy 2) logistics organization 3) logistics costs 4) logistics operating procedures 5) logistics information systems, and 6) continual logistics audits and evaluation (Slater, 1980). Successful and efficient international logistics involves adopting a wide conceptual view of the system together with an extensive detailed analysis of operational activities. International logistics strategy should have a planning framework that allows a global planning perspective on a corporate basis and therefore allows the benefits of the systems approach of the logistics concept. Further, the international logistics strategy should allow for the identification and classification of trade barrier costs (Cook, Burley, 1985). An integrated international logistics strategy is preferred, followed by an identification and measurement of the major trade barriers and their costs and an identification of the stages through which the firm will distribute its products to international markets. The stages through which the firm will distribute its products follow the stages of its development in international marketing from indirect exporting to foreign facilities. 92 APPLICATION OF INTERNATIONAL LOGISTICS The application of international logistics has been described most frequently in various literature by the case study method, wherein, the international logistics methods of individual firms are studied. Johnson Wax Company has been studied several times from both marketing and international logistics strategy viewpoints. The strategy discovered was that Johnson Wax Company begins new product sales and logistics from an exporting position and gradually changes to a locally produced products strategy. A multinational sales and marketing organization is established and production, sales and marketing functions are centralized (Anonymous, 1984). The case study articles are descriptive of the methods which are used by the companies under study. The application of these methods to other exporting firms is a matter of extrapolation. Thomas Foster describes, in his article "Worldwide Logistics: The Global link", that Avon Corporation receives approximately one half of its income ($1.3 billion) from international sources. Avon maintains its own logistics system in each country wherein it conducts business. The international logistics application literature includes articles which describe problems in exporting but do not attempt to resolve them. Exporting problems are 93 created by the barriers to international trade and quite frequently the barriers are logistics oriented. Some of the barriers were described by Denis Davies in 1980 as: "1) labor troubles, 2) container repositioning charges, 3) equipment unavailability, 4) outdated legislation, and 5) "red-tape hassles." At the same time that this article was published Joe Barks (1980) was analyzing the Hershey Company and its success in international marketing and logistics. In fact Hershey sold more than $150 million of its product overseas in 1980. The bulk of Hershey's international logistics is with a single freight forwarder. Hershey still maintains personal contact with its customers to further enhance its international business reputation. A great proportion of the international logistics literature is transportation oriented. The great distance between United States exporting firms and international markets (except Canada, Central and South America) has placed an inordinate pre-eminence on transportation. The transportation literature pre-dates international logistics oriented literature and describes in detail the problems with containerization, mode selection, port of entry, intermodal difficulties, bunker availability and costs, and other transport related subjects. This area of the literature is descriptive and does not offer solutions to the problems raised: instead the problems are raised as caveats for those desiring international transportation. 94 The descriptive nature of the transportation articles has led to a blurring of the division between international logistics and international transportation. In his article, "International Logistics Strategies for the 1980's", David L. Anderson effectively merges both international logistics and international shipping. He states that there are "broad changes underway in the international logistics operations of many companies. Several key trends are: 1) the deregulation of the U.S. ocean liner industry, 2) the increasing importance of intermodal flows in US trade, 3) the development of improved flow control technologies, and 4) the effect of world trade policies on international logistics. Logistics managers will need to turn to transportation as a primary source of future cost and service improvements for international logistics operations". At a time when international logistics is just beginning to make its way to the executive offices, logistics executives are being admonished to give more authority to international shipping. One of the most effective of the application oriented articles is "International Marketing: The Role of Logistics Management" written by Alan Slater in 1980. The article is very encompassing and can be used in the organizational and functional areas of international logistics as well as in the application area. The article has excellent application in this dissertation because of its all encompassing 95 description of the various roles of international logistics. The amount of international logistics effort in international marketing is a function of the channel strategy adopted and the stage of development of the international marketing department. There are ten major problems in international marketing which have a direct effect on international logistics, they are: 1) attitude 2) planning 3) information 4) communications 5) technology 6) payment and currency regulations 7) competition 8) security 9) safety, and 10) costs Successful international logistics involves adapting a wide conceptual view of the system together with an extensive detailed analysis of operational activities. The extent of development of the international business of a domestic firm has a direct effect on the development of the international logistics department. The channel strategy chosen will determine the extent of the foreign market development of the domestic firm. When these are coupled together the nature of the firm's international logistics 96 department is determined. The greater the amount of the foreign markets and products, when coupled with a greater degree of channel control, then the greater the need for an international logistics department. The articles in the application area of international logistics literature give examples of methods used by firms in international logistics or describe how to proceed in international logistics. They contain caveats and suggestions but offer very little in the way of resolution or description of problem solving techniques for the uncontrollable elements. All of the literature addresses the known controllable elements which are barriers to international logistics. The controllable elements most frequently written about are: 1) customer service, 2) inventory, 3) packaging, 4) transportation, and 5) warehousing and storage (Lambert, Stock, 1982). The uncontrollable elements and their underlying factors have been infrequently addressed in marketing literature and when they have been addressed it has been on an item specific basis. From a review of the literature it was determined that the uncontrollable elements have not been resolved by any research oriented studies, and in fact, they have not been addressed for resolution in the literature. In addition to the existing literature, eleven executive interviews were conducted with international logistics executives to 97 determine the methods by which the uncontrollable elements have been resolved. These executives have suggested that the barriers caused by the cultural/social, legal/political, competitive, and geographic elements can be resolved or partially resolved by the marketing/logistics function. Further, they suggested that the barriers caused by the competitive and technological elements can be resolved or partially resolved by the production function. Finally, they suggested that the barriers caused by the economic element can be resolved or partially resolved by the finance function. The objective of this dissertation is to systematically investigate these elements, and their underlying factors, and categorize the approaches used to overcome barriers. The barriers created by the elements often overlap and can occur simultaneously, that is, the occurrence of a barrier is not necessarily an isolated event and any of the barriers created by the elements can occur together. The resolutions of the barriers are also not isolated and can occur simultaneously to resolve any or all of the barriers which have occurred. On the basis of this literature review and the identified interactions, a hypothesized model of the barriers and underlying factors are presented in Exhibit 1. The model is derived from the relevant literature. The underlying factors form a composite of their resulting uncontrollable element. The interaction between the 98 uncontrollable elements is also derived from the literature and the eleven executive interviews. The uncontrollable elements create barriers to international trade which can deter the benefits of international trade. From the executive interviews it is know that marketing/logistics, production, and finance are the methods that management uses to overcome the barriers to international trade. It is known from the literature that the uncontrollable elements and their underlying factors create barriers to international trade and it is believed that international logistics can be used as a resolution to some of the barriers. The uncontrollable elements and their underlying factors need to be analyzed and their possible resolutions analyzed and discussed. The model proposed is for the known uncontrollable elements and their underlying factors. As further uncontrollable elements are discovered throughout the course of this study the model will be expanded. The model is based on the interactions between the uncontrollable elements and their underlying factors with other elements and their underlying factors. All the uncontrollable elements have an impact on the domestic exporting firm and act as barriers to international logistics. Management may be able to influence and therefore alter some of the uncontrollable elements and their underlying factors. The reason international trade 99 Figure 1 INTERNATIONAL LOGISTICS MODEL POIIIICSI 8: Legal Climate Popdalon Tm Mend oontola Neural raaouroea W LooaIena oI population cantata Geography I Economic haeardi Ii development mm W 1W wander i ‘4 .4 ‘ Technology 4 Competition aitltyauivlvd Waooaaa Barriers to International Distribution Management International Trade Benefits 100 takes place, and that international logistics is required is that the domestic firm which exports receives benefits in excess of the costs of international trade and logistics. Each uncontrollable element has various factors which have an impact on it. It is the interaction between the underlying factors of the various uncontrollable elements which must be understood for management to have any influence on the uncontrollable elements. The uncontrollable elements either alone, or in combination, act as barriers to international logistics. In the event that management can overcome the barriers created, it will do so only if the gain from overcoming the barriers exceeds the cost of overcoming them. The interaction between the six uncontrollable elements creates an environment which has continuing change for domestic exporting firm. To receive the benefits of international trade the domestic exporting firm's management must be able to function within the constantly changing environment of the uncontrollable elements. Management is able to function successfully within this changing environment by using the internal functions of marketing, logistics, production, and finance. These are the functions over which management has control and can therefore use to influence the uncontrollable elements. These functions allow management to compete in an unstable environment which is dominated by the uncontrollable elements. 101 Management's influence over the uncontrollable elements is limited to indirect methods. Since management can only control those functions within its own business, any effect it has on the uncontrollable elements is of only a secondary nature. Overcoming the barriers to international trade requires that management understand the nature of the barriers. The understanding of the barriers will allow management to gain greater control over the uncontrollable element. This increased control will enable the firm to increase its profits from international trade and concomitantly the firm will increase its international business. After the barriers are understood management can apply the logic of marketing/logistics, production, and finance to offset the impact of the uncontrollable elements and thereby reduce the barriers to international trade to resolvable problems. MOTIVATION FOR TRADE BY DOMESTIC FIRMS The domestic firm which exports does so in the belief that it can gain from such an exchange. The nature of the gain is usually in a monetary reward in the form of profit for the firm. The firm seeks a differential advantage from which it can earn a profit in a foreign market. The domestic firm is in competition for differential advantage (Alderson, 1957) with other domestic firms and firms from foreign countries. In determining whether to compete 102 internationally a firm analyzes the cost of competing internationally. During the process of its analysis the firm should consider the cost and benefits of international logistics. If the potential benefits received from international trade including the cost of international logistics exceed the potential costs of such trade then international trade will take place. When the costs of international trade and logistics exceed the potential benefits then international trade should not take place. During the search for differential advantage the domestic firm should consider international logistics as a potential haven of advantages which have gone virtually unused. International logistics can aid the domestic exporting firm to overcome the uncontrollable barriers in a cost effective manner. The various uncontrollable elements have differing degrees of impact upon the international logistics function of the domestic firm. Each of the uncontrollable barriers requires a different strategy to overcome it. The domestic exporting firm must determine which barrier or barriers it desires to overcome and then devise a strategy to overcome it based upon its internal strengths without losing sight of its internal weaknesses. Overseas markets offer many opportunities to domestic firms, despite the risks involved. International business opportunities cannot be undertaken safely without adequate planning (Crinkota, 1980). These plans include an 103 international logistics plan which is essential to assist the firm in obtaining the potential profit from international business. Product and marketplace are the basic catalysts of international business and international logistics is the link between them. The underlying essential element of international logistics is transportation. Transportation currently represents 7 - 15% of the total landed cost of an international order. An effective export program must include the cost of transportation in the planning stage to minimize the costs of the plan and maximize the potential profit from international business (Virdick, 1980). Effective utilization of the cost savings available in international logistics will allow the domestic firm to maximize its profits. To further increase profits it is know that there are potential benefits to be realized from standardizing the various elements of marketing programs used to export to different countries. Areas which lend themselves to standardizing include: 1) packaging, 2) pricing, 3) distributing (logistics), 4) advertising, and 5) the product (Sands, 1979). Standardization will allow the firm to minimize its costs and therefore the potential gain can exceed the costs of international marketing and logistics. 104 PURPOSE OF DISSERTATION The dissertation is aimed at identifying, classifying, and analyzing the uncontrollable elements and their underlying factors. After the uncontrollable elements and their underlying factors are discovered, classified, and analyzed, resolutions to the barriers created will be addressed. An attempt will be made to justify the model, previously introduced, through the research conducted for this dissertation. Any unknown uncontrollable elements and their underlying factors discovered will also be classified, analyzed, and resolved. The barriers to international business which are created by the uncontrollable elements and their underlying elements which are capable of being influenced by international logistics will be brought forth and the methods for their resolution will be discussed. By classifying the uncontrollable elements and their underlying factors, and then categorizing their resolutions, management will be better able to become involved in international trade. International trade will allow the domestic exporting firm to increase its sales and profits. This leads to more employment and increased gross national product with all of its concomitant benefits as previously discussed. It is believed that international logistics can assist in the process of overcoming the barriers to international trade which are created by the uncontrollable elements and their underlying factors. 105 The importance of international business is becoming more apparent as the U.S. trade deficit increases and the capital markets react to the growing budget deficit. Internationalization of domestic businesses is receiving more attention from government agencies and universities. The trend towards increased international trade has manifested itself in campaigns to 'buy American' and decrease the trade deficit with more exporting. Government agencies are available to aid the domestic business with its international business planning. This trend towards increased international business makes it imperative to understand the impact of the uncontrollable elements and their underlying factors. Methods to influence the uncontrollable elements become extremely important for successful international trade. To influence the uncontrollable elements it is necessary to understand the interactions of their underlying factors and the impact they have on the uncontrollable elements. International logistics is a method by which the uncontrollable elements and their underlying factors can be influenced. This dissertation offers a methodology by which international logistics can be used by the domestic exporting firm to successfully compete in international markets. The contribution to international trade offered by this dissertation fills a void which has not been previously addressed. 106 The existing literature combined with the executive interviews will be used to formulate a methodology for the study of the questions raised in Chapter 1 and confirmed in Chapter 2. In Chapter 3 the methodology will be discussed and implemented. BIBLIOGRAPHY 107 BIBLIOGRAPHY Chapter Two Alderson. 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CHAPTER THREE Methodology INTRODUCTION The research questions in this study as defined in Chapter One are designed to: (1) identify barriers to international logistics encountered by U.S. firms which export: (2) classify barriers discovered into controllable and uncontrollable elements: (3) identify factors which comprise these barriers and the interaction between the elements of these barriers: (4) identify influences that management has on uncontrollable elements: and (5) suggest resolutions to uncontrollable elements and barriers they create. The literature review revealed that barriers to international logistics created by controllable elements have been extensively discussed. The barriers to international logistics created by uncontrollable elements have only been mentioned in the literature but not discussed for resolution. Uncontrollable barriers identified through the literature are: competition, geography, legal and political environment, cultural and social environment, technology, and economic environment. Other uncontrollable elements which act as barriers to international logistics have not been significantly investigated. 111 112 RESEARCH METHODOLOGY The research methodology is designed to obtain specific information from international logistics executives through the use of a survey questionnaire. Questionnaire contents were determined through a review of the relevant literature, interviews with five logistics professors, and in interviews of eleven international logistics executives. PROCESS Conceptualization of information necessary for a successful study of international logistics commenced with discussions of the proposed research with five professors. They were: Professors 1) Donald Taylor of Michigan State University, 2) John Hazard of Michigan State University, 3) Andreas Faulkenberg of the University of Norway, 4) Johann Arndt of the University of Norway: and 5) Professor Arieh Goldman of Hebrew University in Israel. Following these discussions, a framework for initiating the study was conceived. This framework became the basis for eleven in- depth interviews of international logistics experts. After the executive interviews were completed and the information obtained was analyzed, it was determined that the uncontrollable elements of international logistics were an area which required further investigation. The World Trade Institute at the World Trade Center was contacted for additional information about domestic firms which export. 113 Based upon the academic and executive interviews, the literature review, and information obtained from the World Trade Institute, a questionnaire was designed. The questionnaire requested specific information about uncontrollable international logistic barriers encountered by the answering firm and the manner in which that firm resolved the barriers. The questionnaire also provides demographic information about the answering company. SAMPLE DESIGN There are more than 30,000 businesses in the United States which are involved in exporting to foreign countries (U.S. Department of Commerce, April 1983). For purpose of this study, a sample of executives identified by either the World Trade Institute or The Council of Logistics Management was selected and a questionnaire was used as the research instrument. The sample was chosen from the lists of export executives provided by the World Trade Institute at the World Trade Center and the Council of Logistics Management. These lists do not discriminate by geographical location of exporting firms nor place of destination of the export. Further, these lists do not indicate whether the exports are direct or indirect. A simple random sampling technique was used. 114 SAMPLE SIZE Sixteen thousand (16,000) invitations were initially distributed to each of the persons identified in lists provided by the World Trade Institute (11,000 persons) and the Council of Logistics Managers (5,000 persons). The invitation served as a recruiting and data collection device. Persons indicating their willingness to participate in the study were sent a cover letter outlining the study objectives, copies of sanctioning letters from the World Trade Institute and Michigan State University, and a copy of the questionnaire (See Appendix). Persons who did not return a questionnaire in 30 days were sent a second cover letter calling them to action and a second copy of the questionnaire. Persons who did not respond to the second questionnaire within 20 days were telephoned to remind them to respond. A total of 186 completed questionnaires were returned, which is approximately one percent. In order to generalize the results of the sample to the population of all exporters, a confidence interval must be calculated for each sample estimate of the unknown population parameter. The confidence interval is mathematically given by the sampling error multiplied by the t value for the acceptable error. For alpha=.05 or the 95% confidence level, the t value is 1.96. Kish gives the formulation for sampling error as: 115 Sampling = (1 - -§-)1/2 Error 8/ (ml/2) (Kish, 1965) This formula was calculated for each rating scale question to generate confidence intervals about the mean. For example, the confidence interval for the mean of the first question which deals with the importance of suitable transportation networks was calculated as follows: Mean = 3.82 t value 1.96 186 1/2 30,000 Sampling = (1 - )1/2 1.16/(186 error = .9968 ° .0850 ) = .0848 1.96 ° .0848 = .166 3.82 i .166 = 3.65 to 3.98 QUESTIONNAIRE DESIGN The rationale for a mail questionnaire is the fact that the information requested is too complex for a telephone interview and that personal interviews are too time consuming and costly. The questionnaire in this case requires the survey participant to provide a minimum of 131 data points up to a maximum of 223 data points. Given the low response rates to mailed questionnaires, great care must be given to questionnaire design and presentation. A draft of the questionnaire was field tested prior to actual use to 116 determine the perceived level of difficulty and estimated time for completion. Traditional low response rates to mailed questionnaires and differences between responding and non responding persons present a bias to the analysis of the data collected. Further, there is not any assurance that the proper person answered the questionnaire. However, questionnaires allow for the gathering of information from many more executives than would be possible with personal interviews. The ability to obtain more responses to the same questiOns allows for more accuracy in the analysis of the information gathered. Through the use of rating scales, the questionnaire was designed to determine perceived levels of importance and controllability of previously identified barriers to international logistics. Items rated were derived from the six uncontrollable elements and their underlying factors previously discussed. Table 4 outlines questionnaire items and the specific element and underlying factor each item represents. In addition, the questionnaire was designed to identify means of resolving barriers. It was proposed that resolutions to the uncontrollable elements which may be barriers to international logistics could be derived from the functional areas of marketing/logistics, production and/or finance. These categories were determined from the 117 literature review and the initial personal interviews of logistics executives. The marketing/logistics resolution to an international logistics barrier is based on the exporting companies ability to penetrate a market despite barriers to marketing and logistics in the foreign country. The barriers caused by cultural/social, legal/political, competition, and geographic factors could all be resolved or partially resolved by improving or increasing marketing/logistics efforts. The barriers caused by competition and technology are production based and could be resolved or partially resolved by production adjustments. Further, the barriers caused by economics are financially based and could be resolved or partially resolved by the more efficient use of financial resources. In some cases, more than one type of resolution is employed to resolve a single barrier. Therefore, the questionnaire allows for multiple responses to the resolution questions. The questionnaire also elicited respondent demographic information, such as company size, and number of employees. In addition, the original request to participate included information on geographic areas served and product characteristics. This information was used to determine if there were different levels of perceived importance and controllability as a function of respondent company characteristics. Question timber Ni- (DQO‘UIPU I-' 00 11 12 13 14 15 16 17 18 19 20 21 22 118 Table 4 BY QUESTION NUMBER Eppnap of Question suitability of... transportation netwks. labor pool issues concerning... collusion discrimination pricing trade agreements import/export trademarks, copy- rights 8 patents warranty environmental protection conditions related to... language religion education level per capita income location of population centers topography climate natural resources competitive environment use of current R8D in foreign countries access to information market entry CROSS REFERENCE TO QUESTIONNAIRE comp Underlying Elements Fgcpops tech ind dev cul/soc cul/inst leg/pol law leg/pol law leg/pol requiremnt leg/pol sys stab leg/pol requiremnt leg/pol sys stab leg/pol public pol leg/pol regulation cul/soc language cul/soc religion cul/soc cul/inst eco income geo population geo topography geo climate geo natural resources compe entity sur tech R8D comp dif adv mkt access Question MW 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 119 Table 4 (cont'd) social mobility natural barriers demographics compatibility of... distribution networks material handling systems communication systems product servicing work ethic finding... insurance appropriate warehousing agents/brokers forecasting... currency values labor costs tariffs consumer preferences product demand practices concerning... informal business promotional methods cul/soc geo ECO comp tech tech tech systems cul/soc eco tech comp ECO ECO 9C0 cul/soc comp cul/soc conduct cul/soc Underlying Wm class struc/soc mobility nat barriers population market access ind dev ind dev ind dev soc pattern profit ind dev market access nat controls employment nat controls soc patterns profit soc pattern aesthetics 120 ANALYSIS PLAN FOR EACH RESEARCH QUESTION The following sections describe the analysis that was completed for each research question. What are the uncontrollable elements? The exporting companies were asked to rate their ability to control the influence of each of 40 potential barriers (from literature review and in depth personal interviews). Each potential barrier was rated on a 1 to 5 scale, where 1 was stated to mean completely controllable and 5 was stated to mean completely uncontrollable. Those barriers with an average rating of 3.5 or higher were considered to be uncontrollable. What are the factors underlying each of the uncontrollable elements? An exploratory factor analysis of the controllability ratings was conducted to identify the dimensions of the underlying perceptions of control of the 40 potential barriers to international logistics. An exploratory analysis is preferred over confirmatory analysis in this study since there is currently no theoretical basis for specifying the dimensions of controllability. Instead, this study attempts 121 to discover those dimensions, therefore making an exploratory analysis appropriate. What are the relative priorities of the factors underlying the uncontrollable elements? One measure of the relative priorities of the underlying factors is the amount of variability accounted for by that factor. Within a factor analysis, the proportion of variance accounted for by any factor is specified as the relative size of the eigenvalue associated with each factor of the original unrotated principal component solution. The sum of eigenvalues of selected factors divided by the number of variables was used as one indicator of the relative importance of the set of factors. A second indicator of the importance of the factors was derived by averaging the importance ratings for the barriers that served as indicators of the underlying controllability factors. What resolutions to the uncontrollable elements and factors have been used? The study has permitted the responding firms to select resolutions that they actually used from general items that 122 originated from three possible categories: (1) Marketing/logistics resolution, (2) Production resolutions, and (3) Financial resolutions. The analysis was conducted at the category level in that percentages are provided that indicate which proportion of the total resolutions are categorized as Marketing/Logistics, Production, and Financial. What resolutions of the uncontrollable elements and factors should be used. This research question was not addressed in the questionnaire, but instead is addressed by a review of the answers from the questionnaire. It becomes part of the conclusions contained in the final chapter of this study. FACTOR ANALYSIS Factor analysis is a class of statistical procedures designed to either: 1) reduce a large number of variables into more usable components, or 2) identify or specify the structure of a set of variables, allowing an inference about the components which underlay responses to a variety of questions. In the first part, the data is merely reduced, usually into orthogonal factors. In this form they can be used as convenient input into other statistics. Orthogonal factors are by definition uncorrelated which obviates the 123 'multicollinearity' problem associated with the use of correlated input for 'regression-based' statistical techniques (Morrison, 1976). Another purpose of factor analysis is to identify (as is the case with exploratory factor analysis) or specify (as is the case with confirmatory factor analysis) the nature of the components underlying responses to a set of questions. By identifying or specifying the structure of the responses, the researcher infers the 'factors' or 'causes' for the observed responses. This purpose in factor analysis can be viewed as model specification purpose, where a measurement model is either discovered or confirmed. The analytical distinction between the data reduction and the model specification purposes of the factor analysis is that for data reduction an attempt is made to faithfully reproduce all the variance during the reduction: while in model specification an attempt to remove all measurement error is made. Measurement error is the influence of something that is not of specific concern to the issue at hand (Hair, Anderson, Tatham, Grablowsky, 1979). To achieve this distinction technically for data reduction the input correlation matrix is analyzed with matrices on the diagonal which requires the factor analysis to account for all of the variance. To achieve this distinction for model specification, the analysis is performed with the 124 'communalities' on the diagonal to remove the measurement error . su e od A principal components analysis was performed because it conforms to a measurement model (see Figure 2) that assumes that the response to any given question is a combination of a common component and a unique component. The common component is that variation shared by one or more questions that results from an underlying factor or dimension. The unique component is that portion of the response that is due to an idiosyncratic response to any given question. This approach will identify those factors underlying the exporting manager's perceptions of control of the barriers presented. In performing this model specification, or principal factors analysis, there is the additional option of permitting an oblique solution, where the factors may be correlated. This also allows the use of an orthogonal solution where the factors may be forced to be uncorrelated. Since the true structure of the factors is being sought, there is not any reason to restrict the solution to orthogonality. The decision of whether to use an orthogonal or oblique solution was determined after an inspection of the factor structures' intercorrelation obtained from the oblique solution. 125 Figure 2 MEASUREMENT MODEL UNDERLYING FACTOR Common Component V V ~ QUESTION 1 QUESTION 2 QUESTION N /\ A /\ Unique Component ERROR Ql ERROR QZ ERROR QN 126 CONCLUSION The research methodology described in this chapter provides for the gathering and analysis of necessary information to address the research questions posited in Chapter 1. The questions posed in the questionnaire were the result of the literature review discussed in Chapter 2 and in-depth personal interviews of international logistics executives. To facilitate responses and eliminate bias, survey questions were categorized into logical groups. Each category included questions derived from the different elements of barriers of trade. The type of questions used include rating scales and closed multiple response. The use of exploratory rather than confirmatory factor analysis is based on fact that there is not any compelling theoretical basis for specifying a structure for the data. Confirmatory factor analysis is used when theory dictated that specific structure will be found for the data. Since this is the first study into the area of the uncontrollable elements and their underlying factors in international distribution, and further, since this study analyzed their resolutions, it was anticipated that the data would provide a basis for the groupings of barriers into a model. BIBLIOGRAPHY 127 BIBLIOGRAPHY Chapter Three Glass, Gene V. and Hopkins, Kenneth D. Statistical Methods in_Edusafign_and_2sxgnglggx. (2nd edition). Englewood Cliffs, N.J., 07362; Prentice-Hall, p.174. Harr, Joseph F., Jr., Anderson, Ralph E., Latham, Ronald L., and Grablowsky, Bernard J. Multivariate Data Analysis, Tulsa, Oklahoma; Petroleum Publishing, 1979, pp. 213-222. Kish, Leslie Suggey Sampling, N.Y., John Wiley and Sons, 1965. Mason, Robert D. Stagistical Techniques in Business and Economics, (4th edition), Homewood, I11.; Richard D. Irwin, 1978. Morrison, Donald. Multivariate Statistical Meth ds, (2nd edition), N.Y.: McGraw-Hill, 1976, pp. 302-316. CHAPTER POUR Analysis of Data INTRODUCTION A total of 289 persons were recruited to participate in the study. These persons completed and returned the business reply card including background information on their company. This represents a 1.8 percent response to the invitation mailing. Of these 289 persons, 186 submitted a completed questionnaire or 1.1 percent of the total list. Alternatively, 64 percent of those recruited actually participated in full by completing the questionnaire. This chapter includes a discussion of the data analysis. Responses to importance and controllability rating scales were examined by mean scores and factor analysis. The focus of this study is on first order factor analyses for importance and controllability rating scales. However, second order factor analyses were conducted for the sole purpose of verifying that the original logistics model could not be confirmed with empirical data. In addition, the intercorrelation analysis of first order importance and controllability factors was conducted to insure that respondents were answering importance and controllability questions independently. Responses to the resolution questions were analyzed by comparing the percentages of respondents selecting each of 128 129 four possible solutions. Multivariate and univariate analyses of variance were used to determine if there were significant differences in responses based on various respondent characteristics. DATA ANALYSIS The information provided on the business reply card portion of the invitation and on the questionnaire was stored in a data base for reference and analysis. The original analyses were directed to the reduction of information provided on the 40 factor questionnaire form. The multivariate statistical procedure of factor analysis was utilized to provide a basis for determining the underlying dimensions of respondents' perceptions concerning the barriers to international distribution. Prior to performing the factor analysis on responses to importance and controllability questions, an inspection of responses revealed a substantial amount of missing data. The amount of missing data ranged from a low of none (all respondents provided an answer) for nine (9) questions to a high of 4.3 percent for questions dealing with the importance of the labor pool and import/export issues. A total of 39 different individuals failed to provide one or more responses to the Importance items. Sixty-one (61) respondents failed to answer one or more of the Controllability items on the questionnaire. Only the first 130 controllability item was answered by all respondents and six (6) percent of respondents failed to answer items dealing with the controllability of warranties and forecasting product demand. Also, there were several other items where the missing data rate was found to be between four and five percent and higher than the missing data rate for the Importance items. In view of the substantial amount of missing data and the fact that multivariate statistical procedures will use only complete data records for analysis purposes, it was decided to use a multiple regression procedure to provide estimates for these omitted responses. This is more accurate than simply using averages, since the multiple regression technique takes into consideration how respondents completed other questions, and estimates the missing response by comparing the responses of other questionnaires with similar response patterns. By utilizing the estimates provided by the program, it would be possible to use all returned sets of questionnaire responses in the factor analyses. Respondents were asked to indicate their actions taken in attempt to resolve the perceived barriers simply by checking a solution if appropriate. Possible solutions include financial, production, and marketing/logistics, derived from interviews with industry experts. The data entry rule of using a check coded as a "one" and a blank 131 response coded as a "zero" was followed. Using this dichotomous data categorization approach meant that there was no need to worry about missing data. In addition, the dichotomous approach treats each solution independently, allowing comparisons between solutions within each question. The Principal Components Method for the reduction of intercorrelations between questionnaire questions was utilized with "one's" in the diagonal to provide the initial solution to the factor analysis of each set of items. (The term "questions" is used in place of Questionnaire term "Factors" as descriptors of barriers to international distribution to preclude confusion as to whether the discussion related to the factors as questionnaire items or factors as underlying dimensions of the scale.) The number of factors retained for rotation to oblique solution was based upon the Kaiser criterion of the number of associated eigenvalues greater than one and the inspection of the Scree Plot of eigenvalues. The selected factors were then submitted to a Promax oblique rotation solution to allow for the possibility of correlation between rotated factors. Interpretation of factors will be based upon those questions (barrier to distribution factors) with factor loadings of 0.40 or higher. These factor loadings are considered to represent the correlation with the particular question with the derived factor. 132 The results of the separate factor analyses are presented in the following section by the focus of the respective question (factor). The next section includes the intercorrelations between factors obtained in the rotated solutions for importance and controllability. The final section provides for organizational comparisons of computed factor scores. Analyses of variance were performed on the factor scores using the respondent supplied organizational characteristics as classification variables. STATISTICAL ANALYSIS OF IMPORTANCE RATINGS The means and standard deviation summary statistics of the importance ratings provided by respondents are presented in Table 5. Average ratings for each question are presented graphically as Figure 3. Confidence intervals for mean ratings are also presented in Table 5. The finite population correction, derived from sampling theory, was applied to the estimate of a standard error for calculating 95 percent confidence limits about the mean, (ie finite population correction = (1 - -%—)) Because N = 30,000 and n = 186, the finite population correction had no effect on changing computed limits of the interval about the mean. 133 Table 5 SUMMARY STATISTICS AND 95% CONFIDENCE INTERVAL FOR MEAN IMPORTANCE RATINGS OF BARRIERS TO INTER Standard Mean Deviation Confidence Interval Lower Upper Forecasting product demand Issues concerning pricing Compatibility of comm. sys. Conditions related to comp. Compatibility of distrib. networks Conditions related to information access Conditions relating to market entry Suitability of Transportation Forecasting tariffs Forecasting currency values Finding agents/brokers Issues concerning import/ export Iss. concerning trade agreement Forecasting preferences Compatability of prod. servicing systems Practices concerning promotions Conditions related to language Compatibility of material handling systems Forecasting labor costs Compatibility of work ethic Prac. concern. informal business conduct Finding Warehousing Issues concerning trademarks Conditions related to location of population centers Conditions related to foreign R & D 4.18 4.16 3.98 3.97 0.95 0.95 1.06 0.93 4.04 4.02 3.82 3.84 4.32 4.30 4.13 4.11 Table 5 (cont'd) 134 Standard Mean Deviation 95% Confidence Interval Lower Upper Conditions related to education Issues concerning warranty Conditions related to demographics Findings insurance Conditions related to income Suitability of labor pool Issues concerning collusion Issues concerning environment Issues concerning discrimination Conditions related to natural barriers Conditions related to natural resources Conditions related to mobility Conditions related to climate Conditions related to topography Conditions related to religion social 1.23 1.30 1.13 1.29 1.22 1.21 1.38 1.33 1.18 1.26 1.09 1.20 2.77 3.13 2.72 3.09 2.72 3.05 2.68 3.05 2.66 3.01 2.60 2.95 2.50 2.90 2.42 2.80 2.36 2.74 2.31 2.66 2.23 2.59 2.25 2.56 2.21 2.56 2.10 2.46 1.60 1.90 5.00 4.50 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0.00 1 3 5 Figure 3 Mean Importance Ratings of Barriers to International Distribution 7 9 11131517192123 252729 3133353739 Question Number 136 Two questions (No's 5 and 38) had absolute mean ratings of over 4.0 thus indicating a perception of high importance. These questions related to pricing (No. 5) and to product demand (No. 38). The question related to religion (No. 12) was rated to be the least important with an overall mean of 1.75. s o a o s's o m a Ra ' s The original factoring of the intercorrelation of the 40 importance items identified 11 factors for further analysis. Intercorrelations among the importance ratings are presented in the Appendix. The total of 11 factors accounted for 65 percent of the total covariation present in the responses of the 186 individuals to the 40 questions. Three questions that did not load highly in these eleven factors include conditions related to religion, forecasting tariffs, and forecasting product demand. This indicates that these questions were answered independently without significant shared variance. Communalities of the forty questions ranged from a low of 0.51 to a high of 0.77. Application of the Promax oblique rotation to the 11 factor solution resulted in inter-factor correlations ranging from a low of approximately 0.00 to a high of in the 0.50's. 137 These findings lend support for the decision to provide an oblique solution to the factors based upon Importance item ratings. The resultant factor solution for importance items by factor as Table 6. Each factor was assigned a name to represent the questions of which it is comprised. Factor 1: 1. 6. 26. 27. Factor 2: 31. 32. 33. 34. 35. Factor 3: 15. 23. 24. 25. Factor 4: 16. 17. 18. Factor 138 Table 6 FIRST ORDER FACTOR ANALYSIS IMPORTANCE RATINGS Item Channels of Distribution Suitability of transportation networks Issues concerning trade agreements Compatibility of distribution networks Compatibility of material handling systems 28. Compatibility of communication systems Item Finding Insurance Financial Management Finding appropriate warehousing Finding warehousing agents/brokers Forecasting currency values Forecasting labor costs Item Conditions related to of population centers Conditions related to Conditions related to Conditions related to Geography Item related to related to related to Conditions Conditions Conditions 5: Law Item Social/Cultural location social mobility natural barriers demographics topography climate natural resources 7. Issues concerning import/export 8. Issues concerning trademarks, copyrights and patents Loading .50 .67 .73 .72 .53 Loading .58 .74 .40 .62 .74 Loading .54 .71 .60 .80 Loading .77 .82 .60 Loading .53 .79 139 Table 6 (cont'd) 9. Issues concerning warranty 10. Issues concerning environment protection Factor 6: Competition/Marketing Item 5. Issues concerning pricing 19. Conditions related to competitive environ. 21. Conditions related to access to information 22. Conditions related to market entry Factor 7: Labor Support Item 2. Suitability of labor pool 20. Conditions related to utilization of current R&D in foreign countries 29. Compatibility of product servicing systems 30. Compatibility of work ethic 35. Forecasting labor costs Factor 8: Ethics Item 3. Issues concerning collusion 4. Issues concerning discrimination Factor 9: Business Practices Item 39. Practices concerning informal business conduct 40. Practices concerning promotional methods Factor 10: Communications Item 11. Conditions related to language 13. Conditions related to education level .74 .47 Loading .54 .72 .81 .52 Loading .64 .65 .51 .53 .45 Loading .87 .80 Loading .80 .75 Loading .74 .69 Factor 11: 14. Conditions related to per capita income 37. Forecasting consumer preferences Item 140 Demand Assessment Loading .74 .42 The intercorrelations among the 11 oblique factors are presented in Table 7. 10 11 Table 7 INTERCORRELATION OF IMPORTANCE FACTORS 0.24 0.21 0.26 10 11 1.00 0.15 1.00 -.03 0.11 1.00 0.30 0.22 0.00 1.00 0.00 -.10 0.09 0.08 1.00 0.07 0.08 0.04 0.12 0.18 1.00 In view of several sizable interfactor correlations, a second order factor analysis was performed on factor scores 141 obtained from the 11 factor Promax solution. The primary purpose for this analysis was to attempt to reproduce the original six factor model, proposed in Chapter two. The Kaiser criterion was relaxed in this second order analysis to allow for six separate factors. Again an oblique rotation was performed to allow for association among factors. The six factor higher order solution accounted for 73 percent of the variance among the 11 importance factor scores. The individual barriers comprising factors with high second order factor loadings are listed in Table 8. In addition, the original elements (from the literature search) from which each barrier was derived are listed. As shown, the new factors consist of combinations of barriers from the original elements, thus proving that the original model cannot be validated through primary research. 142 Table 8 SECOND ORDER FACTOR ANALYSIS IMPORTANCE RATINGS MW Factor 1 Suitability of transportation networks Technology Issues concerning trade agreements Legal/Political Compatibility of distribution networks Competitive material handling systems Technology communications systems Technology Issues concerning import/export Legal/Political trademarks, copyrights and patents Legal/Political warranty Legal/Political environmental protection Legal/Political pricing Legal/Political Conditions related to competitive environment Competition access to information Competition market entry Competition Practices concerning informal business conduct Cultural/Social promotional methods Cultural/Social Factor 2 Issues concerning import/export Legal/Political trademarks, copyrights, and patents Legal/Political warranty Legal/Political environmental protection Legal/Political collusion Legal/Political discrimination Legal/Political 143 Table 8 (cont'd) Factor 3 Conditions related to location of population centers social mobility natural barriers demographics utilization of current R&D in foreign countries Suitability of labor pool Compatibility of product servicing systems work ethic Forecasting labor costs Factor 4 Finding insurance appropriate warehousing warehousing agents/brokers Forecasting currency values labor costs Conditions related to topography climate natural resources Factor 5 Conditions related to per capita income Forecasting consumer preferences Factor 6 Practices concerning informal business conduct promotional methods Geography Cultural/Social Geography Economics Technological Cultural/Social Cultural/Social Economic Economic Technology Competition Economic Economic Geography Geography Geography Economic Cultural/Social Cultural/Social Cultural/Social 144 The original development of the questionnaire proceeded from a conceptual development that barriers to international distribution could be subsumed under six different categories: (1) Geography: (2) Economic: (3) Cultural and Social: (4) Political and Legal; (5) Competition: and (6) Technology. The finding of the second order six factor solution indicates that the original categorization of barriers does not coincide with the perceptions of respondents. Having determined this, the remainder of this analysis will focus on the eleven factor solution of the first order factor analysis. STATISTICAL ANALYSIS OF CONTROLLABILITY RATINGS The means and standard deviation summary statistics of the controllability ratings provided by respondents are presented in Table 9. Confidence intervals for mean ratings for controllability items are also presented in Table 9. Average controllability ratings are presented graphically in Figure 4. 145 Table 9 SUMMARY STATISTICS AND 95% CONFIDENCE INTERVAL FOR MEAN CONTROLLABILITY RATINGS OF BARRIERS TO INTERNATIONAL TRADE Standard Mean Deviation 95% Confidence Interval Lower Upper Conditions related to climate Conditions related to topography Conditions related to income Conditionss related natural resources Conditions related to population centers Conditions related to natural barriers Forecasting currency values Conditions related to demographics Conditions related to religion Forecasting tariffs Conditions related to social mobility Conditions related to competition Conditions related to education Compatibility of work ethic Forecasting labor costs Issues concerning trade agreements Forecasting product demand Issues concerning collusion Issues concerning discrimination Forecasting preferences Conditions related to foreign R & D Conditions related to market entry Suitability of Labor Pool Issues concerning import/ export 3.91 4.29 3.85 4.21 3.75 4.10 3.71 4.09 3.62 4.02 3.64 4.01 3.58 3.94 3.58 3.92 3.52 3.92 3.45 3.78 3.38 3.70 3.23 3.51 3.13 3.51 3.15 3.48 3.11 3.40 3.07 3.40 3.12 3.37 3.05 3.41 3.01 3.38 3.04 3.34 2.96 3.29 2.90 3.19 2.86 3.19 2.75 3.05 146 Table 9 (cont'd) Standard Mean Deviation 95% Confidence Interval Lower Upper Issues concerning environment 2.87 Conditions related to info access 2.87 Suitability of Transportation 2.82 Conditions related to language 2.79 Compatibility of material handling 2.79 Compatability of distribution networks 2.78 Practices concerning informal conduct 2.78 Compatibility of communication systems 2.73 Compatibility of product servicing systems 2.68 Issues concerning trademarks 2.66 Issues concerning pricing 2.56 Practices concerning promotions 2.39 Issues concerning warranty 2.33 Finding Warehousing 2.30 Finding insurance 2.20 Finding agents/brokers 2.14 1.11 0.99 1.09 1.21 1.12 1.07 1.09 1.05 1.02 1.10 0.99 0.97 1.19 0.95 1.07 0.99 Figure 4 Mean Controllability Ratings of Barriers to International Distribution 5.00 4.50 4.00 3.50 3.00 2.50 . 2.00 1 1 1 1.50 1.00 ' 1 . 0.50 1 g 1 3 0.00 13 5 7 9111315171921232527293133353739 Question Number 147 148 Inspection of mean ratings for the 40 controllability questions revealed that 11 had means of greater than 3.5 which indicated high degree of uncontrollability. These factors as barriers to international distribution were considered to be least controllable by business organizations in the United States involved in international trade. These questions (with question number given in parentheses) were related to the conditions of religion (No. 12), per capita income (No. 14), location of population centers (No. 15), topography (No. 16), climate (No. 17), natural resources (No. 18), social mobility (No. 23), natural barriers (No. 24), demographics (No. 25), and the forecasting of currency values (No. 34) as well as forecasting tariffs (No. 36). It is noteworthy that the vast majority of uncontrollability factors relate to variables that cannot be controlled by the government in the country with which trade is to be conducted. Resulte of Eacger Analysis of gontrellebility Ratinge The original factoring of the intercorrelation of the 40 controllability questions again resulted in the decision to retain 11 factors for further analysis. The intercorrelations among the 40 controllability ratings are included in the Appendix. The 11 factors retained accounted for 68 percent of the total covariation present in the responses of the 182 individuals to the 40 questions. (A 149 total of 4 individuals were dropped from this analysis because of a failure to answer more than 10 of the questions.) Two questions that did not load highly in these eleven factors include issues concerning pricing and conditions related to utilization of current research and development in foreign countries. This indicates that answers to these questions were not related to or influenced by responses to other questions. Communality estimates for the 40 controllability questions were similar to those observed for the importance questions ranging from 0.49 to 0.80. Application of the Promax oblique rotation to the 11 factor solution resulted in inter-factor correlations ranging from a low of approximately 0.00 to a high in the 0.30's. While these correlations for controllability questions are substantially lower than those obtained from the solution for Importance questions, the decision was to retain the oblique solution to provide maximum comparability to the factor solution based upon ratings for Importance questions. The resultant controllability factor solution and descriptive names for each factor are presented in Table 10. 150 Table 10 FIRST ORDER FACTOR ANALYSIS CONTROLLABILITY RATINGS Factor 1: Geographical/Cultural Item 12. Conditions related to religion 13. Conditions related to education level 14. Conditions related to per capita income 15. Conditions related to location of population centers 16. Conditions related to topography.84 17. Conditions related to climate 18. Conditions related to natural resources 23. Conditions related to social mobility 24. Conditions related to natural barriers 25. Conditions related to demographics 30. Compatibility of work ethic Factor 2: Channels of Distribution Item 26. Compatibility of distribution networks 27. Compatibility of material handling systems 28. Compatibility communication systems 29. Compatibility of product servicing systems Factor 3: Distribution Planning Item 6. Issues concerning trade agreements 11. Conditions related to language 31. Finding insurance 32. Finding appropriate warehousing 33. Finding agents/brokers Factor 4: Financial Management Item 34. Forecasting currency values 35. Forecasting labor costs 36. Forecasting tariffs Loading .67 .69 .83 .82 .80 .92 .66 .85 .81 .40 Loading .61 .86 .87 .66 Loading .42 .42 .79 .66 .61 Loading .68 .73 .74 151 Table 10 (cont'd) Factor 5: Ethics Item 3. Issues concerning collusion 4. Issues concerning discrimination Factor 6: Law Item 8. Issues concerning trademarks, copyrights, & patents 9. Issues concerning warranty 10. Issues concerning environment protection Factor 7: Business Practices Item 39. Practices concerning informal business conduct 40. Practices concerning promotional methods Factor 8: Marketing/Competition Item 19. Conditions related to competitive environ. 21. Conditions related to access to information 22. Conditions related to market entry Factor 9: Demand Assessment Item 37. Forecasting consumer preferences 38. Forecasting product demand Factor 10: Law Item 6. Issues concerning trade agreements 7. Issues concerning import/export 8. Issues concerning trademarks, copyrights, & patents Loading .85 .83 Loading .67 .73 .53 Loading .80 .72 Loading .62 .84 .61 Loading .73 .75 Loading .55 .81 .40 Factor 11: 1. 2. Suitability of transportation networks Suitability of labor pool Item 152 Table 10 (cont'd) Distribution Implementation Loading .64 .82 Intercorrelation among first order controllability factors are presented as Table 11. 10 11 Table 11 INTERCORRELATIONS AMONG CONTROLLABILITY FACTORS 3 4 5 6 7 8 9 10 11 1.00 0.00 1.00 0.26 0.10 1.00 0.10 -.12 -.05 1.00 0.17-0.02 0.06 0.23 1.00 -.11 0.04 0.05 -.27 0.01 1.00 0.18 -.03 0.16 0.16 0.10 -.01 1.00 -.09 -.14 0.10 0.24 0.02 -.25 -.18 1.00 The second order factor analysis allowed for a six factor oblique solution utilizing the Promax rotation criterion. Again the Kaiser criterion of only selecting 153 eigenvalues greater than one was relaxed in order to examine the validity of the proposed six factor model of controllability factors. The final solution accounted for 72 percent of the variance in the controllability factor scores. The individual barriers comprising factors with high second order factor loadings are listed in Table 12. In addition, the original elements (from the literature search) from which each factor was derived are listed. As shown, each second order factor solution is made up of combinations of the original elements, indicating, again, that the original model cannot be confirmed through primary research. 154 Table 12 SECOND ORDER FACTOR ANALYSIS CONTROLLABILITY RATINGS Factor 1 Qriginal_Element Compatibility of distribution networks Competition material handling systems Technology communications systems Technology product servicing systems Technology Issues concerning trade agreements Legal/Political Conditions related to language Cultural/Social Finding insurance Economic appropriate warehousing Technology agents/brokers Competition Conditions related to competitive environment Competition access to information Competition market entry Competition Factor 2 Practices concerning informal business conduct Cultural/Social promotional methods Cultural/Social Forecasting consumer preferences Cultural/Social product demand Competition Suitability of transportation networks Technology labor pool Cultural/Social Factor 3 Conditions related to religion Cultural/Social education level Cultural/Social per capita income Economic location of population centers Geography topography Geography climate Geography natural resources Geography social mobility Cultural/Social natural barriers Geography demographics Economics Compatibility of work ethic Cultural/Social 155 Table 12 (cont'd) Issues concerning trademarks, copyrights, and patents environmental protection Factor 4 Issues concerning trade agreements import & export trademarks, copyrights, & patents Factor 5 Forecasting currency values labor costs tariffs Issues concerning trademarks, copyrights, & patents warranty environmental protection Factor 6 Issues concerning collusion discrimination Legal/Political Legal/Political Legal/Political Legal/Political Legal/Political Economic Economic Economic Legal/Political Legal/Political Legal/Political Legal/Political Legal/Political 156 COMPARABILITY OF ROTATED FACTOR PATTERNS FOR IMPORTANCE AND CONTROLLABILITY FACTORS RELATED TO INTERNATIONAL DISTRIBUTION Similarity between factor patterns provided by the importance and controllability questions are noted for several of the factors. A canonical correlation analysis was performed on factor scale scores generated from the original importance and controllability ratings. This process was accomplished by averaging the ratings with high loadings on the importance and controllability factors. In this way, a total of 11 factor scores, one for each dimension determined by the first order factor solution, were available for analysis as opposed to the original total of 40 ratings. Canonical correlation analysis is a multivariate statistical procedure that determines the maximum correlation that can be obtained between two sets of variables. These joint relationships can be interpreted as correlations between predicted scores of a multiple regression obtained from sets of variables. In the present case, the importance scale scores and the controllability scale scores based upon the responses of the 186 respondents represented the two sets of variables used for input into the canonical correlation analysis. The intercorrelations of importance and controllability factor scores are presented in Table 13. 157 Table 13 CORRELATIONS BETWEEN IMPORTANCE AND CONTROLLABILITY FACTOR SCORES Controllability Factors Importance Factors C1 C2 C3 C4 C5 C6 C7 C8 C9 C10 C11 11 -.08 -.11 .11 -.01 -.03 -.13 -.14 -.11 -.04 -.13 .06 12 -.08 -.05 .03 .00 -.05 -.12 -.09 -.09 -.01 -.15 -.04 13 -.08 -.23 -.01 -.05 .09 -.11 -.11 -.12 -.10 -.14 -.02 14 -.13 -.21 -.03 -.08 .02 -.03 .00 -.06 -.05 -.18 -.08 15 .01 -.07 .10 -.03 -.04 -.09 -.07 -.13 -.18 -.15 .00 16 .01 -.10 .01 .12 .08 -.16 -.18 -.12 .08 -.06 .04 17 -.16 -.16 04 -.14 -.06 -.26 -.23 -.07 -.09 -.30 -.08 18 -.02 -.06 06 -.11 -.02 -.08 -.10 -.06 -.08 -.09 .07 19 .02 -.04 .08 .06 .13 -.13 -.08 .02 .06 -.17 -.03 110 .00 -.10 05 .05 .18 -.02 .01 -.14 .03 -.02 .10 111 .04 -.16 -.08 .08 .07 -.05 .00 .00 .05 -.14 -.20 The correlations of among scale scores were moderately low with the highest single correlation to be -0.26 between factor 7, Labor Support, of the importance ratings and factor 6, Law, of the controllability ratings. Even though the first canonical correlation of 0.47 was found to be statistically significant at better than the .05 level (F=1.34, df=(121,1272)), the low intercorrelations indicate that respondents were using substantially different frames of reference in rating the importance and controllability of barriers. The factor analysis of importance and controllable ratings begin to answer the first three research questions: 158 1. What are the uncontrollable elements of barriers to international trade? 2. What are the factors underlying each of the uncontrollable elements? 3. What are the relative priorities of the factors underlying the uncontrollable elements? These analyses indicate that there are more than six uncontrollable elements, and that the underlying factors are grouped and prioritized differently than previously believed. In chapter five, a methodology for identifying the most important uncontrollable elements will be executed. A derivative of this execution will be the identification of the underlying factors and their relative priority. STATISTICAL ANALYSIS OF ACTION UNDERTAKEN TO OVERCOME BARRIERS Respondents were also given the opportunity to indicate actions that their organization had taken/not taken to overcome the perceived barriers. The actions possible were None (No Action Taken), Financial Solution , Marketing/Logistics Solution, and/or Production Solution. The percentages of respondents endorsing any of these solutions or no action taken are listed by question in Table 14. The percentage of respondents who reported using one of the solutions in response to a barrier is presented graphically as Figure 5. 159 Table 14 PERCENTAGES OF RESPONDENTS REPORTING ACTIONS TAKEN/NOT TAKEN TO OVERCOME BARRIERS TO INTERNATIONAL DISTRIBUTION No Action Finan- Market/ Produc- Question Taken cial Logistic tion Suitability of 1. transportation 23 12 69 13 2. labor pool 48 7 21 22 Issues concerning 3. collusion 64 16 14 5 4. discrimination 70 9 14 9 5. pricing 8 64 45 20 6. trade agreements 47 26 30 8 7. import/export 37 25 45 18 8. trademarks, etc. 41 21 22 27 9. warranty 33 19 31 31 10. environment 54 6 14 36 Conditions related to ,,11. language 34 9 43 30 12. religion 81 1 6 9 13. education 58 5 18 26 14. income 66 16 13 8 15. pop. centers 60 5 35 10 16. topography 76 1 14 9 17. climate 70 1 16 18 18. nat'l resources 4 12 12 16 19. competition 20 45 58 35 20. foreign R & D 42 18 31 35 21. info access 24 28 59 22 22. mkt. entry 22 37 61 25 23. soc. mobility 76 7 14 9 24. nat'l barriers 75 5 17 9 25. demographics 66 5 24 13 Compatibility 26. distrib. netwks. 11 24 81 33 27. mat'l handling 22 15 59 43 28. comm. systems 18 25 67 23 29. prod. svcing. 28 13 51 40 30. work ethic 54 12 22 30 Finding 31. insurance 28 59 18 11 32. warehousing 22 18 64 26 160 Table 14 (cont'd) No Action Finan- Market/ Produc- Question Taken cial Logistic tion 33. agents/brokers 19 33 67 17 Forecasting 34. currency values 22 65 16 10 35. labor costs 33 35 27 33 36. tariffs 41 32 32 17 37. preferences 27 16 59 34 38. product demand 16 26 66 39 Practices concerning 39. informal conduct 50 17 35 24 40. promotions 24 32 60 18 Figure 5 I I I n I n I I I I I I I n I I I I I I I concave:— -I. ocfiwodwEsoo—EE no. spasm -.. Ions—=2 cacao—.0 mmnmmmmm memnmmmmm FNmF.~Fm_.mw : m h h b I I I \..II.. clolo I/m/A .c Cu Emu—ah. mficmu0< I\III o\m/o\Jo . . I \u.-./. \./.\ .\.\. .uko- Important Control-(-->Uncontrol- many solutions lable lable as apply 1 2 3 6 5 l 2 3 6 S Suitability of... ° transportation networks ' labor pool «’a a; I" N! Issues concerning... ' collusion l 2 3 6 5 l 2 3 6 5 NP P L P ' discrimination l 2 3 6 S l 2 3 6 5 NP P L P ° pricing 1 2 3 6 5 l 2 3 6 S NP P L P ' trade 1 2 3 6 5 l 2 3 6 5 NP F L P agreements ' import/export l 2 3 5 l 2 3 6 5 NP P L P ' trademarks, copyrights, a patents l 2 3 6 5 l 2 3 6 5 NP P L P ’ warranty 1 2 3 6 5 I 2 3 6 5 NP P L P ' environmental l 2 3 6 5 l 2 3 6 5 NP P L P protection Conditions related to......... ’ language 1 2 3 6 5 l 2 3 6 5 NP P L P ’ religion 1 2 3 6 5 l 2 3 6 5 NP P L P ' education level 1 2 3 6 5 l 2 3 6 5 NP E L P ° per capita income I 2 3 6 5 l 2 3 6 5 NP P L P ’ location of population centers 1 2 3 6 5 l 2 3 6 5 NP P L P ' topography l 2 3 6 5 l 2 3 6 5 NP F L P ' climate 1 2 3 6 5 l 2 3 6 5 NP F L P ° natural 1 2 3 6 5 l 2 3 6 S NP P L P resources ‘ competitive l 2 3 6 5 l 2 3 6 5 NP P L P environment ' utilization l 2 3 6 5 l 2 3 6 5 NP F L P of current ' R&D in foreign l 2 3 6 5 l 2 3 6 S NP P L P country’s ' access to l 2 3 6 5 l 2 3 6 S NP F L P information ' market entry 1 2 3 6 5 l 2 3 6 5 NP F L P ° social mobility 1 2 3 6 S l 2 3 6 5 NP F L P "natural barriers l 2 3 6 5 l 2 .3 6 5 NP F L P ' demographics l 2 3 6 5 l 2 3 6 5 NP F L P 213 (1) How important is (2) How controllable (3) What actions did the factor as a is the factor? you take to potential barrier? resolve the barrier? F A C T O R S Not at all Extremely Extremely Extremely Please select as Important<-->Important Control-<-->Uncontrol- many solutions lable lable as apply 1 2 3 6 5 l 2 3 6 5 Compatability of... ' distribution 1 2 3 6 5 l 2 3 6 5 NP F ' L P networks ' material handling 1 2 3 6 5 l 2 3 6 S NP F L P systems ’ communication 1 2 3 6 5 l 2 3 6 S NP F L P systems ' product servicing 1 2 3 6 5 l 2 3 6 S NP P L P systems ' work ethic l 2 3 6 5 l 2 3 6 5 NP F L P Finding... ° insurance 1 2 3 6 5 l 2 3 6 5 NP P L P ' appropriate 1 2 3 6 S l 2 3 6 5 NP F L P warehousing ‘ agents/brokers l 2 3 6 5 l 2 3 6 5 NP P L P Forecasting... ’ currency values 1 2 3 6 S l 2 3 6 5 NP F L P ' labor costs 1 2 3 6 S 1 2 3 6 S NP P L P ' tarriffs l 2 3 6 S l 2 3 6 5 NP P L P ' consumer I 2 3 6 5 l 2 3 6 5 NP P L P preferences ' product i 2 3 6 S l 2 3 6 5 NP F L P demand Practices concerning... ' informal l 2 3 6 5 l 2 3 6 5 NP P L P business conduct ' promotional l 2 3 6 S l 2 3 6 S NP P L P methods 214 BACKGROUND INFORMATION This page of the questionnaire is optional. Your assistance and cooperation in providing this additional information will be greatly appreciated. 1. 2. How many persons do you employ? Of your total number of employees, how many are assigned to manage and facilitate international distribution? What are the annual sales from the export of your major product/service? What are the annual sales for your company? Is the questionnaire being answered at the division level corporate level? How many products does your company produce? How many of the products produced are exported? Has your company been able to incorporate international distribution into its long term planning? Yes Only on a limited basis No 215 APPENDIX B Intercorrelation of Importance Ratings of Barriers IMPORTANCE RATING MISSING DATA CORRELATIONS I7 I6 I5 14 I3 I2 II 02206721015161361517700615099379120 0‘313336131aoos65553‘63gbaelozaaz3 0‘33.1011220Azllzzzzaaazlszz-LzIe-‘AZIA OOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO. loooooooooooooooooo00000000000000° 03‘3356.15259130875953823§OTTOOOZI66‘3 0757511213553888~001263525°997563II 0321.30.101.82.11010222233222211.1031100 eeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeee IOOOOWOOOOOOOOOOOOOO000000000000000 . 0982658063°06‘0026092933~59232795350 0310217519119O‘92608O32587067992.3“,- 02‘222010IIoZeLIeeJo32111222102111‘2221‘ eseeeoosoeossssoosooe00000000000000. loooooonovoooooooooooooooooooooooooooo 083833376°531“25269.§2851960299058073 081539886773l12195I¢76O08213~Oba°lq31o 0°3222313102213011‘223311.122210031600152 OIOOOOOOOOOOOOOOOOO...00.00.00.000... Ioooooooooooooooooooooooooooooooooooo . 0023339363730890022137091299760557963. 065108583538257268069572897322166;63o 061321220200IZIZIOZIIZIIIOZIZIIOOIOOla]. eeeeeeeeeeeeeeeeeeeeeeeeeeeeeseeeeeeee 10000000000000000000000000000000000000 061566“439653~2780‘5788133871603532‘110 0613119T917707~020‘0760‘1’0119863229228 o12021012011113330301231222.,N2201‘11100 OOOCOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO 05386‘37 T73631529158 6806~32522306 5.731538 I057I09321O9‘0I0O0680895‘0 692O~6§9°9§1858 022233533300Il3§321211233‘QO333O2313222I eeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeee 1000000000000000000000000000000000000000 123‘s 67890123‘5 61890-123“: 67.9 0123 ‘56? 890 11111111112222222222333.5333}33.5 01217.567590121755 67890123§567 8° 0 unmad‘m” 67 89 111114131122222222223333333333.9 D'I'I IIDI DIP 5' III? {'1}? IE2 h, I, I b, I? I? IIIDI L) I, r. I ll 41‘ A} J I i I 1 Ii II‘ I 4“} 216 IMPORTANCE RATING MISSING DATA CORRELATIONS I16 I13 IIZ III 110 I9 I8 0529816‘26152625'6529912226 0°03~.53.oz,l9O.97Is,5...gls 03233222I32310IslsooOOOOOZOAZ soseseeeeesseossossessssoss Iooooooooooooooooo000000000 IQ 0753055259NIIOOOQOOOOOOOOZOT 05.9Q0957?63865761109513.6815, 03212222113IZIIZZZIOOOOOIIIas eeeeeeeeeeeeeeeeeeeeseeeeeee 1.000OOOOOOOOOOOOOOOOOWOWOWOO I3 07.9758675‘5027203322300‘“1907 006778839751072‘7718512863§35 03111120101332010111000000101 eeeeeeeeeeeeeeeeeeeeeeeeeeeee 10000oooooooooooooooowowwwwoo lZ 0522785025579‘5073626723115120 032851552‘335783358936752‘1‘27 0261.22112232111122011020001022 0.0.0000.000000000000000000000 IOO00O000000000000000000000000 . . II 0.5T5315716‘9537715‘05‘1736868001 0193018640155361696831705338396 011112223231.23322212322011.1111... eeeeeeeeeeeeeeeeeeeeeeeeeeeeeee IO00000000000000000000000000000 . IO 0583‘77“21.197300156702570§§§07§9 9 071650“2.00152805823566236115.“?19 03211022022211211321323211121121 eeeeeeeeeeeeeeeeeeeeeeeeeeeeeeee 10000000000ooooooooooooooooooooo 0775068239413833‘7533I0939‘256287 8080081799318517185596231’7801371‘1 o~3211211011s30ZZIZI‘Isz-lzlsoallszlszzz eeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeee 100000000400ooooooooooooooooooooo 89 0123 ‘5 67 89 0123 ‘5 6189 0123..., 67890 11311-1111122222222223333333333.. 01.2365 67890123‘56789012355 67890 39IWHIHJIIHIZZZZZZZZZZIXS33333333B. II)! I! DP .r III I} if}, 5 ill 1].! J i l 217 IMPORTANCE RATING MISSING DATA CORRELATIONS 121 120 119 I18 117 116 115 05730030105509305713 00202597196022213909 0§223223321210112122 OOOOOOOOOOOOOOOOOOOO 10000000000000000000 21 000327220010057220005 093020059991000920599 012333231332101212101 eeeeeeseeeeeeeeeeeeee 100000000000000000000 20 011727056560200036067.‘ 0077709571290391073303 0153112222311211112232 OOOOOOOOOOOOOOOOOOOOO. 1000000000000000000000 19 09025950350010602330030 01919700003011972735007 02320353221232201213021 seseeseeeseseeseseeesee 10000000000000000000000 18 09‘718901197511O7766329Q 010600203917621020559653 052231292231132110102012 OOOOOOOOOOOOOOOOOOOOOOOO 100000000000000000000000 17 0000357293390910005977705 0970000572003001329900010 0501321292392232211202022 eeeeeeeeeseeeeeeeeeeeeeee 1000000000000000000000000 16 050005133176.400513510035091 50356152961671770632352.2280 10522523233523222232122212.) O..OOOOOOOOOOOOOOOOOOOOOO. 10000000000000000000000000 5670901236..) 67890 1236561. 890 11111222222222233333333336. 56709012305070901230507090 1111122222222223333333333o9 P I? I'll? D! 1' It 1111' '1’ 1 Ill 1 III III 111 if, .I? 1 ‘1 1|“ 1] 128 127 126 125 126 123 122 0523991060969 0011905210500 0092322321112 OOOOOOOOOOOOO 1000000000000 28 01972930170909 05229056055193 00003522233311 OOOOOOOOOOO... 10000000000000 21 0.530702073753590 000179521000000 05953335252331.5215 esssseseseeseee 100000000000000 26 0052272301000900 0129201101093702 0.532333312113123 eeeeeeeeeeeeeeee 1000000000000000 25 0.1000902772055097 0.5930702730719000 05.132233200222122 eeeseeeeeeeeeeeee 10000000000000000 . 26 07259900504927.7951 01001000075009.5097 05522235220032.2011 seeseseseeeeeeeeee 1000000000w0000000 Z3 0717210379320403050 20200605913090153506 20320322222100122212 eseseeeeeeeeeeeeeee 1000000000000000000 23950709012595.0709 0 5.2222222333333533.) 9 23050709012595 6709 0 22)-2.422233333333336. [Ill D'1D b! D'L 1 III II I. a? {I I I 11 1141 1.! 14 II 11 11 218 IMPORTANCE RATING MISSING DATA CORRELATIONS 135 [36 133 132 131 130 129 35 0 3 q 2 0 2 0876867 0606757 0633212 0 O O O 0 O 0 1000000 36 06998296 07722686 01022112 0 O O O O O I 0 10000000 33 010205379 065227770 033632212 0 o o o o o o o 0 100000000 32 0510617775 0911998955 0633321112 0 o o o o o o o o 0 1000000000 31 08190159836 0 09856173977 3 02302623122 0 o o o o o o o o o 0 10000000000 038615518727 9091796666565 20632112332222 000.00.60.00 100000000000 901236567890 233333333336 901236567890 233333333339 968811888811! I60 I}? 138 I37 136 39 60 2 1.000 38 67090 33339 11111 219 APPENDIX C Intercorrelation of Controllability Ratings of Barriers CONTROLLABLE RATING KISSING DATA CORRELATIONS C7 C6 C5 Ck C3 C2 C1 001 .09 31151216263~o1agssz36 .0369 63 6 7 07053937§7095.00055131315586310960 0‘320ltl‘lOl‘lOllulleIIIIZOc-booooo00° coo.coocoo-00000000000000.0000.coo 1000000000000000000000000000040000 . o .2332‘ “1°521931'3.76533‘2‘526.oz. 6 0‘0§533113as31‘007613305313531598‘0 032111151111-115‘0202110Ital-0.1.100‘looozgl 0.000000oooooooooooooooooooooooocoo 1.0000000000000040oooooooowwwoooo000 . 0730§7236556211318§597151§5151166909 s 02621,‘2‘.~ozz."6“2‘0‘25‘5I75900l711 0211l002111tllo31‘11200‘00010001121 coocooon.oooooooooooooooooooooooocoo lOOOOOOOOOOOWfiOOOOWWwOOOOOOOOOWOOOOO . . . c . 003180738926020311078122821920~soo ‘96 ~ o‘6586321313"12668976109000‘1‘857210 001‘21313222212010122201001001500001‘0 0000000000oooooooooooooonooooooooo000 0010122~139 6‘3257 ‘2122350061260 6‘07708 3 0205288729272995l620 ~8625~2206~zo78113 o 60.1220223222215201023221‘15021001000 01° 0000000000000000000000.000000000000000 . 06561.55053519013233057900285997‘56 6273!. Z o‘3750I12625111.253...922921‘3ZO7‘77150227556. 02201221.!512222212021022.12.101.20000200000 000000000on.000000000000.000.000.000... 1000000000000000ooooooooooooooooooooooo o81616862836151.516769337.1“.‘30‘73382377‘~ lo2011502‘35582503‘230202027‘169370"2013 0311101111000100000010000222211200110000 DO0000000I...00000.00.000000000000000000 . 123‘561 890123‘567 390123455 61.90123‘5 67 890 llIlIbllols152222222223333333333b. 0123‘567390123 ~567890t23 ‘56? 890 123‘, 6789 111111111122222222223333333333§ ccccccccccccccgcccccccccccccccccccccccc 220 CONTROLLABLE RATING MISSING DATA CORRELATIONS C11 C13 C12 C11 C10 C9 C8 0‘2~03190952‘101abqbgzz1930 0715952.bz3ss“29§123t2‘3 01656110066blloo3005zzz°°° 0.0.0....OOOOOCOOOOOOOOOOOO 16 03..83792.16‘857161569.595519.‘ 01.306761152173775.‘56‘313~I§5 0766‘5111055‘12‘030002212000 00000000000.0000000000000000 .100Ooooooooooooooowowoooooow 13 00535498285529008917552173691 0835‘0023225182l20‘30t5916630 OS655Q60100565010020012111000 O.C0.00QOOOOOOOOOOOOOOOOOOCCO . 12 0257b0647281772970928568916020 O87326141369281709185631368251 022221111100102110101110000000 O0....OOOCOOCOCCOOCOOOOCOOOOCC 100000OOOOOOOOOOOOOOOOOOOOOOwO . 11 06§§6155351303137§070876931322). 02597.7036362~707125086372678625 O13232322111223.5020010002010000 O..00..OOOOOOOOOOOOOOOOOOOOOOOO 1000000OOOOOOOOOOOOOOOnvaOOOOOO . 10 02509217073531620329‘876305213‘0 9 01.1521001.5‘1631‘7gaa‘z727120368.’ 0310000lilol3ll°°°l§ul°1|ll°°°°°°l°gl 000000000000000.0000000000000000 10000000000000oooooooooooooooooo . c . 05.552.53.30‘156956598§9§13192378566 8073272892fi59863542.908392952806321 O6#121112110101122110111000000001 0000.0000000000000000000000000000 100000000000000OOOOOOOOOOOOOWOOOO . . 8901Z3§567590123§567890123§567890 .111111111122222222223333333333‘ o 1.23 ‘56789 0123‘567890123‘5 67890 89 Ill.1111111122222222223333333333.5 ccccccccccccccccccccccccccccccccc 221 CONTROLLABLE RATING 'HISSING DATA CORRELATIONS C21 C20 C19 C18 C17 C16 C15 00265779930970067962 01366323066937313237 06100212211120010022 0.0.6.6....666066666 10000000000000000000 21 013175321759867829396 066230875136723115521 022211223220010002212 0.................... 10000000000W000000000 20 0163112873079662067213 0699079753191035077292 0222101212221121211211 ...................... 1000000000000000000000 19 09562376876932925663862 03215715736064368916528 01200576010030012122000 .OOOOOOOOOOOOOOOOOOOOO. 10000000000000000000000 . . . . . . 18 051675936790563305071633 060967759666656667669500 071200 “5.3010030012212000 ........................ 10004000000000w040000000 . . o 17 0762755519259885375229176 05660636888106666636263‘3 077130056.3021030013222000 ......................... 1000000000000000000000000 . . . . . 16 09857166343158521328898976 507301125795769308136996663 10656221055611002000211.2000 ..............0...0....... 10000000000000000000000000 . . . . 56789012365678901236567890 111112222.22222233333333336 367 09012365670901236567090 1.1111222 2.2222223333333333 6 cccccccccccccccccccccccccc C28 C27 C26 C25 C25 C23 C22 0093665907908 0631256207376 0332630100212 ............. 100000w000000 28 06715530381989 00786681033936 06632312311112 ............0. 10000000000000 27 063993630208631 090556075600331 056632230111233 ............... 100000000000000 26 0.391213066718398 0187321091128856 0000130003221000 ................. 100000000000000W . . . . 25 01990139625036.3616 06093070260777.2613 07000020002111000 ................. 10w00w00w40000w00 . 26 06681207656195.5711 3 06127919526839.1692 2 066110031002213000 .................. 100000w0www0000000 0536629701667105696 20887556908128515607 20100222111320011132 ................... 1000000000000000000 2363670901236367690 22222222333331.3333“ 2365 67 090 12365 67 09 0 22222222333333.3333.” ccccccccccccccccccc 222 WLLABLE RATING MISSING DATA CORRELATIONS C35 C36 C33 C32 C31 C30 C29 35 31 33 32 31 30 0617328 0672372 0633110 . . . . . . . 1000000 00767360 06032616 00000133 . . . . . o . 0 10000000 056053273 033390676 030100023 . . . . . . . . . 100000000 0208593089 0382902626 0530000011 . . . . . . . . . . 10000W0000 — 02996320273 02036393163 00112202121 . . . . . . . . . . . 10000000000 062998320995 90772609 66368 2032321110212 ............ 100000000000 901236567890 233333333336 901236567890 233333333336 CCCCCCCCCCCC C60 C39 C36 C37 C36 39 6O 0 2 1.000 30 0 6 7 37 0 6 2 1 67890 33336 ccccc 223 BIBLIOGRAPHY BIBLIOGRAPHY Alderson, Wroe uarketing_Benaxi2r_and_Exesutize_Astipni_A Enn2ti9na1_Appr2a2n_to_uarketins_1hsprxi Homewood, 111.: Richard D. 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