The need to expand globally is almost a given in most markets, and from a supply chain perspective it now comes as no surprise that international growth exposes operations to more risk. Does this mean that we have been pursuing globalization for so long that it no longer holds any surprises? The answer, of course, is no, particularly in areas such as freight transportation.
Consulting firm McKinsey maintains that a “globalization penalty” remains a less obvious challenge in the global arena. Using data on some 500 corporations, the firm identified 20 local leaders and 18 global leaders and compared them on elements of organizational health.
It turned out that the global leaders are less effective at setting a shared vision and rallying employees around that vision, and find it more difficult to encourage innovation. The global champions are also more challenged when it comes to building relationships with local governments and business partners across the countries in which they compete.
McKinsey interviewed executives from 50 global companies in an effort to drill down into these disparities. The interviews uncovered tensions that are often the subject of heated internal debate within these organizations, reports the firm. Which organizational elements should be standardized, should high potential emerging markets be managed on a country-by-country basis, and when is it better to leverage scale and synergies across business units when managing governments, regulators, partners, and talent, are some examples of the issues that the leaders still struggle with.
The research also identified some troubling flaws in globalization strategies. For instance, “about 30 to 40 percent of existing internal networks and linkages are ineffective for managing global/local trade-offs and instead just add costs and complexity,” the firm says. An example cited by McKinsey is an inability to identify lessons about low-income consumers that can be transferred from one emerging market to another.
These are general observations, but there are parallels in transportation. Take the issue of forming partnerships with local interests. In Colombia, for example, finding capacity can involve a third-party logistics services provider, truck owners, and as many as three local brokers. Personal relationships also have to be factored into the search. A driver might have a close working relationship with a certain broker, for instance. Freight rates are heavily regulated in Colombia, while in other countries in the region such as Peru the truck market is more open.
Since trade regulations can change at relatively short notice in the region, companies need to keep a watching eye on policy and have strong relationships with local trade associations and government agencies. One multinational in South America has developed a network of local offices for assessing trade policy shifts in the region. The organization feeds this intelligence into its Sales and Operations Planning process in an effort to make its demand forecasts more responsive to political change.
Transferring best practices and performance analyses between regions is difficult without some form of centralized reporting system such as a transportation management system (TMS). The type of equipment used can vary dramatically from country to country, as can management practices and cultures.
In some respects freight management is a new frontier in globalization. Advances in TMS technology now make it possible to manage transportation internationally. But these capabilities are also highlighting the tremendous variations that exist between national and regional networks and practices. For many companies these challenges are relatively new. And as global freight management becomes more sophisticated driven by advances in TMS technology, companies will come to recognize that this activity is actually a key element of their globalization strategies.
“For more and more companies, the globalization imperative is intensifying, and that could present additional organizational and leadership challenges that are not yet fully understood,” says McKinsey, sentiments that certainly apply to transportation.
 “Understanding Your Globalization Penalty,” July 2011 issue of McKinsey Quarterly.