Logistical alliances: Trends and prospects in integrated Europe

Journal of Business Logistics, 1998 by Bagchi, Prabir K, Virum, Helge

The processes of integration in Europe, the GATT agreements, and the developments in Eastern Europe are bringing radical changes to the European business environment. The European Union (EU) may become the wealthiest and perhaps the largest market in the world. The proposed union has already had an enormous influence on the business structure of every member country, as once protected industries lose national patronage and regulatory shields and face stiff competition in a more open marketplace. The intensity will only increase in the future. At the same time, new market opportunities are becoming available in many industries. Recent studies have shown that the integration process in Europe is already having a major effect on the transportation and logistics sector.1,2,3,4,5

Experts often say that we live in a global economy. As countries open their markets, competition intensifies. Business decisions have become more globalized. The whole world becomes the center stage for leading-edge companies. Such companies procure materials from and distribute finished goods all over the world. Logistics becomes an area of strategic importance and a source for competitive advantage. A close examination of global trade during the last ten years reveals that worldwide growth of imports and exports far outstripped GNP growth during the same period. According to the UN Statistical Yearbook, in dollar terms, international trade was 10 times larger in 1990 than 1970. This spectacular growth in international trade took place both in sourcing of raw materials, components, and semi-finished goods and in global distribution of finished products. Domestic markets in developed countries no longer mean domestic competitors only. Thus, in the 1990s and beyond, the continued existence of a company may depend on how successfully it can tap the global marketplace.

The global marketplace is characterized by more opportunities as well as more competition. In a more competitive world, companies try harder to identify better ways to satisfy their customers. One major area increasingly used these days to provide competitive advantage to companies is logistics.

Managers are no longer using logistics excellence only as the means for cutting costs; they are ever more relying on logistics to offer differentiated service to customers in order to become more competitive. As global logistics assumes more importance, European companies are turning to numbers of logistical alliances 6,7,8,9,10,11,12

Using case studies, this research looks at the formation and working of logistical alliances in integrated Europe. In the next section, we define logistical alliance and analyze the rationale for formation. Next, we explain the purpose of this study and the research method. Then we critically examine a few working logistical alliances based on our field studies with ten European firms. These sample firms include both shippers and logistics service providers. Next, based on these cases, we offer a logistical alliance process model and discuss the steps involved in selecting the right alliance partner. Finally, we discuss the implications of logistical alliances in logistics strategy and provide directions for further research.

LOGISTICAL ALLIANCES

Increased competition, higher customer expectations, and rising costs have forced companies to seek radically new ways to succeed in the marketplace. Strategic alliances are often used to rationalize business operations and improve the overall competitive position of a company. The process of forming a strategic alliance is important because of the sheer speed and dynamism of technological changes that have opened up a wide range of new activities. The emphases are often on combining capabilities to speed development, achieve new performance levels, and meet customer needs better.13,14 A strategic alliance allows a company to take advantage of what it does well and enables it to seek partners who have strengths in other areas. Several studies have suggested that successful strategic alliances offer the following benefits:15,16,17.18.19

enables partner companies to offer an extended product/service range

provides access to a larger pool of talent

helps partners obtain better customer value

gives access to wider markets

enables partners to share resources and risks

improves competitive position of the partners in the marketplace

allows companies to focus on core competence.

Forming logistical alliances or using a third party for logistics needs, as it is more commonly known, is nothing new in Europe. Companies in the UK, Scandinavia, and the Netherlands have been using logistical alliances for quite some time. These alliances probably started with shippers outsourcing some or all transportation and distribution functions. Later, the users added some warehousing functions. Reflecting the present scope of the use of logistical alliances, Laarhaven and Sharman write: "Companies as diverse as computer manufacturers and grocery retailers are increasingly forming alliances with the providers of logistics services in an attempt both to improve delivery for their cus tomers and to reduce their own logistics costs."20 According to their estimates, in Western Europe alone, logistics alliances annually involve $2 billion.