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Global Trend in Logistic Sector

In: Business and Management

Submitted By jesseharley
Words 586
Pages 3
We will be using PEST analysis & Porter’s Five Forces framework to further illustrate the identified trend in the chosen sector, Logistics.
Political factors are the level of government intervention in the economy that include such as Antitrust regulations, tax policy, special incentives, foreign trade regulations, environmental and labor law, trade embargo, tariffs, political stability, industrial relations and others. In the context of logistics M&A, these will be important especially for firms that are operating in China, India, Vietnam. Using India as example, apart from the non-uniform tax structure, logistic companies in India have to pay numerous other taxes, octrois, and face multiple check posts and police harassment. High costs of operation and delays involving compliance with varying documentation requirements of different states make the business unattractive. On an average, a vehicle on Indian roads loses 1-2 days in complying with paperwork and formalities at different check posts en route to a destination. Fuel worth up to estimated USD 2.5 billion is spent on waiting at check posts annually.

Economical factors include economic growth, interest rates, exchange rates, increasing globalization, creation of WTO, trade agreements among regions such as ASEAN, NAFTA, EU), emergence of the Indian & Chinese economies and others. These factors have major impacts on how businesses operate and make decisions.

In the context of M&A for logistics sector, economic deregulation plays an important part. Economic deregulation has led to carriers such as airlines (Air France with KLM to in 2004) shipping lines (P&O Nedlloyd and Maersk in 2005) and network restructuring, mergers and consolidations (DHL and Exel in 2005, Schenker and Bax Global in 2006, EGL & TNT Logistics to form CEVA in 2007) in, greater efficiencies in the form of labor and equipment, and price reductions for shippers. Deregulation has also facilitated the growth of multimodal solutions (Sea-Air, Rail-Air etc) to improve freight mobility, options and cost to customers and provide product differentiation and innovation for players in the market. Deregulation in the air transportation industry has lowered prices for shippers, stimulated growth in air freight, and virtually doubled labor productivity. It also has spurred dedicated air-freight carriers, like passenger airlines, to develop hub and spoke operations.

Globalization trend means that Shippers are increasingly likely to source and sell goods outside their own home countries and exporting them across international across continents which are more complex compared domestically. They are likely to turn to international or global logistics companies to solve their challenges that could extend beyond the conventional warehousing and transportation in their newly identified markets. With M&A in Logistics sector, they are able to focus and develop a niche to compete, providing shipper with a much better pricing, solutionings, technological advancements and services. Big companies, big providers are the belief that they can serve their customers base much better as what economies of scale usually does.
Sociocultural (Demographic) factors include the cultural aspects, population growth rate, age distribution, career attitudes, consumer activism and emphasis on safety. Trends in social factors affect the demand for a company's products and how that company operates.
Technological factors include aspects such as R&D activity, automation, technology incentive, new products innovation, application of knowledge and the rate of technological change. They can determine barriers to entry, optimum efficient production level and influence potential outsourcing decisions which in return can affect costs and quality. For Logistics, the degree of system and products innovation will be critical aspects whereby firms evaluate an M&A option.

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