Our paper attempts to fill the gaps identified in the review of existing literature. A summary of logistics in Asia and Europe appears in the following section, where we discuss the impact of economic, political and infrastructure issues on logistics. Next, our third section concerns attributes of a world-class logistics system. We propose and apply a methodology (cluster analysis) to objectively classify 33 countries from Asia and Europe into three logistics tiers. Sensitivity analysis is employed to show how a country could improve its standing by focussing on logistical aspects in recommended order of priority. In the fourth section, we compare the top logistics systems of Europe and Asia and attempt to draw lessons. These lead to our conclusions.
Overview of logistics in Asia and Europe
Influence of economic and political issues on logistics
In January 2000, Asia's total gross domestic product (GDP) exceeded that of the USA by over US$900 billion. Likewise, Europe's GDP surpassed that of the USA (by about $450 billion). European integration means that previous country-specific logistics strategies are no longer optimal, as predicted by O'Laughlin et al. (1993) just before the EU became a single market in January 1993. The EU's implementation of a common currency (in January 2002), plus emerging markets in Eastern Europe and the CIS, provide immense opportunities.
The Asian counterpart to the EU, the ten countries of ASEAN[5], together have a GDP of 20 percent more than the GDP of Canada and Mexico combined. Attainment of free trade within the bloc will be tougher than in Europe or North America. Governments maintain protectionist measures because many nations in ASEAN are still under-developed (e.g. Cambodia, Laos, Myanmar, Indonesia, Vietnam).
Europe's political climate allows standardised practices: imported goods, destined wherever in the EU, can be cleared at point of entry in any member state. However, the CIS and Eastern Europe, from their Soviet heritage, have some outdated procedures (Augustyniak, 1999).
Distribution network
The Channel Tunnel ("chunnel") opened in 1994, raising the profile of cross-channel movement of goods (Browne and Allen, 1999). A plan to create a high-capacity infrastructure linking major European freight centres (Economic Research Centre, 1996) could significantly impact the supply chain network of manufacturing firms. Creation of borderless rail-freight in the EU may thus cause a modal shift from road transport for longer-distance distribution. However, diversion to rail will be limited by the height of European rail terminals, which do not accommodate double-stack containers. As well, technical compromises are difficult to achieve among the national rail systems of each country.
There is an ASEAN project to build an 8,000km rail line from Singapore to southwestern China; Malaysia and Singapore have experimented with borderless entry of goods. Both are precursors to a common border likened to that of the EU.
An improved road network can yield service improvements. For example, Compaq Malaysia previously relied on scheduled air-freight to send service-parts the 300km from Singapore to Kuala Lumpur, Malaysia. The new multi-lane highway enables a truck to be sent there daily from Singapore. However, a poor distribution infrastructure may encourage companies to undertake logistics activities not within their core competence. McDonald's of China actually started its own trucking subsidiary in order to ensure reliable deliveries (Gooley, 1998).
Logistics tiers
To make detailed references to specific countries, we first summarize criteria important to logistics excellence.
Four key attributes of a "First World" logistics system are described by Wood et al. (1995) (). Their First World includes countries such as the USA, Canada, Japan, and the EU (12 nations at that time). Emerging nations are ones like Thailand, Taiwan, China, Brazil and Argentina, while Sudan, Afghanistan, Haiti and others constitute the Third World.
We will see that this is similar to our tiered classification, but Wood et al. are perhaps too general in their categories. Ohmae (1985) discussed business linkages between a (First World) "triad of nations": as above, major countries in North America, Asia Pacific, and Europe. Wood et al. (1995) utilised a similar economic interpretation of nations to categorise their logistics systems. This is fine if strong correlation exists. The World Competitiveness Yearbook (Garelli, 1999)[6], however, shows that, along some dimensions, business leaders do not believe that Spain, Portugal, Ireland, Belgium, nor even the UK have a First World distribution system (Garelli, 1999). Our third section discusses this in detail.
We also feel that "business value" should be added to each of Wood et al.'s (1995) attributes. Infrastructure is described e.g. as including "state-of-the-art air-freight handling", but a better measure would be material-handling throughput, since managers care more about rapid flow of product than whether the system is state-of-the-art. We will address the preceding by objectively classifying logistics systems; expanding the attributes of a world-class system; and adding more business value to those attributes. Our definitions of logistics tiers are in .
Impact of infrastructure issues on logistics
Let us now turn attention to the factors important in determination of logistics tiers. First, a strong relationship is expected between infrastructure maintenance/development and the ability to meet distribution requirements for goods and services: Tier 1 logistics countries continually invest to stay ahead. This will impact future location decisions. For example, Singapore (later shown to be Tier 1) is the regional home to virtually every leading international logistics player.
The second effect will be a "spillover" of logistics activities from Tier 1 to Tier 2 nations. This arises from two sources:
(1) healthy competition; and
(2) a constrained system.
In the former, neighbouring countries also seek benefits from business-friendly logistics infrastructure, so they build similar facilities. Malaysia (found to be Tier 2) opened its new, state-of-the-art international airport to match the cargo-handling productivity of Singapore's Changi Airport. Malaysia and Thailand upgraded their ports in order to compete for business with the port of Singapore. And concerning the effect of a constrained system, freight volume in Hong Kong has outstripped capacities at both its sea and airports, causing a shift of certain logistics activities to parts of South-East Asia or mainland China (Gooley, 1998).
Attributes of a world-class logistics system
We now propose an objective method to categorise logistics systems. The four general attributes of Wood et al. (1995), i.e. infrastructure, performance, information systems and human resources, have been retained, and two others (business and political environment) are added. Specific characteristics are also redefined to make them more business-oriented and "tangible".
Rankings of countries by the preceding criteria ( have been obtained mostly from the World Competitiveness Yearbook (Garelli, 1999). It is difficult to obtain logistics (or any) data defined consistently across countries; World Competitiveness Yearbook data are consistent[6]. We remark that Ulengin et al. (2002) employed this source concerning macroeconomic attributes.
Cluster analysis
Statistical cluster analysis, using SPSS 10.1 (e.g. Norusis, 1994), will next be employed to separate logistics systems into three tiers.
Step 1 - Obtain the data matrix and standardize it. shows the raw-score rankings of the respective countries for each criterion (to add the North America perspective, we include Canada, the USA and Mexico). The unit of measurement can arbitrarily affect similarities among objects (Romesburg, 1984), but expressing attributes in dimensionless form makes each contribute fairly to those similarities. For example, the range of values for the "air transportation" attribute is much greater than the rest; data standardisation prevents this criterion from having undue weight.
Step 2 - Map the clusters to logistics tiers. Standardised scores are indicated in Table V for each cluster. The original raw data are "rankings", hence lower figures are better. Standardisation causes some scores to become negative; those are favourable logistics systems. The correspondence of clusters to logistics tiers is thus as in . This correspondence is consistent with both visual and numerical representations of the hierarchical clustering solution.
Remarks
A few observations are worth noting:
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Good but imperfect correlation of tier grouping with sum of standardized scores. Although China's logistics system may seem not as "good" as Thailand's (9.4 vs 8.8), China is in Tier 2 (more favourable system). The key point is that cluster analysis is a precise statistical approach. Its mathematical solution groups together logistics systems whose characteristics, according to our criteria, are similar. Summation of a country's standardised ranking scores (shown in Table V), although a quick indication of its 20 raw scores (Table IV), is not technically solid. Cluster analysis is.
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Apparent mismatch between tier grouping and "intuition". Somewhat surprisingly, this study places France and the UK in Tier 2; Korea and Italy are placed in Tier 3. Let us try to understand these results. Recall that countries are ranked on 20 specific attributes (criteria) in Table IV. (Most of those data are from the Word Competitiveness Yearbook (Garelli, 1999) whose extensive survey of international business leaders concerns topics elaborated in note[6].) If those raw ranking scores (out of 47 countries in the World Competitiveness Yearbook) are converted to ordinals with respect to the 33 countries we consider, the UK is below the median on 11 of 20 criteria. Just 14 countries achieved the Tier 1 cluster; the UK was 14th or better on only five criteria. (Similar analyses will reconcile the apparent mismatches for other countries.) Perhaps the Tier 2 result is puzzling because of the UK's international stature in culture and in world politics. Indeed, its best ordinal ranking, 4th out of 33, is for "political stability". However, our tiers concern logistics systems.
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"Borderline" countries. Table V shows these to be Malaysia, China, Thailand and Belgium. Some borderline nations risk that their logistics standing will be bumped into the next less-favourable tier, while some have a chance to achieve the next better one. Either could happen: when other countries seek to improve their logistics systems, the overall competitive ranking is altered. For the case of Table V, Malaysia (China) risks getting bumped into the Tier 2 (Tier 3) cluster if they make no further infrastructure or process improvements[7]. By the same token, Belgium and Thailand have a chance to attain Tier 1 and Tier 2, respectively, if they work on improving the logistics system, as proposed in the next section.
Sensitivity analysis
Suppose that the UK could enhance certain criteria in Table IV. How would that impact the clustering and tiering? What can a local logistics operator[8] do to improve the logistics system and environment?
(1) Step 1. We first segregate the attributes of Table III into two groups - one that we judge to be within the "control"[9] of the logistics operator and the other outside control ().
(2) Step 2. Next (), we subjectively prioritise the controllable attributes according their respective potential to realise immediate ranking improvement.
(3) Step 3. Iteratively improve the ranking of each attribute according to Table VII, and reduce the ranking of the same attribute for any affected countries. (For example, the first criterion to tackle is "employee training". According to Table IV, UK has rank 22 while Ireland has rank 21. So we swap these two countries' ranking.)
(4) Step 4. Run the cluster analysis.
(5) Step 5. Repeat steps 3 and 4 until the UK makes it to the Tier 1 logistics cluster.
Results of the sensitivity analysis
We found that an improvement of one ranking position in each of the first nine criteria of Table VII would enable the UK to attain the Tier 1 logistics cluster ().
Recall the previous section's discussion on borderline countries, where we observed that China risked being bumped into Tier 3 if she did nothing to improve on logistics infrastructure and processes. In this simulation, except for countries whose scores are swapped with the UK, we held all other countries' scores constant (equivalent to doing nothing). China is one of those countries. Comparison of Tables V and VIII shows that China moved to the Tier 3 category.
The key point, overall, is that nations wishing to improve their logistics systems could practically do so by applying the methodology discussed here. As an example, we listed (Table VII) nine specific areas that the UK could work on to improve its logistics standing.
In the next section, we will compare the most favourable logistics systems of Asia and Europe, in order to understand their success.
Comparison of Singapore and Denmark logistics systems
Our findings, based on attributes of a world-class logistics system (Table III), are shown in Table IX. Details of Denmark's and Singapore's logistics systems reveal key reasons why they have held the world's top spots in distribution since 1997 (Garelli, 1999).
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Deliberate investment in distribution infrastructure. Natural endowments and an excellent infrastructure overall can be fully exploited because the two countries continue to invest billions of dollars to maintain and upgrade existing logistics facilities and to build new ones (see Table IX).
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Business friendly processes. Singapore and Denmark constantly fine tune the material-handling processes in order to make their systems move cargo faster, cheaper and safer.
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Human resource management. Even state-of-the-art equipment requires a skilled workforce. Modern logistics needs staff who can quickly learn about a tool and apply it towards productivity gains, workers who go the extra mile for customer service and are motivated to ensure fewer work stoppages. Denmark and Singapore evidently grasp these human-resource issues. Their success can be attributed to employee training and conciliatory and consensus orientation between unions and management.
The above improvement areas are "controllable", either by government (investment in public infrastructure and business-friendly policy), or by the logistics operator through better management of human resources and continuous productivity enhancement. However, good logistics infrastructure also has to do with uncontrollable factors, here the good fortune to be at the geographic centre of the regions served. From Singapore, one can reach Tokyo (northernmost economic hub) in just over six hours and Sydney, Australia (southernmost hub) in less than eight hours. Denmark is within 1,200km of the major economies of Europe. The size and nature of a country's geography will certainly impact its logistical opportunities and challenges.
Note that the questions (Table III) in the World Competitiveness Yearbook survey[6], or any set of sequential questions, could affect each other by the order they are asked. For example, "Port access to a country's road and rail networks" is part of the criterion, "Distribution infrastructure". Positive perception from that first question (see could spill over to the water transportation attribute. Thus, while the Danish ports of Copenhagen and Aarhus have considerable container-lifting capacity, those ports may be less significant in Europe than Hamburg or Goteburg. That question was not asked.
Conclusions of an empirical study rely on the data behind them. The visual layout of the Table IX does not mean that Denmark and Singapore stand up to each other on every single dimension. And although a few attributes of Singapore and Denmark are scored lower (Table IV), these do seem to be the top-ranking logistics systems in Asia and Europe.
Conclusions
We have extensively examined the logistics systems of Europe and Asia, first by providing a social, political and geographical overview of these two regions, then by addressing the strategic impact of various issues on each region's logistics. We proposed details - new descriptions as far as we are aware - of the attributes of a world-class logistics system. Data were culled from independent sources (see Tables III and IV) to assign countries objectively to logistics tiers, based on cluster analysis.
Our research suggested the main ingredients ("controllable" factors) in logistics excellence:
- Deliberate investment in, and regular maintenance of, distribution infrastructure.
- Employment of business-friendly processes.
- Active promotion of harmonious relationships between unions and employers.
In addition, we looked into priority areas that countries could work on to improve their logistics ranking. Sensitivity analysis demonstrated the possibility of elevation to a more-favourable tier. We showed specifically that by improving in the first nine priority areas (Table VII) by one ranking position, the UK would attain the Tier 1 logistics cluster. As well, the top-ranking logistics systems in Europe and Asia were examined for lessons more widely applicable.
We remark that the Tier 1, 2, 3 designations are all relative; the very best logistics systems have stayed on top by continually improving. It remains to be seen whether the gap between successive tiers will widen over time ("average" countries becoming worse in logistics), or whether each tier will improve somewhat together as a group, but with particular countries promoted to an adjacent tier or downgraded.
This manuscript classifies each country's logistics macrosystem, but how does a firm with good logistics performance survive within a "bad" logistics macrosystem[10]? Just as an individual employee might exhibit creativity in a company that generally resists change, an organization's logistics success is only partly due to the overall business environment. There are other factors involved; understanding them may require details specific to those cases.
Similarly, there will be additional variables whose impact cannot be included. Singapore, Denmark and the USA have different scales of distance and population density. Homogeneity of culture should also be a factor, along with the structure of contract law. While these and other parameters could not be accounted for, perhaps we should recognize the degree to which the variables included do influence logistics performance.
Two of the 20 rows in Table III deal with information technology, whose dimensions should perhaps be enhanced. We emphasize once more that the general and specific attributes in Tables III and IV come from the World Competitiveness Yearbook (Garelli, 1999)[6]. While the World Competitiveness Yearbook may, in the future, expand its survey to include issues on software adoption (e.g. ERP), the Web, broadband, etc., data at that degree of detail are almost certainly not yet available.
Further suggestions for refinement
We did seek data on two possible, additional attributes: air city-pairs and mean tariff rates. The greater the number of foreign cities to which the main-city airport is connected via scheduled flights, the smaller the number of flight links, hence lower cost for moving goods to a target destination. Such data can be obtained from the World Bank Competitiveness Indicators (World Bank, 2001), but are unavailable for two of the 33 countries in our study, namely Taiwan and Luxembourg (not a significant logistics site, but an important economic hub).
As for "mean tariff rates", they are in the simplest case the unweighted average of all rates applied to products subjected to tariffs. Again, reliable and authoritative data are in the World Bank database (same Web site as the competitiveness indicators). However, no data were available for Finland, Slovenia, Sweden and Taiwan. Conducting the analysis without these countries would have unduly distorted the clustered logistics tiers.
Our study assumed equal weighting of all criteria, but certain factors may be more important in evaluating logistics systems. One improvement could be to employ the Analytic Hierarchy Process (AHP) (Saaty, 1988) to assign weights on each criterion, depending on the perceived importance of the business objective. (To use the AHP, someone must furnish the pairwise comparisons between factors. Comparisons we would assign as authors are no more meaningful than anyone else's, hence the AHP was not employed in the present paper. Perhaps weights could be assessed from the public sector point of view by a government policy maker in the Ministry of Transport or Ministry of Industry. Alternatively, the World Competitiveness Yearbook might be convinced in a future year to enhance their survey, to consider questions on the relative importance of pairs of attributes.) The remaining steps would be applied as above.
Having identified the Tier 1 logistics countries, it would be desirable that an organization concentrate on them in designing its international supply chain. We are currently developing a methodology to find the best hub-and-spoke air freight network linking Tier 1 countries in Europe and Asia. That will be reported elsewhere.
Notes
1. Japan is typically considered as part of Asia Pacific, which also consists of Australia, New Zealand and the South Pacific islands.
2. Technically, Hong Kong is not a country, but a Special Administrative Region of China.
3. Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, The Netherlands, Portugal, Spain, Sweden and the UK.
4. A few countries in Western Europe (e.g. Norway, Switzerland) have chosen not to be in the EU. Turkey's application for membership has still not been approved. But in 2004, the EU will expand to 25 countries, including several from Eastern Europe (e.g. Hungary, Slovenia, Czech Republic, Poland).
5. Association of South East Asian Nations, comprising Brunei, Indonesia, Malaysia, The Philippines, Singapore, Thailand, Cambodia, Laos, Myanmar and Vietnam (the final four are collectively called, "Indochina").
6. Contains results of a comprehensive survey of international business leaders on the competitiveness of 47 countries covering domestic economy, government, infrastructure, science and technology, internationalization, finance, management and people (see also World Bank, 2001.)
7. The recent award of the 2008 Olympics ensures that China will make significant improvements in logistics infrastructure.
8. This is a generic term to mean any company, organization or body performing logistics, i.e. the government agency, a commercial logistics firm, customs broker, etc.
9. This is in quotation marks because we recognise that certain criteria may not be strictly under control of the logistics operator.
10. The remainder of this sub-section is based on the insightful remarks of an anonymous reviewer.
Table I. Regional differences in logistic attributes
Table II. Defining the logistics tiers
Table III. The 20 specific attributes (criteria) that determine logistics tiers
Table III. The 20 specific attributes (criteria) that determine logistics tiers
Table IV. Raw ranking scores for cluster analysis
Table IV. Raw ranking scores for cluster analysis
Table V. Logistics tiers and sums of standardized scores
Table VI. Controllable and uncontrollable attributes (judgmental grouping)
Table VII. Subjective priority of criteria for the logistics operator to work on
Table VIII. Controllable and uncontrollable attributes (judgmental grouping)
Table IX. Comparison of Singapore's and Denmark's logistics systems
Table IX. Comparison of Singapore's and Denmark's logistics systems
Table IX. Comparison of Singapore's and Denmark's logistics systems
Figure 1. Map of Asia
Figure 2. Map of Europe
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