Page 254 - DMGT523_LOGISTICS_AND_SUPPLY_CHAIN_MANAGEMENT

Unit 11: Supply Chain Logistics Design

significant that supply chain and logistics managers begin to develop this understanding to Notes
accurately evaluate, compare, and explain the relative trade-offs.

Task Find out some other factors affecting global supply chain management.

Self Assessment

State whether the following statements are true or false:
4. Time is not a big issue that should be addressed when dealing with global supply chain
management.

5. Labour Cost refers to the relative cost of production and distribution actions such as
manufacturing and handling.
6. Tax structures and tax rates have at all times been design considerations, particularly
when selecting between alternative sites within a local geography.

11.3 Global Supply Chain Integration

Global economies are increasingly interlinked by material suppliers, logistical systems,
manufacturing capacity, and markets. It is natural that this interconnectedness takes the form of
regional alliances that leverage geographic proximity and scale economies. The major triad
regions developing are North America, Europe, and the Pacific Rim. It is likely that Eastern
Europe will join with the Western European countries and that South America will ultimately
link up with North America. Although there is considerable speculation, the ultimate resolution
involving the former Soviet Union states and African countries is not clear. As regional alliances
emerge, they evolve through four stages of integration. This section introduces these stages and
reviews each region’s development status.

11.3.1 Stages of Regional Integration

The four stages of economic integration are free trade agreement, customs union, common
market, and economic union. The first stage, a free trade agreement, eliminates tariffs on trade
between countries in a region. Specifically, a free trade agreement is defined when:
Each participant in the free-trade area expects to gain by specializing in the production of goods
and services in which it possesses comparative advantages and by importing from other countries
in the group products and services in which it faces comparative disadvantages. Thus, trade
should be created among member countries, giving them less expensive access to more goods.
A free trade agreement may either stimulate or reduce interregional trade. Such agreements can
also reduce access of the firms to more efficient producers or markets outside their region.
The second stage, a customs union, eliminates tariffs between member countries and establishes
a common external tariff structure toward other regions and non-member countries. Under this
and the remaining two stages, member countries are required to give some control over economic
policies to the group. The advantage of a customs union is that none of the member nations in
the union can position themselves to gain a tariff advantage at the expense of other countries.
The third integration stage, a common market, is characterized by the same tariff policy as the
customs union. In addition, a common market allows factors of production such as labour and
capital, as well as goods and people, to move freely between member countries as dictated by
market conditions.

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