International logistics questions for Dr. nicmus ONLY

C H A P T E R 17

Using International Logistics for Competitive Advantage

The preceding chapters outlined many of the challenges that an international logistics manager faces in an international environment. They covered the infrastructure of international business, the management of financial and transportation risks, and the choices related to international transportation and packaging, all of which are eminently more complex than for domestic transactions.

However, a good export manager should not see these challenges as obstacles, but as opportunities to offer a higher level of service than his or her competitors. This can be done relatively simply by following a number of elementary points. The recommendations that follow may not be sufficient to clinch the sale; however, they will certainly help in all circumstances.

Consider that an importer, in most situations, is getting several quotes from several exporters located in different countries. Although the alternative bids are likely to be evaluated on a large number of criteria (price, support, after-sale service, delivery terms, and so on), one of the most important issues will be the ease with which the purchase transaction will take place. From the importer's perspective, the easiest alternative is to purchase from a supplier who communicates clearly, who is flexible in his approach, who offers terms of sale that are convenient to the buyer, who is careful in handling paperwork and transportation, and who packages the goods carefully. When all else is the same, the well-prepared exporter will earn the sale by being better prepared on those logistical details.

The good management of international logistics is a competitive advantage.

17-1: Communication Challenges

One of the most challenging aspects of international business is effective communication. Conducting business with people in foreign countries is often hampered by language barriers. It can be quite difficult to conduct business when two people from different languages and cultures are communicating. An additional challenge for the international logistics manager is that most communications with foreign counterparts are conducted in an impersonal fashion, by e-mail, fax, and letters. This detached type of contact does not allow for the subtleties of in-person communication, such as tone of voice or gestures, which often help make communications more intelligible. There is also no opportunity to ask for immediate clarification, as there is in verbal communication, and the possibility of errors or misunderstandings is greatly increased.

The U.S. Department of State classifies languages by the degree of difficulty that they present for a native English speaker intent on learning that language. Table 17-1. outlines these categories and languages. The greater the differences are between two persons' languages, the greater the likelihood is that communication will be difficult. Sentences can often be interpreted differently, and both parties will then be left to wonder what the other person meant by a certain word, phrase, or sentence.

To the international logistician, the diversity of languages and associated possible misunderstandings means that extreme care should be extended to communication, to ensure that the correct meaning is conveyed every time. Conveniently for the native speaker of English, most international communication takes place in that language. English has become everybody's second language, mainly because it is the easiest language to learn, but also because it is the language of the largest trading partners of most countries. However, the advantage of being able to communicate in one's own language means that there are significant responsibilities attached to it.

17-2: International English

International logistics professionals engage mostly in written communications with their counterparts abroad (by e-mail, fax, or other written documents), and therefore it is important that they communicate clearly in writing. A specific style of writing for native English speakers has developed to increase the probability that non-native speakers of English can clearly understand what is written. This technique, dubbed International English by Edmond Weiss, was outlined in his outstanding book The Elements of International English Style in 2005.

Writing in International English means following a fairly large number of rules (Weiss lists 57 of them), but the most important one is that the native English speaker should strive to make the meaning of the communication absolutely clear to the non-native speaker: “Business and technical documents intended for those who read English as their second language must be unusually simple, unambiguous, and literal. Ideally, they should be edited for ease of translation.” The most important rules are:

· Always assume that the person for whom English is a second language is relying on a dictionary for some words. That means that the word definition used should preferably be the first one in the dictionary and should always be unambiguous. For example: “The company's sales took off 25 percent last year” should be replaced with “The company's sales increased 25 percent last year,” for several reasons. First, “to take” is probably one of the longest entries in the English dictionary, and the meaning of “to take off” is listed toward the end of that entry. Another reason is that one of the first meanings listed of “to take off” is “to remove (one's clothes)”; therefore there is a strong possibility that the sentence will be understood as “sales decreased 25 percent.” A convenience sample of foreign students reinforced this point; about 30 percent of them thought it meant a decrease. By using a precise and accurate verb, “to increase,” no confusion is possible. This recommendation is often contrary to the common caution to write in “simple words.” In practicality, more complex words tend to be more precise and have the smallest number of alternative meanings, and therefore they are better for International English communication.

· Always proofread carefully and avoid all grammatical and spelling errors. There is a strong possibility of confusion in a sentence that reads, “The customer purchases products from company A and it's marketing services form company B.” The reader is left to determine whether there are two typos (“it's” rather than “its” and “form” rather than “from”) or just one (“form”). Is it that the customer purchases products from company A and marketing services from company B, or is it that it is purchasing products from company A and providing marketing services to (for) company B? Actually, a non-native speaker would probably not understand that there are possible typos in that sentence and not “get it” at all (a correct International English sentence would have used “understand” a second time, rather than “get,” even if stylistically poor; the meaning is what matters). Other common misspellings result from the confusion between there, they're, and their; between accept and except; and between effect and affect. Then there is also the frequently found “should of done” instead of “should have done,” which is only understandable to a native speaker who “hears” English rather than reads it. For example, it is very likely that a foreign reader will not comprehend the sentence “Our company would like to except your company's proposal,” as she will not understand that the word “except” was used instead of “accept.” It is just as likely that she will understand the opposite of what was meant, and that the company rejected the proposal.

· Always make sure that quantitative information will be understood without doubt. A date of 06/12/09 can be understood three different ways: A U.S. reader will understand it as June 12, 2009; a French reader will understand it as 6 December 2009; and a Chinese reader will understand it as 9 December 2006. It is best to follow the practice of spelling all dates fully: “12 June 2009” is unambiguous. The number “109” is “1 billion” to a North American reader, but “1,000 million” (or 1 “milliard”) to a British or German reader, for whom a billion is 1012; meanwhile, 109 is 100 crore (or 10,000 lakhs) to an Indian, Pakistani, or Nepalese. Writing the full number is always the best strategy.

· Always use simple and short sentences. As much as possible, the sentences should contain only one main idea. If there are possible “shortcuts,” they should be avoided—for example, “The company requests the report be sent early in the month” should be changed to “The company requests that the report should be sent between the first and the fifth day of the month.” When in doubt, punctuation should be added to enhance clarification, even if it seems too heavily punctuated to a native speaker.

· Never use idioms that are sport- or military-related, as they are rarely, if ever, understood properly. Writing that a salesperson “struck out” on a deal or that she “hit a home run” will confuse a foreigner, who, in looking it up in the dictionary will read that she “ran around the bases with one hit.” A correct sentence conveying the same meaning would say that she was “unsuccessful” or “successful beyond our expectations.” Military terminology should also be avoided. Terms such as “plan of attack” or “price war” tend to be difficult to translate or off-putting to some cultures. If there is any doubt that foreign sport terminology is incomprehensible to the uninitiated, a quick visit to a British newspaper, such as The Guardian ( http://www.guardian.co.uk ), or an Indian newspaper, such as The Telegraph ( http://www.telegraphindia.com ), and a glance at the cricket page would quickly dispel it.

The concept behind International English is that communication should be easy to understand and devoid of cultural references. One of the most effective ways to determine whether a particular message is written clearly enough to be understood by a foreign reader is to translate it using machine-translation software into another language (preferably one that is not a European language) and translate it back into English. It will rarely, if ever, be the same as the original text; however, if its original meaning is still understandable, then the text was written in an English that can be properly understood by a non-native speaker.

17-3: Special English

For communications conducted orally, the challenge is much greater, as there is less time to refine the sentences used and to make sure that the meaning is clear. It is important to realize that one of the greatest difficulties experienced by a non-native speaker—of any language—is to talk on the telephone. There are no visual cues that help communication and, on occasion, there are technical difficulties that hamper good communication.

In order to communicate clearly in English with foreigners, it is useful to become familiar with Special English , a reduced-vocabulary English developed by the Voice of America, the U.S. government-sponsored news organization that broadcasts worldwide. While the Voice of America is prohibited from broadcasting in the United States, it is possible to hear its broadcast on the Internet. Here are its main characteristics:

· Sentences should be short and contain only one idea. It is more effective to use two sentences (“Sentences should be short. Sentences should contain only one idea.”) than to confuse the listener, who is trying to understand a particular word or sentence structure and cannot remember how the sentence started. It takes a little practice, but it is certainly easy for a native speaker to learn to speak in such a way.

· The vocabulary should be limited to correct and accurate terms. All sorts of sports-related imagery exists in American English, but it should be avoided; stating that a contract negotiation is still “in the first inning” (is in the very first stages, with only one of the two parties having made its points) or that the companies competing for a particular sale are “not on a level playing field” (one of the competitors has an unfair advantage over the other) is unlikely to ever be understood by a non-native speaker of English. The same is true of terms such as “stand up to” or “roll over,” which should be replaced with their precise equivalents: “confront” or “reinvest.” Even expressions that are clearly understood in one English-speaking country can be difficult for others: “carrying coalsto Newcastle” makes as little sense to U.S. English speakers as “selling refrigerators to Eskimos” makes to Australians.

· The speed at which the sentences are spoken should be slower. The broadcasts of the Voice of America aim for two-thirds of the speed of normal speech. From personal experience, people from the southern part of the United States are much more easily understood than people from the north because they tend to speak at a slower pace. The U.S. southern accent is much less of an issue for foreigners, who tend to visualize the words as they are spoken.

· Finally, if a foreigner asks a native speaker to repeat a sentence, the native speaker should not repeat the sentence louder, as if the person had difficulty hearing. The issue is generally about a word that the listener did not understand or a sentence that was too complicated. It is best to just repeat the sentence using slightly different vocabulary or repeat the sentence and offer an alternative word. For example, “Our company would like to sleep on that proposal for a few days” (a sentence that violates the principles listed above, and is likely to be misunderstood) can be repeated as “Our company would like to sleep on that proposal, think about it, for a few days.” In this manner, the non-native speaker better understands the sentence and gains a new bit of vocabulary.

17-4: Metric System

Communication is also better served by using what is familiar. Unfortunately, U.S. exporters and importers do not use the system of measures—the metric system— that every other country in the world uses (except for Liberia and Myanmar, which do not use the metric system either) but instead uses a system which even its everyday users find difficult to understand. Foreigners, thus, tend to be entirely baffled by the U.S. system of measurement.

For example, within the so-called English system of measures, there are three types of tons: (1) the short ton, which is a measure of weight and weighs 2,000 pounds; (2) the long ton, also a measure of weight at 2,240 pounds; and (3) the gross (registered) or net ton, which is a measure of volume and equal to 100 cubic feet. And there is often no indication of which ton is the correct one. Only tradition dictates which “ton” is the one that is intended.

Measurement can get much more complicated. There are five types of ounces: (1) an avoirdupois weight unit of 437.5 grains; (2) an apothecary or Troy weight unit of 480 grains; (3) a U.S. fluid ounce, which is a measure of volume worth six teaspoons; (4) its“equivalent” regulatory fluid ounce, which is defined as 30 milliliters or 1.5 percent more than a U.S. fluid ounce; and (5) an imperial fluid ounce, which is 4 percent smaller than the U.S. unit. There is generally no indication of which unit is the correct one in a document or regulation. As if this were not enough, there are traditional units in some industries that use the same terminology very differently. For example, leather is measured in the United States in ounces, which, in this case, is a measure not of weight or volume, but of thickness: “Two-ounce leather such as calf or goat skin is about 1/32 inches thick, while eight-ounce leather is a full 1/8 inches.”

It is therefore to the advantage of everyone involved in a transaction to use the metric system , which has a very well defined set of measures, all of which are clearly and accurately established. A kilogram is a measure of mass, a liter a measure of volume, and a meter a measure of distance. There are convenient ways to cross over from one unit set to the next: One liter is exactly equal to a cube of side 0.1 meter (10-3 cubic meters), and a kilogram is equal to the mass of water contained in a liter. There are conventions for the names of multiples (kilo, hecto, deka) and for the names of fractions (deci, centi, and milli), all of which are decimal. More importantly, thereare no ambiguous usages.

While this utilization of the metric system may represent a challenge for a U.S. exporter or importer, its customers or suppliers will understand much better what it intends to communicate, and this effort will result in a greater probability of making a sale.

Converting to the metric system, though, is more than just multiplying by the correct coefficient. Selling a product in 3.785-liter bottles (equivalent to one U.S. gallon bottle) does not satisfy the admonition to use the metric system; while it is a convenient conversion of a common English unit, it is an unusual unit of volume for a person used to the metric system, for whom products are generally sold in one- or two-liter bottles. A correct conversion would therefore use round units of measurement rather than direct “translations” of round units in the English system into awkward decimal quantities in the metric system.

Calculating Conversions

17-5: Cultural Sensitivity

Although using International English and the metric system to convey information clearly are already great ways to become a better international logistician, it is also very valuable to become savvy about others' cultures. Unfortunately, if there is one aspect of international business about which it is difficult to generalize, it is culture. There is little to culture that can be pinpointed in a few sentences, and when such an attempt is made, exceptions abound. In the long run, the best that an international logistician can do is to study intercultural communication. In the meantime, a few of these pointers can help.

One aspect of communication that is shaped by culture is the way people address each other in person, in the mail, or over the telephone. In some cultures, the forms of address are quite formal (France), and in others (Australia) quite informal. In some cultures, people are very sensitive to titles (Germany), in others much less so (Canada). U.S. culture is among those that care the least about titles and formalities, although there are a few notable exceptions to that rule. In all cases, because it is difficult to offend someone by being too formal, an astute international logistics manager will therefore always err on the side of formality , and communicate as politely and formally as possible until there is evidence that it is appropriate to adopt a less formal tone.

Another area in which it is easy to make quick progress is in understanding the work culture of a country. First, the international logistician should consider the separation between work and private life. In some countries, there is a considerable divide between work and family, and the two never or rarely intersect (Japan). In others, the two are closely tied to one another (Indonesia). When in doubt, it is generally better to consider that personal life and work life are separate, unless there is evidence on the part of the foreign interlocutor that it is appropriate to mention family and private life in business communications.

Another area in which there are culturally determined differences is the speed at which people operate in the workplace. In some countries, it is expected of business persons to answer an inquiry very quickly, in order to show that the inquiry is important and that it commands their full attention (Germany). A delay implies a lack of interest. In others, it is impolite to answer too quickly, as a response should be given careful thought (Saudi Arabia). There is no specific ideal way to handle these discrepancies, but the advice for international logisticians is, again, to learn the appropriate response time from what their foreign counterparts do and mirror that behavior.

Finally, culture influences the way people spend their workday; the time at which they arrive at work, leave work in the evening, and eat during the day. Culture also influences the amount of time that they spend at each meal and the days of the week that they work. Finally, it influences the different holidays that are celebrated. Countries have different holidays, and different customs during identical holidays. Sometimes it is appropriate for an exporter or importer to send a card or a greeting, in others it is not. In those cases, the CultureGrams mentioned in Chapter 1 are most useful. In any case, for the international logistician, a delayed response to a request on a certain day may simply be due to a holiday rather than a lack of interest. Considering that India, due to its multiplicity of religions, has a total of 43 official holidays, it is more likely than not that there is some celebration during a given week.

17-6: Specific Advice

In addition to the general advice presented so far, the international logistician has the opportunity to gain a competitive advantage by following a number of strategies in specific areas. Some of these strategies were presented in earlier chapters, but they bear repeating.

7-6a: Terms of Payment

Although the choice of the term of sale is dependent on the level of experience of both the exporter and the importer and on the level of confidence that the exporter has in the ability of the importer to make the payment, there are some alternatives that are definitely preferable and will increase an exporter's probability to clinch the sale.

An importer, in most situations, is getting several possible quotes from several exporters located in different countries. Alternative bids are evaluated on a large number of criteria (price, specific capabilities, after-sale service, delivery terms, and so on), and on the ease with which the purchase transaction will take place. From the importer's perspective, the easiest alternative is to purchase on an open-account basis. It is likely that at least one of the potential suppliers will offer such terms, and that others will ask for a letter of credit or a documentary collection. Therefore, the supplier offering an open-account transaction has an advantage over the others. If that supplier has purchased credit insurance, that decision does not affect its probability of getting paid.

Therefore, an exporter intent on increasing its sales should choose to display that it is confident in the ability of the importer to pay for the goods by using an open account. If it is unsure about the ability of the importer to pay, it should consider purchasing a credit insurance policy.

17-6b: Currency of Payment

In an international transaction, the choice of the currency exposes the exporter (or the importer) to the risk of currency exchange rate fluctuation. Rather than consider this risk to be a drawback in an international sale, a good exporter should consider it an opportunity and take advantage of the several alternatives it has to reduce its risk of currency fluctuation.

Because of the intense competition that an exporter faces in international markets, it is very likely that a significant percentage of the companies competing for the importer's business will offer quotes in the importer's currency. Because it is easier for the importer to handle a purchase in its own currency, it would place an exporter at a strategic disadvantage not to quote in that currency.

An exporter intent on increasing its sales abroad should therefore offer (all of its) quotes in the importer's currency and discuss with its banker the most appropriate hedging strategy for that particular transaction.

17-6c: Incoterms

In some cases, a strategic advantage can be gained by an exporter willing to facilitate the sale of its products by assisting a novice importer in the handling of a shipment. In others, a price advantage may be obtained by an experienced importer willing to perform all or most of the tasks involved in the shipment.

Generally speaking, an exporter does not like to determine which Incoterm to use on a case-by-case basis. It adopts a “policy” to include in international quotes those services that it feels competent providing. It is difficult for an exporter to adapt its Incoterm strategy to accommodate the requirements of an importer, as it may require the exporter to be responsible for tasks that it has decided it would rather not perform. However, should the importer want to perform more tasks than what the exporter prefers, it is certainly possible for the exporter to do less than what it expected, and use a different Incoterm on that transaction, one for which it is responsible for less.

An exporter intent on increasing its sales should therefore offer to provide the importer with the most customer-friendly Incoterm quotes (either DDU or DDP) and, if necessary, use the services of a competent freight forwarder. Should the importer want to shoulder more responsibilities, it is always possible for the exporter to reduce its involvement and quote FCA or even EXW. The best type of quote would be one in which the exporter lists different prices for different Incoterms, leaving the importer with the decision to choose which is best for its specific case.

For example, a quote could read:

· EXW Cleveland, Ohio: $10,000

· FCA Cincinnati Airport, Covington, Kentucky: $11,000

· CIP Paris, France: $15,500

· DDU Clermont-Ferrand, France: $17,500

· DDP Clermont-Ferrand, France: $17,800

and leave the customer to decide which of the Incoterms it would like to choose. The pro forma invoice would then be created after that decision has been reached.

17-6d: Document Preparation

Accurate and timely document preparation and delivery are an essential part of international logistics and of the smooth transfer of goods from an exporter to an importer.

Any failure to provide complete documents in a timely manner is likely to delay a shipment, generate additional costs by requiring last-minute mailings of critical documents, or create difficulties for one or more of the parties involved in the transaction. Because the responsibility of proper document preparation falls mostly on the exporter, regardless of the Incoterm used in a transaction, an exporter can turn its ability to do a good and thorough job in this aspect of international logistics into a marketing advantage.

An exporter intent on increasing its sales should therefore be thorough and meticulous in the way it prepares the documents that it provides to the importer. This should be reflected in the first contact, the pro forma invoice, and be communicated to the importer by emphasizing the experience of the company at providing accurate and thorough documents.

17-6e: Packaging

Good handling of the packaging requirements by the exporter will also help considerably in the smooth transfer of goods from the exporter to the importer.

The most important way of looking at packaging is to prepare for the worst. The exporter should truly imagine the worst-case scenario and the roughest possible journey in packaging the goods that it ships at export. It is only under this premise that it will adequately serve the needs of the importer to receive goods in sellable and usable conditions.

Although good packaging procedures are expensive, the benefits are substantial. First, they allow the goods to arrive in perfect shape to their destination and be immediately sellable or usable by the importer. Good packaging also reduces the costs of repackaging or the costs of damaged goods. In addition, because poor packaging is always a “defense” used by insurance companies, it pays to have a track record of stellar packaging.

However, the greatest benefits from such a good packaging policy are the goodwill that it generates between the importer and the exporter, and the marketing benefits that can be derived from it. Because the importer is obviously not interested in having to challenge invoices or having to ask for allowances for goods that were damaged in transit, it welcomes shipments that arrive packaged carefully.

Careful packaging, meticulous document preparation, and considerate choices in terms of payment and Incoterm selection will enhance the relationship between exporter and importer through goodwill and trust. Learning and understanding these skills will help an international logistician gain a substantial competitive advantage .

Chapter 17: Using International Logistics for Competitive Advantage Review and Discussion Questions

1. What are the advantages of learning to use International English and Special English in communicating with non-native speakers of English?

2. What are the advantages of using the metric system in international commerce?

3. What are the trade-offs between utilizing a standardized policy and remaining flexible for an exporter? You can choose either terms of payment or Incoterms to illustrate your points.

4. In your opinion, why is it important for an exporter to sell in the importer country's currency?

5. What are the advantages of having an “environmentally friendly” packaging policy for an exporter?