Why Logistics is driving Trade liberalisation

Logistics is driving international trade liberalisation, but not quite for the reasons you think.

Eg the iphone – Invented in Calfornia. Assembled in China. Components made in Germany, Japan, Korea and elsewhere. In other words, today’s manufacturing production is fragmented by phases of production, with each country specializing in a phase according to its comparative advantage. (source)

Or take the apparel industry,  A woollen garment can be designed in Europe for a European brand, the production is then: (in brackets is the comparative advantage)

  • Wool grown in Australia,(Available land and agri-production infrastructure)
  • is sent to China for conversion to yarn, (large economy of scale production)
  • it then sent to Bangladesh to make the garment, (cheaper labour rates than China)
  • then it is shipped to an Australian retailer.

So countries add value along the logistics value chain, importing – adding value – then subsequently exporting to another country for the next stage of value adding.

Therefore applying tariffs or import duties actually restricts the ability of a country to subsequently export.  Simplistic calls for tariff or import duty protection whilst populist, actually act to restrict a countries ability to compete of a sustainable basis.

Ultimately countries will compete on the basis of component value adding along the Logistics Chain (Supply chain).  Such physical component value adding shall necessitate that countries have the logistics infrastructure, business and individual logistics skill to support competitive advantage.

So here is a question?

Given the state of the Australian Car Industry should it be re-considering its place in the international logistics chain, as a value added component manufacturer rather than a perceived complete manufacturer? What are your thoughts?

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Mike Wood

Mike is qualified in both Civil and Mechanical Engineering, with Post Graduate qualifications in Logistics and Business Administration and is a qualified RABQSA/Exemplar auditor. The initial phase of his career involved public roads and transportation authorities in technical and management roles with both VicRoads and the Victorian Ministry of Transport and designed Melbourne’s time public transport system Mike then moved into private industry and over several years, held General Manager positions with major logistics service providers with turnovers in excess of $500 million. As his expertise and knowledge grew he moved into consulting and became Principal Consultant with Dawson Consulting, one of the largest Supply Chain and Logistics consulting companies in Australia Mike is now Managing Director of LATUS Business Solutions, which is a highly regarded Business Improvement practice, operating in 3 major area; • Supply Chain & Logistics design; • Compliance implementation & management; • Risk analysis& Safety management • Leading training provider (RTO) in the area of Lean Logistics & Business He has been a Director of transport and logistics industry associations in Queensland and Victoria.

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