Chain of Thought

The Smaller our World, the Harder to Grasp

Telecommunications and web technologies have done many growth-hungry companies a disservice. They've made globalization look too easy. This has been especially troubling for both transportation and logistics (T&L) service providers and the consumers of these services as they try to expand their presence from country to country. They're learning painful lessons from culture shock.

It may be easy to pick up a phone or log onto a website to make technological connections with another company half-way around the world, but establishing a personal connection with that company's people as the basis for a long-term business relationship still requires good old fashioned respect for cultural differences. We may all be using the same gadgets, but people from country to country have different social circuitry. Failure to understand those differences has threatened the success of many big corporate mergers and acquisitions in the T&L sector.

According to a report from PricewaterhouseCoopers on first-quarter 2011 transportation and logistics industry mergers and acquisitions, 70% of deals fail to deliver their intended benefits, often because cultural and people issues are mismanaged. They failed to factor the human side of the transaction. That's an expensive mistake, considering the money that's at stake in these deals. These deals were valued at $84 billion in 2010, and that number is expected to be even bigger this year. The value of many of these deals can be threatened by simple, personal miscalculations.

The PwC report notes that the transportation and logistics industry has expanded in the major markets and is now eyeing the BRIC countries—Brazil, Russia, India, and China—as well as the booming emerging markets of Vietnam, Indonesia, South Africa, Turkey, and Argentina.

“Finding, keeping, and motivating employees who have the right skill sets has become a top corporate priority to sustain this growth,” the report says. “Forty-three percent of the 60 T&L CEOs in 31 countries responding to the PwC 14th Annual Global CEO Survey reported plans for revising their people policies to boost employee engagement and retention. ‘Nonfinancial' incentives figured heavily into their strategies.”

The PwC researchers recommend that an acquiring company define each employee's importance to the business relative to the transition and beyond. The company should make an assessment regarding which employees it needs for short-term transition and long-term value creation. When defining these needs, companies examine three levels of criticality:

• Strategically critical—Employees most essential to the ongoing operations of the newly combined organization—typically, top executives, key business unit leaders, and key individual contributors.

• Integration critical—Employees essential to the integration effort.

• Knowledge-transfer critical—Employees with specialized knowledge essential to the transfer of ongoing information and know-how.

Companies that do business with these T&L giants have as much to learn about infrastructure differences between geographies as the T&L companies do about cultural differences. I recently spoke with Fabrizio Brasca, VP of Global Logistics for JDA Software, and he told me that what we assume to be best practices in North America really don't apply elsewhere. For example, consolidation of freight from LTL to truckload may be somewhat applicable in India, but there are a lot more challenges involved because India doesn't have the same infrastructure. Roads aren't as abundant, the carrier community is fragmented, and there are tax implications across all regions.

“To go in with the mindset that you'll play and replay what you've done in North America's geography doesn't make sense,” he said. “There's value to be derived from combining geographies, not just from a physical standpoint but from an organizational and policy perspective.”

China's another good example. Brasca says while there's value in looking at consolidation opportunities in China as we do in North America, because of the disparate nature of the carrier community there, you'd be wise to consider visibility tools, both for the distribution network and into the facility operations themselves to ensure how they'll stock their facilities from a picking and staging perspective.

So the point of all this is that while technology has given both freight carriers and shippers the gift of global mobility and visibility, we still have a lot to learn about what—and whom—we're seeing.

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