Embed Size (px)
Citation preview
i
Grant Agreement N°: #068
Project acronym: ACL
Project title: Amber Coast Logistics
Funding scheme: Collaborative Project
Project start: 1. October 2011
Project duration: 36 Month
Work package no.: WP5
Deliverable no.:
Status/date of document: Finalised
Lead contractors for this document: FDT – Association of Danish Transport and Logistics Centre Aalborg, Denmark
STC – Scandinavian Transport Center / Port of Koege
Denmark
Project website: http://www.ambercoastlogistics.eu
Following project partners have been involved in the elaboration of this document:
Partner
No.
Company short name Involved experts
8 FDT Phuong Ninh
9 STC Thomas Elm Kampmann
8 FDT Michael Stie Laugesen
8 FDT Kent Bentzen
ii
Analysing the strategy of a logistics company,
concerning accessibility in different areas of Europe
December 2013
STC – Scandinavian Transport Centre / Port of Koege
Thomas Elm Kampmann
FDT – Association of Danish Transport and Logistics Centres
Phuong Ninh
Michael Stie Laugesen
Kent Bentzen
iii
Table of contents
List of figure ..................................................................................................................................................... iv
List of table: ....................................................................................................................................................... v
1. Introduction ................................................................................................................................................... 1
1.1 Research background and purpose ........................................................................................................... 1
1.2 Case study profile .................................................................................................................................... 2
1.3 Problem formulation ................................................................................................................................ 4
1.3.1 Problem formulation ......................................................................................................................... 4
1.3.2 Research questions ........................................................................................................................... 5
1.4 Project design ........................................................................................................................................... 6
2. Methodological chapter ................................................................................................................................. 8
2.1 Qualitative and quantitative research methods ........................................................................................ 8
2.2 Limitations ............................................................................................................................................... 8
3. Theoretical chapter ...................................................................................................................................... 10
3.1 Business network concept ...................................................................................................................... 10
3.1.1 Business network in general ........................................................................................................... 10
3.1.2 Business network in the logistics industry ...................................................................................... 15
3.2 Blue/red ocean strategy .......................................................................................................................... 18
3.3 Customer relationship management ....................................................................................................... 20
3.4 Accessibility concept ............................................................................................................................. 22
3.5 Logistics center concept ......................................................................................................................... 23
4. Analysis chapter .......................................................................................................................................... 29
4.1 Challenges .............................................................................................................................................. 29
4.1.1 Policy/administration challenges .................................................................................................... 29
4.1.2 Infrastructure .................................................................................................................................. 31
4.1.3 Market demand ............................................................................................................................... 35
4.2 Business network analysis ..................................................................................................................... 37
4.3 Red/blue ocean strategy analysis ........................................................................................................... 41
4.4 Customer Relationship Management analysis ....................................................................................... 43
4.5 Environmental issue: .............................................................................................................................. 44
4.6 Logistics centers’ level of development................................................................................................. 46
5. Conclusion ............................................................................................................................................... 51
6. Recommendations: .................................................................................................................................. 53
7. Reference ................................................................................................................................................. 54
iv
List of figure
Figure 1: Categories of business relations………………………………………………………..p. 10
Figure 2: Industrial supply chain and the logistics firm network of interaction………………....p. 14
Figure 3: Value innovation: the cornerstone of blue ocean strategy………………………..……p. 18
Figure 4: Business network of ICT Logistics…………………………………………………….p. 34
Figure 5: The logistics centers’ level of development……………………………………………p. 44
v
List of table:
Table 1: Red ocean versus blue ocean strategy…………………….…………………………….p. 17
Table 2: Point system for connectivity……………………………………...……………………p. 24
Table 3: Point system for services dimension……………………………………………...…….p. 25
Table 4: Score card for all logistics centers in connectivity and services……………….……….p. 43
1
1. Introduction
1.1 Research background and purpose
This project is conducted as a part of the Amber Coast Logistics (ACL) project, which is a
project that supports the development of multimodal logistics centers in the southern and
eastern Baltic Sea region and thereby improves the accessibility of remote areas (ACL, 2012).
The ACL project is funded by the European Union’s Baltic Sea Region (BSR) Programme
and the European Neighbourhood and Partnership Instrument (ENPI). The ACL project
started from October 2011 and will end on March 2014. Participating countries of this project
are: Denmark, Estonia, Finland, Germany, Latvia, Lithuania, Poland, Sweden, Belarus,
Norway and Russia (ACL, 2012). Therefore, all ACL’s projects including this report focus on
the accessibility study in the partners’ countries and the development of logistics centers in
the BSR.
Following the ACL’s activities, there are already some studies about accessibility and almost
all of them are focused on flow of goods, technological, institutional/legal aspects, etc. Some
of these projects are: Political and Administrative dimension of accessibility (Rust et.al,
2012), Research papers concerning the technological dimension of accessibility within the
Amber Coast Logistics region (Fraunhofer CML, 2012), etc. There is not yet an ALC project
that takes private business aspect and its profitability into consideration on the strategy of
improving accessibility and logistics centers. It could be interesting to study how a private
logistics company experiences the development and improvement of accessibility in different
areas. As a part of ACL activities and the partnership agreement, this project will investigate
on a case study of a logistics company- ICT Logistics- which has its headquarter in Herning,
Denmark. The company does business in many countries in Europe, including the BSR,
which ACL focuses on. Additionally, an interview will be conducted with Belintertrans,
which is a Belarusian logistics company and also an ACL associate partner. This interview
aims to get business point of view on challenges in transport and logistics industry in Belarus.
Because the ACL project focuses on better services for customers of the transport and
logistics sector, this project will make recommendations to increase accessibility in the BSR,
based on business inspiration from the case study and the findings about the current
accessibility situation.
2
This project delivers a great opportunity for ACL stakeholders to learn about the accessibility
development, from a business point of view and how a private company expects transport and
logistics centers to be improved. For logistics companies, this project is also a good
opportunity for them to know more about what the development level of logistics centers are
in the BSR; and what partners of ACL are trying to do to create a more competitive region for
the logistics industry. The ACL project and its cooperation between logistic operations,
transport institutions and private companies should be able to put more focuses on the
development strategies of BSR countries. The report emphasizes on creating a better and
equally developed logistics and transport region in the Baltic Sea.
1.2 Case study profile
In order to have an over-view about the case study company as well as the interviewed
company, the following sub chapter will introduce briefly to ICT Logistics A/S and
Belintertrans –Transport Logistics Centre. It will include short history of these companies,
main activities and business orientations.
ICT Logistics:
Source: http://www.ict-as.dk/
ICT Logistics Limited is an international freight forwarding company, which provides
indicated service. It was established on 18 July 1997 with the head office in Herning,
Denmark. Today ICT Logistics has thirteen offices in nine countries (Denmark, Lithuania,
Latvia, Russia, Ukraine, Romania, Kazakhstan, Poland, Belarus), with totally 111 employees.
Belarus is the latest office that the company just opened last year 2012. Besides, the company
3
also has representatives and contacts in many other countries. ICT Logistics offers
transportation and logistics solutions between Western Europe, Russia, CIS, Baltic States and
Central Eastern Europe. In 2011, the result before tax of ICT Logistics was EUR 1,7 million,
which gave the equity of the group the total of Euro 3,9 million (Internal Newsletter, 2012).
The company owns more than 500 trailers with various types, which are very high quality, in
order to make the best shipping services to its customers around Europe. It has a high degree
of flexibility and openness in cooperating with customers in any stages of the logistics
process. One of the important parts of ICT Logistics’ business is the over width and heavy
goods, which need to be transported to and from all over Eastern Europe. In addition, ICT
Logistics deals with factory relocation and oil industry. The company handles transportation
on rails, road way and maritime (ICT Logistics, 2012). In 2012, the company was awarded as
the best transport contractor by John Deere1. With many years of experience and knowledge
of the regions, ICT Logistics is able to provide the best solution of multiple transportations in
different areas and offers the fastest services to customers with great degree of security and
safety for their goods. In the future, ICT Logistics wants to open 50 offices around Europe. It
naturally will try to be one of the best companies to provide logistics solution in Western
Europe, Russia, CIS (Commonwealth of Independent States), Baltic State and Central Eastern
Europe.
Belintertrans:
Republic Forwarding Unitary Enterprise “BELINTERTRANS – Transport-Logistics Centre”
(i.e. State Enterprise BTLC) was established by the Belarusian Railway on March 2, 2009 on
the basis of two major organizations of the Belarusian Railways, “Belintertrans” and
“Minskzheldortrans”. Having combined many-years’ experience of forwarding services,
terminals and warehouses infrastructure, and efforts of skilled staff, the enterprise has
confidently headed for creation and development of world-class logistic services. A very
important part of the high-quality services are represented by the activities of branches in all
regions of the republic (Brest, Vitebsk, Gomel, Grodno, and Mogilev). Freights terminal
processing and warehouse spaces lending are performed by “MINSK– Transport-Logistics
Centre”.
1 John Deere is one of the largest manufacturers of agricultural machinery in the world. The company has its
headquarter in the US.
http://www.deere.com
4
In May 2010, the BTLC State Enterprise concluded a direct agreement on payment of freights
with CTSC (Company’s Transport Service Centre) of the Russian Railways Open Joint-Stock
Company. Direct contractual relations allow the provision of competitive rates for cargo
transportation due to the absence of supplementary links (intermediary forwarding
companies) in suggested logistic chains. Furthermore, the signing of this agreement with
CTSC of JSCo “RZD” permits the enterprise to receive some assurances from the Russian
Railways concerning the quality and the terms keeping of the execution of the orders.
In May 2010 in the Republic of Lithuania (city of Klaipeda) the branch of UAB “Belintertrans
– Lietuva” was established to strengthen the BTLC image on the international scene and to
attract supplementary cargo traffics into the territory of the Republic of Belarus.
“BELINTERTRANS – Transport-Logistics Centre” is a full member of the Belarusian
Association of International Forwarders, an individual member of FIATA and an associated
member of the International Coordinating Council on Transsiberian Transportation. The
enterprise development strategy objective is to increase the volumes and to raise the quality of
cargo traffics service in the territory of the Republic of Belarus and other states. The BTLC
aims are to develop transport passages, to work out and to provide forwarding services at a
world-class level.
1.3 Problem formulation
For many ACL stakeholders, it will be interesting to learn how ICT Logistics overcome the
challenges of accessibility in Europe in general and in the BSR in particular, to be successful
in its business. On the other hand, ICT Logistics is very interested in cooperating with ACL to
share its experience in the BSR/European market. The company also wishes to learn more
about the accessibility aspects that ACL is trying to improve.
1.3.1 Problem formulation
To what extents do different accessibility areas along corridors in the Baltic Sea Region
(BSR) impact on the business strategy of a logistic company and how can the weaknesses in
differentiation accessibility be improved in order to create better logistics services and
improve accessibility?
5
1.3.2 Research questions
1. What are the challenges that logistics companies face when doing business in the BSR?
2. What strategies has the case study – ICT Logistics applied to overcome these challenges?
3. What is the accessibility level of different logistics centers in the BSR?
4. What can be improved to strengthen accessibility in the BSR?
The above sub-research questions are important in this project, because they clarify the
problem statement which is the overall topic of the project. The first two research questions
will answer the first part of problem statement: To what extents do different accessibility
areas along corridors in the BSR impact on the business strategy of a logistics company. In
order to study how the accessibility impact to business strategy of a company, it is necessary
to find out what the accessibility actually means. The concept of accessibility will be
described later in the theoretical chapter, but one can think about it as: how difficult it is to
enter to a country or an area. Thus, the accessibility issue can be linked to challenges that a
company face in entering and ‘moving’ around an area. Because this project focuses on
logistics and transport, the challenges analysis will naturally focus on this sector and the case
study- ICT Logistics as well as interviewed company - Belintertrans, when they do business
in the BSR. After finding out what the challenges are, it can be understood partly how
accessibility impacts a logistics company. To understand it fully, it will also be studied how
ICT Logistics overcome these challenges by analyzing its business strategy. The last two
research questions will answer to the last part of the problem formulation: ‘how can the
weaknesses of differentiation accessibility areas be improved in order to create better
logistics services and improve accessibility’. Because the aim of the ACL is to create better
accessibility in order to serve better the user of transport in BSR, it is reasonable to learn
about the logistics services in this region. When talking about logistics services, one can think
about logistics centers as places to provide services. Logistics centers also offer transshipment
points between different transport modes. That is the reason why logistics centers will be used
in this project to examine the level of logistics services and the level of accessibility. The
dimensions to compare the level of logistics centers will be discussed later in the theoretical
chapter. After finding out the different level of logistics center in the BSR, it will be possible
to make some recommendations of how the logistics center can be improved, in order to serve
the customers in the logistics sector better.
Moreover, it should be argued that the research questions define the scope of the work and
show which way the report will approach to answer the problem. There is a strong connection
6
between the research questions because the answers and the order of answering will lead to
the overall answer to the problem statement logically. In this case, it is clear that the
challenges for logistics companies in different areas will be described first, and then analysis
on which strategies the case company has been applying to overcome the challenges over
years to be successful in the very competitive market. The development level of logistics
center in this project can be analyzed using different indicators. There is a connection between
the case study and this comparison of logistics center, because the business opinion of the
company will be used to find out in which way logistics centers should be improved, to serve
logistics companies. The business point of view in this project will be used, in combination
with earlier researches of ACL, to define an efficient strategy to improve accessibility and
logistics center. The improvement should be realistic so that it can bring the best benefit to the
users which are the logistics companies, the drivers and increase maximum the flow of goods
in the BSR.
1.4 Project design
The project is illustrated on figure 1. Introduction is the first chapter, which is about research
background, the problem formulation, the research questions and the case study profile of ICT
Logistics and interviewed company - Belintertrans. After that follows the methodology
chapter, where it will be described which methods will be used in this project. The next
chapter will be the theoretical chapter, where relevant theories will be described and
explained. The theories which are applied in this project are:
business network theory
red/blue ocean strategy
customer relationship management
accessibility and logistics center concept
These theories will be used as base and guideline to help to answer the questions of how the
company overcomes challenges and to compare developments of logistics centers. There is no
particular framework used to describe the challenges, which logistics company faces. The
challenges will be listed and explained according to the interview with the managing director
of ICT Logistics as well as the knowledge the author gained, during the project process. The
definition and literatures about accessibility and logistics centers will also be used to describe
the survey’s method.
7
After the theoretical chapter, the analysis chapter will present the findings of reality, which
help to answer the research questions. The analysis chapter consists:
challenge description
business network analysis,
red/blue ocean strategy
customer relationship
Analysis development of logistics centers in the BSR based on survey
Recommendation on which way logistics centers should be developed
The next chapter is the reflection where it is presented what were archived through this
project. It is also about the experiences when doing this project. The next step might be
suggestion of how this project could be done differently and how the future studies about the
same topic can be performed. The final chapters are references, which includes books,
literatures and websites, which have been used to learn the theories and analyze the reality.
8
2. Methodological chapter
2.1 Qualitative and quantitative research methods
This project is conducted with a combination of qualitative and quantitative research. In
another words, this project is done by using the triangulation method. The triangulation
method is defined as a combination method or source of data in the study of social
phenomena (Bryman and Bell, 2003, p. 291). The author will use the theory as a ground to
look at the reality, apply the theory to reality to answer the research questions. The author will
conduct interviews with the managing director of the case study, ICT Logistics, to learn about
his company. The interview will focus on company’s activities, strategy, planning and the
managing director’s opinion of accessibility in BSR. The interview will also be arranged with
different partners of ACL. Through these interviews the author would like to learn more about
the transport industry, the logistics center concept and its development. On the other hand,
quantitative research will be used in this project to find out the level of development in
different logistics centers in BSR. The quantitative research contains multiple choices about
logistics functions that a logistics center might have. It also contains multiple choices about
the number of road, rail and ports that logistics center connects to. The different type of road,
rail, ports as well as the choice of dimensions and the point system which is used to compare
level of logistics center will be describe more detail in the theoretical chapter. The interview
with ICT Logistics, the whole questionnaire and the answers from partner will be included in
the annex of this report.
2.2 Limitations
This project chooses only two logistics companies, one from Denmark and the other from
Belarus to be the case study. These companies might not be the best representatives for all
logistics companies in the region of studying. There might be other companies which have
different size and capacity, who have better strategies to overcome the challenges. The
challenges mentioned in this project are generic challenges that most logistics company faces
when doing business in the BSR/European market. There are probably other challenges,
which are various and different for different companies, which are not mentioned in this
project. There is also the limitation of the comparison between logistics centers in different
countries. Although there are 11 countries who are members in ACL, there are only 6
9
countries who are direct partners. These direct partners are: Denmark, Germany, Poland,
Latvia, Lithuania and Belarus. The survey about logistics center is only sent to the direct
partners. Therefore, the survey does not include all countries in the BSR. The partners were
asked to fill in information for only three logistics center in their countries. The choice of
logistics center from the partners might not be the right representative for all logistics center
in their countries. Some might choose the most developed centers and some might choose the
most important located centers. These could lead to some biao in the data of comparison,
which presents connectivity and services development of logistics centers in those countries.
10
3. Theoretical chapter
The aim of this theoretical chapter is to introduce the selected theories and literatures which
are considered as the most related and helpful frameworks to analyze the case study and
answer the research questions. The theories will be described and it will be showed how they
could help to solve the described problems. To answer the question: ‘How ICT Logistics
overcome the challenges in different accessibility areas’, the business network, the customer
relationship management and red ocean strategy have been chosen. To answer the question:
what is the level of logistic in different accessibility areas’, it will be used a combination of
logistics centers concept and the evolution of logistics centre. Furthermore, it will be
developed a matrix containing different dimensions to compare the level of development of
logistics center in different countries. From the comparison using this matrix, the author will
then answer the fourth questions ‘what can be improved to strength accessibility in low
accessibility area’ in the BSR.
3.1 Business network concept
3.1.1 Business network in general
A network in general is a structure where a number of nodes are related to each other by
specific threads (Håkansson, Ford 2002, p.133). In a business environment, business units
such as manufacturers, companies, and suppliers can be seen as nodes. Each node has its own
advantage in knowledge, resources and understanding in different forms (Håkansson, Ford
2002). Similarly, Sørensen (1999) states that ’Networks are constituted by actors (firms) who
command resources and carry out activities. The activities are directed at other actors and
through the resulting interaction, actors commit own resources and get access to resources
controlled by other actors’ (Sørensen, 1999, p.3). The business network can be referred to
business relationship, which is complex and tend to be in long term. The relationship can be
created and developed by interaction between business units with buying, selling and
cooperating. The interaction between actors can bring positive or negative impacts on their
relationships. If it is a positive interaction, the relationship is tighter and they might want to
move to the next stage of relationship by cooperation and sharing the resources more. If the
interaction is negative, the actor might want to reduce the cooperation or find another actor to
make other interactions. The reason of network existing is because ‘no company has sufficient
resources itself to satisfy the requirement of any customer’ (Håkansson, Ford 2002, p.137).
11
The need of a company to involve in the network depends on how much it can carry activities
in the value chain. Most of companies need suppliers for the raw material and a third-party
logistics company to delivery their goods. Many companies need to outsource productions,
distributions and services to other companies/agents because they don’t have enough
resources and capacity to do everything themselves. The business network has become wider
nowadays also because of the internationalization. Some companies might not have the
needed materials or they are too expensive to get in the local area, where they set up the
production departments. Some companies might have production activity in one country,
where the labors’ price is cheap but the productions have to be transported to other countries,
where target customers are. It can be seen nowadays that a lot of companies has chosen the
strategy to move its production department to cheap labour countries in Asia, especially in
China and transport goods to Europe or American market to sell them. Some of them buy the
material in the countries, where goods are produced. Some other companies have to import
material from other parts of the world where the quality of material are better although it is
very expensive to buy and to ship them. Therefore, companies need to get involved with the
networks, not only in home country, but also in many foreign countries. The business network
by that becomes more and more complex. The business network can be illustrated as the
figure 1
12
Figure 1: Categories of business relations; Sørensen, 1999, p. 10
It can be seen from figure 10 that business network can be divided into two distinctions:
(1) non-firm,
(2) inter-firm and firm-internal (Sorensen, 1999).
The first distinction called ‘non-firm network’. It refers to the network, which is created with
non-profit institutions and civic society (e.g. labor union). It is often in this network that the
non-profit institutions give information to firms so they can do business easier in the region.
The benefits from this kind of network typically are more for firms than for institutions. The
non-firm relation also includes the state or public institutions in finance, politics, and legal
system. The second distinction – ‘inter-firm and firm-internal’ – is divided into internal and
inter-firm relations. The inter-firm relation is divided into horizontal and vertical dimensions,
plus supportive dimension in the inter-firm relation (Sørensen, 1999). The inter-firm relation
is the connection between focal firm2 and other firms. It can be seen in figure 1 that this
relation includes different type areas, which firm interacts in general: finance, consumer
2 The firm which is aimed to analyze
13
goods, technology, raw material, and labour. It should be noticed that customers is also a link
in the business network for the firm. Although figure 1 does not show clearly about the
network between firms and customers, this network is important and well-known by the
customer relationship management (CRM) theory. Firm’s internal network is referred to the
relationship between different departments or business units of a firm. The bigger the size of
the firm, the more complex the firm’s internal network is, especially in multinational firms.
Because the network in general and business network in particular tends to be for long term, it
is important that actors in the network build up trust to each other. ‘Trust may save on
transaction costs, at least in the long run’ (Sørensen, 1999, p.11). It can be understood that
transaction cost exists everywhere in the business especially when a firm enters to a new
market where it does not have much knowledge about; or when the firm want to cooperate
with new partners. In order to get to long term cooperation, partners probably cooperated in
short term before and they got to trust each other. Trust is a very important factor to create a
close relationship and strong network between firms. The well, long term relationship will
help firms to reduce opportunism and try to help each other instead. Gaining trust from one
partner could open another cooperation opportunity from others. On the contrary, losing trust
from other partners could mean that firms lost their honor and chance to doing business.
Furthermore, the business network can help firms to reduce uncertainty (Sørensen, 1999). The
type of trust which helps firms to reduce opportunism and also reduce transaction cost can be
referred to the ‘goodwill trust’. It is defined as ‘one’s good faith, good intentions, and
integrity. It is about whether a firm has a reputation for dealing fairly and caring about its
partner firm’s welfare in alliances’ (Das et.al, 2001, p.256).
When a firm wishes to enter to a new market, the biggest question is how certain it can get
profit from that. Being active in business networks, firms can get access to useful information
by getting contact with actors in the network that have knowledge and experience in the
market. In the market entry strategy theory, Hollensen (2007) describes different ways for
firms to cooperate with local actors in foreign markets. A firm can enter a country through an
agent, who carries one or more value chain activities for the firm. Firms can choose to
outsource marketing and sales activities to local agents, because they have more knowledge
about local customers. Other firms choose to outsource production and only focus on sale and
after sale services. Many firms make joint ventures with other firms in foreign markets in
order to increase the capital and create a stronger brand (Hollensen, 2007). These types of
14
cooperation with local partners help the firm to reduce investment cost, getting more
flexibility in resource and capital. In order to cooperate in long term with local partner, one
can claim that a firm and its partner should trust each other. Beside the goodwill trust, which
is mentioned above, there is another type of trust – ‘competence trust’. It ‘gives a firm a sense
of confidence that the partner is capable of accomplishing given tasks in the alliance,
performance risk of the alliance will be perceived as relatively low’ (Das et.al, 2001, p.258).
The difference between good-will trust and competence trust is that the good-will trust helps
firm to reduce the relational risk in the cooperation. On the other hand, the competence trust
reduces the performance risk.
It should be mentioned that cooperation in business network requires firms learn how to
cooperate with their partners. It is all about business behavior, sharing activities, investing,
etc. (Holm, et, al., 1996). The more firms could learn from the previous interaction of the
cooperation, the easier it can get to success in the next stage of cooperation and it has more
opportunities to create a new cooperation in order to expand its network. With the
internalization business network, firms also need to learn the differentiation in policy,
environment, culture, behaving and the way foreigners do business.
As any type of network, the business network contents a structure of how the actor relates to
each other within the network. Therefore, any changes made by an actor in the network will
affect to the structure of the whole network and it may require other actors to make changes as
well (Håkansson, Ford 2002). Because of the relationship in the network, an actor has
opportunity to influence other actors within the network and it can be influenced by others as
well. This can be referred to the power of a firm, which is defined as ‘the ability to influence
partners to do something they would not have done if they were free to decide’ (Sørensen,
1999, p.9). The power of a firm comes from key resources that it has. The key resources
includes capital, human, equipment, knowledge, material, etc. The more valuable resource
that a firm has, the more power it has, in order to influence other firms. The firm that does not
have or have less valuable resources is on the risk of being influenced by others who have
more valuable resources. It is because a firm depends on valuable resources and these
resources are not always on the hand of the firm (Pfeffer and Salancik, 1978). The power of a
firm concerning the key resources can be referred to the Resource Dependence Theory
(RDT). It is argued that ‘resource dependence theory provides predictions about a wide range
15
of actions that organizations take in response to resource dependencies’ (Casciaro &
Piskorski, 2005, p. 167).
The firm who has more power can influence its partners to get a longer cooperation with
better condition on its side. On the contrary, a firm can also be influenced by other firms in a
negative way, (e.g. to reduce sale price). It is a challenge for the firm to find out the strategy
of how to influence others in its business network and get influenced by others in the positive
way. The business network can be used as a tool by the firm to develop, to higher its position
in the market, to achieve more market share and to eliminate its competitors.
3.1.2 Business network in the logistics industry
Due to the trade growth and internationalization, the logistic industry has been became more
and more important (Cui & Hertz, 2011; Lieb & Bentz 2005). Nowadays most of the firms
outsource the logistic services to logistic providers in order to focus on their core business. It
brings great benefit to firms because there are many logistics providers in the market, which
are in high competitive in both quality and price of services. There are many types of logistics
services that firms can choose for instance delivering raw material, goods to door for
customers, goods to the shops, international transportation, etc. As mentioned before,
internationalization has brought huge chances for firms all over the world to connect and
cooperate together. By that, logistic is also an industry that gets a lot of benefit from the
internationalization by carrying goods for the focal industrial firm from one to another
country.
Logistics service providers can be divided into three groups: logistics service provider (third-
party logistics firm), logistics service intermediaries and sub-contract carriers, (Cui & Hertz,
2011). The reason why it is important to distinguish between the types of logistics service
provider is that they are different in ability to provide services and they develop knowledge as
well as experience in different market segments. Thus, different type of logistics service
provider leads to different type of network with different type of customers and competitors.
A third party logistics firm invests the most in warehouses, IT systems and value added
service offerings. Its core activities are coordinating with the carriers, logistics intermediary
firms and any other kind of logistics firms in order to provide the best logistics solution to the
customer. Logistics intermediary firms would tend to invest in IT systems and representative
offices. ‘Their core competence lies in consolidating products and connecting carriers and
16
clients’ (Cui & Hertz, 2011, p.1006). Carriers mainly invest a lot in transport equipment,
getting contracts with drivers, operating employees and building terminals. Their core
knowledge is how to move products from point A to point B in the most efficient way (Cui &
Hertz, 2011).
From the difference in investment and in capacity of third- party logistics firms, logistics
intermediary firms and carriers, it can be understood that not all logistics firms physically
carry all logistics activities. It might outsource one or more activities to other logistics firms
who have better asset, knowledge, experience and network.
The figure below shows the connection between three types of logistics firms and the focal in
vertical and horizontal dimensions
Figure 2: Industrial supply chain and the logistics firm network of interaction; Source: Cui & Hertz, 2011,
p.1006
It can be seen that the third party logistics firms stay closest to the focal firm, which could be
any industrial firm that needs logistics service. The reason is that the third-party logistics
firms’ core competence is providing logistics solution. They might not have all of the
equipment and employees to carry out the job but they probably have the best knowledge
about the region as well as experience of how different type of goods need to be handled and
transported. After agreement with the focal firm about logistics solution, the third-party
logistics firm might contact the logistics intermediary firms and/or the carriers to help them
17
getting contact with the local agent, providing transport equipment and drivers. This type of
cooperation is vertical network of actors in the logistics supply chain where ‘logistics actors
are suppliers and customers to each other’ (Cui & Hertz, 2011, p. 1007).
The other type of network shown in figure 2 is horizontal network, which stays separately
between types of logistics firms. The horizontal network of a third-party logistics firm is the
network with other third-party logistics firms. Similarly, an intermediary firm has horizontal
network with other intermediary firms. It applies the same for carriers. The horizontal
network can be understood as cooperation between logistics firms, which offer more or less
the same service to customers. The reason for this cooperation is that firm wishes to strength
its position in the current market by cooperation with another firm. In this way, the firm will
get support from its partner in financial capital, human resource and sharing customers
together. It can also because firm wish to enter to a new market, where it needs a support
from same type of logistics partner to understand the market and customer, in order to define
a strategy to be successful there. The horizontal network is only between firms, which are
similar in organizational structure and the way they do logistics services. In the other words,
cooperation between third-party logistics firm with other type of firms, e.g. intermediary or
carriers, is not horizontal network. It is, indeed, referred to vertical network, which is
presented earlier.
Beside the vertical and horizontal network, there is another type of network, which any firm
should has, no matter if it is in the logistics industry or others. It is the network with suppliers,
customers and many more. This type of network is quite different between different type of
logistics firms, because they are dealing with different customers in different market
segments. In this network, the carriers’ have relationship the transport equipment firms in
order to buy the equipments with the best price and quality. They also might have relationship
with drivers who have experience and specialize in driving different type of truck for instance
oversized truck. The logistics intermediary firms’ network could be personal contact in many
different countries including contact persons in public institutions. It gives the logistics
intermediary firms better opportunity to provide clients the best information about the region
for example traffic, infrastructure, political issues, etc. On the other hand, the third-party
logistics firms network might be the business relationship with different industrial companies
which potentially in need of transportation.
Overall, it can be seen that the logistics industry’s network is similar to the general business
network, because they both consist horizontal and vertical dimensions of relationship. It
18
means that business actors in general and particularly in logistics industry can have
relationship to actors in the same industry in order to get support for their activities. Besides,
they also connect with many other actors from different industries, including non-firm/public
institutions to bring added-value to their products/services in order to increase the satisfaction
from customers. As pointed out, the network relationship creates chances for firms to fulfill
their resources and expand the business. However, it can influence firms in a negative way.
Changes in structure and organization of a network might cost a lot for firm to change, in
order to remain its position in the network. It is not only costs in finance but also in time,
human resource, etc. It can also affect of contract agreement between firms in different
countries (Håkansson & Ford, 2002).
3.2 Blue/red ocean strategy
There have been a lot of theories and literatures in the business field in which argue about
competition in the market. Traditionally, the only way for a firm to survive is to compete
directly with other firms in order to grab a greater market share in the exits market. The
competition becomes more and more cutthroat and the market turns to bloody red ocean (Kim
& Mauborgne, 2005). However, it has been argued lately that the better way for a firm to
survive in the market is to make its competitors irrelevant. It means that the firm needs to be
innovative to create a new market for itself with a unique product. This market is defined as
blue ocean. The blue ocean has a huge potential opportunity for firms to develop in but it
doesn’t exist clearly in the market. ‘This is an unknown market space’ (Kim & Mauborgne,
2005, p.4). The blue ocean market is not always created by a totally new products but it can
also be created by moving further beyond the boundaries of red ocean, to develop higher level
products and attract new segments. Table 1 shows the differentiation between red ocean and
blue ocean strategy:
19
Table 1: Red ocean versus blue ocean strategy; Source: Kim & Mauborgne, 2005, p. 18
Red Ocean Strategy Blue Ocean strategy
Compete in existing market space Create contested market space
Beat the competitors Make the competition irrelevant
Exploit existing demand Create and capture new demand
Make the value-cost trade-off Break the value-cost trade-off
Align the whole system of a firm’s
activities with its strategic choice of
differentiation or low cost
Align the whole system of a firm’s
activities in pursuit of differentiation
and low cost
In red ocean, firms are forced to compete with each other in a constructed market. On the
contrary, firms in blue ocean create a market space for themselves and they are able to
construct the market the way they want. In the red ocean, firms try to beat competitors and
exploit existing demand of customers, while in the blue ocean, firms create new demand for
customers. Because the blue ocean is created to be unique by one firm, this firm faces much
less threats from competitors in this market and it has control of the whole market.
Realizing about the cutthroat competition nowadays, many firms are trying to swim out of the
red ocean and try to create a blue ocean. However, not all of them succeed in making
themselves irrelevant to their competitors. Kim and Mauborgne (2005) argued that the
difference between winner and loser in creating a blue ocean was their approach to strategy
(Kim & Mauborgne, 2005, p.12). The winner in creating blue ocean would not use the
competition as their benchmark, but use value innovation. ‘Value innovation is the
cornerstone of blue ocean strategy’ (Kim & Mauborgne, 2005, p.12). The value innovation is
about to create a leap in value for customers and for firms, in order to open up a new market,
which was not existing in the market before. It can be understood that normally firms provide
products with extra value at higher cost or products with acceptable value at low cost. Those
who try to create a blue ocean strategy would try to create different products at low cost. This
allows firm to maximize profit since it dominate the market with its unique products and
minimize the cost. The value innovation can be illustrated as figure 5.
20
Figure 3: Value innovation: the cornerstone of blue ocean strategy (Source: Kim & Mauborgne, 2005,
p.16)
It can be seen in figure 3 that value innovation is the result of pushing down the costs and
rising up buyer value. It should be emphasized that the value innovation should be made to
bring benefit both to customers but also to firms. It is argued in the traditional competition
market that firms should make themselves competitive by either low cost or differentiation
(Kotler and Keller, 2006; Porter, 1996). However, in the blue ocean strategy, it is argued that
firm has to create value innovation, which is the combination of adding value to both
customer and to themselves (reducing cost). It is not just about to protect firms from potential
competitors, who might come later in the market with similar products, but also allows firms
to maximize their profit in innovation products. The winner in the blue ocean market is the
one who create and is able to keep the market as blue ocean all the time. However, it should
be noticed that it is very hard to remain the market as blue ocean forever. There will always
be firms that are able to capture the technique and make the same or at least similarity
products at a cheaper price. What firms can do is to be innovatve all the time to improve not
just products, but also other related activities for example marketing, sales and services,
branding, etc.
3.3 Customer relationship management
Customer relationship management can be defined as a ‘process of carefully managing
detailed information about individual customers and all customer ‘touch points’ to maximize
customer loyalty. A customer touch point is any occasion on which a customer encounters the
brand and product’ (Kotler and Keller, 2006, p. 152). For the logistics industry, the touch
point could be the information that customers get from the logistics providers about drive
schedule, traffic update, regional cross border policy, etc. Customer relationship management
21
is considered as a very important element in business strategy of firms because firms always
want to keep their current customers and wish them to stay longer with the firms. That is the
reason why customers should be considered as a link in firm’s business network. Another
reason why this project includes customer relationship management is that this theory relates
to the red/blue ocean strategy. A firm which is in the blue ocean do not have directly
competitor, or have very few. On the contrary, firms which are in the red ocean have to
compete strongly with many competitors and they have to win customers from other firms.
Therefore in the red ocean, the customer relationship management is extremely important for
firms.
It is naturally that a firm wants to gain new customers. Kotler (2006) stated that ‘customer
relationship management is important because a major driver of company profitability is the
aggregate value of the company’s customer base’ (Kotler and Keller, 2006, p. 153). Kotler
(2006) also suggest that firms should increase the value of their customer base with the
following steps:
Reducing the rate of customer defection or increase customers satisfaction: it can be
done from the firm by selecting and training the employees to be specific in answering
questions about the company, products and services
Increasing the longevity of the customer relationship: it is suggested that the firm
should try to integrate its customers with firm’s activities. The firm should consider its
customer as its partners, especially in the Business to Business sector. The firm
should also try to involve customers into the process of improving products and
services. It shows the respect from firm to its customers.
Enhancing the growth potential of each customer: the firm should increase sale to
customers in order to keep them to be loyal to the firm’s brand. It can be done by
lower price, promotion gift, and extra benefit.
Making low-profit customers more profitable or ceasing to deal with them: In some
specific industry where the firm is not able to earn much with a small number of sold
product, it is very important that the firm signs a bigger and longer contract with
customers to make sure that it can get profit and retain customers in longer time
Paying additional attention to high-value customer: For customers who are
significantly valuable, they should be connected and reminded as much as possible
about the firm. It can be present for special days, greetings and invitation to events.
22
In order to be successful in customer relationship management, the firm should have
knowledge about its customers: their behaviors, their needs, motivations, expectation, and
requirement (Gebert et.al, 2003). The firm gains this knowledge in the process of talking with
customers and during the time of building relationship with them. The more the firm can
transfer the conversion with customers into the knowledge data base, the better the firm would
be able to understand its customers and increase its customer relationship level.
3.4 Accessibility concept
Oxford dictionary defines accessibility, as ability to be reached or entered (Oxford dictionary
online). As this project deals with the logistics industry, the term accessibility is discussed
mostly in this industry. Based on the definition of ‘accessibility’ and the understanding of
logistics industry, it is suggested that accessibility in the logistics industry refers to the degree
of entering, moving around the region; and the ability to use facilities in the region in order to
support the logistics business and the private drivers. This project will focus more on the
accessibility of BSR which support the logistics business. In order to analyze the accessibility
in the BSR, main challenges will be pointed out and analyzed how these challenges affect the
logistics business. The challenges is believed to show how easy/difficult it is to enter and
moving around the region. To be more specific, the main challenges are conducted from
interviews with ICT Logistics and Belintertrans. These interviews also give some business
inspirations on the analysis of how the challenges impacts to the logistics industry and private
logistics companies.
According to ICT Logistics, the main challenges that the company faces with are:
policy/administration, infrastructure and market demand. Although there are certainly many
more small challenges that a logistics company face in their business, this project will only
describe and analysis these three challenges as these are the main challenges that almost all
logistics companies face. On the other hand, the level of logistics centers’ development in
ACL partners’ countries will be examined. The following sup-chapter will define the meaning
of logistics center and the reason why it is desirable to examine the development level of them
in different countries.
23
3.5 Logistics center concept
‘Logistics Centre is the centre in a defined area directly linked to a highway, within which all
activities relating with transport, logistics and the goods distribution – both for national and
international transit, are carried out by various operators on a commercial basis. The
operators can either be owners or tenants of buildings and facilities (warehouses, distribution
centres, storage areas, offices, truck services, etc.), which are built here.
In order to comply with free competition rules, a Logistics Centre must be open to allow
access to all companies involved in the activities set out above. A Logistics Centre must also
be equipped with all facilities to carry out the mentioned operations. If possible, it should
include public services for the staff and equipment for the users.
In order to encourage inter-modal transport for the handling of goods, a Logistics Centre
should preferably be served by a multiplicity of transport modes (rail, road, sea, inland
waterway, air). To ensure synergy and commercial cooperation, it is important that a
Logistics Centre is managed in a single and neutral legal body (preferably by a Public-
Private-Partnership). Finally, a Logistics Centre must comply with European standards and
quality performance to provide the framework for commercial and sustainable transport
solutions’. (Europlatforms, 1997).
Further, some researchers defines logistics center according to its function: ‘a logistics centre
is a particular territory where such services as cargo transfer, storage, distribution over the
territory of one or more countries, customs mediators, insurance, maintenance and repair of
transport facilities, etc. are provided’ (Rimiene & Grundey 2007, p. 91).
According to Rimiene & Grundey (2007), logistics center is not a new concept since it
appeared 30 years ago. Over time, the logistics industry has developed with significant
changes. Therefore the logistics center also changed to be able to serve the modern logistics
industry. There are many names that are used to discuss about the logistic center term such as
logistics park, transport centre, freight village, platform freight terminal, logistics platform,
etc ( Europlatforms , 2004) (Rimiene & Grundey, 2007). In a general view, researchers look
at logistics centers as a place that create perspective and conditions for: ‘networking between
different transport hubs; concrete needs for new infrastructure, thus increasing accessibility;
better condition for business development; opportunities for investments in new transport and
logistics solutions including new facilities, a management environment that ensures
development opportunities for the users of the logistics centre, etc’ (Bentzen, 2011). As
24
customers of logistics centers, one can see that logistics centers nowadays are not only a
warehouse that provides very basic services such as receiving, storage, shipping, it also has
many more extra value added services for example banking, insurance, customs, filling
station, etc. Services provided by logistics center are various and depend on its size and
capacity. One can also see that logistics centers gives a lot of benefit to logistics companies
since it is not just a warehouse. In fact, many of them offer extra value added (e.g. electric
charging, banking, post, office, etc.) (Bentzen, 2011). These benefits can make the business of
logistics companies it is easier and faster in the area nearby the logistics center is located. This
is the reason why in this project, logistics center are seen as a main factor to improve
accessibility partners’ countries of ACL.
Looking back to the perspectives, which are created by logistics center and the accessibility
concept, it can be seen that accessibility of a logistics center refers to infrastructure and the
extent of available transport modes? It means that logistics center should be connected as
much as possible to roads, rails and ports (Europlatforms, 2004). Therefore the level of
accessibility of a specific logistics center can be determined by the quality and quantity of
roads, rails and the number of ports that the logistics center connects to. The connection of the
logistics center with road can be measured by the number of different type of roads: local road
(1 lane), municipal road (1-2 lanes), regional road and national road/high-way (2-4 lanes)
(Vej-regler, Transportministeret, 2013)
Local road: ‘a street that is primarily used to gain access to the property bordering it’ (the
free dictionary)
Municipal road: ‘a motor-vehicle road that passes through a city’s territory and is an
integral element of the city’s network of roads and streets; also, a road that connects a city
with functionally related areas’ (the free dictionary)
Regional road: road or highway road that connect two cities together
National road: highway road that connect many cities together
From the definition of type of road, it can be seen that the local road is the smallest and
national road is the biggest one. The national road is the type of road which cost the most to
build, but on the other hand, enables vehicles to drive in most lanes (up to 6 lanes). The
national road also allows the vehicle to drive faster than other type of road and therefore the
goods load in the national road is much bigger than on a local one. The maximum speed of
high-way road is 110-130km/hour while the maximum speed of local road is 30-50 km/hour
25
(Vej-regler, Transportministeret). Thus one can see that the most important type of road to be
connected with a logistics center is national road, followed by the regional road, municipal
road and the last important is the local road. Based on this, a point system is suggested in
order to make comparison between logistics centers in connection with road. A logistics
center, which is connected with one local road scores 1 point, with one municipal road scores
2 point, with regional road score 3 point and with national road score 4 points.
The point system is also used for the connectivity of logistics centers with rails. It can be
understood that the importance of connecting with rails is in the highest level with double
track with electric line, followed by double track without electric line, single track with
electric line and the last level is single track without electric line. One point will be given for
logistics center that connects with one single track without electric line, two points if it
connects with one single track with electric line, three points with double track without
electric line and four points with double track with electric line. One can claim that
connecting with rail is more important than road because railway is more friendly to the
environment than road (International Union of road- rail combined transport companies). The
goods load using railway is also bigger than road. However, one can also argue that road is
better to connect with, because it is more flexible for vehicles to come in to the logistics
center. In this report it is believed that both rail and road are important to connect with a
logistics center and they both have advantages. Therefore road and rail weights the same in
the point system.
Moreover, more and more logistics centers nowadays try to connect themselves with seaport
and airport. An EU report about the importance of ports states that ‘Seaports play an
important role facilitating the European Union's external trade (90% of the total, in terms of
weight) and internal market exchanges (40% of the total). They provide a service to many
other industrial sectors and are nodal points of inter-modal logistic chains of key importance
for the sustainable growth of transport in Europe’ (Europa, 2012). The airway is known as a
fast and safe type of transportation both for passenger and for cargo: ‘air cargo accounts for
40% of value of world trade’ (Johnson, 2010). The seaport and airport connection with the
logistics center is naturally a part of the level of development comparison. Nevertheless, it is
noticed that it should not score one point to connect with a seaport or airport which is the
same as connection to a local road. It is suggested that the logistics center scores five points if
it connect with seaport or airport. It is also a approximately comparison because it is not
possible to weight the level of development if a logistics center connect with a specific type of
26
road, rail, airport and seaport. Therefore it should be stressed that the point systems here is
only for an approximately measure. Similarity, the connection of logistics center with rail can
be measure by the number of different type of rails: Single track with/without electric line and
double track with/without electric line.
A summary of points given to connectivity dimension of logistics centers is shown in table 2
1 point-
group
2 point-
group
3 point-
group
4
point-
group
5 point-
group
Local road
Single rail
track
without
electric
line
Municipal road
Single rail track
with electric
line
Regional
road
Double rail
track
without
electric line
National
road
Double rail
track with
electric line
Seaport
Airport
Table 2: Point system for connectivity; own creation
Moreover, it is very important to mention the number functions available of logistics center as
an element for measuring accessibility of a logistics center. The reason is that higher
accessibility related to better opportunities (Rodrigue & Ducruet, 2012). The more services
that logistics center offers, the more opportunities customers can get. Bentzen (et.al, 2003)
suggests a list of the most important functions that a logistics center nowadays should have or
try to have:
General cargo terminal
Storage hotel
Container terminal
Cold store terminal
Combi terminal
Cranes
Services centre
Computer and communication centre
Transport research and training
27
Hazardous goods store
Customs
Post
Veterinary authorities
Weights and measures
Bank
Trailer rental
Filling station
Garage
Source: Adapted from Bentzen et.al, 2003, p.59
In order to make it easier to compare the service functions of logistics centers, points are
allocated to each of the above services. Though, all the functions should not be weighted the
same. Some of the functions or services that logistics centers offer are extremely important
and they are required to build up a logistics center (e.g. cargo terminal). Other functions are
less important, which might exist in one logistics center, but does not exist in others. The
more function that logistics center has, the more developed it is. Based on the importance and
necessarily of logistics function, the logistic functions are divided into these three groups.
1 point-group 2 point-group 3 point-group
Post
Veterinary authorities
Weights & measures,
Bank
Trailer rental
Filling station
Garage
Cranes
Services centre
Computer and
communication centre
Transport research &
training
Hazardous goods store
General cargo
terminal
Storage hotel
Container terminal
Cold store terminal
Combi terminal
Customs
Table 3: Point system for services dimension; own creation
A questionnaire has been sent to ACL Stakeholders to collect information of connectivity and
services of the most three logistics centers in their home countries (see the questionnaire in
28
annex). Based on this information, all points that a logistics center scores in each group are
accumulated to find out the total point that it scores for the service level. From the score of the
services and connectivity dimension, a map will be created, where logistics centers will be
placed, to show the difference in development level of them.
29
4. Analysis chapter
4.1 Challenges
4.1.1 Policy/administration challenges
Queues at borders:
The queue at the border, apparently, one of the main problems for all transport and
logistics companies doing international business. Often hundreds of trucks are standing at the
entrance and exit from the country. In addition, the number of trucks is increased before the
holidays. Despite the fact that they were established checkpoints equipped with the most
modern equipment and infrastructure, on separate sites periodically continue to exist queue.
It requires reconstruction of crossing points through the expansion of the roadway, which
allows using one of the strips as a ‘green’ corridor. This technology is widely used in the
world and it is appropriate to introduce in Belarus. This will introduce a system of channels,
allowing drivers not to leave the vehicles that will reduce the time of processing. For example,
in the project of reconstruction ‘Kamenny log’ for border clearance will be created 16
channels. The final plan of the reconstruction is not yet ready, so it is impossible to judge the
extent to which transport the transition will be limited during the work. Nevertheless, the
needs of the carriers will be taken into account: transport flows be redirected to other
checkpoints on the Belarusian-Lithuanian border
Bureaucracy in custom clearance procedure:
This was, during an interviewed company BELINTERTRANS, said Mr. Igor Butko that «in a
number of institutions you may encounter some bureaucratic problems», which are a
bottleneck for all logistics companies. The volume of foreign trade with Belarus grows every
year. For 2011 - 2012 aggregate turnover increased by 52%, and for the past ten years - 440%.
Compared with the previous year, transit roads through Belarus in 2013 increased by 9.4%
and the turnover increased by 13%. To ensure effective customs control for the increasing
volume of trade turnover, the Belarusian authorities to introduce modern technologies,
reducing the time spent on customs formalities and optimizing them. To do this, several
projects are being implemented. One of the most important projects in this regard is the
«Electronic customs». In 2012, using technologies of electronic Declaration handled about
30
90% of exports and 80% of imports. The average customs clearance time was reduced to 15
minutes exports and up to 45 minutes during import. The state customs Committee also
implement a project on payment of customs payments with the use of automated information
system of integral clearing of the informational space. This will improve the performance of
the business community and enhance information exchange with representatives of business
circles engaged in foreign trade.
In order to simplify the procedural requirements, the State customs Committee has prepared a
draft Law on customs regulation in the Republic of Belarus. He currently hosts the final stage
of consideration and it is planned that it will enter into force on 1 April 2014. The document
will become the basis of the customs legislation of the Republic, having absorbed the best
experience of customs services of the world and taking note of the proposals of the business
community on the facilitation of the procedural requirements, minimizing the time and costs,
reducing the number of documents used for customs clearance. The draft law contains
provisions aimed at substantially reducing the number of documents required for filing and
registration of the customs declaration.
Visa for drivers and permits for transport trips:
The driver, who is a citizen of the EU, needs a visa to enter the country outside the EU, and
vice versa. However, there were some exceptions for some countries. Thus, one can come to
Russia for 90 days without a visa for those arriving from the CIS and such countries as
Azerbaijan, Kazakhstan, Moldova, Tajikistan, and others. It should be noted that some of the
CIS countries are important for transit transportation between Europe and Russia, Ukraine, for
example. According to the Ministry of foreign Affairs of the Russian Federation visa-free
regime of the stay of 90 days within 180 days in Russia as well as European citizens, except
for Denmark, the UK and Ireland. In addition, there must be consent for the flight (which
indicates what type of goods, how much they cost, etc). In General, this issue is not a big
problem for transport logistics companies, because they can plan to application for the visa in
advance.
However, there was a problem concerning the travel authorization (quotas) because in some
countries protect national carriers. Thus, in 2010 Russia cut the Polish quota of permits for
inland transportation in Russia with 190 000 to 150 000. The reduction of quotas reduced the
cargo transportation in Russia of Polish companies.
31
On the other hand, many countries try to reduce the number of import goods imported from
markets with its cheap labor, because the low price for such goods harms the domestically
produced goods. Similarly, Russia protect their products from the influx of cheap goods from
China, Vietnam, Cambodia, and some other
Refund of VAT in Belarus:
The amount of VAT payable by the company is determined as the difference between the
amount of output VAT, calculated at the end of the reporting period, and the sum of tax
deductions (paragraph 5 of article 103 of the Tax code of the Republic of Belarus).
In cases stipulated by paragraph 23 of article 107 of the Tax code of the Republic of Belarus
in cases stipulated in the decrees of the legislation of the Republic of Belarus, VAT deduction
can be made in full, despite the amount of output VAT, calculated after realization of goods
(works, services), property rights.
In other cases, the VAT should be with year-to-date in the total amount within outgoing VAT,
calculated after realization of goods (works, services), property rights. For example, the
company imports goods from EU countries valued at 1000 EUR and pay VAT in the amount
of 200 EUR and immediately resell all goods in Russia for 1500 EUR at a rate of 0% VAT.
The company may require back 200 EUR VAT in full.
In order to get refund, the company has to submit the following documents to the Belarusian
tax authority 180 days after the day of shipments of the goods:
Sales contracts, under which the goods were exported;
Shipping documents, which confirm the physical flow of goods from one
country to another;
Declaration about import of the goods and payment of indirect taxes stamped
by tax authorities of country of import of these goods (to be provided by the customer).
As it was mentioned by Mr Skov, Head of Representative Office of ICT Logistics A/S in
Belarus, during a telephone interview, ‘’in practice, the VAT refund takes a lot of time for
foreign companies doing business in Belarus. There are several entities: one to submit the
documents and another one to get the VAT back, which complicate the VAT refund process’’.
It is because not only the company in Belarus, who needs to submit the required documents,
but also its customers in Russia, who pay VAT to Russia has to submit the declaration of
VAT paid as well. Time consumed to get VAT refund is about 180 days or more, which
creates problems for smaller, medium and big size companies, because they cannot get the
money fast to use for other investment activities.
4.1.2 Infrastructure
Besides political challenges, infrastructure in Europe also challenge many transport
companies in this area. According to the EU White Paper (2011), the quality, safety and
32
security of road and rail in Europe have been increasing. Many European companies have
been leaders in infrastructure, logistics, traffic management systems and manufacturing of
transport equipment. However the White paper points out that there is not an equally
development in infrastructure between Eastern and Western European. There is also
accessibility gap between central and peripheral areas. These unequal development and gaps
between different areas need to be brought together. Also, more and efficient entry points into
European markets are needed, avoiding unnecessary traffic crossing Europe. Modal networks:
airports, ports, railway, metro and bus stations should increasingly be linked and transformed
into multimodal connection platforms. Online information, electronic booking and payment
systems should be available. Moreover, the core network must ensure efficient multi-modal
links between the EU capitals and other main cities, ports, airports and key land border
crossing, as well as other main economic centres. It should focus on the completion of
missing links – mainly cross-border sections and bottlenecks/bypasses – on the upgrading of
existing infrastructure and on the development of multimodal terminals at sea and river ports
and on city logistic consolidation centres. The EU White Paper (2011) suggests that A Single
European Transport Area should ease the movements of citizens and freight, reduce costs and
enhance the sustainability of European transport.
Rail, especially for freight, is sometimes seen as an unattractive mode but examples in some
member States prove that it can offer quality service. The challenge is to ensure structural
change to enable rail to compete effectively and take a significantly greater proportion of
medium and long distance freight. High speed rail should absorb much medium distance
traffic. By 2050, it should be completed a European high-speed rail network. At the
meanwhile, there is a need of triple the length of the existing high-speed rail network by 2030
and maintain a dense railway network in all Member States. By 2050 the majority of medium-
distance passenger transport should go by rail. By 2050, it should be connection between all
core network airports and the rail network, preferably high-speed; ensure that all core seaports
are sufficiently connected to the rail freight and, where possible, inland waterway system. The
area where bottlenecks are still most evident is the internal market for rail services, which
must be completed as a priority in order to achieve a Single European Railway Area. This
includes the abolishment of technical, administrative and legal obstacles which still impede
entry to national railway markets. It is a need to develop an integrated approach to freight
corridor management, including track access charges. Ensure effective and non-
33
discriminatory access to rail infrastructure, including rail related services, in particular
through structural separation between infrastructure management and service provision.
Seaports have a major role as logistics centres and require efficient hinterland connections.
The European Maritime Transport Space without Barriers should be further developed into a
‘Blue Belt’ of free maritime movement in and around Europe, and waterborne transport
should be used to its full potential. For maritime transport, a “Blue Belt” in the seas around
Europe shall simplify the formalities for ships travelling between EU ports, and a suitable
framework must be established to take care of European tasks for inland waterway transport.
Market access to ports needs to be further improved.
Airport capacity needs to be optimized and, where necessary, increased to face growing
demand for travel to and from third countries and areas of Europe otherwise poorly
connected, which could result in a more than doubling of EY air transport activities by 2050.
The Single European Sky needs to be implemented as foreseen, and already in 2011 the
Commission will address the capacity and quality of airports. Clarify and improve conditions
to enter and provide quality services, including ground handling: ensure that all actors in an
airport system meet minimum quality standards. Develop an approach to deal with future
capacity problems including better integration with the railway network (White Paper, 2011).
The White paper argues that Infrastructure investments have a positive impact on
geographical accessibility. It has to be planned in the way that it maximize the positive impact
but minimize the negative impact on the environment. It takes many years to plan and build so
the action cannot be delayed. Together with innovation of technology, infrastructure should
be developed so that 30% of road freight over 300 km should shift to other modes such as rail
or waterborne transport by 2030, and more than 50% by 2050, facilitated by efficient and
green freight corridors
Besides that, congestion is a major concern in particular on the roads and in the sky and
compromises accessibility. There is a need in increasing the efficiency of transport and of
infrastructure use with information systems and market-based incentives.
For future strategy, EU will continue to increase the quality, safety and security of
infrastructure in the area. There is a need in increasing the efficiency of transport and of
infrastructure use with information systems and market-based incentives. It should focus on
the completion of missing links – mainly cross-border sections and bottlenecks/bypasses – on
34
the upgrading of existing infrastructure and on the development of multimodal terminals at
sea and river ports and on city logistic consolidation centers (EU White paper, 2001)
Along the line of the EU White Paper, the Trans-European Transport Networks in Europe
(TEN-T) also aims to create a core network, which will transform East West connections,
remove bottlenecks, upgrade infrastructure and streamline cross border transport operations
for passengers and businesses throughout the EU. It will improve connections between
different modes of transport and contribute to the EU's climate change objectives. The new
core transport network will be supported by a comprehensive network of routes, feeding into
the core network at regional and national level. The comprehensive network will ensure full
coverage of the EU and accessibility of all regions.
Belarus is implementing the State program on development of transit potential in 2011-2015
It is aimed at development of international transport corridors passing through the territory of
the country, improvement of technologies of transportation of transit cargoes direct
accelerated trains, including container, expand international cooperation in the field of
transport and infrastructure. Belarus plans to implement in the framework of the State
program of 36 projects on creation of logistics centres. Currently operates only 14 logistics
centers, which are statistical reporting and compliance with the national standards and provide
opportunities for the complex maintenance. The most intensive development of logistics
centers is in the Minsk oblast, in connection with a convenient location in the center of the
country, close to the capital and at the crossroads of two international transport corridors.
There is increasing the level of logistic services and infrastructure ‘Belintertrans-transport-
logistic centre’ - official freight forwarder and logistics operator Belarusian Railways, as well
as the work of international logistics operators such as ‘Brestvneshtrans’ and
‘Belmagistralavtotrans’, ‘Beltamozhservice’ and many others.
Modernization of railway infrastructure of the individual sections II and IX international
transport corridors is also to improve the speed of the movement. By 2015, revenues from the
transit of Belarus may increase by 1,6 times. The number of transit flights of foreign aircraft
in 2015 will be about 284,6 thousand, or 60 % more than now. Handling capacity of Minsk
National Airport will increase by at least a factor of two. The volume of goods transit by rail
is expected to reach 62,9 million tonnes, an increase of 35 %. Nevertheless, the data of current
statistics are still far from the planned rate.
May 15.2012, the World Bank published a ranking of 155 economies on the quality of the
logistics system for trade. Belarus ranked 91st place in this list. This is lower than in
35
Lithuania, Ukraine and Latvia, which occupy 58, 66 and 67 of the place, but above, than in
Russia, which occupies 95th place. For a country located in the geographical centre of Europe
and has an open economy, in which exports account for 60 - 70% of GDP, it's pretty mediocre
result. Due to the underdevelopment of logistics, the country loses billions of dollars.
4.1.3 Market demand
It is very important to talk about market demand since it is one of the main elements for a
logistics company to make its strategy. First of all, different size of countries leads to unequal
demand of goods transportation (e.g. Russia demands a lot more of logistics services than
Denmark). The demand of import and export is certainly also different. A country which has a
small composition of agriculture needs to import a lot of agriculture products. Besides other
countries, which can produce more in agriculture itself, probably needs less demand of
importing in types of products. The challenges for a logistics company are from this point of
view to find out which market it should focus on and which products it should carry out in
that market in order to make the largest profit. In general, a third logistics provider tends to
receive as many orders of goods as possible, but the more focused it can be, the better it can
prepare for driving time, type of needed equipment and for transportation permit. The
difference in demand of exporting and importing of a country also bring challenges for
logistics companies, for instance they could drive with full trucks into the country, but on the
way back, the trucks are left empty. This is very costly for logistics companies. Therefore a
logistics company also has to try to combine the transport schedule between moving in and
out of a country to reduce the number of empty trucks.
On other hand, there is high season every year where the demand of goods will increase
slightly or significantly in different countries. The high season in Russia in the fourth quarter
every year can be an example for this. In this season, a dramatically high demand of logistics
service in Russia can be doubled from its normal. The goods imported from and exported to
Russia can be ranged from presents to foods, clothes, etc. which are produced in cheaper
labor- countries. The changing in demand in high season makes it difficult for logistics
companies in preparing transport equipment and staffs. If the company is not big enough, it is
very hard for them to own many trucks, trailers and sign full time contract with employees.
And if they do not control it, it is difficult for them to find enough equipment and staff to
provide services in the high season. Moreover, there is not always enough permits (quota) for
36
transporting goods between countries in high season. The limited permit plus the strategy of
cutting permits for some countries as mentioned before, has made it tough for logistics
companies to answer the market demand.
It should also be mentioned here that the finance crisis has affected all industries in the world,
including logistics services. The crisis in the last years made the demand for goods transport
decrease, not only in some countries but in the whole Europe and globally. Decreases in
market demand mean that logistics companies have to compete harder in the market to
survive. It can be seen that many companies try to save cost by cutting staff and buy
cheaper/less equipment. The problem is that when the staffs and equipment are out of the
market, the company can’t find them again when it suddenly comes to high demand in the
market and often other companies which are bigger with more capacity will then take the
business opportunity. It should be said here that long-distance truck driver is not an attractive
job that many people would like to be. Thus logistics companies have big challenges of
having enough drivers as well as equipment such as trucks and trailers all the time.
Despite the fact that the crisis still remains globally, the European economy has begun to
grow again with positive GDP. The growth is set to become gradually more domestic
demand-driven and more robust in the course of 2014 and into 2015. The legacy of the crisis
will continue weighting on growth but it is expected to gradually subside. Domestic demand
is expected to be the main engine of growth. Among the EU countries, whom are also in the
Baltic Sea region, small open economies (e.g. Latvia and Lithuania) have resumed the
catching-up process. Some countries of the euro-area ‘core’ (e.g. Germany) are emerging
from a temporary slowdown with strong growth prospects over the coming quarters (Over
view, autumn forecast 2013, EU Commission).
In summary, one can see that there are a lot of challenges for third party logistics party to run
a business, which needs to travel around European countries. The Russian market is
mentioned in this part not only because of the case study of the project – ICT Logistics
transport mostly in that region, but also because it is a very big market just next to Europe. It
is one of the most important markets for many European logistics, companies including ICT
Logistics. The main challenges can be mentioned as policy/administration, infrastructure and
market demand. However there are a lot of other challenges that are various in different
countries and companies i.e. weather issues, security at border, lack of services in logistics
center, etc.
37
4.2 Business network analysis
In order to have an in-depth understanding about the business network of ICT Logistics, it is
necessary to clarify, which type of logistics firm it is among third party logistics firm,
logistics intermediary firm and carriers (figure nr.4). ICT Logistics is dealing directly with
customers, who need logistics services in many different countries in Europe, mostly in
Western Europe, Russia, CIS, Baltic and Central Eastern Europe. Basically ICT Logistics
receives order for almost all type of products except perfumes, cigarettes, and alcohol
contains. The reason for avoiding transporting these types of product is because they can take
more time and create problems when the trucks cross borders, says the managing director of
ICT Logistics. ICT Logistics owns about 30 trucks, 600 trailers and 200 employed drivers.
These are not enough for the company to serves its customers. It also needs to rent from other
logistics companies. ICT Logistics not only transport goods but also help its customer to find
the best solution for moving goods, providing information about the region and making after-
transporting service. From this information, it can be seen that ICT Logistics is a third-party
logistics company.
The graph below describes how the business network of ICT Logistics looks like:
Figure 4: Business network of ICT Logistics; own creation
First, ICT Logistics has close relationship with other logistics firms to rent their equipments
and sign short contract with drivers as described above. The company owns only 30 trucks
and it is not enough for what they have to transport during the high season. So what the
38
company does is to build a long term relationship with other firms (i.e. intermediate, carriers),
who can rent out trucks and who can find driver for it. In this way the company still can fulfill
its capacity in the high season and still be able to save costs in low season. ICT Logistics
owns more trailers than trucks, because it is cheaper to have trailers standing by in low
seasons than to have trucks. In some ways, it is flexible and convenient to use its own
equipment’s, so ICT Logistics chooses to own more trailers to save some money instead of
owning trucks, which is more expensive. It is a strategy of investing in equipment that the
company use, which is smart to overcome the challenges of missing equipment and drivers in
high season. This strategy also helps the company to save money during the finance crisis
period. However, can be a very hard task for ICT Logistics to find a driver and truck because
the company only employs 200 drivers and they also need to have drive schedule. In high
season when the driving task can come at any time, the best solution that ICT Logistics can
choose is to rent from external partners. Thus one can see it is really important for ICT
Logistics to build up and take care of its business with partners who rent out equipments and
staff for transportation. This type of cooperation is referred to vertical network.
There is a specific firm that ICT Logistics has built business network with, is a third party
logistics firm which has business form is more or less the same as ICT Logistics. The firm-
SLR International Ltd- has its head office in the United Kingdom. Similar to ICT Logistics,
SLR International Ltd provides logistics solution for customers in Europe. The main focus
market of SLR International Ltd is the United Kingdom, but it also has a lot of experiences in
Eastern Europe. The difference between these two firms is that ICT Logistics owns numbers
of trucks, trailers, other equipments and drivers while SLR is in lack of other equipment’s and
staff. ICT Logistics also have representatives in many countries which will be discussed later
on. Meanwhile, SLR International Ltd does not have any representative or offices else than in
the United Kingdom. The two companies have been cooperating together so that ICT
Logistics provides equipment’s and drivers for SLR International Ltd, mainly in the United
Kingdom market and in some other European countries. SLR International Ltd can also use
ICT Logistics’ offices in Europe to get necessary local information and to get technical
support. On the other hand, SLR International Ltd brings customers from United Kingdom
and shares their knowledge about Eastern Europe to ICT Logistics. Thus both companies have
some advantages from this business cooperation. For ICT Logistics, cooperating with SLR
International Ltd is the same as having representative in the United Kingdom. The
cooperation between ICT Logistics and SLR International Ltd is referred to the horizontal
39
network, because both firms are third-party logistics firms, which offer the same type of
services to their customers.
As mentioned in the theoretical chapter, any firm in any industry should have a network with
its suppliers, customers, local experts, etc. ICT Logistics has relationship with local people in
many countries is the second type of business network that is considered as very important for
the company in European market. They are representatives of ICT Logistics in foreign
markets. Until now the company has thirteen offices in nine countries: Denmark, Lithuania,
Latvia, Russia, Ukraine, Romania, Kazakhstan, Poland and Belarus. The responsibility of its
representative firstly is to look for trucks, drivers and other necessary equipments that are the
best to travel in the region, concerning the quality of equipments, experience of drivers and
permit possibilities for both. Second, representatives in some countries such as Ukraine and
Russia are chosen as ICT Logistics’ local office because these markets are important for the
company. Then the responsibility of a local office is a lot bigger than other representatives.
They have to take care of the customers in their regions. The local office also has to solve any
problem occurring when goods is transported to the country. The problems can be related to
the drivers, trucks, cargo, permit, technical, issues, etc. So basically it is a full pack of services
for ICT Logistics and for the customers that the local office has to take care of. From the
activities that ICT Logistics’ representative and local offices has responsibility for, it can be
understand that the company see the connection with local people in foreign markets as a very
important strategy to overcome challenges. The representative at the local office is able to
look for missing equipments and staffs, which is really helpful for the company in high
season. They are able to solve problems with trucks; cargo in their region which is very
important for ICT Logistics because the head office is far away and goods needs to be
delivered on time for customers. Not just that, the representatives can also provide many
more information about their regions to ICT Logistics head office in Denmark. The
information about traffic, weather, and political issues will be always useful for the company
to plan the transport, to change transportation mode and update information to customers.
Furthermore, the local representative can become a bridge to connect ICT Logistics with other
institutions in the countries. As the head office is not able to take care of everything that
happens in many countries, having representatives and establish local offices is the way to
building trust with local people in order to avoid transaction cost. Understanding the
important of representative in foreign markets, the managing director of ICT Logistics
expresses that in the next 10-15 years they would like to have 50 offices around the world
40
where they are doing business and where there is a possibility to start business. Nevertheless,
the question now is still where and when they should open it. Looking back to the year 2000
and several years before that, it would not be a big question for ICT Logistics to decide which
market they want to expand to but the finance crisis came and still is in most of the countries
and this is a barrier for them making ICT Unable to expand as quickly as they wish to.
Third, ICT Logistics has business relationship with non-firm institutions, mainly referring to
social relationships among businessmen. One of them is the collaboration with the Republic
of Kazakhstan. Mr. Pedersen, the managing director of ICT Logistics is the honorary consul
of the Republic of Kazakhstan in Denmark from April 2010, because he has been working a
lot in Kazakhstan and achieves successful business results. This relationship doesn’t give him
any direct benefit to his current work at ICT Logistics. However, he has chances to meet and
get contact with many business people both in Denmark and Kazakhstan. This might open
opportunities for business to corporate in starting new businesses in the future. With this
special relationship, there are also chances for ICT to get information about the regions faster
than other competitors can do. Therefore he has a better opportunity to catch up with the
market demand. Mr. Pedersen expresses: ‘it is very important to cooperate. No one can
develop without cooperation with others.’ ICT Logistics specially considers cooperating with
legal institution because their business relies on policy. Besides, ICT Logistics also have
relationships with other non-firm institutions for example with FDT- the Association of
Danish Transport and Logistics Centers. The company also cooperates with ACL- Amber
Coast Logistics in this report. It is believed that these relationships will directly or indirectly
give ICT Logistics many great opportunities to get contact with customers and expand its
business in the future.
Last but not the least, it is necessary to mention ICT Logistics’ business network with its
customers. The business network with customers should be mentioned in the analysis of ICT
Logistics, because the company is working in the B2B sector, in which the relationship with
long-term customers is extremely important. The reason is that normally the business
customers prefer to purchase bigger amounts and they tend to stay longer with firms,
compared to private customers. The decision of purchasing and staying long with a firm
should come first when they can build trust to each other. Therefore it is a great strategy for a
firm to create a serious business network with its customers. ICT Logistics has business
relationship with the leading manufacturer of agriculture machinery in the world- John Deere.
This relationship started in 2006, when ICT Logistics by coincidence had a meeting with the
41
John Deere to find out a logistics solution for them. The solution of ICT Logistics was
accepted and the company started to make the very first transport for John Deere. The
relationship is still going very well and ICT Logistics tries day by day to make the best
service. In 2012, ICT Logistics received a prize from John Deere to be its best transport
partner. This prize is not only just to name that ICT Logistics is a very good partner of John
Deere, it is also a prize for a strong business relationship that bring benefits for both partners.
To summarize, ICT Logistics is developing both vertical and horizontal dimensions in its
business network. In the vertical business network, ICT Logistics cooperate with different
logistics firms in order to rent equipments and staffs because its capacity is not big enough to
serve all its customers. It is an advantage for ICT Logistics to avoid over-investment.
Meanwhile the renting from partners also has the disadvantage that sometimes the company is
not very flexible in controlling equipments and staffs. Besides, the company also has
relationship with another logistics company which is based mostly in the UK market. This
relationship helps ICT Logistics to learn more about the Eastern European market and get
more customers from UK. In the horizontal business network, ICT Logistics has
representatives and opens offices in many countries in order to get closer to local people. This
relationship is believed to give the company access to local information and make it easier to
solve different problems in the local markets. Furthermore, ICT Logistics has relationship
with several non-firm institutions which is opportunity for the company to get contact with
new business partners and get access to important transport information. Moreover, the
company has been building long term relationship with its customers. The good relationship
with big customers will keep them stay longer with the company. It is also possible that loyal
customers will bring more customers to the company.
4.3 Red/blue ocean strategy analysis
In order to analyze the development strategy of ICT Logistics, it is needed to find out if the
company is in the red or the blue ocean in the European logistics industry. The reason is that
the type of ‘ocean’ which the company is in will tell which type of strategy it needs to focus
on. Looking at the top 100 biggest logistics companies in Denmark according to gross profit,
ICT Logistics is ranked 76th
. If one looks at logistics companies that are specialized in
freight/forwarder, ICT Logistics ranked the 29th
(Transportmagasinet,2012). Few of the
companies in the 100 top list transport company doing business only in Denmark. In fact,
42
almost all of them work in the European market. It means that ICT Logistics has to compete
with many other Danish companies. ICT Logistics transport almost all type of goods except
cigarette, perfume and alcohol contain. So ICT Logistics carry the same goods as other
companies do, the company also operates in a market that many logistics companies do. This
market has existed for a very long time, and it is not new to customers and companies. The
statistics mentioned above is only about Danish logistics companies. There are absolutely a
lot more companies coming from other countries that are moving freight in Europe as well.
Thus one can say that ICT Logistics are competing in a red ocean. According to the red ocean
strategy described earlier, company who competes in red ocean needs to exploit the existing
demand. From the analysis of the business network of ICT, it can be seen that ICT Logistics
are using its relationship with different firms, partners and institutions to find more customers
and expand its business. There are some customers that contact the company to ask for
services, but ICT Logistics is also very active to contact potential customers. The company
takes contact several potential customers every week. In the near future, the company wants
to receive one new customer each week so that the company can develop all the time.
Besides, a company in the red ocean should also align the whole system of a firm’s activities
with its strategic choice of differentiation or low cost. Mr. Pedersen says: ‘we don’t focus in
low price but we provide excellent services’. ICT Logistics has very good quality of trucks to
make sure that goods are transported safe during the transport time. On top of that, the drivers
from ICT Logistics have many years of experience in driving in the regions. The company
focuses a lot in providing excellent services for its customers. As mentioned before, the
representative and local offices in foreign market have the responsibility to provide
information about the regions and update the freight moving status for customers. The
company has GPS systems in many of trucks so it is possible to update the position of the
truck every 15 minutes. In the head office in Denmark, there are two staffs who only work
with customer services: answering questions, giving information, arranging meetings,
updating the driving status, etc. Although ICT Logistics carries the same type of products in
the European market as many other companies, one can see that the differentiation of this
company is to provide detail information to customers. It can also be seen that the business
network really give a great advantage to help the company in getting special information
about transport. Then this information will be transferred to the customers to gain trust and
expectation.
43
Reviewing the red/blue ocean theory, one can see that ICT Logistics is using the strategy of
differentiation in the red ocean. The differentiation is not about the product. The company
carries out the same services in the same market as many other companies. The difference
here is referred to customer services and the ability that the company can offer logistics
solutions for customers. It is not the strategy of ICT Logistics to compete on lower prices in
order to get new customers. However price is always a sensitive element for customers to
choose, which company they want to buy products/services from. Therefore, ICT Logistics
considers that price is very important to keep it reasonable, but it should not be too low to
affect the quality of services.
4.4 Customer Relationship Management analysis
The CRM in ICT Logistics can be considered as a part of business network and also a strategy
of the company to compete in the red ocean. It is a part of the business network because it
strengthens the relationship between the company and its customers. As analyzed earlier, this
relationship is important for the company, because it can bring longer contracts with greater
profits. In some occasions, the loyal customer might bring new customer to the company as
well. Therefore it should be a strategy to keep the current customers, encourage them to be
loyal to the company. There are many ways that a company could strengthen its relationship
with customers. Some companies give extra benefit for their customers for example: free-
ticket to events, theaters, amusement parks, etc. Other companies send out greeting and gifts
at customer’s birthdays. It can be seen that many retailer offer membership card to customers
so they can score points every time they purchase for a certain amount of goods/money. From
those points, customers can get free gifts or get lower price for the next purchase, etc.
ICT Logistics does not have such type of extra benefit for customers as mentioned above.
First of all the extra benefit in membership card and points fits more for consumer goods and
retailers. Second of all, ICT Logistics considers that the value the company creates in its core
logistics services is the best way of giving benefit to the customers. Mr. Pedersen expresses
that this core value is the only reason that bring customers and keep customers staying loyal
to ICT Logistics. If the company’s core value is not good, no matter how much extra benefit
and fantasy things customers get, they will not buy anything from the company. That is the
reason why, instead of wasting time and money for those extra benefits as such, ICT Logistics
really focuses on how it can serve the customers better in its core services. As pointed out
44
earlier in this project, the core services of ICT Logistics are providing logistics solution,
giving customers the best information in the region, trying to solve problems efficiency in
short time and keeping promises and, follow the contract so that the company gains trust from
customers. This trust will keep the customers staying longer with ICT Logistics and the
company believes that it is the best way to manage the customer relationship management.
4.5 Environmental issue:
The environmental issue has becoming a hot topic in many industries around the world. The
logistics or transportation industry accounts for large amount of pollution created. In the EU,
CO2 emissions from road transport have increased by 23 % between 1990 and 2010,
becoming responsible for approximately one fifth of the EU's total emissions (European
Environment Agency).
EU plans to build a competitive transport system in its member countries, so that mobility will
be increased and major barriers in key areas will be removed. This plan will help EU
countries to reduce greatly the amount of imported oil and cut down carbon emissions in
transport by 60% by 2050 (White paper, 2011). To be more specific, EU plans that by 2050:
No more conventionally-fuelled cars in cities.
40% use of sustainable low carbon fuels in aviation; at least 40% cut in shipping
emissions.
A 50% shift of medium distance intercity passenger and freight journeys from road to
rail and waterborne transport.
All of which will contribute to a 60% cut in transport emissions by the middle of the
century
(White paper, 2011)
In some countries, their government also put big effort on saving the environment. In
Denmark the climate plan for 2025 is already published, which contains overall plans and
strategies to save energy, reduce CO2, in order to make Copenhagen as a green and smart city
(City of Copenhagen homepage). The needed financial invest for this plan up to 2025 is
expected around 2.7 billion DKK (Copenhagen Climate plan).
In fact, many companies in both in public and private sector in EU have been considering
about the environmental impacts in their business activity, especially in transportation
industry. Towards the attitude of protecting the environment, green images of their brands are
created, which bring messages to the society that the companies are taking care of the
45
pollution issue. The green image brings potential competitive advantage for the company,
besides other factors such as prices, quality of products and services.
At ICT Logistics, it is considered that the company has a responsible for ensuring that its
activities impact the environment to the least possible extent.
‘Our goal is to be the preferred transport and logistics partner in our core markets, and
equally so for customers for whom the environment is a key focus area. Through continual
improvements, we are committed to reducing the environmental impact of our activities and
to complying with all statutory requirements.
The focus of our environmental efforts is:
Involving partners and employees
Employee conduct and training
Modern and efficient material
Openness to new ideas and initiatives which can lead to further streamlining
Measurements of our eco-efficiency, and openness about the progress we have made
towards a better environment’.
(ICT Logistics Homepage, http://www.ict-as.dk).
In April 2013, ICT Logistics published a report, which presents the company’s environmental
performance and its development. In this report, the CO2 emission produced by transport mode and activities are
shown. In 2012, the transport activities performed by ICT Logistics’ combined logistics system resulted in total
emissions of approx. 72.000 tonnes CO2 e. Of these emissions, 83% stemmed from road transport, while sea
transport accounted for 13% and rail transport for 4%. Emissions of CO2 e in connection with activities in
Central Eastern Europe and Balkans totalled almost 14,000 tonnes CO2 e. The transport jobs were by road. CO2 e
emissions from activities in the Baltics and the CIS region totalled just over 58.000 tonnes CO2 e. Here, road, sea
and rail transport was used (ICT Environmental report, 2013).
In order to reduce internal emission produced, ICT Logistics focus on environmentally
conscious driving, minimising the number of kilometers driven with empty trucks and reduce the
environmental impact for each tonne of freight we carry by focusing on routes and optimising on return loads.
Their fleet of trailers on long-term leases, which comprises more than 300 units , must not be more than 3 years
old before replacement. The company uses rail when possible and when financially expedient. Freight
transported by rail is a key operation to regions in central and east Russia and CIS countries where it is often
difficult to find return loads. Rail transport emits less CO2 per tonne-km. In 2012, rail transport accounted for
14% of total freight transported by ICT Logistics and its subcontractors
46
4.6 Logistics centers’ level of development
Based on the points system which is described in the theoretical chapter (table 2&3), a survey
has been sent out to ACL partners to collect information about three logistics centers in their
home countries. Table 4 shows the scores for all logistics centers.
Logistics center Services Connectivity (sum) Connectivity road and rail
Connect to Sea port
Connect to Airport
NTC (DK) 31 12 7 5 0
TTC 20 14 14 0 0
STC 20 16 11 5 0
Klaipeda (LT) 13 13 8 5 0
Kaunas 13 20 15 0 5
Vilnius 16 15 10 0 5
GVZ Altenwerder (DE) 18 24 19 5 0
Soltau 14 11 11 0 0
GVZ Sudwestsachsen 14 15 15 0 0
Riga (LV) 24 14 9 5 0
JSC 12 5 5 0 0
Schenker 19 7 7 0 0
CLIP Logistics (PL) 25 19 19 0 0
Euroterminal 20 17 17 0 0
Slaskie centrum 27 27 22 5 0
47
BTLC (BY) 27 13 13 0 0
JV Brestneshtrans LLC 29 6 6 0 0
Dvadcat chetyre LTD 18 6 6 0 0
Table 4: Score card for all logistics centers in connectivity and services; Own creation based on answers
from ACL partners
Figure 5: The logistics centers’ level of development, own creation, based on table 4
In figure 5, each triangle represents three logistics centers in one country. The color of the
nodes show if the logistics center connects with seaport, airport or both. The yellow node
shows that the logistics center connects with seaport. The blue node shows that the logistics
center connects with airport. The red node presents for the logistics center, which connects to
both seaport and airport. The black node shows that the logistics center does not connect with
48
either seaport or airport. Although there is point system that the logistics center scores, when
it connects with airport and seaport, the nodes’ colors are presented, because the point system
is just an approximately method.
It can be seen in the map that there is no logistics centers from the survey, which connects to
both airport and seaport, but half of the centers connect to neither airport nor seaport. There is
not any logistics center, which scores the highest in both services and connectivity dimension.
The Slaskie center in Poland scores highest in the connectivity dimension, while the NTC
center in Denmark scores highest in the services dimension.
As mentioned, the connectivity with seaport and also good connections with road and rail
gives Slaskie logistics center in Poland the highest score in the connectivity dimension. This
logistics center also scores high in the services dimension among all centers. The other two
logistics centers in Poland do not connect with either seaport or airport. The CLIP logistics
centers scores as the 5th
highest in the services dimension of all centers, but it doesn’t get high
position in the connectivity dimension.
Among the three Danish logistics centers in this survey, none of them connect with airport,
but two connect with seaport. The best logistics center in Denmark – NTC, is also the best one
in all countries, if one looks at the services dimension. However, this center doesn’t score
high in the connectivity dimension. The other two logistics centers in Denmark score the same
in the connectivity level, which is somewhat in the middle of the map, but they stay quite far
from NTC logistics center, according to the services dimension. It is suggested that the
logistics centers in Denmark should be developed focusing a lot in the connectivity
dimension.
All three logistics centers in Lithuania connect with either seaport or airport. Kaunas is the
logistics center, which scores highest in the connectivity dimension in this country. It takes
the 3rd
highest position after one from Poland and the other one from Germany. It can be seen
that all three Lithuania logistics centers stays on the left side of the map, which means that
these centers doesn’t score high in the services dimension. Thus, it is recommended that the
development of logistics center in Lithuania should focus more on the services dimension,
while the connectivity dimension should, of course, be continuous developed.
In Germany, there is only one logistics center, which connects to seaport. In this survey, this
center is the best logistics centers in Germany and it also stays in the 2nd
highest position
among all logistics centers in the connectivity dimension. Despite of this, all logistics center
49
in Germany doesn’t score very high in the service dimension. Thus, it is suggested that
service dimension should be focused, when these logistics center are developed in the further
The three logistics centers in Belarus do not connect with either seaport or airport. It is due to
the fact that the country doesn’t connect to the sea. Thus, road and rail connectivity is
extremely important for Belarus. It can be seen in the score card that all Belarusian logistics
centers connect with national roads. Concerning services function, the best logistics center in
Belarus scores the 2nd
place after one logistics center in Poland. Since road and rail
transportation are very important connection mode, Belarus should give effort to enhance
quality of roads and improve the railway connections.
Latvia has two logistics centers that connect with airport and one connects with seaport. The
one that connects with a seaport is also the best one in Latvia, with the highest score in both
the services and the connectivity dimension. The second best logistics center in Latvia score
the same point as in connectivity as the less developed center in Germany. The least
developed center in Latvia is also the least developed logistics center in this map with the less
point in both dimensions. Thus, it is recommended that a more equal development of logistics
centers in Latvia should be made.
Overall, all countries except Belarus have at least one logistics center, which connects with
either seaport or airport. Latvia has one logistics center which is the least developed among all
logistics center in this map, but Latvia has another center, which is in average connectivity
and quite highly developed in the service dimension. It should be mentioned that all three
logistics centers in Lithuania is under planning and they will be built in 2014. When these
logistics centers are built, they will have functions and connectivity as what is show on the
map.
As mentioned in the methodological chapter, it is necessary to take the business point of view
in order to make recommendations for improving logistics centers in the BSR. From the
interview with the managing director of ICT Logistics, it is noticed that it is not always the
best to score the highest in the comparison map. The functions and services of a logistics
center should depend on the target group, which the logistics center wants to serve. A logistics
center in Denmark probably serves the most to the customers that transport between
Scandinavian countries. Denmark is an important bridge to connect Sweden and Norway with
Germany. In the BSR, Poland has a very good geographical position because it connects with
Scandinavia by sea and connects by road with many countries, including: Germany, Ukraine,
Belarus, Lithuania, Czech Republic, and Slovakia. The central location is a big advantage for
50
Poland but still there is room to develop connectivity for roads and in rails. It can be seen in
the map that Poland already has logistics centers that developed a lot better compare to others
in the same region. The development of logistics center also depends on the quantity of goods
that need to be transported via the country. A logistics center, which locates in a smaller city
and aims to serve mostly for domestic transport companies, would need less focus of
improving than another center, which located in the capital and serve multi-national transport
companies doing business internationally.
To sum up, the development of logistics centers in different countries is not equal. Some
countries have better center in services and some countries has better center in connectivity.
In order to improve accessibility in the BSR, there is a need for improving low accessibility
areas to become more equal with the high accessibility areas. It is not easy to do so, because
the development of economics, technology and market of different countries are not the same.
On the other hand, the need for services and connectivity in logistics centers is different in
different areas. Therefore it is very important that each country put effort to study more about
what the target group of logistics center in their country is. It will help the country to make the
best strategy to develop its logistics center and to avoid over-investment in some unnecessary
services.
51
5. Conclusion
There are many different challenges, which a private logistics company faces in the business.
The case study of this project- ICT Logistics is an example among a lot of logistics companies
that are working in Europe/ the BSR market. The main challenges mentioned in this project
are the most common challenges, which are barriers for most companies doing business in
BSR, especially in Belarus. These challenges are: policy/administration, infrastructure and
market demand. The policy/administration challenges are about border queues, bureaucracy in
custom clearance procedure, permit for transport trip and VAT issue. Besides, the
infrastructure is not equally developed in all countries in the European area as well as the
BSR. It can make it difficult for logistics companies to drive by truck during rain and winter
seasons. Fluctuation in market demand is also one of the main challenges for logistics
companies. The market demand in some countries such as Russia can increase dramatically in
high season (the fourth quarter). Logistics companies who do not own many trucks, trailers
and drivers will have problems with capacity in order to provide services. Because of different
market demand in export and import, it might happen that the trucks drives empty, which is
very costly for the logistics companies and their clients. In order to overcome challenges, ICT
Logistics has strategy of building strong relationship with different partners. It has
representatives in many countries, which take care of customers, relations and problem
solving in those countries. The company also builds up relationship with other logistics firm
where the two companies share customers, capacity with each other. It can partly solve the
problem about capacity in high season, so that ICT Logistics can avoid over-investing in
equipment and staff. To overcome the challenges of infrastructure, the company combines
transport by road with railway and sea. The representatives who are local people in different
countries are also resource for the company to gain more knowledge about the regions.
Knowing that policy is a very big challenge for the company, ICT Logistics tries to cooperate
with legal and public institution. The cooperation between the company and the Amber Coast
Logistics projects and to be the honorary consul of the Republic of Kazakhstan in Denmark
could be examples.
ICT Logistics is competing in the ‘red ocean’ with many competitors who do the same
services and working in the same markets. Pricing is always an important element, which the
customers consider when choosing to buy a product or service. However, ICT Logistics
52
consider quality of service as the most important factor, and it has to be excellent. The
company strategy is not to lower price, but to improve the quality of equipments, as well as
drivers and knowledge in order to make the best services for customers.
Customer relationship management is considered as necessary and important in almost all
companies nowadays. Because of the highly competitive in the red ocean market, ICT
Logistics also consider customer relationship as an extremely important to make customer
satisfied. The company does not offer ‘fantasy’ extra benefit to customers, but tries to
improve the customer services instead. The customer services in ICT Logistics are about
providing the best information about the region of transport to customers, update the transport
and using the best quality of equipment and staff to carry out activities. The company believes
that the quality of services is the most important element, which makes customers satisfied to
cooperate in the long run.
There is not an equal development in accessibility of logistics centers in different countries in
the BSR/partners of ACL. Some logistics centers offer a lot of services and connect well with
road, rail and ports. Some logistics center offers a low degree of accessibility with very few
services and no connections to seaports or airports. The highly difference in development of
logistics center in the BSR should be reduced among countries and logistics centers.
However, the strategy of improving should be based on the target group of the logistics
centers. It should not be over-investing to create more services which are not necessary to
have in a particular area. The investment to improve logistics centers should be integrated
with the needs of improvement which is different among the areas where the logistics centers
are.
53
6. Recommendations:
Based on the research and result of this report, recommendations are given to increase the
accessibility in the BSR. The accessibility in the BSR can be increased by the improvements
of business environment and the accessibility of logistics centers.
The administration processes in borders should be simplified so that time waiting in
the borders can be reduced.
In Belarus, the administration processes in VAT reimbursement to companies should
also be simplified to reduce time consuming.
Networks between companies, as well as networks between the private and public
sectors should be encouraged, in order to create more opportunities for companies to
enhance their knowledge and resources. The cooperation between the public and
private sector will help to increase quality of public services and infrastructures for
transport and logistics industry.
Logistics centers in the BSR should have more equal development.
The development of logistics centers can be made based on the services and
connectivity dimension. However, the development should be planned according to
the groups of customers, which the logistics centers target to serve. The strategic
location of logistics centers should be considered to make it easier for both customers
and companies located in the centers.
54
7. Reference
ACL 2012: ambercoastlogistics.eu
Arbnor and Bjerke, 1997: Methodology for Creating Business Knowledge, Ingeman Arbnor,
Bjorn Bjerke, second edition, SAGE Publications
Bentzen et.al, 2003: Best practice handbook for logistics centres in the Baltic Sea Region,
Polish national committee for scientific research, 2003
Bentzen, 2011: Logistics centres and freight villages- European experiences and perspectives,
Kent Bentzen, 19 October 2011
Bryman and Bell, 2003: Business research methods, Alan Bryman and Emma Bell, first
published 2003, Oxford University press
Casciaro & Piskorski, 2005, p. 167: Power imbalance, mutual dependence and constraint
absorption: a closer look at Resource Dependence Theory, Tiziana Casciaro and Mikolaj Jan
Piskorski, Harvard University, 2005
CIA fact book: /www.cia.gov, viewed on 03 January 2013
Cui & Hertz, 2011: Networks and capabilities as characteristics of logistics firms, Lianguang
Cui, Susanne Hertz, Industrial marketing management, 2011
Das et.al, 2001, p.256: Trust, control, and risk in strategic alliances: an integrated
framework,T.K. Das and Bing-Sheng Teng, Organization Studies 2001
Doderer S. (2010), Amber Coast Logistics, Multi-modal freight transport connections in the
southern Baltic Sea Region, 08.12.2010
Europa, 2012: http://europa.eu, viewed on 05 January 2013
Europlatforms, 2004: Logistics centers - direction for uses, a report by Europlatforms EEIG,
January 2004
EU White paper 2001: White paper - Roadmap to a Single European Transport Area –
Towards a competitive and resource efficient transport system, 28 March 2011
Finished Vehicle Logistics: http://www.fvlmagazine.com/, viewed on 05 January 2013
Fraunhfer CML, 2012: Research papers concerning the technological dimension of
accessibility within the Amber Coast Logistics region, August 2012
55
Gebert et.al, 2003: Knowledge- enabled customer relationship management: integrating
customer relationship management and knowledge management concepts, Henning Gebert,
Malte Geib, Lutz Kolbe and Walter Brenner, Journal of Knowledge management, 2003
Hollensen 2007: Global marketing, Svend Hollensen, fourth edition, 2007
Holm, et, al., 1996: Business networks and Cooperation in International Business
Relationships, Desiree Balnkenburg Holm, Kent Eriksson, Jan Johanson, Journal of
International Business Studies, Vol. 27, No. 5, Global Perspectives on Cooperation Strategies
(1996)
Håkansson, Ford 2002, p.133: How should companies interact in business network, Håkan
Håkansson, David Ford, Journal of Business Research 55, 2002
ICT Logistics 2012: http://www.ict-as.dk,
Internal Newsletter, 2012: ICT Insight –Internal ICT Group Newsletter, 16 May 2012
International Union of road- rail combined transport companies: http://www.uirr.com,
Johnson, 2010: Air cargo- an important part of a logistics hub, Ellis L Johnson, Hong Kong
Logistics forum, 13 October 2010
Kotler and Keller, 2006: Marketing management, Phillip Kotler and Kevin Lane Keller,
Pearson Prentice Hall, 2006
Kim & Mauborgne, 2005: Blue Ocean Strategy: How to Create Uncontested Market Space
and Make Competition Irrelevant, W Chan Kim and Renee Mauborgne, Harvard Business
School Press, 2005
Kuada 2011 : Research Methodology-A Project Guide for University Students,John Kuada,
Centre for International Business Department of Business and Management, Aalborg
University,August, 2011
Lieb & Bentz 2005: The use of third-party logistics services by large American manufactures:
the 2004 survey, transportation journal
Ministry of foreign affairs, Russia Federation : http://www.mid.ru,
Pfeffer and Salancik, 1978: The external control of organizations, a resource dependence
perspective, Jeffrey Pfeffer and Gerald R. Salancik, 1978
Porter,1996: What is strategy, Harvard Business Review, 1996
56
Rienechker and Jøgensen 2006: Den gode opgave, Forlaget Samfundslitteratur, 3. udgave, 2.
oplag, Rienecker, Lotte and Peter Stray Jørgensen, 2006
Rust et.al. 2012: Political and Administrative dimension of accessibility, 07 December 2012
Sørensen, 1999: Business development through networking- An explorative study, Olav Jull
Sørensen, International Business Economics Center for International Studies, Aalborg
University, November 1999
Rimiene & Grundey 2007: Logistics Centre Concept through Evolution and Definition,
Kristina Rimiene and Dainora Grundey, Engineering Economics, 2007
Rodrigue & Ducruet, 2012: The geography of transport networks, Dr. Jean-Paul Rodrigue and
Dr. Cesar Ducrunet, 2012
Transportmagasinet,2012: Top 100, transportmagasinet nr.14, 24 September 2012
Vej regler, transportministeret: http://vejdirektoratet.dk,
http://www.transinfo.by/
http://www.transportal.by/
http://gpk.gov.by/
http://www.neg.by/
http://www.cargonews.lt/
http://elibrary.miu.by/
http://www.baif.by/
http://mintrans.gov.by/
http://management.bel.biz/
57
