In the last class of Logistics, we were talking about the tremendous growth experienced by international trade relative to GDP growth from 1950 to the present. This means that although the level of production of goods and services has grown, proportionally the number of transactions has increased more. Generally, a larger number of transactions represent more movement of raw materials, goods, merchandise or products. That is, more transport. We saw reflected this fact in the following graph but there is more updated information in this web.
Let’s see an example of what we mean. Take an important spanish guitar factory and call it XGuitars (we could find some real examples like this). Well, to just over 20 years ago, XGuitars bought directly raw materials to build their guitars, then processed these raw materials in the most appropriate manner, and finally guitars were built and sold. But this simple model has been complicated.
There are specialized companies in Spain importing all kinds of woods (the same guitar may contain parts made with American, Asian, African and European woods). They get better prices than XGuitars. So to XGuitars it is more profitable to buy their raw materials to these specialized importers. XGuitars processes the wood to get parts that form the guitar. The assembly of the guitars is a very manual process and labor is expensive, then the prices of the most basic models are expensive and competitiveness is lost. So, cheaper hand labor is sought, but where? Well, usually in China (although this is changing). Improvements in sea transport and its price make profitable for XGuitars sending parts or mounting kits to China. There, the guitars are assembled and returned to Spain. Guitars are received and finished and after passing an exhaustive quality control, are released. And for several years, the market is basically the international market and especially the Chinese!
To summarize and simplify, the woods importer buys raw material in many different parts of the world (first transaction), XGuitars purchases it to the importer (second transaction), XGuitars sends the parts to China (third transaction), China returns the assembled guitars to XGuitars (fourth transaction) and finally, XGuitars finishes the guitars and sells them to China (fifth transaction).
Is it a complex model or not?