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LOGISTICS

Logistics outsourcing, a service assisting SMEs

One of the biggest challenges that SMEs face is delivering the product to the customer in due time and form. To achieve this, companies are increasingly seeking assistance from logistics operators to handle the entire process, from customs procedures and packaging to transportation towards the final destination of the goods.

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Published by ConnectAmericas

Delivery time delays, damaged goods, poor knowledge of international rules and lack of experience in carrying out customs procedures are some of the problems that SMEs (small and medium enterprises) face upon exporting.

According to a DHL report prepared in cooperation with the University of Darmstadt, logistics is a complex issue and one of the most strategic processes in a company. This is why the number of SMEs that leave this part of management in the hands of specialized companies has increased in recent years.

Logistics services providers have a great business opportunity at hand in the SME market since it is an underserved sector

Logistics services providers have a great business opportunity at hand in the SME market since it is an underserved sector, which requires elevating efficiency in order to reach them. According to figures from the Latin American Logistics Center, logistics costs account for 8.5% of the GDP in developed countries, while in Latin American countries it is close to 19%. Additionally, in several countries in the region it may even considerably exceed this figure, depending on the geographic location and the complexity of customs procedures, among other factors.   

Logistics advantages

The constant evolution of productive processes and the rapid appearance of competitors have generated a change in the market, where products turn into “commodities” and price and quality are not seen as such influential factors throughout the negotiation process. Rather, factors such as the speed in which a product reaches the customer, the use of technologies, for instance traceability, and the guarantee that products will not arrive damaged are becoming ever more significant. Hence, logistics operators are becoming increasingly important to SMEs since they provide the level of competitiveness required to differentiate themselves from other players.  

A publication from the Spanish Ministry of Industry, Tourism and Trade explains that competition in this millennium is not between companies but between logistics chains. The logistics sector is of enormous relevance, especially because it generates a traction effect for private sector development and growth of other economic players in a country or region. Efficient logistics accessible to all constitutes a key element for companies from a specific country or region in general, in particular for SMEs, to successfully compete in this new global market.

Potential in Latin America 

SMEs are a main component of the productive framework, accounting for approximately 99% of total companies and create jobs for almost 67% of the labor force, according to a joint publication from the Organization for Economic Co-operation and Development (OECD) and the Economic Commission for Latin America and the Caribbean (ECLAC).

The same study reveals that in spite of these figures, SME internationalization in the region is slow, weak and limited, especially in Caribbean countries. Comparing these companies in Europe and East Asia, the internationalization and promotion levels in Latin America and the Caribbean are significantly lower. Roughly 10% of Latin American SMEs export part of their production compared to 30% in East Asia. In Europe, this figure rises to 40% of the total amount.

The difference between Latin America and other regions is, among other factors, the lack of supply in logistics services for this type of companies. This, however, offers service providers an attractive opportunity to invest or focus more on this sector. According to a report from Grupo T21, the Mexican firm Global Logistics is an example of a logistics operator seeking to benefit from this market niche. It has recently unveiled a new 14 meter high and over 14,000 m2 warehouse center in Tultitlan dedicated to these companies.

They identified that SMEs, in general, were limited to engaging logistics services due to the high costs, especially in contrast to what larger companies paid. This due to their lower power of negotiation and operating volumes compared to that of the larger companies. Therefore, they designed a freight consolidation-friendly warehouse to reduce packaging, storage, labeling and transportation costs for customers.

Instead of SMEs having staff engaging in logistics activities, in addition to adequate physical space, Global Logistics’ customers share these elements, which reduces costs for all. With this, the expectation is for a larger number of SMEs to feel motivated about expanding or participating in the international market by outsourcing their logistics management.

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