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Article Excerpt
Abstract
This research empirically evaluates international logistics zones in Kaoshiung, Hong Kong, and Shanghai ports based on the importance of investment criteria from the perspective of investors in Taiwanese manufacturing firms. Results suggest respondents viewed political stability as the most important investment criterion, followed by corporate tax incentives, government administration efficiency, labor cost, and energy cost. Shanghai Port's industrial logistics zone has a very strong competitive edge in cost, market, and industrial related criteria. The international logistics zones in Hong Kong and Kaohsiung ports have advantages in infrastructure, political, and financial related investment criteria. Respondents preferred to invest in the international logistics zone in Shanghai Port rather than that in Kaohsiung or Hong Kong Ports. Leasing factory buildings to operate their business in an international logistics zone was the preferred entry mode. Theoretical and practical implications of the research findings are discussed.
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With the development of international business, multinational firms have been pursuing greater efficiency in logistics and transportation systems. In particular, transport demand requires efficient integrated moves, premium package services, and making the best use of available modal transport operations and logistics zones (Coyle, Bardi, and Langley 1996). The role of international logistics zones as home bases for merchandise transportation and distribution has therefore become increasingly important (UNCTAD 1995).
An international logistics zone in the logistics system provides a place for firms to store or hold their raw materials, semi-finished goods, or finished goods for varying periods of time. A number of countries' governments have constructed or plan to establish logistics zones to expand the capacity of existing air and maritime transport infrastructure. Thus, international logistics zones have been developed in several ports to provide several value-added activities, including manufacturing, warehousing, consolidation, packing, labeling, processing, and distribution. Several logistics zones have been established at major Asian airports and seaports; for example, Kepple Distripark (Singapore), Alexandra Distripark (Singapore), Pasir Panjan Distripark (Singapore), Hong Kong International Distribution center (Hong Kong), a Foreign Access Zone (Yokohama), Maasvlakte Distripark (Rotterdam), Eemhaven Distripark (Rotterdam), Busan Logistics Park (Korea), and Kaohsiung Yes Logistics Zone (Taiwan). As well as providing a transportation function, the role of the current ports has extended to providing an integrated logistics service.
As a result of many countries seeking to develop logistics zones in order to attract investment to stimulate their domestic economies, competition has intensified significantly between them. To develop a successful logistics zone, confront increasing competition, and gain competitive advantages, administrators or port authorities must understand important investment criteria from the perspective of investors.
Previous studies have examined determinants affecting firms' foreign direct investment (FDI) in specific zones or countries (Rolfe et al. 1993; Sun et al. 2002; Bevan et al. 2004). FDI is defined as the cross-border control of facilities, necessarily involving the equity control of at least 10 percent of a facility's value, through new construction, acquisition, or lease (UNCTAD 2001). Such studies have concluded that investment attractiveness may be influenced by such factors as market orientation, labor force, tax incentive, and transport infrastructure. To our knowledge, however, there have been few empirical studies examining international logistics zones as an investment attraction. It seems reasonable to assume that many of the theories explaining the determinants of manufacturing FDI can be applied to investment decisions relating to logistics zones. Thus, this study aims to evaluate the importance of investment criteria to Taiwanese manufacturing firms when selecting international logistics zones, comparing the competitive advantages of the logistics zones in Kaohsiung, Shanghai, and Hong Kong ports in order to fill the gap in the literature and provide useful policy information for developing logistics zones. There are five sections in this study. The following section reviews previous studies that have investigated the criteria taken into account when considering foreign direct investment in international logistics zones.
The next section describes the research methodology, including questionnaire design, sampling technique, and analysis methods. The following section presents the survey findings, and conclusions are drawn and implications are discussed in the final section.
LITERATURE REVIEW
Definition of an International Logistics Zone
From an evaluation of the information on Web sites provided by major international logistics zones, an "international logistics zone" is defined as a zone that integrates the operations of manufacturing with land, sea, air transportation, and storage, port, and customs operations in order to achieve the efficient distribution of commodities. From a logistics perspective, international logistics zones provide several value-added activities in an integrated logistics system, e.g., consolidation, packaging, labeling, assembly, economic processing, contingency protection, and smoothness of operation. An international logistics zone is an isolated, enclosed, and policed area, in or adjacent to a port of entry, without resident population, furnished with the necessary facilities for loading and unloading, for supplying fuel and ships' stores, for storing goods, and for reshipping them by land and water; an area within which goods may be landed, stored, mixed, blended, repacked, manufactured, and reshipped without payment of duties and without the intervention of customs officials. It is subject, equally with adjacent regions, to all laws relating to public health, vessel inspection, postal service, labor conditions, and immigration--indeed, everything except customs.
An international logistics zone has the functions of a free trade zone and free port. It is a specified area where trade is based upon the unrestricted international exchange of goods, with customs tariffs used only as a source of revenue and not as an impediment to trade development. In addition, logistics zones can be viewed as customs-free zones, or technically as foreign territories for tax purposes. They are designed to attract overseas traders and manufacturers to set up businesses. Duty is payable only when goods move into the host country. Goods that are imported from abroad are not subject to any domestic tariffs, duties, or regulations until they actually leave the logistics zone. If their destination is another foreign country, they are permitted to leave the logistics zone without the burden of customs dues, which they would have incurred at any point. If the imported goods leave the logistics zone for a destination in the same country, they are taxed on leaving the logistics zone as if they had just arrived from abroad (Branch 1996).
Criteria Considered Important for Investing in International Logistics Zones
Though the foreign direct investment concept used in this study has not previously been applied to international logistics zones from a manufacturer's perspective, investing in international logistics zones is a specific type of FDI. The selection of criteria for investing in international logistics zones is therefore developed based on previous studies of FDI determinants. Much of the existing literature on FDI determinants or location choice has been concerned with enterprises (Tong and Walter 1980; Terpstra and Yu 1988; Rolfe et al. 1993; Li and Guisinger 1992; Woodward 1992; Wheeler and Mody 1992; Head et al. 1995; Ulgado 1997; Wu and Strange 2000). Tong and Walter (1980) conducted a survey to examine the plant location decisions of foreign manufacturing investors in the United States. Several variables were identified in their study, including attitudes of people, labor conditions, and utilities, local capital, suitable land and transportation services, community environment, nearness to supply source and market, tax rates, and import-export considerations. The five most important factors were availability of transportation services, labor attitudes, ample space for future expansion, nearness to markets within the U.S., and availability of suitable plant sites.
Terpstra and Yu (1988) investigated the impact of some locational factors and firm-specific advantages on the foreign investment of U.S. advertising agencies based on theories and previous findings relating to FDI criteria considered important by manufacturing firms. Five factors were identified as important in their study, namely, the market size of the host country, geographic proximity of the home country and the host country, firm size, a firm' s international operations experience, and oligopolistic reaction. Allen (1991) examined the importance of logistics in the decision-making process. Critical determinants of overseas plant selection included the role of technology, labor, transportation/logistics, sourcing of raw materials, product quality, government regulations and incentives, communication systems, and information-gathering techniques. Li and Guisinger (1992) investigated critical factors influencing service multinationals' FDI decision in the "triad" regions of Japan, Western Europe, and North America. They found market size, oligopolistic reaction, government regulations, and firm size significantly affected the foreign investment decisions of service multinationals.
Rolfe et al. (1993) examined FDI incentive preferences of multinational enterprises. Results indicated that incentive preferences depend on the type of investment, market orientation, size of investment, geographic location, year of investment, and type of product. Incentives preferred by export firms differ from those of local market-oriented firms, and incentive preferences sometimes differ by country of investment. They also depend upon the product produced, and large investors' incentive preferences differ from those of smaller firms.
Mathur and Ajami (1995) and Brenes et al. (1997a) also indicated that firms seeking to locate their operations in free trade zones should take several factors into account, namely, the quality of available manufacturing and warehousing facilities, access to air and sea ports, transportation modes available, onsite customs offices to expedite and simplify imported raw material clearing, and infrastructure quality.
Globerman and Shapiro (1999) identified the impact of government policies on FDI in Canada. They presented a set of criteria for FDI decisions, including gross domestic product (GDP), the rate of growth of GDP, cost factor, exchange rates, and trade variables. Gourevitch et al. (2000) investigated the geographic location of the hard disk drive industry. They found labor cost and skill, agglomeration effects (the concentration and co-location of economic activities that give rise to economies of scale and positive externalities [Sun et al. 2003]), and government policy influenced location decision. Porter (1991) stressed the importance of relevant firms' support to create competitive advantage. Multinational firms can use relevant firms' support, such as downstream or upstream industries, to create advantage. For example, suppliers and end-users located near each other can take advantage of short lines of communication, quick and constant flow of information, and an ongoing exchange of ideas and innovations. Companies have the opportunity to influence their suppliers' technical efforts and can serve as test sites for R&D work, accelerating the pace of innovation (Porter 1991, 145). Relevant firms' support is also a critical determinant of foreign investment. Wu and Strange (2000) examined the location of foreign insurance companies in China based on the FDI literature. Five important criteria for FDI decisions were identified in their study, namely, (1) market size and the prospects for growth; (2) agglomeration effects produced by the concentration of producer services and other FDI; (3) government policy measures and restrictions; (4) infrastructure quality, ranging from the state of the transportation and telecommunications systems to the existence of a specialized labor force; and (5) cost considerations, both labor and land.
Recently, Sheu (2003) proposed an integrated supply-chain-based model to formulate the overseas facility network design problem. Logistics factors such as material source accessibility, transportation and inventory costs, potential benefits, inter-province distribution restrictions, and long-term regional market condition were considered in his model. Bevan et al. (2004) analyzed the impact of different dimensions of the newly created institutional framework in East European transitional economies on FDI. Several specific dimensions were found to influence FDI: private ownership of business, banking sector reform, foreign exchange and trade liberalization, and legal development.
Tansuhaj and Gentry (1987) investigated differences between users and non-users of foreign trade zones in terms of firm characteristics, the awareness of zone benefits, and the importance of benefits to surveyed firms. Fourteen variables for evaluating zone benefits were identified, namely, facilitation of transshipments, economies of bulk shipping, no inventory tax, facilitating international sourcing, ability to manipulate products, ability to manufacture and assemble, cash flow and interest savings on duty, lower insurance, simplified customs procedures, faster customer service to markets, inverted tariffs, quota avoidance, better discipline in inventory control, and better discipline in handling waste. Brenes (1997b) found key determinants considered important when making international location decisions for new manufacturing in free zones included labor cost, political stability, infrastructure, business climate, financial stability, social stability, the parent company's degree of investment diversification, and other relevant factors, such as public utility efficiency, on-site customs houses, and labor recruiting and training services.
Oum and Park (2004) examined multinational firms' location preference for regional distribution centers in the Northeast Asian region and identified the determinants used for evaluating location choice: get-location; transport linkage and market accessibility; market size and growth...
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