Global Operations and Logistics: Incheon Electric Case Study Report

This report provides a comprehensive analysis of Incheon Electric, a South Korean power tool manufacturer, and its planned expansion into the European market. It examines the company's situation, including a PESTLE analysis to assess political, economic, social, technological, legal, and environmental factors influencing its entry. The report delves into critical cost factors such as transportation, inventory management, and wholesale/retail considerations. It also explores service factors, including pre- and post-transaction customer service. The report concludes with recommendations for an effective distribution strategy, including a plan of action for resellers, to ensure successful market penetration. The report highlights the challenges of high transportation costs, regulatory requirements, inventory carrying costs, and competition in the European market, while suggesting strategies to mitigate these issues and capitalize on market opportunities. It offers valuable insights into the complexities of global logistics and distribution for businesses expanding into new international markets.

Global logistics and operations
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Contents
Introduction......................................................................................................................................2
Situational analysis..........................................................................................................................3
Cost factors......................................................................................................................................5
Transportation cost......................................................................................................................6
Inventory......................................................................................................................................7
Wholesale and retail....................................................................................................................8
Service factors.................................................................................................................................9
Conclusion.....................................................................................................................................11
Recommendations..........................................................................................................................11
Recommendation for resellers...................................................................................................12
Plan of action.............................................................................................................................12
References......................................................................................................................................15

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Introduction
Incheon electric is a South Korean based manufacturer of power tools that was established three
years ago when spun-off from one of conglomerate operating companies. The products of the
company are of high quality as well as priced competitively. The products that are majorly
offered by the company are used by tradesmen majorly that includes the plumbers, carpenters
and many others with the motive to get the high quality, durability, availability and after-sales
services. The company has enjoyed the success in the market of East Asian markets and now
they are planning to enter into the market of Europe that include diverse countries that include
UK, Eire, Netherlands, Sweden, Germany and many others. Considering this case, the report is
prepared considering the role of logistics consultant it is essential to form the distribution
strategy that includes the entire process of moving products. The situational analysis has been
conducted to evaluate the opportunities in the market of Europe towards the company. Along
with this, it also considers the cost factors as well as the service factors that lead to an impact on
the working of the company. In the end, the recommendations for the effective distribution
strategy are presented along with the plan of action.

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Situational analysis
The situational analysis is considered as the collection of methods that are used by the managers
to analyse the internal as well as the external environment with the motive to organisation
capabilities and business environment (Baker, 2014). This analysis is possible with the help of
the PESTLE analysis, a tool used by managers to analyse and monitor the environmental factors
that can influence the performance. The implication of PESTLE analysis on Incheon electric has
been done below –
PESTLE
factors
Description
Political
factors
The political factors that are required to consider include changes in the rules
and regulation. Incheon electric company will find the stability in the
government due to which there are very fewer fluctuations in rules and
regulations which leads to rise in opportunity for the company while
distributing products (Chernev, 2018). However, the taxation policy in the
market for the power tools conglomerate company might change which leads
to the threat for Incheon electric while entering into the market of Europe.
Economic
factor
The economic factors that are majorly considered by the Incheon electric in
Europe include GDP and purchasing power of customers. This has been
witnessed that there is improvement or decline in most of the countries of
Europe that include the UK, Eire, Netherlands, Sweden, Germany and others
which influence the purchasing capacity of customers. UK economic growth is
witnessed with the improvement in GDP to 0.5% April 2019 from 0.2% in

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January 2019 (Trading economics, 2019). On the other hand, Germany
registered a major decline in GDP from July 2018 to January 2019 from 2.8%
to 0.7% that affects the demand for the products (Trading economics, 2019).
Social factor The social factors lead to the opportunity for the company because the demand
for the power tools by the carpenters, plumbers, and others are increasing.
Also, the development of power tools with smart technologies is considered as
one of the major trends that are witnessed in the Europe market from the year
2018-2022 (Business wire, 2019). The growth in Europe will grow by USD
1.36 billion after the year 2018 until the year 2022 (Tech Navio, 2019). The
major end-users of the products include commercial, residential, and industrial
by a different region of Europe that includes Germany, France, and the UK.
Technological
factor
The improvement and up-gradation in technology are one of the factors that
influence Incheon electric company because while manufacturing the power
tools they use the updated technology that makes work easy for the Incheon
electric in Europe market (Dawson, 2014). Thus, this becomes an opportunity
for the company in Europe but this is also found that up-gradation in
technology requires the company to invest a big amount. Incheon electric
company needs to invest a high amount that is one of the negative element for
the company. Also, the company will find the threat of competitors due to
which they need to ensure that while manufacturing the product they will
consider the technology used in the product.
Legal factor Incheon electric will consider legal factor while expanding the business in the
market of Europe. Considering the EU labour law, the maximum working

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hours in the week is 48 hours with a minimum of 11 rest hours in 24 hours.
Thus, the company is required to follow each regulation. Employment Rights
Act 1996 and Employment Act 2002 are required to follow by the company
when they expand their business in the European market (Legislation. gov.,
2019). This might be a threat to the company because they have to pay a high
amount to the labours in Europe while comparing it with the Asian market.
Environmenta
l factor
The environment factor is required to consider by the Incheon electric in the
market of Europe. Government of the UK has played a vital role in the
development of European environmental standards that will all EU policy-
making. The country has brought the motive of sustainable development that
includes elements like nature and biodiversity, natural resources and waste,
health, and quality of life (Grant, 2016). Thus, the Incheon electric need to
ensure that they abide by all regulations while manufacturing the products and
selling them in the market of Europe.
Cost factors
The cost factors are required to consider by Incheon electric while distributing the products from
the Asian market to the European market. The company has decided that to optimise the
manufacturing competences they export the products to Europe from their manufacturing
facilities that are available in South Korea and Tianjin, China. Initially, the company will expand
the business in the UK and then in another market. Thus, while distributing the product in the
market they need to consider some of the cost factors that include –

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Transportation cost
The cost of transportation is considered as the internal cost that is assumed by the providers of
the transport services which can be fixed as well as the variable cost majorly depends on the
different sort of the conditions that are linked to geography, infrastructure, barriers related to
administrative, energy and many others. The company is exporting the products from South
Korea and china needs to be aware of the exporting to the UK and other European countries that
include rules and regulations, high cost and others (Export. gov, 2019). The exports must know
about exporting the products with the proper planning and assistance from agencies. Some of the
challenges include -
 High cost: - The exporting of the products in the European region is very expensive for
Incheon electric due to the procedures. It has been witnessed that London is one of the
world’s most expensive cities in terms of transportation, property prices, plumbers,
carpenters and others (Palmatier, Stern and El-Ansary, 2016). Overall, the transportation
cost remains high in the UK for export from freight charges to normal transport. This is
clear with the graph shows the cost is improving continuously from the year 1985-2015
year.

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(Source: Pettinger, 2011)
 Regulatory requirements: - EU technical and regulatory requirements are very much
complex that can be burdensome. This is the fact that Incheon electric company needs to
adhere to every regulation to export the products in the market (European Union, 2019).
However, the bilateral trade which is worth of Euro 13.3 billion in 2017 and has
increased with the average of 12% in a year since there was trade agreement between EU
and South Korea (Jung-a, Rovnick and Giles, 2019). Besides, the failure or issue in
regulations might leads to the issue of penalties that affects the distribution cost of the
company.
Inventory
The inventory includes the cost of production that is considered for the distribution of the
product. In the wholesale distribution of the durable goods with the additional cost that is
required to be managed by Incheon electric to ensure the business to remain profitable (Frynas
and Mellahi, 2015). The distribution of the product in the UK include different sort of cost.
 Carrying costs: - Incheon electric faces the carrying cost that includes premises, utilities,
staffing, insurance with high inventory that include a high cost. The UK is consists of
different cities like London, Birmingham, York, Cambridge, Washington and many
others that contribute to effective warehouses that are essential for the effective
distribution. There are some areas where Incheon electric can find the places for
warehouses that are essential for exporting products.
 Stock-out costs: - It is the cost that the business in lost the opportunities for sales and
reduce the confidence of customers. While exporting, there is the possibility of the high

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opportunity in which the company get obliged to pay for the non-delivered items as well
as their assigned costs due to stock-outs (Rushton, Croucher and Baker, 2014).
 Ordering costs: - The ordering cost is considered as one of the major factors that affect
the Incheon electric in exporting the products to the European regions. The purchase of
stock, there is a different cost that is related to procurement that includes the delivery cost
of the stock, labour that includes in transferring the inventory to the warehouse as well as
the need for the large obtaining team to place guidelines (Bertazzi and Speranza, 2012).
Incheon electric leads to different opportunity and threats in the market of UK.
Wholesale and retail
In the costing, Incheon electric company will also consider the wholesaling and retailing
expenditure because they need to form the tie-up with wholesalers and retailers who can sell
their products in the market. The commission of these distribution channels is going to be
decided by the company for managing the smooth operations. However, they deal with different
challenges in the market that include -
 Competitive market: - UK and third-country suppliers are considered as strong
competitors due to which they easily accept the product that remains differentiate their
products. Incheon electric is offering electric products that are different in the
conglomerate operating industry (Ross, 2015). However, the company can easily select
wholesalers as well as retailers who can effectively contribute to resell the products in the
UK because of the wide availability. The commission or cost will be charged by the
distribution intermediary that will add to the price of the product.
 Decline in the consumer confidence: - The fact is that despite the uncertain post- Brexit
vote economic picture that shows that the government is committed to reduce its deficit

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that clearly reflects that there is continue cut in the public spending which will reduce the
confidence of consumer in major markets which include London, Cambridge, York and
many others. The consumers who are not spending leads to the challenges for wholesalers
and retailers as their cost of promoting the product through different channels will
improve (Olsson, Gadde and Hulthén, 2013). They make use of direct selling, online
selling, and personal selling techniques to grab the attention of maximum customers that
will lead to rise in the cost of the product.
Service factors
Incheon electric company needs to understand the service factor that includes the post and pre-
transaction.
Pre-transaction elements: - Customer service factor that arises before the actual transaction that
is taking place. The elements that are involved in this transaction include a convenient way to get
contact with the company who is offering the products in the market (Kułyk, Michałowska and
Kotylak, 2017). In London and other cities of the European market, Incheon electric can contact
with the intermediates that include wholesalers and retailers with the motive to provide the
guidelines for the activities that they need to include in pre-transaction. The wholesalers and
retailers can provide a demo for the products as well as for the instruments that are essential to
make them understand about the use of these tools. The company will ensure that its distribution
of product is on time due to which there is no effect on customer service.
Post-transaction elements: - Post-transaction elements include those elements that might occur
after the delivery of the product that takes place. In this, the major elements are repairs,
warranties, returns, as well as complaints. Incheon electric company will need to ensure that the

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wholesalers and retailers are offering warranties and return facility. These people need to
conduct proper record for people who purchased the product to provide them with full services
(Rushton, Croucher and Baker, 2014). The after-sales services in the European region, especially
in the UK, are possible because of retailers and wholesalers in the market. The loophole in
offering post services will influence customer service and this makes the company not to visit
again. However, effective and improved services will make customers visit again.

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Conclusion
At the end of the report, this can be concluded that Incheon electric company can conduct
distribution strategy in the market of Europe, majorly in the UK and its cities but they need to
deal with different sort of issues while distributing the products. The company found in a
situational analysis that there is the availability of high opportunities in the market of the UK and
its cities. However, the cost and service factors are required to consider before exporting the
products in the country that include different opportunities and challenges that might be faced by
the company while entering the European market.
Recommendations
 It is suggested to the company to conduct a deep analysis of the market that helps them to
gain more opportunities from the market majorly in companies like the UK and its other
related cities.
 It is suggested to Incheon electric that to manage the cost of transportation they should
form the alliances with the companies who provide the transportation facility from one
place to another.
 It is suggested to the Incheon electric to search for wholesalers and retailers who have
good goodwill and value in the market as this helps them in selling their products easily.
Along with this, these intermediates can also contribute from their end.
 The company should consider the marketing cost because the promotion of the product
will lead to the success of business in the UK and related cities.