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An Empirical Study of Internet Issues among International Freight Forwarders.

The international freight forwarder (IFF) is recognized as a key logistical intermediary for facilitating cross-border trade. While there are several definitions for IFFs, [1] for this article, IFFs will refer "... to an international trade specialist who can provide a variety of functions to facilitate the movement of cross-border shipments." [2] These functions include, but are not limited to, booking vessel space, preparing relevant documentation, paying freight charges, and arranging inland transportation services. [3] Given their expertise in these matters, most companies--regardless of size--engaged in cross-border trade tend to use IFFs. [4]

While large IFFs such as AEI, Panalpina, and Kuehne and Nagel exist, the great majority of forwarders are small companies, often employing fewer than fifty people. [5] In recent years, many IFFs have diversified in the sense that they are providing multiple logistical intermediary services, such as customshouse brokerage and domestic freight forwarding, rather than concentrating solely on international forwarding activities. [6]

Moreover, during the 1990s, the IFF industry experienced tremendous volatility, as manifested through bankruptcies, mergers, and acquisitions. This shakeout and consolidation is predicted to continue, with some experts suggesting that small and mid-sized IFFs are doomed to extinction. [7] Others, however, suggest that corporate survival for international freight forwarders, regardless of firm size, is predicated on having effective and efficient information management systems. [8]

The Internet is increasingly being recognized as an integral component of effective and efficient information management systems for shippers, transport carriers, and logistical intermediaries such as IFFs. [9] Moreover, the Internet is viewed by some industry experts as absolutely essential to a forwarder's corporate survival into the next millennium; failure to embrace the Internet has been likened to "rolling the dice." [10] Because the Internet allows IFF customers to perform many of the forwarders' traditional functions (e.g., booking vessel space, preparing relevant documentation), it is incumbent upon IFFs to develop meaningful value-added services (e.g., analyzing and anticipating customer buying patterns) involving the Internet. [11]

OVERVIEW

Just as there is little question that the Internet has had a profound impact on business activities and practices during the late 1990s, there is also little doubt that the Internet will continue its explosive growth over the next several years. For example, consumer online purchases in the United States are estimated to increase from approximately $20 billion in 1999 to over $180 billion by 2004. [12]

The Internet will continue to redefine business activities and practices. Indeed, the growth in e-commerce is causing many organizations to develop multiple distribution channels, thus creating potential conflicts between the channel arrangements. For instance, how does a longstanding manufacturer balance the opportunities for consumers to order online (direct distribution)with the desire to maintain harmonious relations with long-time channel intermediaries (indirect distribution) such as wholesalers and retailers?

The growth of the Internet as an information and business technology has been well documented by the various media. Despite such impressive media attention, to date Internet-related empirical research has been rather scarce, presenting a wealth of research opportunities. [13] To address part of this literature void, this article presents results from an empirical study involving select Internet issues among international freight forwarders. Because of the nascent status of Internet-related empirical research as a whole, and the exploratory nature of the present study, we believe that the development of Internet-related propositions and/or hypotheses is premature. Rather, this article will investigate the following issues:

* Whether the Internet is viewed as a complement to, or substitute for, electronic data interchange (EDI);

* The importance and current usage of the Internet for conducting IFF business operations;

* The major benefits and barriers to using the Internet to conduct IFF business operations;

* Whether the answers to the preceding questions are influenced by select corporate demographic characteristics.

We believe that this article makes several important contributions to the literature. First, because there have been relatively few empirical studies dealing with the Internet, results from the present study can serve as a foundation to guide future empirical work involving other businesses. Second, because IFFs tend to be small firms, findings from this research offer benchmark information for small businesses, particularly those in service-related industries.

Moreover, IFFs have traditionally added value through their ability to assimilate, interpret, and manage various types of information to facilitate efficient cross-border logistics. As mentioned earlier, the Internet allows many of these value-added services to now be performed by IFF clients, thus threatening the historical core competency of international freight forwarders. As such, the findings from the present research offer insight to other businesses whose historical core competencies are perceived to be threatened by the growth and maturation of the Internet.

The remainder of this article is divided into four sections. The next section discusses the development and measurement of relevant constructs, and will be followed by a section that discusses the study's methodology, to include a brief descriptive profile of the participating organizations. A presentation and discussion of the results associated with the study's research questions will lead to the final section, which will offer concluding remarks.

CONSTRUCT DEVELOPMENT AND MEASUREMENT

Whether the Internet is Viewed as a Complement to or Substitute for EDI

A key issue in contemporary business involves the relationship between the Internet and EDI, with a particular focus on whether the Internet should be managed as a complement to, or substitute for, EDI. [14] This issue is especially relevant to smaller organizations--such as IFFs--that historically have avoided adopting EDI because of its high setup and implementation costs. [15] Furthermore, the Internet/EDI issue is particularly salient in light of recent research suggestions that the Internet offers the opportunity to level the competitive playing field between large and small organizations. [16] To this end, study participants used a five-point Likert scale (1 = strongly disagree; 5 = strongly agree) to evaluate whether their organization views the Internet as a (1) complement to, or (2) substitute for, EDI.

Importance and Current Usage of the Internet

These questions were suggested by EDI research involving IFFs. [17] Similar to this research, study participants evaluated the importance of the Internet using a five-point Likert scale where 1 = very unimportant and 5 = very important. Usage of the Internet was evaluated using a 0 (not currently using) and 1 (currently using) scale.

Benefits and Barriers to the Internet

The benefits and barriers issues have a long history in the empirical EDI literature, and, as illustrated in recent research, in the evolving empirical Internet literature. [18] To this end, the study participants evaluated select Internet benefits and barriers using a five-point Likert scale where 1= very unimportant and 5= very important. These benefits and barriers were derived from various sources, including academic, business, and trade publications, along with discussions with several IFFs.

Corporate Demographic Characteristics

To investigate the robustness of the aggregate results associated with the previously mentioned constructs, the results were analyzed across five corporate demographic characteristics: firm size, firm age, primary business emphasis, degree of revenue diversification, and corporate aggressiveness. Each of these corporate demographic variables was used in previous research to evaluate the robustness of a particular study's aggregate results. For instance, a recent study investigated the possible relationship between firm size and Internet adoption by Singaporean organizations. [19] Research by Silverman and colleagues investigated relationships between firm age and failure rates among motor carriers. [20] The possible influence of a company's primary business emphasis has been investigated in research dealing with EDI usage, [21] while degree of revenue diversification has been used as a differentiating variable in previous 1FF research. [22] Finally, the literature has investigated the influence of corporate aggressiveness on corporate strategy, with a particular focus on its relationships involving mergers with, and acquisitions of, other organizations. [23]

In this article, the corporate demographic variables will be operationalized in the following manner: Consistent with previous literature, the number of employees will measure firm size, while firm age will be based on when the responding organization began business operations. Primary business emphasis will be measured by the percentage of forwarding revenues derived from arranging cross-border shipments moving by water transportation. In keeping with previous IFF research, degree of revenue diversification is a function of a company's percentage of revenues from IFF activities. Finally, corporate aggressiveness will be measured by whether or not responding organizations have acquired another logistical intermediary during the past five years.

METHODOLOGY

A total of 431 international freight forwarders were identified from a recent edition of The Official Intermodal Guide. Each company received an initial mailing, which consisted of a cover letter explaining the purpose of the study, a copy of the survey, and a postage-paid return envelope. Approximately one month later, they received a follow-up mailing, which was identical in content to the initial one.

Eighty-six surveys were returned as undeliverable, thus reducing the effective sample size to 345. This appears to be a large number of undeliverables; however, previous IFF studies also reported a large number of undeliverables. [24] This phenomenon may be one manifestation of the previously discussed volatility currently taking place in the forwarding industry.

There were 80 usable responses after the two mailings, representing an effective response rate of 23.2 percent (80 / 345). Approximately 75 percent of the respondents indicated that they were in a top management position such as chief executive officer, president, owner, or vice president. In addition, nearly 80 percent of the respondents have worked for their present employer for at least ten years. This information on job title and employment tenure suggests that the respondents should be quite knowledgeable about the forwarding industry.

From a corporate demographic perspective, many of the characteristics of the responding organizations are quite consistent with previous empirical research involving IFFs. [25] For example, most of the IFFs are very small, with approximately 70 percent employing fewer than fifty workers. Likewise, approximately 65 percent of the respondents' forwarding revenues come from arranging shipments that move by water transportation. Moreover, nearly all of the responding organizations provide multiple logistical intermediary services, with customshouse brokerage and non-vessel operation common carriage (NVOCC) being the two most popular.

RESULTS

Is the Internet Viewed as a Complement to or Substitute for EDI?

The results for the relationship between the Internet and EDI, presented in Table 1, suggest that this study's participants clearly regard the Internet as a complement to, rather than a substitute for, EDI. More specifically, nearly 80 percent either "agree" or "strongly agree" that the Internet is a complement to EDI; by contrast, approximately 37 percent "agree" or "strongly agree" that the Internet is a substitute for EDI. Note, too, that a nearly identical percentage of respondents either "disagree" or "strongly disagree" that the Internet is a substitute for EDI.

How Important Is the Internet for Conducting IFF Business Operations? How Many IFFs Use the Internet for Conducting Their Business Operations?

The findings presented in the previous paragraph are particularly intriguing given the findings concerning the importance and usage of the Internet. That is, the information in Table 1 appears to suggest that IFF information systems should incorporate both Internet and EDI capabilities.

And, while nearly 90 percent of the responding organizations do, in fact, currently use the Internet in conducting their business operations, only 55 percent view the Internet as either "important" or "very important" for these operations. Interestingly, approximately one-third of the respondents are neutral as to the importance of the Internet for conducting their operations. While this might be viewed by some as a natural tendency to choose the midpoint of a Likert scale, it should be noted that fewer than 5 percent of these same respondents expressed neutrality with respect to the importance of both the telephone and fax for conduction IFF operations.

What Do IFFs View as the Major Benefits to Using the Internet to Conduct Their Business Operations?

The results for Internet benefits, appearing in Table 2, indicate that all eight benefits are viewed as either "important" or "very important" by at least 50 percent of the responding organizations. Moreover, at least 75 percent of the respondents evaluated quick access to information, improved tracing and expediting, improved communications with customers, and better customer service as either "important" or "very important" Internet benefits. The strong showing of quick access to information appears to support recent research that found convenient access to worldwide information to be the leading benefit to adopting the Internet. [26]

What Do IFFs View as the Major Barriers to Using the Internet to Conduct Their Business Operations?

IFF perceptions of possible barriers to the Internet, presented in Table 3, suggest several intriguing findings. For example, too much time spent on non-work-related activities ranked as the sixth most important barrier; by contrast, a seemingly similar variable, staff will waste time surfing the Internet, emerged as the leading barrier in recent research. [27]

In addition, Table 3's information suggests that the Internet may still be in its infancy as a business tool. For instance, the leading barrier to using the Internet to conduct business operations involves customer inability to implement Internet usage. In addition, nearly 50 percent of the IFF organizations perceive the IFF' s inability to implement Internet usage as either an "important" or "very important" barrier to the Internet. And, although both IFF and customer resistance emerged as two of the least important barriers, note that approximately one-third of the respondents perceive both variables to be either an "important" or "very important" barrier to using the Internet to conduct business operations.

Are the Aggregate Results Influenced by Select Corporate Demographic Characteristics?

Correlation analysis was employed to learn about whether the aggregate results are influenced by the corporate demographic characteristics of firm size, firm age, primary business emphasis, degree of revenue diversification, and corporate aggressiveness. Because of the exploratory nature of this research, a .10 level of significance was used. [28] Results of the correlation analysis are presented in Table 4.

The information in Table 4 generally supports the robustness of the aggregate results discussed in the previous sections. Fewer than ten relationships emerged as statistically significant, yet, using a 10 percent level of significance, one would expect approximately twelve statistically significant correlations simply by chance (i.e., 23 variables times 5 characteristics = 115 correlations. 115 times 10 percent = 11.5 statistically significant relationships according to chance).

Nevertheless, several of Table 4's findings are worthy of further discussion. For example, although the information generally indicates a high degree of respondent similarity regardless of firm size, there is a significant and positive relationship between firm size and Internet usage. In other words, larger firms are more likely than smaller ones to currently use the Internet, a finding that offers support for a recent suggestion that Internet adoption is significantly related to firm size. [29]

Moreover, the information in Table 4 indicates three statistically significant correlations involving Internet barriers and the responding organization's age. Each of these relationships demonstrates a negative correlation between the barriers and firm age; that is, younger firms are more likely than their older counterparts to view the particular variables as a barrier to using the Internet.

Of particular interest is Table 4's finding that younger IFFs view too much time spent on non-work-related activities as a more important Internet barrier than do older IFFs. This is especially intriguing given literature suggestions that younger firms are less likely to exhibit organizational inertia and therefore less likely to follow "traditional" industry practices. [30] As a result, it might be expected that younger firms would be more--not less--tolerant towards seemingly non-work-related activities such as "surfing the web." More definitive conclusions will require further research.

CONCLUSIONS

This article reports results from an empirical study of select Internet issues among a major logistical service provider, namely, international freight forwarders. While caution in generalizing the findings beyond IFFs is recommended, they may offer important insights for small businesses, service organizations, and channel intermediaries. The key findings can be summarized as follows:

1. IFFs view the Internet as a complement to, rather a substitute for, electronic data interchange.

2. Although IFFs appear to be skeptical as to the Internet's importance for conducting their business operations, an overwhelming majority nonetheless currently uses the Internet for their business operations.

3. IFFs believe that the Internet can offer numerous benefits for conducting operations, to include quick access to information as well as improved tracing and expediting. Alternatively, the IFFs recognize a number of barriers to the Internet, most notably customer inability to implement Internet usage.

4. While the aggregate results emerge as relatively robust when analyzed across select corporate demographic characteristics, the demographic analyses reveal that larger firms are more likely to currently use the Internet. There also appears to be some relationship between a firm's age and perceived barriers to the Internet.

At a minimum, these results, and others presented here, offer a starting point for further empirical research involving the Internet. Do other logistics constituencies, for example, also regard the Internet as a complement to, rather than a substitute for, EDI? How do these other constituencies view the importance of the Internet, and what is the Internet's usage rate in other industries? What are the views of other logistical constituencies concerning the benefits and barriers to the Internet? In studies of other constituencies, would the aggregate results be influenced by corporate demographics such as firm size and firm age? Could the aggregate results be influenced by other corporate demographic characteristics (e.g., profitability, information technology applications) not examined in the present study? Could the aggregate results be influenced by alternative measures of corporate demographic characteristics (e.g., firm size measured according to the volume of transactions rather than number of employees )?

Moreover, a plethora of topics are worthy of further empirical research. For example, interested researchers could investigate how companies use the Internet (e.g., what percentage of time is devoted to communicating with customers / vendors? What percentage of time is devoted to product tracking? What percentage of time is devoted to order taking?). Researchers might also investigate reasons that companies have adopted the Internet (e.g., to improve customer service; to improve information availability; to achieve competitive advantage / avoid competitive disadvantage; and so on).

In conclusion, while this article addresses a literature void by representing one of the few empirical studies concerning the Internet, much remains to be learned about what some management gurus have called "...the greatest force for commoditization ever known to man, for both goods and services." [31] This need for additional empirical research appears to be particularly acute given that the Internet represents one of the preeminent management challenges of the new millennium, and certainly promises great transformations for the logistics discipline. [32]

Mr. Murphy, EM-AST&L is professor of business logistics, and Mr. Daley, EM-AST&L, is associate dean and professor of marketing, Boler School of Business, John Carroll University, University Heights, Ohio 44118. Email drmurphy@jcu.edu.

ENDNOTES

(1.) See, for example, P.R. Cateora and J.L. Graham, International Marketing, 10th edition, Irwin/McGraw-Hill, 1999, Chapter 15; E.J. Muller, "Forwarders Face the Future," Distribution, Vol. 89, No. 5, 1990, pp. 117-120.

(2.) P.R. Murphy, J.M. Daley, and D.R. Dalenberg, "Profiling International Freight Forwarders: A Benchmark," International Journal of Physical Distribution and Logistics Management, Vol. 22, No.1, 1992, pp. 35-41.

(3.) J.J. Coyle, E.J. Bardi, and C.J. Langley, The Management of Business Logistics, 6th edition, West Publishing, 1996, Chapter 13.

(4.) D.M. Lambert, J.R. Stock, and L.M. Ellram, Fundamentals of Logistics Management, Irwin/McGraw-Hill, 1998, Chapter 11.

(5.) D.J. Pope and E.A. Thomchick, "U.S. Foreign Freight Forwarders and NVOCCs," Transportation Journal, Vol. 24, No. 3, 1985, pp. 26-36; Murphy, Daley, and Dalenberg, 1992.

(6.) Pope and Thomchick, 1985; Murphy, Daley, and Dalenberg, 1992.

(7.) B.M. Schwartz, "Competitive Pressures Drive Forwarders," Transportation and Distribution, Vol. 39, No. 2, 1998, pp. 99-101.

(8.) A. Ozsomer, M. Mitri, and S.T. Cavusgil, "Selecting International Freight Forwarders: An Expert Systems Application," International Journal of Physical Distribution and Logistics Management, Vol.23, No.3, 1993, pp. 11-21.

(9.) T. Werner, "EDI Meets the Internet," Transportation and Distribution, Vol.40, No.6, 1999, pp. 36-44.

(10.) No author, "Internet Offers Promise, Threat," American Shipper, Vol.41, No.4, p. 44.

(11.) Ibid.

(12.) Forrester Research, "Online Retail to Reach $184 billion by 2004 as Post-web Era Unfolds," Press Release, September 28, 1999.

(13.) T.S.H. Teo and M. Tan, "An Emprircal Study of Adopters and Non-Adopters of the Internet in Singapore," Information and Management, Vol.34, 1998, pp. 339-345.

(14.) Werner, 1999.

(15.) Ibid. 1999.

(16.) G.S. Lynn, A.C. Maltz, P.M. Jurkat, and M.D. Hammer, "New Media in Marketing Redefine Competitive Advantage: A Comparison of Small and Large Firms," The Journal of Services Marketing, Vol. 13, No. 1, 1999, pp. 9-20.

(17.) P.R. Murphy and J.M. Daley, "International Freight Forwarder Perspectives on Electronic Data Interchange and Information Management Issues," Journal of Business Logistics, Vol. 17, No. 1, 1996, pp. 63-84.

(18.) See Teo and Tan, 1998.

(19.) Teo and Tan, 1998.

(20.) B.S. Silverman, J.A. Nickerson, and J. Freeman, "Profitability, Transactional Alignment, and Organizational Mobility in the U.S. Trucking Industry," Strategic Management Journal, Vol. 18, Special Summer Issue, 1997, pp. 31-52.

(21.) R.A Millen, "Utilization of EDI by Motor Carrier Firms: A Status Report," Transportation Journal, Vol. 32, No. 2, 1992, pp. 5-13.

(22.) Murphy, Daley, and Dalenberg, 1992.

(23.) E. Panitz, "Strategic Types and Growth Strategies Used by Public Accounting Firms," Journal of Professional Services Marketing, Vol. 13, No. 1, 1995, pp. 135-145.

(24.) P.R. Murphy and J.M. Daley, "International Freight Forwarders: Current Activities and Operational Issues," International Journal of Purchasing and Materials Management, Vol. 31, No. 3, 1995, pp. 21-27.

(25.) "See Pope and Thomchick, 1985; Murphy, Daley, and Dalenberg, 1992; Murphy and Daley, 1995.

(26.) "Teo and Tan, 1998.

(27.) "Ibid.

(28.) "For examples of a .10 level of significance in recent Transportation Journal articles, see M.D. MacLeod and colleagues, "The Use of Promotional Tools in the Motor Carrier Industry: An Exploratory Study," Vol. 38, No. 3, 1998, pp. 42-56; M. Prater and M.W. Babcock, "Grain-Dependent Short Line Railroad Profitability: An Operating Cash Flow Approach," Vol. 38, No. 2, 1998, pp. 18-31.

(29.) "Teo and Tan, 1998.

(30.) See T. Amburgey, D. Kelly, and W.P. Barnett, "Resetting the Clock: The Dynamics of Organizational Change and Failure," Administrative Science Quarterly, Vol. 38, No. 1, 1993, pp. 51-73; T. Petzinger, The New Pioneers: The Men and Women Who are Transforming the Workplace and Marketplace, Simon & Schuster, 1999.

(31.) B.J. Pine and J. H. Gilmore, The Experience Economy, Harvard Business Press, 1999.

(32.) F.R. Ricker and R. Kalakota, "Order Fulfillment: The Hidden Key to E-Commerce Success," Supply Chain Management Review, Fall 1999, pp. 60-70.
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Author:MURPHY, PAUL R.; DALEY, JAMES M.
Publication:Transportation Journal
Geographic Code:0JINT
Date:Jun 22, 2000
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