BUS613: Advanced International Business

Competition among countries is an everlasting phenomenon. In the game of becoming better than each other and attaining competitive advantage, access to resources, and new markets; governments around the world are making intensive investments into different developmental projects. Such projects also include the development of new ports or expansion of existing ones. Nowadays, the role of ports is not limited to cargo handling but also includes the provision of better logistics services to meet the growing demands of global supply chains. "Logistics performance refers to cost, time, and complexity in accomplishing import and export activities". Advanced technologies facilitate better logistics performance through reengineering transport routes, scale, modes, or frequencies. Along with technology and service quality, Song and Panayides highlighted the importance of value-added activities at ports by means of diverse logistics services to attain competitive advantage. The ability of a country to offer diverse logistics services is partly driven by the quality of physical infrastructures such as road, rail, and ports. Physical infrastructure is an important determinant of transport cost (i.e. a component of logistics performance), particularly for landlocked countries. Also, innovations in containerisation and intermodal transport have been part of major changes in global logistics over the past 20 years. Thus, it can be hypothesised that:

In the same vein, investments in physical infrastructure creates a better business environment and improves transport efficiency, which facilitates export growth. Yeo et al. found that quality of port service, logistics costs, regional connectivity, hinterland condition, and port accessibility, contributes significantly to a port's competitiveness. Similarly, Notteboom et al. stated that a combination of infrastructure quality, hinterland accessibility and productivity plays a vital role in strengthening a port's competitive position. Gordon et al. added that a combination of port facilities, including sufficient investment, supportive government policies, excellence in operation and information technology, can help a port attain sustainable competitiveness, which will produce higher seaborne trade compared to the less competitive ports. Thus, it can be hypothesised that:

Lakshmanan proposed that investment into transport facilities improves logistics ability and reduces freight costs. Wilmsmeier and Hoffmann estimated the role of liner shipping connectivity (LSC) and port infrastructure in determining freight rates in the Caribbean. They found that a one-standard-deviation increase in LSC implies an expected reduction of USD 287 in freight rate, and that a one-standard-deviation increase in port infrastructure for an importing country implies an expected reduction of USD 225 in freight rate. Furthermore, Sánchez et al. found that freight costs are lower in efficient ports after controlling for distance, liner service availability, type of product, and insurance costs. Also, an increase in port efficiency from the 25th to the 75th percentile is expected to reduce shipping costs by 12%. Quality of infrastructure and transport costs are important for export-led economic growth. Thus, it can be derived that efficient ports have better quality infrastructure and logistics performance than inefficient ones. Additionally, an efficient port system with enhanced logistic abilities is a key determinant of foreign direct investment into a country. On the other hand, inefficient ports reduce national and international trade and affect economic growth adversely. Also, the role of ports in the internationalisation process of business firms was highlighted by Ellis. Thus, the following hypotheses could be derived from the above arguments:

A country's logistics performance plays a vital role in facilitating transportation of goods to the international market. "Inefficient logistics services impede trade by imposing an extra cost in terms of time as well as money". Limao and Venables found a significant negative association between transport cost and international trade. Long customs clearance time adversely affects firms' total factor productivity. Meanwhile, a better business environment comprising quality logistics services is associated with better export performance. Also, better accessibility of freight increases logistics employment. Overall, firms in countries with better logistics performance have higher probability of exporting to international markets and attracting foreign direct investments. Thus, logistics development has a positive impact on regional economic growth. Coto-Millán et al. found that a 1% increase in the logistic performance index can increase the world economic growth by between 1.1–3.4%. Therefore, we propose the following hypotheses:

Ports are the hub and node of networks for all kinds of waterborne transport and link countries with rest of the world; thus, they promote transportation and distribution in the cheapest way. Ports are more than just an infrastructure that facilitates international trade; they also determine freight transport costs and help companies access international markets. Although the most visible economic contribution of ports was employment in the port, this has declined dramatically since the inception of containerisation, although ports still contribute significantly to the overall economy in rather less visible forms. In this present era of globalisation, products are usually produced far away from consumer markets, and raw materials for a single product are often sourced from several different countries. Also, vertical specialisation has increased dramatically over the last two decades; that is, different parts of the production function of a product are performed in different countries. This would have not been possible without the support of efficient maritime transport. Overall, the contribution of maritime transport nowadays is invisible to ordinary people, but spread over different industries and institutions to such an extent that it can hardly be measured accurately. Helling outlined how a dollar's worth of water transportation is spread over 10 different but interrelated business categories. Sleeper found that GDP is positively proportionate to the number of worldwide recognised ports in a country. In an analysis of 120 port regions from 13 European countries, Bottasso et al. revealed that ports increase the GDP of regions in which they are located, and also influence neighbouring regions' GDP positively. Park and Seo's investigation of South Korean port regions found that the container throughput of a port has a positive effect on regional economic growth. Thus, we hypothesise that: