Linking to global logistics value chains: an imperative for developing countries

Advanced Logistics Services (ALSs) have emerged as an indispensable element in Global Value Chains (GVCs). By adapting to shipper demand, logistics services providers facilitate the expansion of world trade. Firms focus on cost-cutting measures, including outsourcing of logistics activities. This often means outsourcing some of their logistics activities to so-called Third- and Fourth-Party Logistics (3PL or 4PL) providers. This paper focuses on the role of ALS in connection to GVCs or Global Production Networks (GPNs). The term 'Logistics Value Chain' (LVC) is used to illustrate the complex market structure and division of work that has emerged between various service providers in the market for ALS. Recent development in East Asia, and also in other developing economies, is similar to what happened in western Europe over the past 20 years. Logistics Service Providers (LSPs) can take advantage of these experiences, well-functioning LVCs rely on two components: (1) committed and effective transport and Customs authorities and related policy-making; and (2) competitive logistics services. These two are essential for local producers – typically Small and Medium-sized Enterprises (SMEs) – to connect to GPNs. The absence of effective logistics markets is a serious obstacle for firms wishing to internationalise, which often leads to sustained poverty.