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Governance models for regional logistics hubs, and why they matter
The Journal of Business Logistics (JBL), published by the Council of Supply Chain Management Professionals (CSCMP), is recognized as one of the world's leading academic supply chain journals. But sometimes it may be hard for practitioners to see how the research presented in its pages applies to what they do on a day-to-day basis. To help bridge that gap, CSCMP's Supply Chain Quarterly challenges the authors of selected JBL articles to explain the real-world implications of their academic research.
"The Economic Development Role of Regional Logistics Hubs: A Cross-Country Study of Interorganizational Governance Models," by Yemisi A. Bolumole, David J. Closs, and Frederick A. Rodammer of Michigan State University. Published in the May 2015 issue of the Journal of Business Logistics. This paper also received the Bernard J. La Londe Best Paper Award at CSCMP's 2016 Annual Conference.
This article grew out of the authors' experiences working with economic development organizations that were trying to promote their regions as logistics hubs. When Bolumole served as director of the transportation and logistics program at the University of North Florida, she was involved in the Jacksonville/Northeast Florida region's efforts to market itself as a logistics hub. Closs and Rodammer had been involved in similar efforts for the state of Michigan. Based on those experiences, the authors wanted to investigate other regions' efforts to establish themselves as logistics hubs. They also thought it would be beneficial to develop a better definition of what a regional logistics hub actually is.
It seemed to the researchers that an area could not be declared a logistics hub simply because a group of companies focused on logistics are located there. There also must be some sort of external governance structure or organization that not only facilitates the promotion of the region's logistics resources as a source of economic growth, but also uses these resources to attract new businesses. Not all economic development organizations operate in the same way, of course. To demonstrate the variety of ways logistics hubs could be organized, the paper outlines a spectrum of governance types, from a hierarchical/command-and-control structure to a more relational/voluntary organization.
Bolumole, the lead author, spoke with Supply Chain Quarterly about what these concepts could mean for economic development organizations as well as for those who work in the private sector.
What issues were you seeking to explore through this research?
We know that either by sheer luck or geographical location, the way in which organizations break up supply chain activity tends to "bless" some regions more than others. It places certain concentrations of freight movement at certain hubs or gateways. But many people assumed that if there's any governance or self-organization in these regions, it must happen organically or by happenstance. There really isn't any kind of conscious effort. ...
The study focused on developing an understanding of what we mean by a "logistics hub." When people see these words, they think of a collection of companies in an area that are involved in logistics. But what we are trying to get at in this paper is that logistics hubs transcend the traditional boundaries and benefits derived simply from co-location. Rather, it is a means to organize economic development activity. This means we need to understand the dependencies or synergies that exist across industries, across institutions, and across organizations, and even across consumers within a given region. The one thing these synergies or dependencies have in common is that they all are derived from, and depend on, regional resources. This was the message we were trying to convey: [Logistics hubs] drive an economic development output that is wholly dependent on resources that are within the home region.
In the paper you define different types of regional logistics hubs based on how they are structured or governed. Can you provide a few examples of the different types?
When we looked at the governance structures for these hubs, one that was probably the easiest to define is at one extreme. This is the "port authority" model, represented, for example, in the New York/New Jersey region. What sets this kind of model apart is that it has very strong government involvement. In fact, in most cases [the logistics hub] is government-owned, -created, and -led. And because of that command-and-control or hierarchical structure, the government usually reserves the right to charge user fees, bridge tolls, taxes, and so forth. That's how they generate the income they use to stimulate economic development and create and maintain regional infrastructure and resources.
Now because it is government-owned, does that mean it doesn't engage the private sector? No, it just means that this type of governance typically has the authority to levy taxes, design incentives, and then use those incentives to attract private sector participation.
If we look at the opposite end of the spectrum, there's the model that we call "industry collaboration." An industry collaboration is a voluntary organizational mechanism that's typically designed by an economic development agency. That's what Jacksonville represented. It's also represented in the Metro Atlanta Supply Chain Initiative [in Georgia]. Participation typically is completely voluntary; the governance is significantly less formal and is based on relational norms of collaboration. The activity is still aimed at promoting and attracting supply chain-related investments to the region to stimulate economic growth. However, where this one differs from the port authority model is that it is not technically responsible for infrastructure. Instead, this group serves to support the civic infrastructure and political conditions that will enhance the region's economic development.
Let's use Jacksonville, Florida, as an example. If such an area acknowledges that one of the ways to best position the city to take advantage of the Panama Canal expansion would be to raise money as a region to support port deepening and dredging (if necessary), that sort of activity relies on businesspeople coming together and coming to terms with whether this is something the private sector would be willing to get involved in. Yes, it involved an infrastructure investment, but the goal in this case is to help the economic development agency communicate the type of political conditions that allows the agency to do what it needs to do.
I'll mention one more model that we are all probably the most familiar with: "public-private partnerships" (P3). Most of us are familiar with this model because these are the mechanisms that regions have typically employed to combine government and private sector capital to deliver a meaningful value proposition. One of the P3 examples we mentioned in the paper is the AllianceTexas public-private partnership in Dallas. It's a perfect representation of this kind of governance because it leverages infrastructure, geography, and private sector members as champions of the economic development initiatives that it is rolling out.
Can this knowledge help an economic development authority operate more effectively? If so, how?
One of the things that we were hoping would be a key takeaway is the recognition that there remain significant opportunities for certain regions to develop an identity of regional growth that is centered on its logistics or supply chain assets. For example, cities adjacent to Los Angeles/Long Beach, California—knowing LA/Long Beach's congestion challenges—can ask themselves, "Can we take advantage of the overflow?"
One thing we are finding is that many agencies are still using tax-based incentives to encourage relocation. However, that's not a long-term, sustainable growth option from an economic-productivity standpoint. What we are hoping is that economic agencies can redefine what economic development means in a way that allows them to align what they do not only with the firms that are represented but also with the distinct supply chain assets that they possess. In other words, supply chain or logistics hubs become a major stimulant to economic development.
What is the most important takeaway from your research for practitioners?
In the private sector, we've been taught to focus on B2C (business-to-consumer) and B2B (business-to-business) interactions. This paper is a call to attention of the importance of business-to-government (B2G) interactions. ... Supply chain managers must continue to embrace and incorporate [into their decisions] an understanding that public sector actions impact what they do. ... [T]he presence or lack of public policies that inhibit or enhance supply chain efficiency can really have an effect on a firm's total landed cost.
At the end of the day, this paper is about clarifying the intersection between economic development and supply chain management. This logistics-focused economic development is a win-win for both the public sector and the private sector, as the intersection is all about value creation for both sectors. Managers with a better understanding of that intersection will be better able to find opportunities to remedy market-access gaps.
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