The Economic Development Role of Regional Logistics Hubs: A Cross‐Country Study of Interorganizational Governance Models

• Date: 01 June 2015
• DOI: http://doi.org/10.1111/jbl.12088
• Author: Frederick A. Rodammer,David J. Closs,Yemisi A. Bolumole
• Published date: 01 June 2015

The Economic Development Role of Regional Logistics Hubs: A

Cross-Country Study of Interorganizational Governance Models

Yemisi A. Bolumole, David J. Closs, and Frederick A. Rodammer

Michigan State University

As global competition intensifies, the geographic fragmentation of supply chain activities is creating a concentration of trade at regional

freight gateways or hubs. This has significant implications for the economic prosperity of the specific gateway regions. The study explores

the deliberate governance efforts of regional economic development agencies and the communities they support in their attempts to exploit loca-

tion-specific logistics assets to deliver economic productivity gains. Drawing on the new institutional economics’body of literature, the research

explores prevalent governance models which represent the proactive attempts by these agencies to transform regional logistics capability into

cohesive hub strategies. By adopting exploratory cluster-mapping procedures, web content analysis, and Delphi panels, study findings suggest a

typology of multijurisdiction, and multiagency governance models representing the collaborative efforts between public sector and government

agencies, academic institutions, and private sector organizations within selected European and U.S. logistics hubs. Each governance type is

defined in accordance to specific economic organization and proficiency characteristics.

Keywords: cluster mapping; governance models; regional logistics hubs; economic development

INTRODUCTION

Broadening markets and growth in interindustry trade highlight

the importance of logistics and supply chain management

(SCM) issues to private and public sector organizations that

own and/or control infrastructure. For private sector firms, logis-

tics has “leadership responsibility to design and manage systems

to control movement and positioning of raw materials, work-in-

process, and finished inventories at the lowest total cost and

highest customer influence”(Fawcett et al. 2011, 115). Its influ-

ence on the public sector is documented in Smith’s (1976)

proposition concerning market extensiveness: that a product’s

relative availability and cost affects its market competitiveness;

highlighting that “modern logistics systems make global busi-

ness and economic development possible”(Fawcett et al. 2011,

116). To move large freight volumes, global supply chains rely

on extensive logistics networks and a complex array of regional

infrastructure, services, and participants. This perspective recog-

nizes that economic development addresses wealth generation

through job creation and regional tax base increases (Blakely

and Green Leigh 2010). Global trade growth has further spurred

the development of regional logistics assets highlighting the crit-

ical relationship between transportation and logistics (T&L)

infrastructure, global market drivers, and regional economic

development. These regional logistics assets include the mari-

time, air, and land-related border crossings which connect

domestic markets with international origin and destination

points.

Historical models of the logistics and economic development

link highlight the general equilibrium effects of logistics infra-

structure quality on localized economic activity. Public sector

agencies face increased pressure to improve performance and

productivity growth and could benefit from best practices devel-

oped within the private sector. Solving public sector issues by

bringing together the complementary capabilities of the public

sector’s policy-making capacity and private sector expertise

offers a potential opportunity to advance the frontiers of the

logistics and SCM disciplines, while improving societal well-

being (Fawcett et al. 2011).

For the public sector, as global supply chains become promi-

nent features of commerce, the geographic fragmentation of sup-

ply chain activities is creating a concentration of trade at freight

gateways or hubs. For example, while more than 400 seaports,

airports, and land border crossings in the United States handle

international freight, most of the freight pass through relatively

few regions that qualify as effective logistics gateways or trade

hubs, with the top 50 hubs handling over 70% ($3 trillion) of

the total value of U.S. international trade in 2014 (BTS 2014;

BEA 2015). Since the elements that qualify these hubs are typi-

cally embedded within a defined geographic region, this creates

likelihood for regional hub formation (Porter 2000). For this pur-

pose, the study defines the region as a relatively large, well

defined and stable physical area representing a geographic unit

so defined for census purposes.

For the private sector, globalization is increasing the need to

effectively sequence and execute functions in different locations

across the globe. Managers’decisions regarding the optimal loca-

tion of facilities have implications for the economic development

and overall prosperity of the chosen locations (Rivera and Sheffi

2012). Facility location decisions thus create a geographic clus-

tering of firms which have economic development impacts

(Saxenian 1994; Snowdon and Stonehouse 2006), suggesting that

collective regional efficiencies can accrue from geographically

colocated firms (e.g., Saxenian 1994; Storper 1997). While cur-

rent research acknowledges the economic impact derived from

the different ways colocated firms are governed (Markusen 1996;

McKendrick et al. 2000), the reasons for variances in these gov-

Corresponding author:

Yemisi A. Bolumole, Ph.D., Department of Supply Chain Manage-

ment, The Eli Broad College of Business, Michigan State University,

N370 North Business Complex, East Lansing, MI 48824, USA;

E-mail: bolumole@msu.edu

Journal of Business Logistics, 2015, 36(2): 182–198 doi: 10.1111/jbl.12088

© Council of Supply Chain Management Professionals

ernance choices are not well understood. In fact, research on

how deliberate regional governance efforts evolve has so far

assumed a single economically rational design—that of organic

evolution (Carson et al. 2003).

This study explores the deliberate governance efforts of a spe-

cific type of public sector entity: economic development agencies

in their efforts to exploit regional and location-specific logistics

assets to deliver economic productivity gains. Recent research

suggests that even when critical antecedents of regional logistics

and supply chain capability exist, these are often insufficient to

stimulate economic growth within a defined region (Closs et al.

2014). A better understanding is needed to determine how collec-

tive efficiencies are actively created from proactive collaboration

among the relevant stakeholders within a defined geographic

area. Schmitz and Nadvi (1999) refer to this process as “the con-

scious pursuit of joint action”(p. 1504). The study draws on

transaction cost theory (Nickerson and Silverman 2003) to:

1 Explore the public sector applications of logistics elements

implemented at the regional unit of analysis.

2 Investigate the prevalent proactive governance models at these

regional locations with responsibility for transforming regional

logistics capability into cohesive logistics hub strategies.

3 Explore whether these prevalent models are country-specific.

The remainder of the article is organized as follows. First, a

review of the growing literature on regional industry clusters and

their SCM applications is provided to establish general concepts.

Second, an introduction of the transaction cost framework guid-

ing the study is provided, followed by a description of the

mixed-method, exploratory approach adopted. Research results

and suggested propositions are then discussed, concluding with

study findings and the implications these have for theory, man-

agement practice and future research.

LITERATURE REVIEW

Expanding global markets demand a complex array of supply

chain services and participants, which rely on extensive logistics

networks. Logistics infrastructure investments have been associ-

ated with improved performance, with several causal mechanisms

linking logistics infrastructure to economic growth for both pub-

lic and private sector firms through a range of sectorial and spa-

tial effects (Lakshmanan 2011). These causal mechanisms

influence the quality of generic production factors and market

endowments (Nooteboom and Rodrigue 2005; Krugman 2010),

which support lowering total landed costs by improving regional

market accessibility (Graham 2007; Holl 2012) and firm perfor-

mance (Rice et al. 2006).

The relevance of the regional cluster concept to SCM

A regional cluster is defined as “a geographically proximate

group of interconnected companies and associated institutions”

(Porter 2000, 16). Spatial clustering and location decisions were

introduced to logistics through Weber’s (1929) and von Thunen’s

(Wartenberg 1966) facility location models. These location theo-

ries assert that regions compete by providing a platform to maxi-

mize productivity in ways that support their economic

development goals of job creation, attracting investments, and

achieving a high return on infrastructural investments. Unlike

private sector firms that can literally do business anywhere, the

metric of competitive advantage for a regional location is the

presence of, and productivity derived from, the resources avail-

able at that location. Regions and the firms located within them

are thus not mutually exclusive. The economic productivity for a

given region depends on the productivity derived from firms

located within that localized economy (Snowdon and Stonehouse

2006).

Investments in logistics and transportation infrastructure at the

regional level provide location-specific and self-sustaining oppor-

tunities to enhance regional growth. General agglomeration

effects create regional benefits which result from knowledge

spillover and network coordination efforts (Graham 2007).

Acknowledging that logistics involves multifunctional processes,

relationships, and mechanisms, this study introduces and explores

the concept of a regional logistics hub—a geographically proxi-

mate, interdependent, and synergistic concentration of organiza-

tions, clusters, and related activities connected through creation

and exchange processes and having a high degree of collabora-

tion for improving the innovative capability, productivity power,

and overall prosperity of a defined regional location. Thus

defined, the logistics hub can include interdependent and syner-

gistic clusters, with the hub governance initiative representing a

set of proactive, collaborative efforts by public and private sector

stakeholders with a goal to enhance the competitiveness of inter-

linked logistics-focused economic activities in a specific geo-

graphic region. The regional logistics hub is defined by

nontraditional boundaries as a means to organize economic

development, unlike traditional cluster initiatives. Such definition

often requires a “creative process informed by understanding the

most important linkages and complementarities across industries

and institutions”(Porter 1998b, 202). Qualifying the capabilities

which define the regional logistics hub thus acknowledges the

value-adding synergies derived from regional resources (Sheffi

2012). These resources include the geographic proximity and

access to high-quality transportation infrastructure (Johnson

2007), proximity to markets, stable government policies (Bower-

sox et al. 2013), and the availability of skilled labor and support-

ing educational infrastructure (Keller and Ozment 2009).

Governance model(s) of logistics hubs

Regional clusters exhibit a variety of spatial forms (Markusen

1996) whose aggregate properties function as governance devices

in their own right (Haussier and Zademach 2006). Regional gover-

nance thus represents the outcome phenomenon of proactive inter-

organizational action with an aim to exploit localized resources.

The regional logistics hub itself represents a geographic agglomer-

ation of private and public sector organizations, facilities, service

providers, and endowments that facilitate logistics and freight

operations. The exploratory study addresses how these organiza-

tions and regional governments coordinate their efforts to facilitate

a seamless freight network while maximizing productivity and

trade. This should offer better understanding of the economic

impact of varying patterns of governance models, ranging from

structured hierarchies to voluntary relational systems.

Governance Models of Regional Logistics Hubs 183