International Strategy of United Parcel Service - Case Study Example

This paper discusses the International Strategies of United Parcel Service (UPS), a global leader in logistics and supply chain services. Itdiscusses the various strategies used by UPS to survive and cope with this severe global recession. A comparison is done with its major competitors - FedEx Corp and DHL, showing their competitiveness in this crucial era of global recession. SWOT analysis is prepared in order to understand the threats, opportunities, weaknesses and strengths of the company. The essay explores the various plans UPS is initiating to improve and expand its operations in different countries of the world. After carefully assessing the scenarios from different aspects, recommendations are provided at the last of this paper. Introduction The largest package delivery company and a global leader in supply chain services, United Parcel Service (UPS), was founded on 28 August, 1907 in Seattle, Wash by 19-year-old  Jim Casey and 18-year-old Claude Ryan as American Messenger Company. By the time, it progressed and expanded and now it is the world largest package delivery company. UPS employees about 415,000 people including 343,000 U.S. citizens and 70,000 International. Serving in more than 200 countries and territories, its total number of customers touches 8 million. In 2008, UPS delivered an average of 15.5 million pieces per day worldwide and earned revenue of $51.5(b). UPSs key services include logistics and distribution, transportation and freight, freight forwarding, international trade management and customs brokerage. UPS leads in providing less-than-truckload and truckload services coast-to-coast. UPS is running the 9th largest airline in the world with an AA balance sheet credit rating. (UPS Fact Sheet). UPS’s International Strategy Going global creates opportunities for companies to grow in new markets. One of the most important and difficult task for the top management is to create effective strategies for company and more difficult is the creation of an International Strategy. Basically, UPS was involved only in movement of goods, but by the time, it understood the new trends of markets and started providing various services including logistics and distribution, international trade management, customs brokerage, consulting, mail, e-commerce, and a variety of financial services. If we look into the history of this company, we will come to know that UPS has never stopped improving and expanding its businesses. UPS fully understand the importance of Global trade in present scenario of recession. CEO of UPS, Scott Davis, considers reliance on global trade essential and said that it is a “positive force” at a time when “we are operating without a map and without precedent.” (No Economic Recovery Without Global Trade, 2009) Steps taken up by UPS as part of its International Strategies are as followed: UPS Initiated express service inside United Arab Emirates and 15 additional countries across Europe, Africa, the Middle East and Latin America. Nations involved in the expansion plan include Algeria, Argentina, Chile, Cyprus, Czech Republic, Hungary, Kazakhstan, Kenya, Malta, Pakistan, Romania, Saudi Arabia, Serbia, South Africa, and Ukraine. Dan Brutto, President of UPS International, while telling the reasons of this expansion plan says that it would help in meeting increasing demand from these nations. A new joint venture with Unsped which will acquire the small package operations in its existing service agent in Turkey. Its headquarter will be in Dubai to coordinate management & growth of UPS express package, freight forwarding and contract logistics services across the Middle East, Turkey and portions of Central Asia. President UPS International said "This emerging area covers trade to and from 21 countries where UPS is experiencing increased demand," (Service Contractor in Turkey to be Acquired , 2009) Acquired a unit of Intereuropa Globalni Logisticni Servis on June 02, 2009 for small package delivery in Slovenia since 1991. The main reason is the need of a greater presence in Slovenia. (UPS Acquires Delivery Firm in Slovenia, 2009) Opening of “The UPS Stores®” in major cities of India including Mumbai, Delhi, Pune, Banglore, Tirupur. It will have a wide range of packaging, shipping and business services in one location. Further, UPS is planning to open 150 new stores (UPS News) “Global competitive advantage means the right product at the right place, at the right time and at the right cost” said CEO, UPS. For fulfilling this idea, UPS has already spent billions of rupees in research work and improving Information Technology setup and is still investing around $1 billion a year. Kurt Kuehn, Chief Financial Officer, while delivering a speech at the Institute of Management Accountants said that, “ We spend more on IT than we do trucks and planes on a given yearly basis…… we have the worlds largest private DB2 database.” (ups.com) Completion of a US$135 million expansion of its European air operation at Cologne Airport in Germany which has doubled the hub’s operating area (UPS Opens Expansion Of Its European Air Hub ) United Parcel Service and Global Recession UPS Chairman and CEO, Mr. Scott Davis, during The National Summit talked about the present scenario of Global recession. He says that “Now we have a new term for those days. We call those the good old days”. It shows that UPS has passed the peak of the recession. In order to survive in this crucial time, UPS has undertaken some low cost business strategies. Dough Caldwell, who is Executive Vice President of Parcel Pool said that, “UPS is looking at every nook and cranny to cut costs, and it is the smart thing to do in a highly competitive environment right now,” (Berman, 2009) Cost cutting is an important factor in present scenario of recession but it is creating some problems for the business. Low cost strategies, according to a survey conducted, resulting in lower quality and problem in ability of delivering goods as promised. (accessmylibrary.com, 2008) Following are some steps initiated by UPS as its cost cutting strategy: UPS has added bicycle carriers during peak season. This will reduce operational costs as well as carbon-dioxide emissions. UPS has estimated that it will save around 17 gallons of fuel a day and about $38,000 in maintenance costs of vehicle. (Ensha, 2008) Ordered seven hydraulic hybrid vehicles which are scheduled to be used in this year (Ensha, 2008). A hydraulic hybrid vehicle’s engine can recover and reuse energy and its 20 years of usage would save over $50,000 as compared to typical UPS truck. (U.S.Environmental Protection Agency) UPS planned to save $131 million in pilot savings within next three years out of which $90M is trimmed so far due to pilots taking leaves of absence, job sharing, military leave, reduced flight pay, and early retirement. (300 UPS Pilot Jobs Saved) Freezing of upper management salaries, suspension of 401k matching and restructuring have saved over $1 billion for UPS. (300 UPS Pilot Jobs Saved) Other steps include consolidating operating districts, reducing air segments, and eliminating some package handling operations. (Berman, 2009) Competition FedEx, DHL and United States Postal Service are considered to be the competitors for UPS. FedEx lead in marketing. It doesn’t hesitate in investing on market research. Its owner, Fred Smith, is famous for making bold moves. On the other hand, UPS is well known for its patience in market approach. UPS sees long in the future ignoring present lusts. Lastly, DHL used to be the pioneer of the International Air Express business. Its global network is unmatchable. It is operating in more than 220 countries, the number which is not met by any other till yet. (UPS, FedEx, DHL & TNT - Who Will Dominate the World Of Logistics ) United Parcel Service primarily competes with FedEx because of the similarities in their services and target markets. UPS earn more revenue as compared to FedEx. Its revenue in 2008 was $51,486.0 million compared to FedEx’s revenue which was $37,953.0 million (wikiinvest.com). UPS has more than triple shares in ground shipping but lags in air shipping. UPS holds only 36% of the express market while its competitor, FedEx holds 49% (wikiinvest.com). The reason is the presence of FedEx in next-day business from its inception while UPS started this service in 1982. But UPS is trying to capture express market share from FedEx which offers higher margin as compared to ground shipping. For this reason, UPS has initiated several steps including those of expanding its air bases in Europe and offering services like Next Day Air in a lower price. FedEx has started a media campaign aimed at the 100 members of U.S. senate and against its competitor UPS. FedEx has especially created a website viewable at www.brownbailout.com. The company aggressively expresses that UPS is seeking a bailout in order to limit competition. FedEx is of the opinion that a 100 years old company which earns a handsome amount of revenue does not need any help from U.S. government. In reaction, the lobbying senator, Mr. Hall said, "They (senators) are offended". He continued, "They are saying they will not be intimidated". The childish act of FedEx is condemned by many people. (FedEx Looks to Deliver -- to Senators, 2009). Actually, FedEx fears that there major share in Air Service would be destroyed when the act would be passed. That’s the reason why they are fearful and spreading propagandas in public. Below is a revenue comparison chart which will help in guessing the financial positions of the UPS and FedEx: ($ Million) UPS FedEx As on March 2009 10,938 8,137.0 2008 51,486.0 37,953.0 2007 49,692.0 35,214.0 2006 47,547.0 32,294.0 (wikiinvest.com) Both UPS and FedEx are experiencing drops in their profit. FedEx experienced more than 18% drop in sales in the first quarter of 2009. The main advantage for FedEx over UPS is that it earns more than two third of its revenue from express shipping and opposite is the case with the UPS. UPS mainly earns its revenue from its ground shipping. Express shipping gives higher margins than ground shipping. DHL has recently closed all domestic services from the United States. All the ground services and domestic express shipments are discontinued by DHL which has helped UPS in earning additional $1 billion revenue annually. This revenue may be used in expanding its International setup. As per experts, overnight shipping has become a luxury and its demand is now decreasing to greater extent. It will be beneficial for UPS and harmful for FedEx as UPS has major market share in ground shipping while FedEx controls more share in Express shipping. Both FedEx and UPS have strategic planning culture and both are strongly centralized. The strategic planning is very necessary in efficient survival of any business in long-term. Both FedEx and UPS have managed their strategic planning very effectively. Now there future will also depends on their strategic planning. It is hard to predict that which company would be more successful in the future. Let time make this decision. UPS in Upcoming Years UPS has been expanding its business from the first day when it was formed in Seatle and it has been very nimble in doing it. “The attitude we have as a company is you manage through downturns but keep investing for the long term”, said Scott Davis, CEO, UPS. (RAMOS, 2008) He further said that we have always kept our eyes on the future, not on just coming some quarters but long in the future which is the reason why UPS is coping brilliantly with this recession period. Since the company is operating in different environments and in different economies, it has to focus on so many social and economical conditions and future prospects prevailing in different countries where it has its presence. The company is basically focusing on long-term growth and profits and frames its investment strategies accordingly; as such it keeps an eye on the economic and growth condition of different countries, especially those having developing or slow-growing economies so that its investments are safe. To achieve these objectives the company needs to keep its Research and Development department pro-active and efficient. The company has a policy to see into future and shape its activities accordingly; rather than being struck and shaped by future events. The management of the company is well aware that the main reason for collapse of a number of International companies was their failure to see into the future. Below is a SWOT analysis of the company which may make the future of United Parcel Service clearer for us: Strengths Expanded setup – Operating in more than 200 countries Strong & Old Brand Self-owned Airline Competitive Pricing Advance IT infrastructure & largest Internet Database Weaknesses Weak advertising campaign as compared to its rival FedEx or DHL Poor customer service centers. Concentrating more on Corporate demand and neglecting other demands such as demands of ordinary individuals etc Conservative and less innovative Extensive unionization - all non-management UPS employees are union members Opportunities Ability to merge and take over other small companies Growth in the international parcel shipping market Threats Global Recession Rising Cost of Fuel Antiquated customs regulations Overly-burdensome tax and duty rates in various countries Customers increasing power to set prices due to immense competition Protectionism Conclusion The above information about the company shows its strong position in the market. UPS will surely survive in the future and definitely be able to deliver goods till 2014 and beyond. The reason lies in their strong strategies and effective planning. In addition to earning profit, UPS is expanding and as discussed earlier, it is establishing new supply chains, acquiring package delivery companies and expanding its air hubs throughout the world. These investments show that UPS is financially very much strong. Also, the worst period of recession is gone. Now the economy is reviving. Thus, UPS might improve its performance in the coming years, as it did in the past, but I think, it will not experience any doubtful condition. Recommendations The company may concentrate on its overseas branches, especially in expanding countries of East and Far East region. It has largely covered this markets of one of the biggest and efficient economies of the world namely China; however, it needs to target other expanding economies with high population such as India. It should also target the oil rich gulf status specially UAE. In order to cope up with the challenge of protectionism, the company should tray to enhance its image in these countries. To achieve this objective, the company should organize international events in different countries where the influential personalities of government and private sector of these countries should be invited. This would also improve its customer service potentials. In countries where there are very tight government controls or where government policies about foreign investments are unpredictable, the company may pursue a policy of forming joint venture or collaboration with local companies to avoid uncertain future. In order to respond to the negative publicity by rivals, the company may think on starting a special website by its own name or through proxy which should aim at countering the negative publicity as well as improving company’s image in US and oversees. Although the company is spending a lot of money on R&D department; however, it needs to re-look the capacity and efficiency of this department to find out whether it is capable to cope up with the threat being encountered due to recession and uncertain future. The company may think on forming a “Think Tank” with the main objective of foreseeing the challenges of future and evaluating the policies and plans of the competitors. This Think Tank could help the management in formulating strategies and policies to counter the competitors as well as in making plans and policies for next 5 years, 10 years, 15 years and 20 years. Works Cited 300 UPS Pilot Jobs Saved. (2009, Junuary 10). Retrieved from Airport Chronicles: http://www.airportchronicles.com/300-ups-pilot-jobs-saved/ Berman, J. (2009, 29 5). Retrieved from Logistics Management: http://www.logisticsmgmt.com/article/CA6661510.html Ensha, A. (2008, December 19). Retrieved from The New York Times: http://greeninc.blogs.nytimes.com/2008/12/19/latest-ups-fuel-saving-strategies-leg-muscles-and-hydraulics/?scp=6&sq=UPS&st=cse FedEx Looks to Deliver. (2009, June 15). Retrieved from The Street: http://www.thestreet.com/story/10515267/1/fedex-looks-to-deliver--to-senators.html Hydraulic Hybrid Vehicles. (n.d.). Retrieved from U.S.Environmental Protection Agency: http://www.epa.gov/region09/air/hydraulic-hybrid/ Joint Venture. (2009, June 26). Retrieved from UPS Pressroom: http://pressroom.ups.com/Press+Releases/Homepage+Press+Releases/Joint+Venture+Positions+UPS+for+Growth+in+Middle+East%2C+Turkey+and+Central+Asia No Economic Recovery. (2009, June 16). Retrieved from UPS Pressroom: http://pressroom.ups.com/Press+Releases/Homepage+Press+Releases/No+Economic+Recovery+Without+Global+Trade%2C+Davis+Says RAMOS, R. T. (Ed.). (2008, September 19). Retrieved from AJC: http://www.ajc.com/business/content/business/stories/2008/09/19/ups_ceo_q_and_a.html UPS Acquires Delivery Firm in Slovenia. (2009, June 02). Retrieved from UPS Pressrome: http://pressroom.ups.com/Press+Releases/Homepage+Press+Releases/UPS+Acquires+Delivery+Firm+in+Slovenia UPS Fact Sheet. (n.d.). Retrieved June 24, 2009, from UPS Pressrome: http://www.pressroom.ups.com/mediakits/factsheet/0,2305,866,00.html UPS Finds Supply Chains Unprepared. (2008, December 3). Retrieved from Access My Library: http://www.accessmylibrary.com/coms2/summary_0286-35999658_ITM UPS News. (n.d.). Retrieved June 28, 2009, from UPS: http://www.ups.com/content/in/en/about/news/index.html UPS Opens Expansion. (n.d.). Retrieved from UPS: http://www.ups.com/content/fr/en/about/news/press_releases/01_30_2006_fr_cologne.html Who Will Dominate. (n.d.). Retrieved from Latin American Logistics: http://www.latinamericanlogistics.org/articles/ups-fedex-dhl-tnt---who-will-dominate-the-world-of-logistics.htm wikiinvest. (n.d.). Retrieved June 28, 2009, from wikiinvest.com: http://www.wikinvest.com/stock/United_Parcel_Service_(UPS)#Global_Sourcing Read More