DHL Express Flexes Muscle in Taiwan - Case Study Example

I. Introduction This paper aims to explore the real life practices in line with the study of global business management. By analyzing two companies within the same industry—the US logistics giant FedEx and the German Deutsche Post DHL, various international business practices are looked into. This paper starts by looking at each of the companies—their profiles, the industries they operate in, their global positioning, as well as global marketing activities such as foreign entry and global management. Then the two companies international business practices are analyzed and compared using various frameworks such as industry analysis and SWOT analysis. This aims to provide deeper understanding of the companies as well as their current and future prospects. II. Body A. Federal Express i. Company description FedEx is a global company that offers overnight courier services, freight services, logistics solutions and business support services (Datamonitor 2008). Being one of the largest companies in the express transportation industry, FedEx delivers parcels and packages throughout the US and the 220 countries it services worldwide and employs some 290,000 people (Datamonitor 2008). The companys headquarter is located in Memphis, Tennessee (Datamonitor 2008). In 2009, FedEx has earned $35, 497 million in revenues, which is 6% lower than its revenues in 2008 (FedEx 2009). The global financial crisis and current economic recession has affected the company, especially its operations in the United States (FedEx 2009). The companys operating income for 2009 is $747 million, lower by 64% than its 2008 figure of $2,075 (FedEx 2009). The companys net income for 2009 is also down by 91%, from $1,125 million in 2008 to 98 million in 2009 (FedEx 2009). While the operations of FedEx is diverse in order to cater to many needs of its consumers, the company can be categorized as players in two major industries—the global trucking sector and the logistics market. The trucking sector is defined by Datamonitor as “the transportation of goods and passengers by road (2009, 7)” where the main categories include “freight (both in-house and out-sourced) and passenger transportation (including taxi, but and coach services) (2009, 7).” The logistics market on the other hand is defined as “all expenditure from the transportation, distribution and management of the retail, consumer electronics, and automotive, hi-tech and pharmaceutical sectors (Datamonitor 2009, 7).” With its four major subsidiaries—FedEx Express, FedEx Ground, FedEx Freight and FedEx Services, the company is able to meet the needs both of its trucking sector market and its logistics market with the diverse range of products that it offers. ii. Global positioning One of the major strengths of FedEx is the strength of its brand image. The backbone of this brand image is the companys global positioning—its Purple Promise: to make every FedEx experience outstanding (FedEx 2009). The FedEx brand has promised fast and reliable service (FedEx 2009). The commitment to this global positioning is best seen in the companys mission statement, strategy and values. According to the company, its mission is stated as follows, “FedEx will produce superior financial returns for share-owners by providing high value-added supply chain, transportation, business and related information services through focused operating companies. Customer requirements will be met in the highest quality manner appropriate to each market segment served. FedEx will strive to develop mutually rewarding relationships with its employees, partners and suppliers. Safety will be the first consideration in all operations. Corporate activities will be conducted to the highest ethical and professional standards (FedEx 2009).” The companys strategy is best stated as compete collectively, operate independently, and manage collaboratively (FedEx 2009). The companys values is illustrated in its emphasis over six factors: its people, service, innovation, integrity, responsibility, and loyalty. The company values its people by promoting diversity both in thinking and in the companys workplace (FedEx 2009). As for its service, FedEx puts its customers as the very center of all its activities under its absolutely, positively spirit (FedEx 2009). The company values innovation as it comes up with new services and investing in technologies (FedEx 2009). Honesty, efficiency and reliability is important in the companys practices for managing its operations, finances and services, which is a proof of its commitment to integrity (FedEx 2009). FedEx values responsibility which is apparent in the safe and healthy environments among the communities where it operates in; it values loyalty by constantly aiming to earn the respect and confidence of the companys customers, people, and investors with its activities (FedEx 2009). iii. Foreign entry strategy FedEx utilizes acquisitions as a major strategy for entering foreign markets. While the company enters different markets by foreign direct investment and opening offices within a certain country, this is part of enlarging its global network of distribution (FedEx 2009). In 1984, the companys intercontinental operations began with its regularly schedule flights to Europe and Asia (FedEx 2009). The significant entries of FedEx have only been taken recently in the form of acquisitions in order to serve the local markets more effectively. Foreign direct investments, in the form of acquisitions are also more favored by governments; regulations in countries such as China as regards the aviation rights are among the most important of considerations to FedEx (Chen 2006). In 1989, the company has acquired Tiger International Inc. where the acquisition has included routes to 21 countries, a fleet of Boeing 747 and 727 aircraft and Tigers facilities throughout the world and its expertise in international airfreight (FedEx 2009). In order to serve the UK market directly, the company has acquired ANC Holdings Limited which is a domestic express transportation company (FedEx 2009). This company has been re-branded into FedEx UK in 2006 (FedEx 2009). In the following year, FedEx has acquired the 50% of Tianjin Datian W. Group Co., Ltd., in the FedEx-DTW International Priority Express joint venture and DTW Groups domestic express network in China. This is to expand its operations by directly serving the Chinese market (FedEx 2009). Also, in 2007, the company has acquired Prakash Air Freight Pvt. Ltd, which is an Indian express company, and Flying-Cargo Hungary Kft.,, a Hungarian express company (FedEx 2009). iv. Global management Although FedEx has already expanded internationally, the companys majority of focus is still in the US market. The companys huge share of revenue comes from its US operations, and its focus on it is apparent in its marketing mix. The companys product mix is not standardized across its global operations. FedEx offers mostly next-day services in other regions such as the Asia-Pacific, Latin America, Middle East and Africa, and Europe. For its Asia-Pacific market, the companys AsiaOne network offers overnight delivery within Asia (FedEx 2009). On the other hand, for its US market, FedEx offers more choices. For its FedEx Express line for example, it offers three products such as the FedEx First Overnight, FedEx Priority Overnight, as well as the FedEx Standard Overnight. The company also offers the FedEx SameDay service for urgent shipment of up to 70 pounds to all US destinations (Datamonitor 2008). The varied products that aims to cater to different target markets show the companys focus on the US customers. This is also apparent in the companys marketing campaigns. Most of the events that FedEx sponsors include the NFL and the NBA (FedEx 2009). Although the companys stronger focus on one area is apparent in the product mix, FedEx operates under the philosophy of compete collectively, operate independently, and manage collaboratively (FedEx 2009). This is seen in the companys dedication to maintain a solid brand image under the FedEx brand that represents service quality and customer experience (ABA Banking Journal 1993). The companys strong purple culture also aims to bond the companys diverse international operations under one strong culture of focus on employees in the form of best practices as regards its HR policies in order to deliver the companys commitment to excellence to its customers (Galagan 1991; Denton 1992). B. Dalsey. Hillblom & Lynn (DHL) Express i. Company description DHL is a global company that is based in Bonn, Germany. A wholly-owned subsidiary of Deutsche Post World Net, the company offers a variety of products from express, air and ocean freight, overland transport, contract logistics solutions as well as international mail services (Datamonitor 2009). The companys network is comprised of 120,000 destination in more than 220 countries around the globe (Datamonitor 2009). With a fleet of 76,200 vehicles and 420 aircrafts, and a network of 6,5000 offices, DHL has a strong foothold in the global trucking and logistics sector (Datamonitor 2009). In order for DHL to cater better to its consumers, the companys operations is divided into four business divisions namely the DHL Express, DHL Freight and DHL Global Forwarding, DHL Supply Chain and DHL Global Mail (DHL 2008). In the 10.4 billion Euro cross-border mail market, under the 2007 figures DHL is one of the global market leaders at 14%, a tie with USPS (DHL 2008, 52). The operations of the DHL Express division is divided into three major markets: the US International Courier, Express and Parcel market, the European International CEP market, and the Asian International Express market. DHL Express only has 9% share in the 7.5 billion Euro US CEP market in 2007 figures, and the slowdown of the US economy because of the recession has prompted the group to close some of its US operations (DHL 2008, 58). In the 15.3 billion Euro European international CEP in 2007 figures, DHL Express leads the market with 25% in market share (DHL 2008). For its Asian international express market, with an estimated markets volume at 5.9 billion Euro in 2007, DHL captures 34% of the total market, making it the market leader in the area (DHL 2008). In the 20.9 million tonnes air freight market with the 2007 figures, DHL is the world leader with 11.9% in market share (DHL 2008). The company is also the global leader in contract logistics at 6.4%; but only second in the European road transport, 2.0% next to DB Schenker at 3.0%. ii. Global positioning DHL markets itself as a true global company with certain focus on customer satisfaction through high standards of quality, and sustainability in its operations. The companys commitment to qualities is apparent in its activities—the company manages its quality by having its system audited by the Technischer Überwachungsverein Nord or the TÜV Nord, a technical inspection association for northern Germany, as well as getting a compliance certification from ISO every year (DHL 2008, 79). The company also volunteers to have its performance evaluated by Quotas, a quality research institute (DHL 2008, 79). DHLs commitment to sustainability is apparent in its various campaigns, such as the GoGreen campaign, or its DHL GoGreen carbon-neutral shipping, as well as its Environmentally-friendly transport marketing campaign (DHL 2009). Sustainability is also apparent in the companys HR policies, as well as policies for helping the communities where it operates in. The companys HR policies support better training for its employees, as well as equal opportunity and diversity in the workforce (DHL 2009). The companys commitment to CSR is reflected in its policies in encouraging its employees to participate in local initiatives that will not only help the environment but also the communities where the company operates in (DHL 2009). iii. Foreign entry strategy DHL primarily enters the market by foreign direct investment and opening international hubs and offices in different markets (Logistics and Transport Focus 2008). The company has been able to expand into Asia in 1971, UK in 1972, Middle East, Latin America and Africa in 1976-1978, Germany in 1977, and the Eastern European countries in 1983 (DHL 2009). In line with these foreign entry, the company has established an international distribution center in 1983 in Cincinnati, USA in order to ensure the quality of service and better efficiency (DHL 2009). The company enters a joint venture with the Peoples Republic of China and became the first express company active in the country in 1986 (Journal of Commerce 2009). In order to strengthen its position within the domestic markets, the company has entered strategic alliances with various airlines such as the Lufthansa, Japan Airlines and Nissho Iwai in 1990 (DHL 2009). In expanding its operations in the US, the company has used acquisition, where DHL has purchased Airborne Express in 2003 and becomes the third largest express service provider in the US (DHL 2009). Aside from this, DHL has acquired 68% interest in a premium domestic courier and integrated air express package distribution company in India—Blue Dart in 2004 (DHL 2009). A major acquisition that comprise a purchase amount of 5.5 billion Euros of Exel, a British logistics corporation has taken place (DHL 2009). This acquisition aims to give DHL access with Exels operations in 135 countries, with its 110,000 employees (DHL 2009). This has been integrated into the Deutsche Post group as the DHL Global Supply Chain (Datamonitor 2008). iv. Global management DHLs global approach to management is apparent in its standardized marketing mix. Although its products provide customizations on the customer level, on the higher level the products that it offers across the globe are uniform (DHL 2009). This streamlining of its product mix is essential in order for the company to maintain its quality standards across the globe. By providing the same product line in different markets but constantly ensuring that the level of quality is the same, DHL is able to deliver the promise of its global brand. This global approach is also apparent in the companys Global Forwarding Container and Global Forwarding Airport campaigns (DHL 2009). C. Analysis i. SWOT analysis – FedEx In order to analyze the companys prospects for the future, SWOT analysis is used. One of the strengths of FedEx is its strong brand image. Over the years, with the companys clear brand identity communicated by its various marketing campaigns, the company has created a strong brand image that focuses on the FedEx experience—fast, secure and reliable (Datamonitor 2008). As the company delivers its promise to its customers, and constantly improves on its product offers, the FedEx brand has built a substantial equity in the process. The reputation both as a trusted customer brand and as well as one of the best places to work in has provided FedEx with significant strength that it can leverage. Another strength of the company is its strong revenue growth over the years (Datamonitor 2008). Although the companys operations is severely impacted by the global financial crisis, the companys revenues has grown over the period of five years at the rate of 11% (Datamonitor 2008). The companys large scale operations is also a strength to FedEx, where under its four business segments, the company can better capture the needs of its customers in a more holistic manner. As for the companys weaknesses, these include the declining operating efficiency and weak returns on investment (Datamonitor 2008). In 2009, although the companys revenues has shrunk only at 6%, its operating income has decreased by 64% from 2,075 million to 747 million (FedEx 2009, 8). What is more significant is the companys huge decline in net income, which is illustrated by the 91% decline from 1,125 million to 98 million (FedEx 2009, 8). Because of the erosion in the companys net income, its diluted earnings per share has decreased from 3.60 to 0.31 (FedEx 2009, 8). Another weakness to the company is its dependence on the US economy for most of its revenues although it has expanded to other international regions (Datamonitor 2008). With the huge setback in the countrys economy, this has left the operations of FedEx vulnerable. Opportunities for FedEx comes in the form of geographic expansion and utilizing new emerging opportunities such as increase in e-commerce activities. The companys expansion in China, India and Europe are opportunities to increase its market share in the areas by operating more efficiently through these expansionary activities (Datamonitor 2008). As for the increase in global e-commerce activities, customers utilize the Internet for a more convenient and economical way to shop, thus on-line retail sales are expected to increase over the years (Datamonitor 2008). The company is well poised in banking on these opportunities. Despite the opportunities, there are threat that FedEx should be wary of which includes the increasing transportation costs as well as the economic slowdown in the US. The rising fuel costs are a major contributor to the companys declining operating efficiency; if the prices continue to rise, the operations of FedEx will be greatly affected (Datamonitor 2008). Thus the company should take some actions to address this threat to the company. Because of the companys heavy reliance on the US market, the company is also subject to the negative effects of the recession. This is another threat to FedEx. ii. SWOT analysis - DHL One of the strengths of DHL is its being one of the leading contract logistics player. The company is the worlds largest air and ocean freight operator and one of the leading overland freight forwarders in Europe and the Middle East (Datamonitor 2008). In the 20.9 million tonnes air freight market with the 2007 figures, DHL is the world leader with 11.9% in market share (DHL 2008). The company is also the global leader in contract logistics at 6.4%; but only second in the European road transport, 2.0% next to DB Schenker at 3.0%. Another strength of DHL is its strong operations in express and mail services, as well as its diversified business model (Datamonitor 2009). The operations of the DHL Express division is divided into three major markets: the US International Courier, Express and Parcel market, the European International CEP market, and the Asian International Express market. DHL Express only has 9% share in the 7.5 billion Euro US CEP market in 2007 figures, and the slowdown of the US economy because of the recession has prompted the group to close some of its US operations (DHL 2008, 58). In the 15.3 billion Euro European international CEP in 2007 figures, DHL Express leads the market with 25% in market share (DHL 2008). For its Asian international express market, with an estimated markets volume at 5.9 billion Euro in 2007, DHL captures 34% of the total market, making it the market leader in the area (DHL 2008). DHL is also strongly recognized in the international industry in the form of awards such as the 2008 Freight Forwarder of the Year by Australian Magazine, Airfreight Forwarder of the Year 2008 by logistics magazine Supply Chain Asia, Best International Courier Service in the US and worldwide, as voted by the readers of Business Traveler magazine (Datamonitor 2008). The company is also the first to received the “Jaguar and Rover Quality Award for Best Business Process Quality Improvement Project” as well as the five awards at the 2009 Asian Freight and Supply Chain Awards (Datamonitor 2009). The companys major weaknesses include its declining operating efficiency as the groups consolidated operations result in 1,979 million Euro in losses—3,852 million less than in 2007 (DHL 2008, 43). This has been the result of the global financial crisis. Opportunities include the rising demand for express services in Europe, as well as global growth in under-served markets such as China and India (Datamonitor 2008). DHL can capitalize on these opportunities for expansion, as regulations permit the company to further expand its reach in these markets. As for the threats, the global recession has resulted in industry shrinkage, thus making current players compete for market share and revenues which intensifies the rivalry in the global industry (Datamonitor 2008). Another threat to the companys global mail segment is the availability of electronic substitutes such as e-mail and communication through Internet platforms to traditional mail (Datamonitor 2008). III. Conclusion The comparison in FedEx and DHL shows the distinction between practices of operating on a more global level and operating on an international level. FedEx is an example of a company that operates more in an international level, and less of a global level—although the brand has one strong global image, its operations are varied in different geographic areas. The focus that FedEx has in the US market, as apparent in its revenue breakdown based on geographic areas, as well as its marketing mix shows that the company has not yet been operating as a global one. It has not implemented in its other markets what it has implemented in the US, not because of standardization versus local adaptation issues but because it has not penetrated the other international markets well. Both companies use foreign direct investments in the form of acquisitions in significant markets in order to gain stronger management control with their domestic operations. On the other hand, DHL can be seen as a company that is truly a global brand—its operations are not reliant on its home countrys operations, and it has implemented a standardized approach to its marketing mix in most of its markets—such as the Asian market as well as the European and the Middle East market. The company strives to maintain its efficiency with its global networks as well as utilize economies of scale especially in terms of marketing, as apparent in its international marketing campaigns. Both brands however are commendable for their sustainable practices and emphasis on maintaining one look, one voice with their solid brand images. Also, developing a strong culture is important to maintain a global positioning of a brand, and the two companies—FedEx and DHL both aim for this as apparent in their relevant human resource policies. References 1991. "Service quality priority at Federal Express." ABA Banking Journal 83, no. 11: 77. 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