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FedEx and UPS in China

FedEx and UPS in China

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FedEx and UPS in China

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  1. FedEx and UPS in China Competing with Contrasting Strategies Brian Dickerson Mike Massott Back to Homepage

  2. Case Overview • This case examines two very different strategies employed by shipping giants FedEx and UPS in their respective attempts to expand their business into China in the 1990’s.

  3. The FedEx Approach • Entered Chinese market in 1984 • Abundance of modern,western style advertising • Established its own air routes in Asia, flying its own aircraft in and out of China. • Partnered with an aggressive local company to build a large network of trucks and distribution centers.

  4. SWOT Analysis – FedEx Strengths: • Aggressive advertising campaign • Highly controlled distribution system with constant information about the status of shipments. • FedEx has its own air service in and out of China.

  5. SWOT Analysis – FedEx Weaknesses: • Lack of personal relationship building within China • In order to fill their aircraft, FedEx is forced to take on many cheaper packages with very low profit margins.

  6. SWOT Analysis – FedEx Opportunities: • Multinational corporations with Chinese operations that already use FedEx elsewhere. • Customers who particularly value or require constant information regarding shipment status.

  7. SWOT Analysis – FedEx Threats: • Shipping companies already well established in China. (DHL International Ltd. holds more than 30% of Chinese shipping market) • Very large investment in China based infrastructure including $880 million acquisition of Flying Tiger Line Inc. to establish its own air routes in Asia.

  8. Recommendations - FedEx • Continue to focus on multinational corporations already using FedEx. Outline benefits of using FedEx for intra-business shipping. • Call on other Chinese businesses to build relationships. Expanding to these businesses is essential to support the large investment in China. • Sponsor local and national events such as the Chinese New Year and the Olympics. • Send representatives to China to build personal relationships

  9. Action Plan - FedEx • Year 1 – Continue to call on multinational customers in China. • Year 2 – Expand advertising focus to large China-based businesses in order grab some of this business from UPS and other local companies. Send representative to China to talk to these companies. • Year 3 – Evaluate possible need for more air service to the Chinese region. • Year 4- Sponsor the 2004 Olympic games.

  10. The UPS Style • Entered Chinese market in 1988 • Minimal advertising with an old-fashioned twist. • Used Dragonair, a Hong Kong airline, or other regional carriers, leasing space, to fly in and out of China. • For ground delivery, UPS piggybacked on the operations of Sinotrans, a government owned transportation company.

  11. SWOT Analysis - UPS Strengths: • UPS invested just a fraction of what FedEx had put into Asia. • UPS emphasized global network and stability creating an image “not American, but more worldwide.” • Sought to build relationships discreetly, on Chinese terms.

  12. SWOT Analysis - UPS Weaknesses: • UPS lacked its own air service in China, making them less logistically versatile than FedEx. • Unlike FedEx, UPS does not have many of its own trucks and drivers in China to build further brand recognition.

  13. SWOT Analysis - UPS Opportunities: • Like FedEx, UPS can build around its multinational customer base with Chinese operations. • UPS can pass on cheap cargo to target the more lucrative document and small package market, since they do not need to fill an aircraft.

  14. SWOT Analysis - UPS Threats: • Like FedEx, shipping companies already well established in China pose a threat. • While UPS contends it will add its own airplanes in China when it becomes necessary, by that time FedEx may already be far ahead in this area.

  15. Recommendations - UPS • Continue to focus on building relationships with multinational customer base as well as with new Chinese customers. • Eventually, UPS should consider launching its own air service to China in order to keep up with FedEx and their logistical supremacy.

  16. Action Plan - UPS • Year 1 – Continue focus on building relationships with large China-based businesses, as FedEx is more focused on its existing multinational base. Add more “brown” UPS trucks in Chinese cities to boost brand awareness. • Year 2 - Add more trucks in smaller Chinese cities as necessary. Evaluate air service needs. • Year 3 – By this time UPS should consider adding its own air service to China in order to keep up with FedEx.

  17. Current Update - FedEx • Opened a dedicated express-handling facility at the Huangtian International Airport in Shenzhen in South China (1999). • In 2002, FedEx became the first shipping company to offer money back guarantee on late packages in China. • On September 2, 2003, FedEx launched its first direct flight from Shenzhen to its hub in Anchorage, Alaska to keep up with increasing demand in South China region. •  "For China to sustain the kind of growth we have seen in the last five years, it is essential that it establishes stronger links to the economies of Europe and the United States."FedEx Express Asia Pacific Division President David L. Cunningham Jr., 2003 • FedEx plans to move hub to China after 2007.

  18. Current Update - UPS • “UPS, which began direct air service to China in 2001, has experienced double digit growth in the U.S.-China market in each of the last three years and its current flights between China and the U.S. are operating at near capacity. UPS successfully entered the China market in 1988. Last year, UPS took an ownership position in Sinotrans and also became the first foreign carrier to form a partnership with a domestic Chinese air carrier, Yangtze River Express, cutting a day off delivery times.” UPS Press Release June 18, 2004 • In 2004, the United States signed a new aviation agreement which allowed a five fold increase in air cargo capacity between the two countries over the next six years.

  19. Questions??